Experts doubt Illicit Financial Flows reports

Highly influential global estimates of Illicit financial flows (IFFs) are complete nonsense designed to overstate private sector complicity in underdevelopment, economists at South Africa-based, Eunomix research agency have said.

These estimates include the 2015 report from Thabo Mbeki’s High-Level Panel formed by the AU and UN Economic Commission for Africa which, according to the economists, had popularised the accusation that Africa loses $50billion per year to IFFs – mostly in the form of trade misinvoicing by companies.They also include the ongoing work of US nongovernmental organisation, Global Financial Intergrity (GFI), which has been pivotal to catapulting the idea of these multibillion dollar IFFs into development orthodoxy.More specifically, the research agency, which was hired by the South African Chamber of Mines, also cited a study from the UN Conference on Trade and Development (Unctad) last year that claimed South Africa’s gold was almost entirely “smuggled” out of the country and that significant amounts of platinum and iron exports were also undeclared.Eunomix claims that it has succeeded in providing ‘innocuous’ reasons for Unctad’s findings that mostly involve data quirks and errors.

The whole concept of measuring trade misinvoicing is built on ideologically driven “pseudoscience”, “mumbo-jumbo” definitions and weak research, claims Eunomix CEO, Claude Baissac.Baissac and the chamber are quick to say that they do not dispute that IFFs are real.He said :”No one disputes that there are large IFFs, but it does not show up as trade misinvoicing. Transfer pricing happens, we know that, but that has not been proven [by Unctad’s research]. I suspect they will say South Africa is a special case, but for the rest of the countries, it is true … our theory remains.”For Baissac, these estimates represent an attempt to understate the importance of corruption – and overstate the evils of the private sector.He said :”There clearly is an ideological dimension to this. It seems to me GFI has found a pseudoscientific methodology that supposedly proves that IFFs do exist on a massive scale – and lo and behold, it is mostly related to private sector.“It allows the AU to say corruption is only 5per cent of it. We question the motives of this methodology.”