India, Malaysia and Indonesia were fleeced to the tune of $517 billion through illicit financial outflows over the past decade, Washington-based research and advocacy organisation Global Financial Integrity (GFI) has said.

“India suffered illicit financial outflows of $123 billion, Malaysia haemorrhaged $285 billion in illegal capital flight and Indonesia lost $109 billion in dirty money,” GFI said in a report.

GFI, which seeks to promote transparency in the international financial system, also said Russia “experienced illicit inflows and outflows totalling $764.3 billion since the collapse of the Soviet Union.

“Our research shows that illicit financial flows are one of the biggest hindrances to economic growth and one of the primary drivers of inequality in rich and poor nations alike,” said GFI president Raymond Baker.

“The global economy is at a very tenuous place right now with major emerging economies like India, Brazil, and Malaysia in turmoil, China showing signs of slower growth and European nations just beginning a very fragile recovery,” Baker added.

GFI said its research has shown that tax haven secrecy, anonymous shell companies and trade-based money laundering facilitated the illegal outflow of roughly $261 billion from the Greek economy in the lead-up to the European debt crisis, drained $3.79 trillion from China between 2000 and 2011, and tax haven abuse is estimated to cost U.S. taxpayers roughly $150 billion per year.

“No G20 nation is immune to the consequences of money laundering and tax evasion. This is a global epidemic that world leaders ignore at their own peril,” Baker noted.

“Automatic exchange of tax information between jurisdictions is one of the best ways to begin curtailing this problem. It ensures that tax authorities and law enforcement in both rich and poor countries have the necessary records they require to detect and deter tax evasion,” GFI said.

GFI also said G20 nations should move seriously toward curtailing abusive tax avoidance by multinational corporations by requiring that they publicly disclose revenues, profits made, losses, taxes paid, subsidiaries, and staff levels on a country-by-country basis. A July report from the OECD on Base Erosion and Profit Shifting (BEPS) failed to endorse this simple premise, eliciting disappointment from civil society.

In April, the European Union adopted requirements that all financial institutions disclose profits made, taxes paid, subsidiaries, and staff levels on a country-by-country basis and EU leaders announced in May that they were considering requiring all multinational companies to also do so.

Beyond country-by-country reporting and the automatic exchange of tax information, GFI highlighted the need to crackdown on the secrecy behind anonymous shell companies.

It has now been proved by the US Department of Justice that anonymous shell companies are the most widely used method for laundering the proceeds of crime, corruption and tax evasion. These phantom companies are known to facilitate sex slavery, arms trafficking and drug dealing. They are also used to disguise campaign contributions, get around being barred from an industry and duping other business owners.

Noting the important work done by the G20’s Working Group on Anti-Corruption over the past few years, GFI urged world leaders to make the mandate of the Group permanent.

“The Anti-Corruption Working Group is a vital forum for ensuring that anti-corruption is an integral part of global economic policy. There’s no reason for the Working Group’s mandate to be only two years in length. We hope to see it incorporated as a permanent voice within the G20 framework,” GFI said.

GFY states that its mission stems from the estimate that $1 trillion in funds which are illegally earned, transferred or utilized are spirited out of developing countries annually. Of this, $500 billion a year ends up in western accounts. This constitutes the most damaging economic condition hurting the poor. Illicit capital flows enable drug cartels, terrorist organizations and tax evaders to move cash around the globe, undermines the goals of the World Bank and other lending institutions, strips developing nations of critical resources, and contributes to failed states.

 

Top 10 countries with the highest measured cumulative illicit financial outflows between 2001 and 2010 were: 

 

China: US$2.74 trillion

Mexico: US$476 billion

Malaysia: US$285 billon

Saudi Arabia: US$210 billion

Russia: US$152 billion

Philippines: US$138 billion

Nigeria: US$129 billion

India: US$123 billion

Indonesia: US$109 billion

United Arab Emirates: US$107 billion