Illicit financial flows are hard to stop

WHEN FOREIGN aid enters developing countries, it is welcomed with handshakes and ribbon-cutting. Private money, by contrast, is sometimes smuggled across borders or siphoned into offshore bank accounts. Everyone agrees that such “illicit financial flows” are a problem. A report published on January 28th by Global Financial Integrity (GFI), a campaign group, estimates that illicit flows to and from developing countries are worth more than a fifth of their total trade with the rich world.

Governments have pledged to plug the leaks, including as part of the UN’s Sustainable Development Goals. If only they could reach agreement on what they are talking about. A few rich countries, notably America, complain that illicit flows are not properly defined. Statisticians are still puzzling over how they can be accurately measured.

Obviously, gun-running and drug-trafficking should count; in 2011 the UN estimated that financial flows linked to transnational organised crime were worth 1.5% of global GDP. Bribes, and the proceeds of unregistered trade in legal goods, such as cigarettes, probably should, too. But broader definitions also fold in tax avoidance, which may not be illegal. The result is hopelessly vague, diverting attention from dirty money to smear legitimate businesses, argues Maya Forstater of the Centre for Global...



via The Economist: Finance and economics Business Feeds

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