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Illicit Financial Flows, Media, and the Importance of Cross-Border Journalism Networks 2014 Financial Transparency Coalition Conference Clark Gascoigne.

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Presentation on theme: "Illicit Financial Flows, Media, and the Importance of Cross-Border Journalism Networks 2014 Financial Transparency Coalition Conference Clark Gascoigne."— Presentation transcript:

1 Illicit Financial Flows, Media, and the Importance of Cross-Border Journalism Networks 2014 Financial Transparency Coalition Conference Clark Gascoigne Communications Director Global Financial Integrity Lima, Peru October 13, 2014

2 What Are Illicit Financial Flows? Illicit financial flows include cross-border flows of capital that are: Illegally earned, Illegally transferred, or Illegally utilized. If the capital breaks the law in its point of origin, transfer, or absorption, than it can be classified as an illicit flow.

3 What Are Illicit Financial Flows? Some examples of illicit financial flows include movements of capital stemming from: Tax evasion, Capital control dodging, Corruption, Fraud, Terrorist financing, Drug smuggling, Illicit wildlife trafficking, Money laundering, or Various other crimes.

4 Cumulative Illicit Outflows from All Developing & Emerging Countries US$5.9 trillion flowed illicitly out of developing economies from 2002 through 2011. –US$4.6 trillion (or 77.9%) from trade misinvoicing. –US$1.3 trillion (or 22.1%) due to illicit hot money outflows. –Illicit outflows are growing at an inflation-adjusted rate of 10.2% per year.

5 Illicit Outflows from Developing Countries: 2002-2011 (in millions of U.S. dollars)

6 Components of Illicit Financial Flows from Developing Countries: 2002-2011 (in millions of U.S. dollars)

7 How much is due to… –Corruption? –Tax Evasion? –Drug Trafficking? –Other Crimes? Answer: We don’t really know. GFI looks at macroeconomic data that allows us to detect illicit flows of money, but doesn’t allow us to know the underlying motivation for each illicit flow.

8 GFI Methodology Two components: Leakages in the Balance of Payments (Illicit Hot Money Outflows) –Money that disappears from economy (e.g. via unrecorded wire transfers, direct theft of government revenues, etc.) Trade Misinvoicing Outflows –Detects discrepancies between what a country says it exports to/imports from its trading partners, and what its trading partners report as exports/imports. Trade Misinvoicing outflows are added to Illicit Hot Money outflows to generate an estimate of total illicit outflows.

9 How Trade Misinvoicing Works

10 GFI’s Methodology Doesn’t Capture All Forms of Illicit Flows Not Captured: Domestic money laundering, (Not Cross-Border) Petty bribery, (Not Cross-Border) Hawala transactions, Dealings conducted in bulk cash, Dealings conducted in virtual currencies (e.g. Bitcoin), Trade misinvoicing in services, Same-invoice trade misinvoicing, and “No-invoice” trade misinvoicing, Among other things… GFI’s estimates are very conservative.

11 Cumulative Illicit Outflows from Developing Western Hemisphere Countries US$1.13 trillion flowed illicitly out of developing Western Hemisphere economies from 2002 through 2011. –US$987.5 billion (or 87.3%) from trade misinvoicing. –US$143.2 billion (or 12.7%) due to illicit hot money outflows.

12 Illicit Outflows from Developing Western Hemisphere Countries: 2002-2011 (in millions of U.S. dollars)

13 Illicit Outflows from Developing Western Hemisphere Countries: 2002-2011 (in millions of U.S. dollars)

14 Illicit Outflows from Peru: 2002-2011 (in millions of U.S. dollars)

15 MEDIA COVERAGE OF ILLICIT FLOWS Evolutions from 2000 through 2014

16 A Decade Ago… Two Convicted In Drug-Money Laundering Case Florida Sun-Sentinel, February 17, 2001 2 Convicted in Teachers Union Embezzlement Case The Washington Post, September 1, 2005 Metabolife Pleads Guilty in Tax Case Associated Press, October 6, 2005 Bank Settles U.S. Inquiry Into Money Laundering The New York Times, November 9, 2005

