 We're going to start off today talking about our new report that we released yesterday and the subject for our session is understanding the data, doing a report overview and a BRICS comparison, talking about these other dynamic economies and how the data we have on Brazil relates to those and we have Mr. Raymond Baker who will talk about our report and talk about some of the data we have on the other BRICS countries and we have Paolo Robel working on my Portuguese pronunciation, it's getting there, from the BRICS Policy Center who will talk about some of the trends and dynamics that they see in the other countries and unfortunately due to something with another project that required him to be away this morning, Rogério Sobrero will not be here until the afternoon, our GFI's communications director Clark Gascoigne will moderate our session this morning to get us started. He previously served as the director of new media for GFI in the Task Force on Financial Integrity and Economic Development and his previous experience was with the college Democrats of America where he served as the national communications director and he also worked around the Obama campaign with coordinating youth communications during that period and he was a founding member of that group's new media effort at that period in time. He has been published in numerous publications including The Wall Street Journal, The Guardian, The Hill, just a congressional newspaper in Washington as well as numerous TV channels. He has a degree in government and legal studies from Bowdoin College in the United States. So I will let Clark introduce our two speakers and we will spend about half of this panel with the presentations and Clark will start out with some questions for the panelists and then we will open it up for a substantial period of questions with all of you and so we look forward to the issues and questions that you raise for the speakers. Thank you. Thank you, Christy. Raymond Baker doesn't need an introduction. He's already been introduced. As you all know, he is the president of global financial integrity and he will be giving an overview of our new report on Brazil, capital flight, illicit flows and macroeconomic crises. But I do want to introduce Dr. Paolo Robel who is a professor of international relations at PUC Rio and IRI researcher and coordinator of inter-institutional relations of the BRICS Policy Center. His lines of research in BPC include the perception of the central countries of the BRICS and the viability of the energy cooperation between the member countries of the BRICS. Professor Robel works in the field of international relations as a teacher, researcher, consultant and administrator for over 20 years. Besides the IRI, PUC Rio and BPC Professor Robel works and worked at Estácio da Sa University, Faculdades, Caridado Mendes, pardon my Portuguese, IBMEC, the Gatulho Vargas Foundation, Department of War Studies, King's College London, the Royal Institute of International Affairs which is commonly known as Chatham House, the United Nations Institute for Disarmament Research in Geneva, the Institute of Strategic and International Studies in Lisbon, the Inter-American Dialogue in Washington DC and the Embassy of Brazil in London as well as in the private sector in the energy industry. Professor Robel published a book by the United Nations in New York and wrote numerous book chapters and articles for academic publications in Brazil, Portugal, France, Mexico, Chile, Italy, Norway, the United Kingdom and the United States. So before we hear from Professor Robel we're going to hear an introduction of GFI's report by Raymond Baker. Jean in the back if you could switch power points to the other power point that's open on that computer, yes to the BRICS power point and findings of the report, that would be great. Now without further ado I'm introducing Raymond Baker. Let me begin this session by giving you some further explanation of how we compile the data that we utilize. I've told you that we use World Bank and IMF data. The data that we use gives us an opportunity to analyze differences in balance of payment statistics and differences in trade statistics. What does that mean? Balance of payments, we're looking at government reports of inflows and outflows of government revenues and where there is a difference between inflows and outflows, those that difference is identified as errors and omissions. We interpret those errors and omissions as being unrecorded money that has disappeared out of or into the country. That's part of our analysis. The second part of our analysis is using trade data filed with the IMF. All countries file, most countries, almost all countries, file data with the IMF of their imports from and exports to every other country that they trade with. This bilateral trade data is available in what's called direction of trade statistics. If Brazil reports that it exports, let's say, $100 million worth of product to Italy and Italy reports that it imports $300 million worth of product from Brazil, then somewhere Brazil's exports of $100 million got re-invoiced up to a level of $300 million. Where we see these differences between what one country reports as its exports and another country reports as its imports, that confirms that those transactions have been re-invoiced. That's a big part of what we analyze is this difference in trade data. The combination of these two gives us a conservative estimate of how much unrecorded money has passed out of a country. For Brazil, our analysis is the $400 billion of unrecorded money passed out of Brazil from 1960 to 2012. This is what the data shows. Of that, the greater part of it was through the misinvoicing of trade. 