Global Financial Integrity
Encyclopedia
Global Financial Integrity (GFI) is a non-profit, research and advocacy organization located in Washington, DC. GFI advocates and conducts research on national and multilateral policies, safeguards, and agreements aimed at curtailing illicit financial flows
and enhancing global development and security. Global Financial Integrity was launched in September 2006 following the publication of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, (John Wiley & Sons 2005), written by Center for International Policy
Senior Fellow Raymond W. Baker
, who is now the Director of GFI. GFI is a program of the Center for International Policy
.
, an illegal form of capital flight. GFI argues that illicit financial flows make poverty endemic; for every $1 poor nations receive in foreign aid, $10 in dirty money is taken abroad illicitly. The lack of controls on illicit outflows enable drug cartels, terrorist organizations and tax evaders to secretly move money around the world. The billions of dollars taken out of the third world embeds poverty, strips developing nations of critical resources, and contributes to failed states.
One notable area of focus is trade mispricing, the practice of shifting profits overseas by over or under invoicing intracompany transactions. Extractive Industries
tend to be the focus of this initiative, as their international presence makes it easy to conduct trade mispricing to shift profits into low-tax jurisdictions. A major initiative of GFI was pushing for the Energy Security Through Transparency amendment to the Dodd-Frank Financial Reform Bill. The amendment mandated that extractive industries report on the profits earned and taxes paid in every country in which they operate, increasing transparency and making transfer pricing abuse more difficult.
. The report found that the total deposits by non-residents in offshore centers and secrecy jurisdictions was nearly $10 trillion; The United States, the United Kingdom, and the Cayman Islands were found to be the top destinations for offshore money. The report also found that offshore deposits in secrecy jurisdictions had grown 9% per year since the 1990's, signaling an increase in illicit financial flows and tax evasion
.
s, up to 54.2% in 2009 from 36.4% in 1995. The report was widely cited in the international press following the start of the 2011 Indian anti-corruption movement
as a way to measure the amount of black money
held abroad.
In The Developing World", which estimates that "the global illicit flow of goods, guns, people, and natural resources is approximately $650 billion". The report examined the illicit trafficking of drugs, humans
, wildlife, counterfeit goods and currency
, human organs
, small arms, diamonds and colored gemstones, oil, timber
, fish, art and cultural property
, and gold. The report found that, in general, transnational crime flourished in developing countries with inequality, poverty and weak governments.
. The report, entitled "Illicit Financial Flows from the Least Developed Countries: 1990-2008" found that "structural characteristics of Least Developed Countries could be facilitating the cross-border transfer of illicit funds," examined issues with estimating illicit flows, analyzed the magnitude of illicit flows, and "made policy recommendations for the curtailment of these illicit flows". The report found that about $197 billion had been taken illicitly out of the 48 poorest developing countries and into mainly developed countries between 1990-2008, and that "African LDCs accounted for 69 percent of total illicit flows, followed by Asia (29 percent) and Latin America (2 percent)." Trade mispricing was found account for over 60% of illicit outflows.
GFI also has supported the bipartisan Stop Tax Haven Abuse Act, introduced by Senator Carl Levin
. The bill would mandate Country-by-Country reporting for all companies registered with the SEC, a longtime goal of GFI.
government to provide expertise on anti-money laundering efforts, transparency, transfer pricing
, and automatic tax information exchange.
The Task Force has 5 main policy goals;
1. Curtailment of mispricing in trade imports and exports;
2. Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;
3. Confirmation of beneficial ownership in all banking and securities accounts;
4. Automatic cross-border exchange of tax information on personal and business accounts;
5. Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.
, the Task Force on Financial Integrity & Economic Development, and various individual donors.
Illicit financial flows
Illicit financial flows, in economics, refers to a form of illegal capital flight and occurs when money is illegally earned, transferred, or utilized. This money is intended to disappear from any record in the country of origin, and earnings on the stock of illicit financial flows outside of a...
and enhancing global development and security. Global Financial Integrity was launched in September 2006 following the publication of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, (John Wiley & Sons 2005), written by Center for International Policy
Center for International Policy
The Center for International Policy is a non-profit public policy research and advocacy think tank with offices in Washington, D.C. and New York City. It was founded in 1975 in response to the Vietnam War. The Center describes its mission as "promoting a U.S...
Senior Fellow Raymond W. Baker
Raymond W. Baker
Raymond Baker is the director of Global Financial Integrity, a research and advocacy organization in Washington, DC, and director of the Task Force on Financial Integrity and Economic Development, an international private-public coalition of civil society groups and governments working on the issue...
