Nepal lost between $5.92 billion and $6.04 billion over the last one decade due to illicit financial outflows, according to a study by Global Financial Integrity (GFI) published today.
Rather than the discrepancy in Balance of Payments (BoP) like unrecorded leakages, trade mispricing is the primary contributor to illicit financial outflows from Nepal. Between 2000 and 2009, approximately 82 per cent of the total illicit financial outflows from Nepal was only due to trade mispricing. The same figure for developing countries over the period stands at 53.9 per cent.
"Bribery, proceeds of corruption, and trade mispricing cost Nepal dearly," the GFI said, adding that of the total, only trade mispricing — export over-invoicing, import under-invoicing, fake VAT bill and misappropriation of IC — cost $4.940 billion to the nation over 2000-2009, an average of $494 million each year.
The study tracks the amount of illegal capital flowing out of 157 different developing countries over the 10-year period from 2000 through 2009, and ranks the countries by the magnitude of illicit outflows.
The report should be a wake-up call to the government that more must have to be done to address the capital outflows and will help it tighten screw on tax evaders, traders, and corrupt leaders and businessmen.
Nepal is also ranked sixth among the 48 LDCs having the largest cumulative illicit financial flows. With a total of $35 billion, Bangladesh is at the top of the list. The total illicit flow for Nepal is estimated to be $9.128 billion. Moreover, it is on rise.
The report revealed that from 2000 to 2008, estimated total illicit financial flows for Nepal between $563 million and $566 million per year. But according to UNDP estimates, between 1990 and 2008, Nepal lost $419 million to $480 million per year in illicit ouflow.
Global Financial Integrity (GFI) — a Washington, DC-based research and advocacy organisation that promotes transparency in the international financial system — said that capital outflows stem from crime, corruption, tax evasion, and other illicit activity.
The report also suggested to curtail trade mispricing, require country-by-country reporting of sales, profits and taxes paid by multinational corporations, require confirmation of beneficial ownership in all banking and securities accounts, require automatic cross-border exchange of tax information on personal and business accounts, and harmonise predicate offenses under anti-money laundering laws across all Financial Action Task Force (FATF) cooperating countries.
Developing countries lost $903 billion in illicit financial outflows in 2009 despite the massive slowdown in economic activity which rocked world markets in late 2008.
The report 'Illicit Financial Flows from Developing Countries over the Decade Ending 2009,' which estimated the developing world lost $8.44 trillion over the decade ending in 2009, is GFI’s annual update on the amount of money flowing out of developing economies via crime, corruption and tax evasion.
According to the report, the five biggest victims of illicit financial flows over the decade are China ($2.74 trillion), Mexico ($504 billion), Russia ($501 billion), Saudi Arabia ($380 billion) and Malaysia ($350 billion).
The report also revealed the top victims of illegal capital flight in 2009. The top five countries suffering the highest illicit outflows in 2009 include China ($291 billion), Saudi Arabia ($82.3 billion), Poland ($66.3 billion), Malaysia ($46.8 billion and Mexico ($34.6 billion).