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Transcript

Illicit Financial Flows: Explained

[With Graphics]

by, me

Ann Hollingshead

Global Financial Integrity estimates developing countries lost US$903 billion in illicit financial flows in 2009.

That's what we'll talk about today

It might be most helpful if we travel around the world. These numbers are big. But they are only as important as the countries (and the lives) that they hurt.

Illicit financial flows out of Mexico are very high. Crime, corruption, and tax evasion cost the nation $49.6 billion per year in the decade ending 2009.

Over the last decade,

has fallen from a "partly free"

society to "not free."

Corruption is an endemic part of the country's public sector.

Extortion is so widespread that it has “become the business of the Interior Ministry and the federal intelligence service.”

The government has transformed into an organization more closely resembling “the mafia” and the line separating government from business is so blurred it is nearly non-existent.

Based on a study of 2004-2008, India lost assets at a rate of $19 billion per year.

In the last two years there has been relentless pressure on Indian President Manomohan Singh to "bring it back."

has one of the world's biggest problems with illicit financial flows

have ranged from an annual US$169 billion in 2000 to US$344 billion in 2008.

it is (by far) the largest transmitter of illicit financial flows in the developing world.

(but it's also the developing world's largest economy)

According to a GFI study, much of the illicit financial flows from Asia go to offshore financial centers on the same continent.

These offshore centers include Taiwan, Hong Kong, Macao

and

The world's most infamous offshore center might be Switzerland.

Switzerland is a popular spot for illicit money because of all the secrecy.

Let's check out one of the world's worst offenders

Surprised to be here?

Take Delaware, Nevada, and Wyoming, where clients can anonymously set up shell corporations (companies that are used exclusively for business transactions and do not have any real assets or operations).

The Caribbean is another popular destination for illicit financial flows.

See if you can spot the world's biggest small haven

The world is a closed loop system.

Anything that goes out one place, must go in somewhere else.

Our task is to slow it down

Part III

To help clarify these big numbers (and big concepts), we're going to take a big view.

(But not yet)

Let's start small.

What are illicit financial flows?

What drives them?

Where do they come from?

Where do they go?

And just what is...

$903 billion is a whole lot of money.

In Parts I and II, we talked about these flows--including what they are and what drives them.

[Even economists]

But we didn't explain where they come from or where they go.

There are places in this world that make the flow of money though that loop spin faster

Let's start here.

has lost an average of $47 billion per year.

This means it’s easier to set up a corporation in Nevada than it is to get a library card.

is one of the worst offenders. If you set up a corporation in Nevada, the law does not require banks to request the names of your company's shareholders, nor do they need to share that information with the federal government.

drive Mexico's domestic underground economy, which includes drug smuggling, arms trafficking and human trafficking.

High Net-Worth Individuals and private companies are the primary drivers of illicit financial flows out of India's private sector.

But as Tom Cardamone, Managing Director of Global Financial Integrity, has said: “The opportunity costs of trying to locate, let alone recover, corrupt proceeds are just too frustratingly, maddeningly, horribly high. Given their complexity and difficulty, efforts to recoup stolen funds are Sisyphean in the extreme.”

But the underground economy is also a significant driver of illicit financial flows.

But these aren't the only offshore financial centers in the world. And they certainly aren't the ones with the most money.

But it's not the only

When it comes to secrecy, Switzerland is by no means alone.

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