, who is now the Director of GFI. GFI is a program of the Center for International Policy
Center for International Policy
The Center for International Policy is a non-profit public policy research and advocacy think tank with offices in Washington, D.C. and New York City. It was founded in 1975 in response to the Vietnam War. The Center describes its mission as "promoting a U.S...
.
Policy Focus
Global Financial Integrity's areas of research apply primarily to stemming illicit financial flowsIllicit financial flows
Illicit financial flows, in economics, refers to a form of illegal capital flight and occurs when money is illegally earned, transferred, or utilized. This money is intended to disappear from any record in the country of origin, and earnings on the stock of illicit financial flows outside of a...
, an illegal form of capital flight. GFI argues that illicit financial flows make poverty endemic; for every $1 poor nations receive in foreign aid, $10 in dirty money is taken abroad illicitly. The lack of controls on illicit outflows enable drug cartels, terrorist organizations and tax evaders to secretly move money around the world. The billions of dollars taken out of the third world embeds poverty, strips developing nations of critical resources, and contributes to failed states.
One notable area of focus is trade mispricing, the practice of shifting profits overseas by over or under invoicing intracompany transactions. Extractive Industries
Extractive industry
Extractive industries are the industries engaged with the discovery or extracting of natural resources, such as minerals, petroleum , or gas. The term does not generally encompass the industries of forestry, fishing, agriculture, animal husbandry, or any others that are or might be capable of...
tend to be the focus of this initiative, as their international presence makes it easy to conduct trade mispricing to shift profits into low-tax jurisdictions. A major initiative of GFI was pushing for the Energy Security Through Transparency amendment to the Dodd-Frank Financial Reform Bill. The amendment mandated that extractive industries report on the profits earned and taxes paid in every country in which they operate, increasing transparency and making transfer pricing abuse more difficult.
Illicit Financial Flows
Global Financial Integrity periodically releases reports on issues related to their policy focus areas. In December 2008, GFI released their first report, a groundbreaking, comprehensive study entitled "Illicit Financial Flows from Developing Countries: 2002-2006," which found that the developing world loses roughly $1 trillion dollars annually through illicit means. The study also concluded another significant trend - that developing economies lose $10 through illicit means for every $1 dollar of foreign aid that they receive. In January 2011, GFI released an updated version of the first report, entitled "Illicit Financial Flows from Developing Countries: 2000-2009." The new report found that illicit financial outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008. The 2011 report also found that the developing world lost an estimated $6.5 trillion from 2000 through 2008. The report also found that Asia had the most illicit outflows (44%), followed by the Middle East/North Africa (17.9%), developing Europe (17.8%), the Western Hemisphere (15.4%) and Africa (4.5%).Tax Haven Secrecy
In 2010, GFI released a report detailing offshore secrecy accounts held by non-residentsTax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
. The report found that the total deposits by non-residents in offshore centers and secrecy jurisdictions was nearly $10 trillion; The United States, the United Kingdom, and the Cayman Islands were found to be the top destinations for offshore money. The report also found that offshore deposits in secrecy jurisdictions had grown 9% per year since the 1990's, signaling an increase in illicit financial flows and tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
.
India
GFI’s 2010 India Report found that between 1948 and 2008, India lost $213 billion to illicit financial flows, and that the present value of India’s illicit financial flows is $462 billion. Most of the illicit financial flows were found to have come from High Net-Worth Individuals and private companies, as well as India's large underground economy. In addition, the Indian private sector was found to have shifted to offshore financial centerOffshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
s, up to 54.2% in 2009 from 36.4% in 1995. The report was widely cited in the international press following the start of the 2011 Indian anti-corruption movement
2011 Indian anti-corruption movement
The 2011 Indian anti-corruption movement is a series of ongoing demonstrations and protests across India intended to establish strong legislation and enforcement against endemic political corruption...
as a way to measure the amount of black money
Indian black money
Black money refers to funds earned on the black market, on which income and other taxes has not been paid. The total amount of black money deposited in foreign banks by Indians is unknown, but one estimate by R Vaidyanathan, a Professor of Finance, estimated the total at over ₹ 7,280,000...
held abroad.
Transnational Crime
In February 2011, Global Financial Integrity released a report titled "Transnational CrimeTransnational Crime
Transnational organized crime is organized crime coordinated across national borders.Transnational organized crime is widely opposed on the basis of a number of negative effects. It can undermine democracy, disrupt free markets, drain national assets, and inhibit the development of stable societies...
In The Developing World", which estimates that "the global illicit flow of goods, guns, people, and natural resources is approximately $650 billion". The report examined the illicit trafficking of drugs, humans
Human trafficking
Human trafficking is the illegal trade of human beings for the purposes of reproductive slavery, commercial sexual exploitation, forced labor, or a modern-day form of slavery...
