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FOR IMMEDIATE RELEASE
US$410.5 Billion in Illegal Money Flowed in or out of Philippines from 1960 to 2011, Finds New GFI Study Philippine Economy Loses US$132.9 Billion in Illicit Financial Outflows from Crime, Corruption, Tax Evasion over 52-­‐Year Period; US$277.6 Billion Transferred Illegally into the Philippines Smuggling through Trade Misinvoicing Cost Philippine Taxpayers at Least US$23 Billion in Customs Revenue since 1990 25% of Value of All Goods Imported into Philippines Goes Unreported to Customs Officials Report Launch and Press Conference at Mandarin Oriental Manila Hotel at 10am Local Time on Tuesday, February 4th February 4, 2014
MANILA, Philippines / WASHINGTON, DC – More than US$410 billion flowed illegally into or out of the Philippines
between 1960 and 2011—reducing domestic savings, driving the underground economy, and facilitating crime and
corruption—according to a new report to be published Tuesday by Global Financial Integrity (GFI), a Washington DCbased research and advocacy organization. Over the 52-year period studied, the report finds that the Philippines
suffered US$132.9 billion in illicit financial outflows from crime, corruption, and tax evasion, while US$277.6 billion
was illegally transferred into the country, predominantly through the misinvoicing of trade transactions.
The study, titled “Illicit Financial Flows to and from the Philippines: A Study in Dynamic Simulation, 1960-2011,”
[HTML | PDF – 2.5MB] estimates that the misinvoicing of trade transactions has cheated the Philippine government
of at least US$23 billion in lost tax revenue since 1990.
“There is a tremendous amount of money flowing illegally into and out of the Philippines,” said GFI Managing Director
Tom Cardamone, an international financial crime expert, who is scheduled to unveil the findings of the report at a
public forum Tuesday morning in Manila. “Illicit outflows drain billions of dollars from the official Philippine economy,
money that could otherwise be used to help the nation’s economy grow. At the same time, the illicit inflow of capital
and merchandise is perhaps even more insidious: it fuels crime, grows the underground economy, and costs the
government billions of dollars each year in lost customs duties.”
Findings
The study, authored by GFI Chief Economist Dev Kar and GFI Junior Economist Brian LeBlanc, finds that between
1960 and 2011, illicit financial outflows from the Philippines totaled US$132.9 billion while illicit inflows through
smuggling amounted to US$277.6 billion. Thus, over the 52-year time span, cumulative illicit financial flows into and
out of the Philippines totaled US$410.5 billion.
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President: Raymond Baker
Managing Director: Tom Cardamone
Board: Lord Daniel Brennan (Chair), Dr. Rafael Espada (Vice Chair), Dr. Lester A. Myers (Secretary-Treasurer), Dr. Thomas Pogge, Raymond Baker
FOR IMMEDIATE RELEASE
February 4, 2014
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The vast majority of money flowing illicitly into and out of the Philippines is through the misinvoicing of trade, rather
than through other avenues such as unrecorded wire transfers.
“Of the US$132.9 billion that flowed illicitly out of the archipelago, US$95.2 billion—or roughly 72 percent—was via
trade misinvoicing,” noted Dr. Kar, the principal author of the report. “Still, the dominance of trade misinvoicing as a
conduit for illicit flows is even more apparent when examining illicit inflows. Of the US$277.6 billion in illicit financial
inflows over the years, some US$267.8 billion—or approximately 96 percent—is attributable to trade misinvoicing.”
The most methodologically thorough analysis conducted by GFI to date, the report concludes that both illicit financial
inflows and illicit financial outflows are harmful to economic growth in the Philippines.
Illicit Outflows
“Illicit outflows drain money from the domestic Philippine economy, they facilitate income tax and customs duties
evasion, and they are found to deplete domestic savings,” added Dr. Kar, who served as a Senior Economist at the
International Monetary Fund before joining GFI. “Even more troublingly, our study finds that illicit outflows have grown
over time—averaging just 2 percent of GDP in the 1970s and 1980s, they jumped to 5 percent of GDP in the first
decade of the new millennium. Unless corrective actions are taken, the economic toll of these illicit flows will
continue to grow.”
Illicit Inflows
Notably, the study finds that illicit inflows are perhaps an even bigger drag on the Philippine economy than illicit
outflows of capital. The analysis determines that illicit inflows are not a benefit to the economy as they do not flow
into the official economy. Rather, they bolster the underground economy, which Dr. Kar and Mr. LeBlanc estimate
averaged 34.8 percent of GDP from 1960 through 2011, although it receded to 29.7 percent of GDP in 2011, the
most recent year for which reliable data is available.
