Illicit financial flows, in

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

, are a form of illegal

capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...

that occurs when money is illegally earned, transferred, or spent. This money is intended to disappear from any record in the country of origin, and earnings on the stock of illicit financial flows outside a country generally do not return to the country of origin. Illicit financial flows can be generated in a variety of ways that are not revealed in national accounts or

balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., ...

figures, including trade mispricing, bulk cash movements, ''

hawala Hawala or hewala ( ar, حِوالة , meaning ''transfer'' or sometimes ''trust''), also known as in Persian, and or in Somali, is a popular and informal value transfer system based on the performance and honour of a huge network of money ...

'' transactions, and

smuggling Smuggling is the illegal transportation of objects, substances, information or people, such as out of a house or buildings, into a prison, or across an international border, in violation of applicable laws or other regulations. There are variou ...

. There are several economic models used to provide estimates of illicit financial flows and capital flight. The two most common methods are the World Bank Residual Model and the DOTS-based Trade Mispricing Model, which uses the

IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...

's Direction of Trade Statistics (DOTS) database to analyze discrepancies in trade statistics between partner countries. Another way to estimate trade mispricing is with the IPPS-based model, which was developed by John Zdanowicz of

Florida International University Florida International University (FIU) is a public research university with its main campus in Miami-Dade County. Founded in 1965, the school opened its doors to students in 1972. FIU has grown to become the third-largest university in Florid ...

. This method uses individual import and export transactions of the United States with the rest of the world to find inconsistencies in export and import prices. Economists also use

hot money In economics, hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called "hot money" b ...

(Narrow) Method and the Dooley Method in these estimates. A 2013 paper, authorized by Raymond W. Baker, Director of the

Global Financial Integrity Raymond W. Baker (born October 30, 1935) is an American businessman, scholar, author, and "authority on financial crime." He is the founder and president of Global Financial Integrity, a research and advocacy organization in Washington, DC workin ...

estimated illicit financial flows "out of developing countries are approximately $1 trillion a year". This study also found that

China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...

Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...

, and

Mexico Mexico (Spanish language, Spanish: México), officially the United Mexican States, is a List of sovereign states, country in the southern portion of North America. It is borders of Mexico, bordered to the north by the United States; to the so ...

accounted for the three largest shares of worldwide illicit financial flows. The United Nations

Sustainable Development Goal 16 Sustainable Development Goal 16 (SDG 16 or Global Goal 16) is about "peace, justice and strong institutions." One of the 17 Sustainable Development Goals established by the United Nations in 2015, the official wording is: "Promote peaceful and ...

has a target to significantly reduce illicit financial flows and strengthen recovery and return of stolen assets by 2030.

Pakistan

In Pakistan estimates of illicit financial flows put over $10 billion as escaping taxation and being siphoned off outside the country. This is with nearly one third of the population living below the poverty line.

Swaziland

Swaziland lost approximately $556 million to illicit financial flows in 2012 and a record of $1.139 billion in 2007.

References

{{Globalization Economic globalization Imperialism studies International finance International trade

Pakistan

Swaziland

See also

References