Marketing Scoops: Forfeiture

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The harm from illicit finance corruption, money laundering and fraud has the potential to impact every level of society, from governments and businesses to those living in poverty. The United Nations Office for Drugs and Crime estimates that money laundering alone comprises up to 5% of global GDP annually…….Continue reading….

By: Chris Bostock

Source: Forbes

Critics:

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’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. 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 (Narrow) Method and the Dooley Method in these estimates.

A 2013 paper, authorized by Raymond W. Baker, Director of the Global Financial Integrity estimated illicit financial flows “out of developing countries are approximately $1 trillion a year”. This study also found that China, Russia, and Mexico accounted for the three largest shares of worldwide illicit financial flows. The United Nations Sustainable Development Goal 16 has a target to significantly reduce illicit financial flows and strengthen recovery and return of stolen assets by 2030.

Countries with resource-based economies experience the largest capital flight.A classical view on capital flight is that it is currency speculation that drives significant cross-border movements of private funds, enough to affect financial markets. The presence of capital flight indicates the need for policy reform. In the book La dette odieuse de l’Afrique (Africa’s Odious Debts), Léonce Ndikumana and James K. Boyce argue that more than 65% of Africa’s borrowed debts do not even get into countries in Africa, but remain in private bank accounts in tax havens all over the world.

Ndikumana and Boyce estimate that from 1970 to 2008, capital flight from 33 sub-Saharan countries totalled $700 billion. A 2008 paper published by Global Financial Integrity estimated capital flight, also called illicit financial flows to be “out of developing countries are some $850 billion to $1 trillion a year.” Capital flight also takes place in order to evade taxes. In such cases, the flow tends to go in the direction of tax havens.

Capital flight may be legal or illegal under domestic law. Legal capital flight is recorded on the books of the entity or individual making the transfer, and earnings from interest, dividends, and realized capital gains normally return to the country of origin. Illegal capital flight, also known as illicit financial flows, is intended to disappear from any record in the country of origin and earnings on the stock of illegal capital flight outside of a country generally do not return to the country of origin.

It is indicated as missing money from a nation’s balance of payments. In 1995, the International Monetary Fund (IMF) estimated that capital flight amounted to roughly half of the outstanding foreign debt of the most heavily indebted countries of the world. Capital flight was seen in some Asian and Latin American markets in the 1990s.

Perhaps the most consequential of these was the 1997 Asian financial crisis that started in Thailand and spread through much of East Asia beginning in July 1997, raising fears of a worldwide economic meltdown due to financial contagion. The 1998–2002 Argentine great depression of 2001 was in part the result of massive capital flight, induced by fears that Argentina would default on its external debt (the situation was made worse by the fact that Argentina had an artificially low fixed exchange rate and was dependent on large levels of reserve currency).

This was also seen in Venezuela in the early 1980s with one year’s total export income leaving through illegal capital flight. In the last quarter of the 20th century, capital flight was observed from countries that offer low or negative real interest rate (like Russia and Argentina) to countries that offer higher real interest rate (like the People’s Republic of China). A 2006 article in The Washington Post gave several examples of private capital leaving France in response to the country’s wealth tax.

The article also stated, “Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.” A 2009 article in The Times reported that hundreds of wealthy financiers and entrepreneurs had recently fled England, Wales and Scotland in response to recent tax increases, and had relocated in low tax destinations such as Jersey, Guernsey, the Isle of Man, and the British Virgin Islands.

In May 2012 the scale of Greek capital flight in the wake of the first “undecided” legislative election was estimated at €4 billion a week^[11] and later that month the Spanish Central Bank revealed €97 billion in capital flight from the Spanish economy for the first quarter of 2012.

In the run up to the British referendum on leaving the EU (Brexit) there was a net capital outflow of £77 billion in the preceding two quarters, £65 billion in the quarter immediately before the referendum and £59 billion in March when the referendum campaign started. This corresponds to a figure of £2 billion in the equivalent six months in the preceding year.

Capital Flight and Capital Controls in Developing Countries.

Capital Flight”.

Brain Drain Or Human Capital Flight.

La dette odieuse de l’Afrique : comment l’endettement et la fuite des capitaux ont saigné un continent

RPT-AFRICA MONEY-Should Africa challenge its “odious debts?””.

Illicit Financial Flows from Developing Countries: 2002–2006″.

Capital Flight from Africa: Causes, Effects, and Policy Issues.

Old Money, New Money Flee France and Its Wealth Tax”.

Hundreds of bosses flee UK over 50% tax”.

Debt crisis: Greek euro exit looms closer as banks crumble”.

EU: Osborne Warning Over Capital Flight Cost”.

Money Laundering Offences