92% of it was through the misinvoicing of trade. Only 7% of it showed up in balance payments data. What we're saying is that trade accounts for the greater part of this. This can be the overpricing of imports that come into the country. It can be the underpricing of exports going out of the country. But trade certainly appears to be by far the biggest part of this phenomenon for Brazil. This is similar to most other developing countries. Not all, but most developing countries indicate that the commercial sector is the biggest mover of unrecorded money. That gives you an idea of the component that arises from balance of payments data quite small compared to what arises through the commercial sector. Look how it's been growing. In the last three years, out of that $400 billion, $100 billion occurred in the last three years. This is a significant growth in the last three years. Part of the growth is related to the growth in cross-border trade. As cross-border trade grows, the opportunity to miss invoice that trade grows. In part, this is a reflection of how much Brazil's trade with the world has grown. That's very substantial growth. $100 billion is not a small amount of money in three years. This is an amount of money that needs to be given very careful attention. Let me go a little bit further about how the miss invoicing of trade works. Let's suppose there is a Brazilian importer who wants to bring in cars from the United States. That Brazilian importer wants to import a million dollars worth of cars from the United States. The Brazilian importer decides that he or she wants to increase the amount of money in a foreign bank account that belongs personally to the importer, or belongs to the company of the importer. The importer in Brazil, working with a, let's say, a Switzerland entity, it could be Cayman Islands, it could be any one of 60 or more other re-invoicing entities around the world. He works with that, and the U.S. exporter is asked to send the invoice to the Swiss entity in this example. It doesn't make any difference to the American exporter where he sends the invoice. He'll send the invoice wherever it's asked to be sent. That entity will pay the American exporter the one million dollars. Then that entity, on instructions from Brazil, will write an invoice for one and a half million dollars. That invoice goes from that entity to the Brazilian importer, and the Brazilian importer will pay the one and a half million dollars to the Switzerland entity. By this process, we've generated $500,000 that has gone out of Brazil into a foreign bank account. This can be done by unrelated parties. It can be done by related parties. It can be done in connection with imports into Brazil. It can be done in connection with exports out of Brazil. Re-invoicing is the only part of trade mis-invoicing that shows up in the data that we use. Let me explain that. There is another form of re-invoicing that doesn't show up in the United States. That second form of re-invoicing is where the U.S. exporter and the Brazilian importer agree among themselves that the invoice will read $1.5 million, and when the Brazilian pays the $1.5 million, the U.S. exporter will put that extra $500,000 into the Brazilian importer's account. We call that same invoice fake. You can fake the price within the same invoice that is exchanged between buyer and seller. When you do that, that does not show up as a difference between one country's trade data and another country's trade data, so none of that is included in what we analyze. There is a second part of trade mis-invoicing that is not included in our data. The data that is filed by governments with the IMF, which is incorporated within direction of trade statistics, is data only on merchandise trade. It does not include data on services and intangibles, such as licenses and royalties and insurance contracts and so forth. None of that is in direction of trade statistics that we utilize, and therefore that is not included. In fact, in recent years, the mis-invoicing of services has exploded, has become very, very common. Licenses, royalties and so forth, because there is no data compiled on it, have become a favorite place to re-invoice transactions, so none of this shows up in our data. Same invoice faking does not show up, and the mis-invoicing of services does not show up in our data. There is another whole category of movements of money that does not show up in our data, and that is cash, cash movements across borders, particularly from criminal activities. Drug trading doesn't show up. Arms trading, human trafficking, none of that shows up in our data. The point of telling you this is to make it clear that we regard our data as being extremely conservative. When we talk about a trillion dollars a year disappearing out of developing countries, we think that number is very conservative. When we talk about 100 billion dollars disappearing out of Brazil in the last three years, we think that number is very conservative because of what is not included in the numbers. But we prefer to utilize official data in order