Global Financial Integrity

History

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 Raymond W. Baker, who is now the President of GFI. Initially launched as a program of the Center for International Policy, GFI spun off as an independent organization in May 2013.

GFI is guided by a board of directors consisting of Lord Daniel Brennan (Chair), a member of the British House of Lords; Dr. Rafael Espada (Vice Chair), the former vice president of Guatemala; Dr. Lester Myers (Secretary/Treasurer), the president of the Center of Concern; Dr. Thomas Pogge, a professor of Philosophy and International Affairs at Yale University; and Mr. Baker, GFI's president.

Policy focus

Global Financial Integrity's areas of research apply primarily to stemming illicit financial flows, 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.

Illicit financial flows

Since its landmark 2008 report on the subject, Global Financial Integrity periodically releases updated reports estimating illicit financial flows, the proceeds of crime, corruption, and tax evasion, from all developing countries. The latest report, Illicit Financial Flows from Developing Countries: 2002-2011, released in December 2013, found that developing countries lost $946.7 billion to outflows in 2011, a number nearly eight times the volume of official development assistance (ODA) given annually by donor countries. This report featured one of the first major revisions in GFI methodology for estimating illicit financial flows, using a much more conservative estimate of illicit leakages from the balance of payments and refined estimates for trade misinvoicing figures. The findings were widely reported in over sixty countries.

Tax haven secrecy

In 2010, GFI released a report detailing offshore secrecy accounts held by non-residents. 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 1990s, signaling an increase in illicit financial flows and tax evasion.

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 centers, 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.

Mexico

GFI's 2012 Mexico report found that between 1970 and 2010, $872 billion in illicit financial flows left Mexico. The report found that, unlike most oil producing nations, the majority of illicit flows left Mexico via trade-based money laundering, and the pace picked up significantly after the signing of the North American Free Trade Agreement (NAFTA).

Russia

GFI's 2013 Russia report found that between 1994 and 2011, $211 billion in illicit financial flows left Russia. The report found that illicit financial flows were a significant driver of the Russian underground economy, including organized crime, human trafficking, arms smuggling and the illegal drug trade, as well as corruption. Unrecorded wire transfers were found to be the dominant method of unrecorded transfers out of the country. The report found that Cyprus held highly suspicious amounts of FDI positions in Russia, equal to about five times the small island's GDP, suggesting round-tripping of illicit money, a fact that was widely reported during the 2012–2013 Cypriot financial crisis.

Transnational crime

In February 2011, Global Financial Integrity released a report titled "Transnational Crime 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.

United Nations Development Programme

The most recent report was commissioned by the United Nations Development Programme. 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 and 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. The organizations 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.

Money laundering

GFI endorses stronger anti-money laundering laws and standards as well as stronger implementation of existing anti-money laundering laws and regulations. The organization specifically supports countries making all felonies predicate offenses for money laundering, it recommends compliance with all FATF standards, and it encourages regulators to strongly enforce all existing laws and regulations.

GFI was fiercely critical of the United States Government in the wake of recent anti-money laundering settlements with major banks such as HSBC, Standard Chartered, and Wachovia.

GFI has supported the Combating Money Laundering, Terrorist Financing and Counterfeiting Act as well as the Holding Individuals Accountable and Deterring Money Laundering Act in the United States Congress as measures to help curtail money laundering.

Anonymous companies

GFI advocates against the abuse of anonymous companies as a tool for money laundering. The organization endorses the creation of public registers of beneficial ownership information, and it has supported efforts by the British Government and the European Parliament to do just that.

In the United States, GFI advocates in favor of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act, which would ban anonymous companies in the United States by creating beneficial ownership registries available to law enforcement. While the legislation does not require that the collected information be made available to the public, it leaves the possibility for the states to make the information public.

Tax havens / bank secrecy

Proposed measures supported by GFI include "requiring companies to report on the profits made and taxes paid in every country in which they operate" (Country-by-Country reporting) and implementing the automatic exchange of tax information between jurisdictions. GFI also called upon the G20 to take action to encourage and implement the automatic exchange of tax information, which the G20 then endorsed in 2013.

GFI has additionally 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.

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 Guatemalan government to provide expertise on anti-money laundering efforts, transparency, transfer pricing, 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 African Development Bank, the Ford Foundation, the Government of Denmark, the Government of Spain, the Inter-American Development Bank, the Norwegian Research Council, the Task Force on Financial Integrity & Economic Development, and various individual donors.