PH ranks 19th globally in ‘dirty money’ flows

The Philippines was ranked among the top sources of illicit financial flows in the world attributed mainly to “intentional misinvoicing of trade transactions” – legalese for “smuggling” – according to a report released today by Washington, DC-based research firm Global Financial Integrity (GFI).

In its latest report on monitored countries, GFI said that am estimated total of $90.25 billion worth of outflows were recorded from the Philippines from 2004 to 2013, for an average of $9.03 billion annually, making the country the 19th largest source of dirty money worldwide.

Illegal trade in goods or smuggling, where the government does not receive the proper tariff payments for goods shipped across borders, was cited as the top source of these funds.

“Trade misinvoicing is the primary measurable means for shifting funds out of developing countries illicitly,” the report said. “Over the ten-year time period of this study, an average of 83.4 percent of illicit financial outflows were due to the fraudulent misinvoicing of trade.”

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The study analyzed discrepancies in countries’ reports on capital flows contained in official balance of payments data and trade statistics to detect flows of capital that are illegally earned, transferred or utilized, GFI said, adding that the method has been refined to give a more precise picture of illegal money transfers, thus, resulting in a significant upward revision in estimates for some countries.

In the Philippines, these estimated illicit flows peaked at $11.6 billion in 2005 and went on a downtrend in following years, only to peak again in 2011 during which an estimated $10.5 billion in dirty money flows were recorded. The level declined to $8.7 billion in 2012, and further to $7.9 billion in 2013 which was the latest year for which data was available.

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The GFI report identified China as the top source of illicit financial flows during the period with an average of $139.2 billion in illegally-sourced funds transferred annually, followed by Russia ($104.9 billion), Mexico ($52.8 billion), India ($51 billion) and Malaysia ($41.8 billion).

In Southeast Asia, the other largest sources of illicit financial flows were Thailand (ranked 8th globally with an annual average of $19.1 billion), Indonesia (9th with $18.1 billion) and Vietnam (18th with $9.3 billion).

To combat this problem, GFI said governments “should establish public registries of verified beneficial ownership information on all legal entities, and all banks should know the true beneficial owners of any account opened in their financial institution.

It also urged authorities to fully implement all anti-money laundering recommendations of the Financial Action Task Force (FATF), and that “laws already in place should be strongly enforced.”

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“Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries and staff levels on a country-by-country basis,” it added. “All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20.”

GFI also said that customs agencies “should treat trade transactions involving a tax haven with the highest level of scrutiny” and that “governments should significantly boost their customs enforcement by equipping and training officers to better detect intentional misinvoicing of trade transactions, particularly through access to real-time world market pricing information at a detailed commodity level.” CDG