17 When There Was Coverage… Financial Centres: Offshore and Beyond the Pale “Tax havens are an unavoidable part of globalisation and, ultimately, a healthy one” The Economist, February 22, 2007 http://www.economist.com/node/8740214

18 Things Changed In January 2012: Corporate Anonymity: Light and Wrong “Incorporation with limited liability is a privilege. It should not include anonymity” The Economist, January 21, 2012 http://www.economist.com/node/21543164

19 And in a Complete Reversal A February 2013 special report from The Economist highlights the problems with the global shadow financial system: Tax Havens: The Missing $20 Trillion “How to stop companies and people dodging tax, in Delaware as well as Grand Cayman” The Economist, February 16, 2013 http://www.economist.com/news/leaders/21571873-how-stop-companies-and-people-dodging-tax- delaware-well-grand-cayman-missing-20 http://www.economist.com/news/leaders/21571873-how-stop-companies-and-people-dodging-tax- delaware-well-grand-cayman-missing-20 Special Report: Storm Survivors “Offshore financial centres have taken a battering recently, but they have shown remarkable resilience, says Matthew Valencia” The Economist, February 16, 2013 http://www.economist.com/news/special-report/21571549-offshore-financial-centres-have-taken- battering-recently-they-have-shown-remarkable http://www.economist.com/news/special-report/21571549-offshore-financial-centres-have-taken- battering-recently-they-have-shown-remarkable “Onshore Financial Centres: Not a Palm Tree in Sight” “Some onshore jurisdictions can be laxer than the offshore sort” The Economist, February 16, 2013 http://www.economist.com/news/special-report/21571554-some-onshore-jurisdictions-can-be- laxer-offshore-sort-not-palm-tree-sight http://www.economist.com/news/special-report/21571554-some-onshore-jurisdictions-can-be- laxer-offshore-sort-not-palm-tree-sight And many more articles…

20 International Consortium of Investigative Journalists Secrecy for Sale: Inside the Global Offshore Money Maze Possibly the Largest Cross-Border Collaboration in the History of Journalism April 2013-Present http://www.icij.org/offshore

21 ICIJ 24chasa (Bulgaria), ABC Color Digital (Paraguay), Armando.info/Ipys (Venezuela), The Asahi Shimbun (Japan), BBC's Panorama (UK), Canadian Broadcasting Corporation (CBC) (Canada), Center for Investigative Reporting - Investigative Journalism Center (CIN -IJC) (Croatia), CIPER (Chile), Commonwealth Magazine (Hong Kong), El Comercio (Ecuador), El Confidencial (Spain), El País (Spain), Finnish Broadcasting Company YLE (Finland), Fokus (Sweden), Folha de S. Paulo (Brazil), The Guardian (UK), Hetq - Association of Investigative Journalists (Armenia), The Indian Express (India), Isra News Agency (Thailand), The Irish Times (Ireland), Korea Center for Investigative Journalism - Newstapa (South Korea), Kyiv Post (Ukraine), La Nación (Argentina), La Nación (Costa Rica), Le Matin Dimanche and SonntagsZeitung (Switzerland), Le Monde (France), Le Soir (Belgium), L'Espresso (Italy), M&G Centre for Investigative Journalism (amaBhungane) (South Africa), Malaysia Kini (Malaysia), Ming Pao (Hong Kong), NDR (Germany), New Age (Bangladesh), NEWS (Austria), Norwegian Broadcasting Corporation NRK (Norway), Novaya Gazeta (Russia), Novi Magazin (Serbia), Origo (Hungary), Pak Tribune - Pakistan News Service (Pakistan), Philippine Center for Investigative Journalism (Philippines), Premium Times (Nigeria), Radio Free Europe/Radio Liberty (Azerbaijan), Romanian Centre for Investigative Journalism (Romania), Rustavi TV (Georgia), Süddeutsche Zeitung (Germany), The New York Times, The Sydney Morning Herald (Australia), The Sunday Times (UK), Ta Nea (Greece), Trouw (Netherlands), and The Washington Post (USA)

