Illicit financial outflows from Guyana for the years 2008 to 2012 represent 511.2% of the country’s spending on education, according to a new report looking at the corresponding effects on poverty and economic inequality in developing countries.
The report, titled “Illicit Financial Flows and Development Indices: 2008–2012,” was released on Wednesday by the Washington, DC-based research and advisory organisation Global Financial Integrity (GFI) and sees Guyana as the only Caribbean country flagged among the worst affected countries.
On Thursday, the Guyana Human Rights Association (GHRA) noted that in light of the findings in the report, the government should play a leading role in promoting measures to curtail illicit commercial financial flows by a specific percentage in a fixed time-frame at the major UN Conference on Financing for Development (FfD) scheduled for Addis Ababa, Ethiopia next month.
In a statement, the GHRA said a previous GFI study pegged Guyana’s losses over the decade 2013 to 2012 at an annual average US$283M due to various forms of commercial money-laundering, principally by false invoicing when importing and exporting goods. This figure does not include the outflow of finances from criminal drugs and smuggling enterprises, it noted.
Pointing to the findings of the recent report, the GHRA noted that government spending on fundamental social needs, such as education and health, is miniscule compared to the amount of illicit money flowing out of the economy.
It said losses to commercial money-laundering in Guyana are 511.2% annually greater than expenditures on education, the 6th worst ratio among the 82 countries examined for the study. In addition, compared to expenditures on health, Guyana’s illegal revenue losses are 264% greater, the 15th worst in the listing. Guyana occupies the position of 5th worst ratio in revenue lost compared to size of population, it said and the 13th worst when the illicit outflows are calculated as a percentage— 17.3%—of Gross Domestic Product (GDP).
Guyana also shows up at number 22nd out of top 25 on the list of countries where trade is particularly corrupted by illicit outflows, with a ratio of 16.4%. Additionally, Guyana ranks 20th in the ratio of illicit outflows to Official Development Assistance and Foreign Direct Investment (ODA+FDI).
According to the study, domestic spending on fundamental social needs, such as education and health, are often overwhelmed by the amount of illicit money flowing out of the economy. In other words, higher illicit outflows aggravate poverty, exacerbate income inequality, and erode human development.
“The bottom line of this new study is, therefore, that if tax evasion and customs fraud – which constitute over 80% of commercial money-laundering – were eliminated, Guyana possesses all the resources needed to lift the society out of poverty.
In other words, if Guyana can staunch the hemorrhaging of financial assets, the resources required for the poverty eradication agenda of the new Government will be available domestically,” the GHRA said, while noting that the scandalous amounts of much-needed revenue lost is a major development issue.
For nearly a quarter of the countries that were reviewed—the poorest of the developing countries, including those that appear on lists such as ‘Least Developed Countries’ and ‘Highly Indebted Poor Countries—the ratio of illicit financial outflows to GDP was 10% or greater. Togo topped the list with a ratio of 76.3%, followed by Liberia (61.6%) and Vanuatu (35.6%).
GFI explained that the rankings were created by comparing illicit outflow figures to nine different measures: GDP, total trade (exports + imports vis-à-vis the world), population, foreign direct investment, official development assistance combined with foreign direct investment, public spending on education, public spending on health, total tax revenues, and capital stock (a proxy for domestic investment). A country with an unusually large amount of illicit outflows relative to the variable of comparison receives a high rank.
“Illicit financial flows have an outsized impact on the poorest countries in the world,” Tom Cardamone, GFI’s managing director said in a news release announcing the findings. “The value of this study is that it goes beyond ‘the big number’ of cumulative global illicit outflows and focuses instead on the impact of [illicit financial flows] in the poorest of places,” he added.
In essence, the GFI study provides a comparison of illicit financial flows from some of the world’s poorest nations and compares those values to some traditional indicators of development. And based on the data, countries where inequality and poverty levels are high also have high illicit outflows. Conversely, there is an inverse relationship between customs department efficiency and illicit outflows: where efficiency is high, illicit flows are low. Thus indicating that good governance (i.e. low corruption) in customs departments may be a way to curtail illicit outflows.
GFI is calling for concerted action by the international community to assist not only nations that have high dollar levels of illicit flows, but also to help those countries that have such huge percentages of their economic foundation eroded by illicit outflows.
As such, GFI recommends that world leaders focus on addressing trade misinvoicing, which accounts for the vast majority of measurable illicit outflows, as well as on curbing the opacity in the global financial system—comprising, among other things, tax haven secrecy, anonymous companies, and money laundering techniques—which facilitates these outflows.
Specifically, the organisation said trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials; governments should establish public registries of meaningful beneficial ownership information on all legal entities; and that all countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20
Further, GFI said that government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations.
The full GFI report is available on its website at http://www.gfintegrity.org/ report/illicit-financial-flows-and-development-indices-2008-2012/.
