Thursday, April 01, 2010

New Action Aid research reveals destination of illicit financial flows

London, April 1

Anti-poverty charity ActionAid today releases new research mapping the destination of the estimated $1 trillion of illicit capital flight from developing countries each year. Using innovative quantitative research techniques, ActionAid's research shows that the bulk of these flows - almost $700 billion - head towards a previously unnoticed financial centre in the Pacific ocean, the island of Prollofia.

Prollofia was previously thought to be completely isolated, its two resident tribes living in stone age conditions. Its culture and social structures remain largely prehistoric and testosterone-driven, with alpha males regularly fighting to the death, and cannibalism thought to occur on occasions. But these conditions are similar to those in the City of London and Wall Street, and over the last decade Prollofia has seen an influx of bankers and financial traders as a result.

Prollofia's finance industry now rivals that of the Cayman Islands, but its profile has remained low. Because Prollofia doesn't appear in the trade and investment data used by researchers to calculate illicit flows, ActionAid researchers had to travel to the island to conduct their research in the field. The research had to be cut short after a staff member was seriously injured by a baying mob of derivatives traders.

Policy Adviser Martin Hearson, who researched the report, said:

"This was the most dangerous piece of field research ActionAid has ever conducted, but it sheds light on an important trend. That such a large proportion of illicit flows go to a country that most people don't know exists, shows exactly why we need more transparency. Tax authorities cannot be expected to negotiate tax information exchange agreements, let alone make information requests, with countries they've never heard of, which is why we need a global automatic system of information exchange covering all jurisdictions, including Prollofia."

ActionAid is calling on the state of Prollofia urgently to adopt International Financial Reporting Standards. Hearson said, "IFRS standards should require companies to break down their financial results on a country-by-country basis, including in fictitious countries like Prollofia."

The report can be read here


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