The vast majority of the US$267.8 billion that flowed illicitly into the Philippines from trade misinvoicing is the result of
the fraudulent under-invoicing of imports.
“Import under-invoicing is generally driven by a desire to reduce or eliminate the prices paid on customs duties and
tariffs,” commented GFI Junior Economist Brian LeBlanc, a co-author of the report. “This problem is so ubiquitous in
the Philippines that, over the past decade, 25 percent of all goods imported into the Philippines—or one out of every
four dollars—goes unreported to customs officials. As tariffs on international trade make up 22 percent of total taxes
in the Philippines, such widespread under-invoicing has a severely damaging effect on government revenues.”
Staggering Tax Revenue Loss
The report finds that the Philippine Treasury has lost at least US$19.3 billion since 1990 in tax revenue due to
customs duties evasion through import under-invoicing alone. Combined with an additional US$3.7 billion in income,
profits, and capital gains tax revenue lost through export under-invoicing, the Philippine government has lost out on
at least US$23 billion in revenue due to trade misinvoicing since 1990.
“Since 2000, illicit financial flows have cheated the Philippine government of, on average, at least US$1.46 billion in
tax revenue each year,” noted Mr. LeBlanc. “To put this in perspective, the US$3.85 billion in lost tax revenue in
2011 was more than twice the size of the fiscal deficit and equal to 95 percent of the total government expenditures
on social benefits that year.”
Control of Corruption
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Dr. Kar and Mr. LeBlanc further find that total illicit flows in the Philippines correlate very strongly with the World
Bank’s Control of Corruption indicator over time.
For comparison, the researchers note that while trade misinvoicing relative to total trade increased by three percent
per year in the Philippines between 1960 and 2011, trade misinvoicing declined relative to total trade in South Korea
by four percent annually over the same period. The different experiences of South Korea and the Philippines
highlight the role of governance, which deteriorated significantly in the Philippines and strengthened considerably in
South Korea over the period studied.
Methodology
The study is the most methodologically rigorous analysis of illicit financial flows produced by GFI to date. Dr. Kar and
Mr. LeBlanc developed robust economic models that highlight the drivers and dynamics of illicit flows in both
directions. Additionally, while GFI’s 2013 annual report on illicit financial flows out of all developing and emerging
economies—published in December—was the first of GFI’s studies to include re-exporting data from the Hong Kong
Customs and Excise Department, the Philippines case study is the first country-specific analysis by GFI to
incorporate the Hong Kong data.
Nevertheless, the economists cautioned that their methodology is very conservative and that there are likely to be
more illicit flows through the Philippines that are not captured by the models.
“The estimates provided by our methodology are likely to be extremely conservative as they do not include trade
misinvoicing in services, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash,”
explained Dr. Kar. “This means that the vast majority of the proceeds of abusive transfer pricing between arms of the
same multinational corporation as well as much of the earnings from drug trafficking, human smuggling, and other
criminal activities—which are often settled in cash—are not included in these estimates.”
Starting a Dialogue about Illicit Flows
Global Financial Integrity is partnering with the Philippines-based Transparency and Accountability Network (TAN) to
launch the report at a high-level public forum followed by a press conference at the Mandarin Oriental Manila Hotel in
Makati City on Tuesday, February 4, 2014 at 10am local time. GFI trusts that the report will help begin a constructive
dialogue with the government of the Philippines about measures that can be taken to curtail illicit flows.
“We hope that this study will spur the government of the Philippines to consider effective legislative and regulatory
measures to curb the flow of illicit money into and out of the Philippines, thereby maximizing domestic resources for
development,” noted GFI’s Managing Director Tom Cardamone, who will be headlining the launch of the report in
Manila. “GFI’s goal is to work constructively in conjunction with government officials to curtail these harmful illicit
flows.”
