measuring illicit financial flows from commercial and tax ......measuring illicit financial...
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Measuring illicit financial flowsfrom commercial and tax-related practices
Alex Cobham, Petr Jansky
June 20, 2018, GenevaUNCTAD, UNECA, UNODC
Introduction Trade Capital and wealth Profit shifting
Source: United Nations
Introduction Trade Capital and wealth Profit shifting
The questions
I Many motivations, a few ways to estimate themI What is the scale of illicit financial flows?I What are the best ways to measure or estimate them?
Introduction Trade Capital and wealth Profit shifting
The structure
1. Trade2. Capital and wealth3. Profit
Introduction Trade Capital and wealth Profit shifting
Source: The Economist
Introduction Trade Capital and wealth Profit shifting
Trade
I Mispriced or misquantified trade (in goods)I Either between related or unrelated business partnersI Pioneering and research frontier estimates
Introduction Trade Capital and wealth Profit shifting
Trade - pioneering
I Country- and product-level (aggregate) dataI IMF’s Direction of Trade Statistics, UN’s ComtradeI Excellent country coverageI Trade mirror statistics and abnormal pricesI Combined with capital: Global Financial Integrity and
Ndikumana and BoyceI Abnormal prices - Pak and ZdanowiczI Criticism of methodology, assumptionsI Pioneering studies highlight the importance
Introduction Trade Capital and wealth Profit shifting
Trade - research frontier
I Transaction-level data (customs), recent andconvincing
I Difference between actual and comparable pricesI Limited country coverage and comparabilityI US, UK, France, Denmark, South AfricaI
Introduction Trade Capital and wealth Profit shifting
Trade - useful for the indicator?
I Coverage vs. credibility: both with Comtrade?I The real research frontier?
Introduction Trade Capital and wealth Profit shifting
Source: Global Financial Integrity
Introduction Trade Capital and wealth Profit shifting
Capital and wealth
I Capital account (rather than current account - trade)I Offshore wealth - undeclared wealth in tax havens
Introduction Trade Capital and wealth Profit shifting
Capital flight and capital accountanomalies
I IMF’s balance of payments dataI Net errors and omissions - the Hot Money ‘Narrow’
methodI Global Financial IntegrityI Difference between capital inflows and outflows - the
World Bank Residual methodI Ndikumana & Boyce (sub-Saharan African countries)I Henry (offshore wealth)I Criticism: Differences = anomalies = illicitI This might be suitable for some countries, e.g. Russia
Introduction Trade Capital and wealth Profit shifting
Wealth in tax havens
I Henry and other earlier estimates, stocks and flowsI Undeclared wealth held in tax havensI Zucman and Alstadsaeter, Johannesen, & ZucmanI IMF’s balance of payments - global offshore wealthI Other data: Swiss central bank and BIS - allocationI Good: use of data, methodology, country coverageI Still, these are estimates, not measurements
Introduction Trade Capital and wealth Profit shifting
Capital and wealth - useful for theindicator?
I The estimates’ logic useful, the data not so muchI What other data could be used?
Introduction Trade Capital and wealth Profit shifting
Source: Cobham and Jansky (2018)
Introduction Trade Capital and wealth Profit shifting
Profit shifting
I Profit shifting by multinational enterprises to taxhavens - international corporate tax avoidance
I One-country detailed estimates, e.g. Dowd, Landefeld,Moore (2017) or Guvenen et al. (2017) for the US
I An increasing number of estimates for many countriesI 9 such studies differ in methodology, data and results
Introduction Trade Capital and wealth Profit shifting
Reference USD bn Data Country-level
IMF’s Crivelli et al. (2016) 600 Revenue NoCobham & Jansky (2018) 500 Revenue YesUNCTAD (2015) 200 FDI NoJansky & Palansky (2017) 80+ FDI YesJohansson et al. (2017), OECD 100-240 Orbis NoClausing (2016) 280+ FDI YesCobham & Jansky (2017) 133+ FDI YesIMF (2014) 180 National ac. YesTørsløv, Wier, & Zucman (2018) 230 Other Yes
Introduction Trade Capital and wealth Profit shifting
Profit shifting
I Profit shifting leads to annual revenue losses of100-600 billion USD
I The first six estimates based on regression analysisI The latter three estimates - straightforward
methodologies and official statistical data
Introduction Trade Capital and wealth Profit shifting
What all the estimates have in common
I Illicit financial flows are real and measurableI Estimates of varying quality, availability and coverageI Overlaps and double-counting not easily identifiedI Need for more credible measurements and better dataI Our proposals
Appendix References
References