Statement by Global Financial Integrity on Illicit Capital Flight from India as Presented in its December 2008 Report: Illicit Financial Flows from Developing Countries: 2002-2006.”

In December 2008, Global Financial Integrity (GFI) published a research report titled “Illicit Financial Flows from Developing Countries: 2002-2006” which estimated total illicit capital flight from developing countries to be as high as $1 trillion per year.  The report is based on analysis employing two main models of estimating illicit financial outflows from developing countries based on the World Bank Residual (based on change in external debt or CED) and the Trade Mispricing (based on the gross excluding reversals or GER) methods.   The former estimates the gap between a country’s source of funds and use of those funds—an excess of source of funds over its use would imply an unrecorded or illicit outflow of capital abroad. The latter model compares a country’s exports and imports (after adjustment for the cost of freight and insurance) with the imports and exports of the country’s trading partners; export under-invoicing and import over-invoicing would represent ways through which a resident could accumulate foreign exchange outside the country.  Estimates of total IFFs take account of both CED and GER channels of sending money illegally outside the country. During the period 2002 to 2006, total IFFs from India average from a low of US$22.7 billion to a high of US$27.3 billion per year. The range of possible illicit outflows was derived through a process of “normalization” whereby the lower end of the range comprise of outflows that meet certain criteria while those that are unrestricted set the upper end of the range. The report found that the CED and the GER methods yielded the best unbiased estimates of IFFs from the developing world. Other model estimates were rejected because the resulting volume and pattern of IFFs from the developing world as well as the country rankings yielded certain anomalies (such as Africa being a net importer of IFFs). 

All media inquiries and interview requests should be directed to Monique Perry Danziger.   Technical questions regarding the GFI report should be directed to the report’s authors:  Dev Kar, Lead Economist or Devon Cartwright-Smith, Economist.