Policy Recommendations
GFI recommends a number of steps the Philippine administration can take to ameliorate the problem of illicit flows of
money into and out of the country. According to the organization:
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Transactions involving tax haven jurisdictions like Hong Kong, Singapore, and Dubai should be treated with
the highest level of scrutiny by customs, tax, and law enforcement officials;
The Government of the Philippines should require that all banks in the Philippines know the true, human,
"beneficial" owner of any account opened in their financial institution. Often banks do not know who owns or
controls the accounts in their institution – they might have the name of an anonymous shell company, but
they don't know the person controlling that shell company. Hence, the banks cannot monitor the accounts
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for money laundering. Requiring knowledge of the beneficial owner is a simple step that would significantly
help curtail the problem;
The Philippine government should significantly clean up and boost its customs enforcement, by training its
officers to better detect intentional misinvoicing of trade transactions. Software exists that can assist
governments in detecting invoices that fall outside the normal range of prices for a particular good. The
Philippines could make use of such software to catch individuals deliberately misinvoicing their trade
transactions to launder money. The government made significant progress on this front in January, when it
launched a new portal at data.gov.ph, which publishes detailed trade, customs, and revenue data. GFI
urges the government to continue making progress on this front;
The Philippines should expand its list of crimes considered predicate offenses for money laundering to
include all felonies. Anti-money laundering legislation adopted last year expanded the list of predicate
criminal offenses for money laundering to include bribery, fraud forgeries, terrorism and terrorist financing
activities, and misuse of public funds. This was a laudable measure, but it still falls short of making sure that
the proceeds of all criminal felonies are considered underlying crimes for money laundering; and
The Government of the Philippines should strongly enforce all anti-money laundering laws that are already
on the books.
“The government has made some welcome progress over the past year with regards to customs transparency and
anti-money laundering legislation,” noted Mr. Cardamone, GFI’s Managing Director. “We look forward to discussing
ways in which the government can build on its momentum to make a lasting difference.”
Global Financial Integrity further recommends that the Philippines use its diplomatic influence bilaterally and in global
forums such as the United Nations to increase transparency in the international financial system and curtail the illicit
flow of money into and out of the Philippines. Policies GFI advocates include:
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Addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring
confirmation of beneficial ownership in all banking and securities accounts, and demanding that information
on the true, human owner of all corporations, trusts, and foundations be disclosed upon formation and be
available to law enforcement;
Requiring country-by-country reporting of sales, profits, and taxes paid (by multinational corporations);
Requiring the automatic cross-border exchange of tax information on personal and business accounts;
Harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force
cooperating countries; and
Ensuring that the anti-money laundering regulations already on the books are strongly enforced.
Funding
Funding for the new report, “Illicit Financial Flows to and from the Philippines: A Study in Dynamic Simulation, 19602011,” was generously provided by the Ford Foundation.
To schedule an interview with Mr. Cardamone in Manila, contact Clark Gascoigne at +1 202-815-4029 /
[email protected]. To schedule an interview with Dr. Kar, Mr. LeBlanc, or other GFI spokespersons in
Washington, contact EJ Fagan at +1 202 293 0740 x227 / [email protected]. On-camera spokespersons are
available in Manila and in Washington, DC.
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Notes to Editors:
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Click here to read an HTML version of this press release on our website. A PDF of this press release can
also be downloaded here [PDF - 256 KB].
1100 17th Street, NW, Suite 505 | Washington, DC | 20036 | USA
Tel. +1 (202) 293-0740 | Fax. +1 (202) 293-1720 | www.gfintegrity.org
FOR IMMEDIATE RELEASE
February 4, 2014
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More information about the GFI report—including .zip files of the report’s data—is available on the GFI
website here. A PDF of the full report can be downloaded here [PDF | 2.5 MB].
The report will be launched at a high-level public forum followed by a press conference at the Mandarin
Oriental Manila Hotel in Makati City on Tuesday, 4 February 2014 at 10am local time (Manila). A
complimentary lunch will be served to attendees following the event. GFI is partnering with Transparency
and Accountability Network, a Philippines-based NGO, for the report launch. To RSVP for the public forum
and press conference, contact Ms. Bianca Lapuz at [email protected].
All monetary values in the report and in this release are expressed in US dollars (USD).
Journalist Contacts:
In Manila:
Clark Gascoigne
Communications Director
Global Financial Integrity
[email protected]
+1 202-815-4029
Vincent Lazatin
Executive Director
Transparency and Accountability Network
[email protected]
In Washington, DC:
EJ Fagan
Deputy Communications Director
Global Financial Integrity
[email protected]
+1 202 293 0740 x227
_______________________________
Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization, which promotes
transparency in the international financial system as a means to global development.
For additional information please visit www.gfintegrity.org.
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1100 17th Street, NW, Suite 505 | Washington, DC | 20036 | USA
Tel. +1 (202) 293-0740 | Fax. +1 (202) 293-1720 | www.gfintegrity.org