Illicit Financial Outflows from India $22 Billion-$27 Billion per Year

Global Financial Integrity issued a statement today on its 2008 report “Illicit Financial Flows from Developing Countries: 2002-2006,” in response to growing interest in and citation of the report’s estimates of illicit capital flight out of India, which is ranked fifth out of the 127 developing countries analyzed.

The statement reads:

"In December 2008, Global Financial Integrity (GFI) published a research report titled 'Illicit Financial Flows from Developing Countries: 2002-2006' which estimated total illicit capital flight from developing countries to be as high as $1 trillion per year. The report is based on analysis employing two main models of estimating illicit financial outflows from developing countries based on the World Bank Residual (based on change in external debt or CED) and the Trade Mispricing (based on the gross excluding reversals or GER) methods. During the period 2002 to 2006, total illicit financial outflows from India average from a low of US$22.7 billion to a high of US$27.3 billion per year."

Full statement available here...

“This is not just India’s problem,” said GFI director Raymond Baker. “In 2006 total outflows from developing countries outpaced incoming official development assistance (ODA) by a ratio of 10 to 1. This means that for every $1 in ODA a developing country received, $10 was lost due to illicit financial outflows. This massive loss of assets is the greatest impediment to economic development and poverty alleviation and should be of concern to all nations,” concluded Baker.

The GFI report is based on examination of trade and external debt data from 2002-2006 maintained by the International Monetary Fund and the World Bank. Illicit financial flows are defined as the proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity, and the proceeds of licit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks (most commonly in order to evade payment of taxes). The report does not link illicit financial flows with the underlying activities (whether legal or illegal) that generated the capital to transfer abroad.

There is an Economist version of the report which contains a full statistical appendix.