Illicit financial flows are generally bad news for any government. For developing countries, though, the impact of illicit financial flows is especially significant. Governments grappling with meeting pressing needs such as plugging infrastructural deficits and improving the quality of life for citizens are further hamstrung by the illegal movement of cash from the economy.
According to Global Financial Integrity (GFI), a Washington think thank, illicit financial flows from developing regions grew at an average rate of 8.5% to 10.1% a year between 2005 and 2014 (the latest year for which data is available). The funds are mainly moved through fraudulent invoicing of imports and exports, in a bid to avoid taxes and hide large sums.
While not all of the illegally moved money may have otherwise ended up in national coffers, illicit flows offer a scope of the tax revenues lost by developing countries. Globally, illegal capital flight nearly reached $1 trillion in 2014, at the high end of the GFI’s estimate, and just over $600 billion at the low end.
Sub-Saharan Africa remains the most affected and vulnerable region in the world. Invoice fraud is particularly aided by the pervasive lax regulation and corruption across the region. Between 2005 and 2014, on average, illicit outflows equaled between 7.5% and 11.6% of the region’s total trade—the highest for any region.
In 2014, illicit outflows were largest in Asia, pegged at between $272 billion and $388 billion. In sub-Saharan Africa, illicit capital flight that year was estimated at $36 billion to $69 billion. However, measured against scale of trade, the impact of the illicit outflows from sub-Saharan Africa was much greater.