Figure of the week: Growing illicit financial flows in the developing world

On May 1, the non-profit Global Financial Integrity launched Illicit Financial Flows to and from Developing Countries: 2005-2014, the seventh edition of a report that examines “an estimate of the volume and composition of illicit financial flows at the country level and disaggregated by type.” It seems illicit financial flows (IFFs), defined as “illegal movements of money or capital from one country to another,” are growing in Africa and rest of the developing world. Already, the volume of IFFs is huge: The authors estimate it was between $2 trillion and $3.5 trillion in 2014 alone.

Global Financial Integrity states that IFFs, as a conservative estimate, have grown an average between 8.5 and 10.4 percent per year between 2005 and 2014. Over this time, the report says, IFFs accounted for between about 14.1 percent and 24 percent of total developing country trade, on average. In the developing world, illicit outflows are estimated at 4.6 percent to 7.2 percent of total trade, while  illicit inflows for the same period were between 9.5 percent and 16.8 percent.

Sub-Saharan Africa ranked the highest in illicit outflows, around 5.3 to 9.9 percent of total trade in 2014 (Figure II-2), but the lowest in illicit inflows, between 6.3 and 13.1 percent of total trade (Figure II-4).

Given the size of the challenge, regional and international organizations such as the U.N. Economic Commission for Africa and the African Union are paying special attention to the issue, releasing the Report of the High Level Panel on Illicit Financial Flows from Africa in 2015. For more on the international community’s attempts to curb illicit financial flows in Africa, see “A conversation with President Thabo Mbeki of South Africa and the High-Level Panel on Illicit Financial Flows from Africa.” Recommendations from the conversation included strengthening tax systems, including clauses on transfer pricing and tax manipulation in legislation, and pressuring countries outside Africa to curb inflows.