Post-Soviet Russia Sees $764 Billion In Total Illicit Flows: Report

The Russian economy saw nearly $764.3 billion in illicit financial flows leave and enter the country from 1994 through 2011, said a new report by research and advocacy organisation Global Financial Integrity (GFI) on Wednesday, raising serious questions over the nation’s financial transparency, ahead of its chairing of the G-20 summit this week.

The Russian economy saw nearly $764.3 billion in illicit financial flows leave and enter the country from 1994 through 2011, said a new report by research and advocacy organisation Global Financial Integrity (GFI) on Wednesday, raising serious questions over the nation’s financial transparency, ahead of its chairing of the G-20 summit this week.

GFI economists Dev Kar and Sarah Freitas found that Russia had haemorrhaged roughly $212 billion in illicit financial outflows during the time period; while a massive $552.9 billion in dirty money entered the country – financing the underground economy, which includes, among other things, drug smuggling, arms trafficking and human trafficking.

The size of Russia’s underground economy also reached 46 percent of the nation’s GDP per year over the time period, said the report, urging Russian authorities to curtail the illicit flow by introducing banking reforms, boosting customs enforcement, shutting down tax loopholes and cracking down on corruption.

[quote]“Russia has a severe problem with illegal flows of money. Hundreds of billions of dollars have been lost that could have been used to invest in Russian healthcare, education, and infrastructure.  At the same time, more than a half trillion dollars has illegally flowed into the Russian underground economy, fueling crime and corruption,” said GFI Director Raymond Baker in a press statement.[/quote]

“So long as the Russian authorities fail to shrink the underground economy, Russia will continue to hemorrhage scare capital, both illicit and licit, to the detriment of economic and political stability and undermining the nation-state,” addedd Kar and Freitas, warning of “a snowballing effect, whereby both the underground economy and illicit flows continue to grow at an increasing rate unless policy measures and institutions intervene.”

Nevertheless, despite the scale of illicit financial flows in Russia, Moscow only ranks fifth among developing economies for total illegal money flows, far behind China, which GFI estimates has lost $3.79 trillion between 2000 and 2011. In 2011 alone, China lost over $600 billion – more than any other country over the entire ten-year period.

Related: Chinese Investors Moved More than $3.79 Trillion Out of Country Illegally

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The report does however comes as Russia prepares to host finance ministers and central bankers from the G-20 in Moscow this week. One of the country’s three top priorities for the talks will be “growth through trust and transparency,” according to Russia’s G-20 presidency page.

“It is the governance deficit manifest in so many aspects of the Russian state that presents an enormous problem for the nation itself and for its economic and political relations with other nations,” told Baker in an interview with Reuters.

[quote]“There are important and serious security aspects of weak overall governance that the authorities should heed in order to strengthen national security,” added Kar and Freitas. “The massive illicit flows from Russia and how they both drive and are driven by its huge underground economy are symptomatic of weak overall governance.”[/quote]

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Download The Full Report – Russia: Illicit Financial Flows and the Role of the Underground Economy – Here