Illicit Financial Flows from China and the Role of Trade Misinvoicing
October 25, 2012 | Report
The Chinese economy hemorrhaged US$3.79 trillion in illicit financial outflows from 2000 through 2011, according to a new report [PDF] released today by Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. Amidst increased domestic concern over inequality and corruption, GFI’s study raises serious questions about the stability of the Chinese economy merely two weeks before the once-in-a-decade leadership transition.
“I’ve studied the proceeds of crime, corruption, and tax evasion for decades, and the magnitude of illicit money flowing out of China is astonishing,” said GFI Director Raymond Baker. “There’s no other developing or emerging economy that even comes close to suffering as much in illicit financial outflows.”
The research, conducted by GFI Lead Economist Dev Kar and GFI Economist Sarah Freitas, found that the illegal outflows—the proceeds of crime, corruption, and tax evasion—were largely due to a trade-based money laundering technique known as ‘trade misinvoicing ,’ which accounted for US$3.2 trillion, or 86.2%, of the total outflow of illegal capital over the 11 years studied. The trade misinvoicing figures were provided exclusively to The Economist, and appear in the latest edition of the magazine which hits newsstands tomorrow.
Dr. Kar, a former senior economist at the IMF, and Ms. Freitas discovered a sharp increase in annual illicit financial outflows over the time-span, increasing from US$172.6 billion in 2000 to US$602.9 in 2011. As GFI’s past studies have observed, such massive outflows make China the largest victim of illicit financial outflows worldwide.