Friday, December 09, 2011

Russia's Illicit Financial Outflows - GFI Reports

Press Release from Global Financial Integrity
December 8, 2011

Amid Unrest in Moscow, New Research Finds Russia Lost US$501.3 Billion in Illicit Financial Outflows from 2000-2009

Nation Was Third Largest Hemorrhager of Illicit Flows Worldwide According to Forthcoming Global Financial Integrity Report

WASHINGTON, DC – Russia hemorrhaged over US$501 billion in illicit financial outflows in the ten years following Vladimir Putin’s rise to power according to a forthcoming report from Global Financial Integrity (GFI), a Washington-based research and advocacy organization. The study, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, finds the nation lost more than US$50 billion per year from 2000 through 2009—making it the third largest victim of illegal capital flight.

The data, revealed in a blog post today by GFI Economist Sarah Freitas on the website of the Task Force on Financial Integrity & Economic Development (, is even more damning, writes Ms. Freitas, in the wake of Sunday’s Parliamentary elections, which have been met with wide-spread allegations of fraud.

Elaborating on her findings, Ms. Freitas, who co-authored the upcoming GFI report with GFI Lead Economist Dev Kar, writes:

There are several reasons as to why capital flight could increase this year. First, Putin’s promise to restructure his cabinet post-presidential elections in March worries companies that have shady dealings with bureaucrats. Second, in a country where tax evasion and transfer pricing are commonplace pastimes, Russia is finding that its revenues are not quite up to par for debt repayment—especially when one considers the projected drop in oil prices. A global recession has caused investors to look to the dollar as a safe haven, implying a fall for weaker currencies like the ruble. In an attempt to avert a depletion of reserves, Russia has capped purchases of foreign currency. In a lucky twist, food and commodity prices have moderated, leading to a decline in consumer inflation deceleration. Despite this, we see two unsustainable outcomes from illicit money transactions: step-wise devaluations in the Russian currency and increases in rates of core inflation (which abstract from food prices).

It is clear that Russia, a country with growing income inequality, cannot continue to hemorrhage scarce capital without serious consequences. Russians should demand that their government fight tax avoidance through automatic tax information exchange and strengthening anti-money laundering laws. With efforts to strengthen regulation and oversight in these two areas, Russia can better monitor corrupt practices, improve corporate governance and responsibility, and increase tax collections.

The full blog post can be read here.

Russia will not be the only nation featured in the organization’s upcoming report. Indeed, in similar blog posts published within the past week, Ms. Freitas reveled illicit outflow data on Syria and Ethiopia—two more of the 160 different developing nations included in the study. The report, which is scheduled to be published Thursday, December 15, 2011, is the annual update to GFI’s previous studies measuring the illicit financial flows from the developing world. This will be the first of GFI’s studies to include data for the year 2009.


Journalist Contact:

Clark Gascoigne
+1 202 293 0740 ext.222


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