Brazil a Top Exporter of Illicit Financial Flows in World

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – A survey released Tuesday by Global Financial Integrity (GFI) reveals that Brazil is the seventh biggest exporters of illicit financial flows in the world, averaging US$21.71 billion of illicit flows per year for the past ten years. Although one of the top ten, Brazil was nonetheless considered better than its BRIC partners – China (1st), Russia (2nd) and India (4th).

“As this report demonstrates, illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” said GFI President Raymond Baker. “These outflows are sapping roughly a trillion dollars per year from the world’s poor and middle-income economies.”

According to Baker these outflows are growing at an alarming rate of 9.4 percent per year — twice as fast as the global GDP. “It is simply impossible to achieve sustainable global development unless world leaders agree to address this issue head-on,” stated Baker in a press release accompanying the survey. The executive calls for the United Nations to include a specific target next year to halve all trade-related illicit flows by 2030 as part of post-2015 Sustainable Development Agenda.

Fraudulent mis-invoicing of trade transactions, the deliberately misreporting of the value of a commercial transaction on an invoice submitted to customs, was shown to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all illicit flows.

“It’s extremely troubling to note just how fast illicit flows are growing,” stated Dev Kar, the principal author of the study and GFI’s chief economist. “Over the past decade, illicit outflows from developing countries increased by 9.4 percent each year in real terms, significantly outpacing economic growth.” Kar says that these latest findings reveal the urgency with which policymakers should address illicit financial flows.

According to the GFI report, emerging and developing countries lost more than a trillion dollars from their economies in 2012 that could have been invested in local businesses, healthcare, education, or infrastructure.

“This is a trillion dollars that could have contributed to inclusive economic growth, legitimate private-sector job creation, and sound public budgets. Without concrete action addressing illicit outflows, the drain on the developing world is only going to grow larger,” added Joseph Spanjers, an economist at GFI and one of the authors of the study.

GFI suggests that world leaders focus on making the global financial system more transparent, which would hinder these illicit outflows. In addition to recommending that the U.N. adopt a clear and concise sustainable development goal to reduce trade-related illicit financial flows, the consultancy also recommends that regulators and law enforcement authorities ensure that all of the anti-money laundering regulations are strongly enforced.

The recommendation includes that multinational companies be required to publicly disclose their revenues, profits, losses, sales, and taxes paid on a country-by-country basis; that all countries actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20; and that governments significantly boost their customs enforcement to better detect intentional mis-invoicing of trade transactions.

Earlier this month a non-governmental anti-corruption watchdog, Transparency International, released its Corruption Perception Index. In that index Brazil was ranked 69th among 175 countries, up from last year when it ranked 72nd among 177 countries.