22 ICIJ Secret Files Expose Offshore’s Global Impact “Dozens Of Journalists Sifted Through Millions Of Leaked Records And Thousands Of Names To Produce ICIJ’s Investigation Into Offshore Secrecy” International Consortium of Investigative Journalists (ICIJ), April 3, 2014 http://www.icij.org/offshore/secret-files-expose-offshores-global-impact http://www.icij.org/offshore/secret-files-expose-offshores-global-impact Una Investigación Revela Miles de Nombres de Evasores Fiscales “El Escándalo Afecta a 170 Países y Muestra un Sistema Globalizado de Evasión que Blanquea Billones de Euros” El País, April 4, 2013 http://internacional.elpais.com/internacional/2013/04/04/actualidad/1365091716_86496 8.html http://internacional.elpais.com/internacional/2013/04/04/actualidad/1365091716_86496 8.html ChinaLeaks: Los Paraísos Fiscales Esquivan el Cerco El País, January 20, 2014 http://internacional.elpais.com/internacional/2014/01/20/actualidad/1390247817_67132 6.html?rel=rosEP http://internacional.elpais.com/internacional/2014/01/20/actualidad/1390247817_67132 6.html?rel=rosEP

23 Thomson Reuters Foundation Amount Of Dirty Money Leaving Developing World Jumped 14 Pct In 2011-Report Thomson Reuters Foundation, December 11, 2013 (By Stella Dawson) "Developing countries lost nearly $1 trillion to fraud, corruption and shady business transactions in 2011, vastly outpacing the foreign aid they received and the pace of dirty money leaving emerging nations is accelerating, a new report found.” http://www.trust.org/item/20131211234419-58nur/

24 Trade Misinvoicing Coverage Trade and Money Laundering: Uncontained The Economist, May 3, 2014 Trade is the Weakest Link in the Fight against Dirty Money http://www.economist.com/news/international/21601537-trade-weakest-link- fight-against-dirty-money-uncontained http://www.economist.com/news/international/21601537-trade-weakest-link- fight-against-dirty-money-uncontained

25 Illicit Inflows? Illicit inflows are not a benefit to an economy. They: Flow into the underground economy, Fuel crime, Cannot be taxed, Often it flows in through under-invoicing of imports, which evades customs duties.

26 Illicit Inflows? Chic Nairobi Throbs To The Beat Of Dirty Money Thomson Reuters Foundation, December 10, 2013 "New data calculated for Thomson Reuters Foundation by Global Financial Integrity (GFI), a Washington-based financial watchdog, show the amount of illicit money entering Kenya from faulty trade invoicing, crime, corruption and shady business activities has increased more than five-fold in a decade to equal roughly 8 percent of Kenya’s economy – and in recent years the pace of dirty money inflows has been accelerating." http://www.trust.org/item/20131209150854- 1kirf/

27 Some Mischaracterizations Reporting on GFI’s data on illicit flows from Kenya, the Daily Nation wrote: Multinationals Exploit Loopholes To Evade Tax Daily Nation (Kenya), September 21, 2013 "It is estimated Kenya loses up to Sh11.5 billion annually as a result of intricate transfer pricing practices, according to Global Financial Integrity, a US-based international financial watchdog." http://www.nation.co.ke/business/Multinationals-exploit-loopholes-to- evade-tax/-/996/2002314/-/9r6uywz/-/index.html

28 Some Mischaracterizations Reporting on GFI’s global IFF data, Reuters wrote: Charities Say Graft, Tax Evasion Hold Back Poor Countries' Development Reuters, Apr 10, 2013 "The developing world loses around $1 trillion every year through practices like tax evasion, corruption and money laundering, mainly by multinational corporations...." http://in.reuters.com/article/2013/04/10/india-tax-haven-graft- idINDEE93908B20130410

29 Some Mischaracterizations Reporting on a GFI report about illicit flows from Africa, the International Business Times headline read: “Graft Bleeding Africa Of Many Billions: Report” International Business Times, March 13, 2013 http://www.ibtimes.com/graft-bleeding-africa-many-billions-report-1122503 http://www.ibtimes.com/graft-bleeding-africa-many-billions-report-1122503

30 Contact Information Today’s Speaker: Clark Gascoigne Communications Director Global Financial Integrity cgascoigne@gfintegrity.org +1 202 293 0740 ext.222 (Office) +1 202 815 4029 (Mobile) www.gfintegrity.org


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