, wildlife, counterfeit goods and currency
Counterfeit money
Counterfeit money is currency that is produced without the legal sanction of the state or government to resemble some official form of currency closely enough that it may be confused for genuine currency. Producing or using counterfeit money is a form of fraud or forgery. Counterfeiting is probably...
, human organs
Organ trade
Organ trade is the trade involving human organs for transplantation. There is a worldwide shortage of organs available for transplantation, possibly a result of regulations forbidding their trafficking.-Legal organ trade:...
, small arms, diamonds and colored gemstones, oil, timber
Illegal logging
Illegal logging is the harvest, transportation, purchase or sale of timber in violation of laws. The harvesting procedure itself may be illegal, including using corrupt means to gain access to forests; extraction without permission or from a protected area; the cutting of protected species; or the...
, fish, art and cultural property
Art theft
Art theft is usually for the purpose of resale or for ransom . Stolen art is sometimes used by criminals to secure loans.. One must realize that only a small percentage of stolen art is recovered. Estimates range from 5 to 10%. This means that little is known about the scope and characteristics of...
, and gold. The report found that, in general, transnational crime flourished in developing countries with inequality, poverty and weak governments.
United Nations Development Programme
The most recent report was commissioned by the United Nations Development ProgrammeUnited Nations Development Programme
The United Nations Development Programme is the United Nations' global development network. It advocates for change and connects countries to knowledge, experience and resources to help people build a better life. UNDP operates in 177 countries, working with nations on their own solutions to...
. The report, entitled "Illicit Financial Flows from the Least Developed Countries: 1990-2008" found that "structural characteristics of Least Developed Countries could be facilitating the cross-border transfer of illicit funds," examined issues with estimating illicit flows, analyzed the magnitude of illicit flows, and "made policy recommendations for the curtailment of these illicit flows". The report found that about $197 billion had been taken illicitly out of the 48 poorest developing countries and into mainly developed countries between 1990-2008, and that "African LDCs accounted for 69 percent of total illicit flows, followed by Asia (29 percent) and Latin America (2 percent)." Trade mispricing was found account for over 60% of illicit outflows.
Advocacy
Global Financial Integrity (GFI) has pushed for policies that bring transparency to the international financial system and stem illicit financial flows. has urged the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF) to implement new safeguards that will greatly improve transparency and cooperation in the global financial system. In early 2010, GFI launched the “G20 Transparency Campaign”, calling for greater transparency in the global financial system. Proposed measures include “requiring companies to report on the profits made and taxes paid in every country in which they operate” (Country-by-Country reporting) and automatic tax information exchange between tax jurisdictions. GFI has also called called upon the G20 to take action to encourage the automatic exchange of tax information; over $12 trillion in assets is held in offshore accounts, with a yearly lost tax revenue of $255 billion.GFI also has supported the bipartisan Stop Tax Haven Abuse Act, introduced by Senator Carl Levin
Carl Levin
Carl Milton Levin is a Jewish-American United States Senator from Michigan, serving since 1979. He is the Chairman of the Senate Committee on Armed Services. He is a member of the Democratic Party....
. The bill would mandate Country-by-Country reporting for all companies registered with the SEC, a longtime goal of GFI.
Policy Advisory Program
GFI launched the Policy Advisory Program in 2010 as a way to directly aid developing nations. The goal of the policy advisory program is to help developing countries understand the size and impact of illicit financial flows in their country, and recommend solutions to help with anti-corruption and development efforts. In 2010, GFI met with the GuatemalanGuatemala
Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...
government to provide expertise on anti-money laundering efforts, transparency, transfer pricing
Transfer pricing
Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property . Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other...
, and automatic tax information exchange.
Task Force on Financial Integrity & Economic Development
In January 2009, GFI convened representatives from a number of civil-society organizations and governments to form the Task Force on Financial Integrity & Economic Development, which advocates for greatly improved transparency and accountability in the global financial system.The Task Force has 5 main policy goals;
1. Curtailment of mispricing in trade imports and exports;
2. Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;
3. Confirmation of beneficial ownership in all banking and securities accounts;
4. Automatic cross-border exchange of tax information on personal and business accounts;
5. Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.
Funding
According to its website, Global Financial Integrity receives funding from the Ford FoundationFord Foundation
The Ford Foundation is a private foundation incorporated in Michigan and based in New York City created to fund programs that were chartered in 1936 by Edsel Ford and Henry Ford....
, the Task Force on Financial Integrity & Economic Development, and various individual donors.