Tax Havens and Illicit Financial Flows
How offshore finance drains developing countries of billions, and the global effort to close the loopholes.
The Offshore Drain
Every year, an estimated $500 billion to $1 trillion in illicit financial flows leave developing countries through tax evasion, trade misinvoicing, and outright corruption. These flows dwarf the $200 billion in annual aid that developing countries receive. Africa alone loses an estimated $88 billion annually to illicit outflows -- more than it receives in aid and foreign investment combined.
Tax havens and offshore financial centers are the infrastructure that enables these flows. The British Virgin Islands, Cayman Islands, Jersey, Luxembourg, and others offer low or zero taxes, banking secrecy, and opaque corporate structures that make it easy to hide wealth. Multinational corporations use transfer pricing -- charging inflated prices for intra-company transactions -- to shift profits from countries where economic activity occurs to low-tax jurisdictions where they maintain subsidiaries. The result: developing countries lose tax revenue they desperately need.