to be credible. It doesn't make that much difference intellectually whether the amount flowing out of Brazil over the last three years is 100 billion dollars or 200 billion dollars. It's still a big enough number that warrants being addressed aggressively by Brazil. So we prefer to be completely credible in our data and use information that is filed with governments. Let me stress, Brazil is not unique, not by any stretch of the imagination. We're talking about a country that is number seven on the list of exporters of unrecorded countries, unrecorded money. Brazil is number eight in GDP in the world. So ahead of Brazil are China by far the biggest exporter of unrecorded money, Russia, Mexico, and so on. Lots of countries, we're not talking about a phenomenon that is peculiar to Brazil. We're talking about a phenomenon that affects the whole of emerging markets and developing countries. It's a phenomenon that needs to be addressed and curtailed. We'll talk about that more later on. But this gives you a rough overview of what we are going to be addressing. Among the BRICS countries, Brazil is down there close to the bottom in annual illicit financial flows going out. And if you look at illicit financial flows compared to GDP, again, there are countries where it's a much greater problem than it is for Brazil. Nevertheless, $100 billion is a lot of money. It warrants being addressed by Brazil, and we look forward to getting in deeper into what needs to be done about the problem. Thank you. Q. I would like to share your remarks with the global financial integrity and the minds this timely event, I think we can leave exactly that because I will comment more about the BRICS countries. I'm sure you know what I'm talking about, Brazil, Russia, India, China, and South Africa, five member states of the BRICS. And it's not very pretty, but we have to say that the five countries are amongst the 15 countries that export more illicit capital every year. In two of the members of the BRICS, China and Russia, the first and the second, which means that the countries of the BRICS are well represented in these study and the numbers really are staggering. As has been said this morning, these are not, even if they don't represent the full amount of what has been going out, they are staggering numbers. I will make some general comments about the countries of the BRICS and I will concentrate a bit more about the red line, Russia, because Russia is a country that in the last couple of years has been growing a lot its remittance of illicit capital. Just some general data about the study that was done by Global Financial Integrity about developing countries. I think it were about 151 countries, isn't it? And it's interesting to think about in regions that Asia accounts for more or less 40% of the total illicit flows from developing countries. Then we have the Western Embassy, which means Mexico and Brazil because Mexico is the third after China and Russia. Mexico has been the third largest exporter of illicit flows. Then we have what is called developing Europe, which includes of course the former communist countries of Europe and other poorer countries of Europe and there of course Russia is by far the first. Africa has its ups and downs, but it represented in 2001 about 7% of the total exports. In relation to the percentage of GDP, developing countries in 2011 exported illicitly about 3.7% of the GDP on average of course. As I said, the top three exporters are China, with about a trillion dollars, Russia with about 880 billion dollars and Mexico with about 460 billion dollars. As I said, six of the top 15 exporters of illicit flows are based in Asia, as I said. They are China, Malaysia, India, Indonesia, Thailand and the Philippines. The two in Africa, Nigeria and South Africa. From Europe, Russia, Belarus, Poland and Serbia. And from Latin America, Mexico and Brazil. And one country represented from the menace country, which is the Middle East in North Africa, which is Iraq for perhaps obvious reasons of economic conditions and political conditions in Iraq. Russia is a sort of special case because it grew a lot in the last years, the movement of exporting illicit capital. And Russia became from the fifth largest cumulative exporter of illicit capital to the second one in few years. Then we can say there is something in Russia that is more developed in terms of exporting capital than in the other countries. Russia GDP growth was positively and significantly related to illicit outflows. Actually we can say that for a lot of countries. When countries grow, usually there is a correlation with also growing the illicit exports of capital. Meaning that the country's growing is having in theory more money to invest. The government will have more money to invest in health, in education, in transport, but more money is going out in these procedures. Then part of the exercise or part of the effort of growing has been taking away in terms of not paying taxes and other government revenue. Then the cumulative illicit flow from the top 15 exporters of illicit capital that I was mentioning before amount to over $4 trillion over the period over the decade, the period between 2002 and 2011, $4 trillion saying again is a lot of money. Even if we are counting more than 10 years, it's a lot of money for developing countries which as we know they need a lot of money to invest in all these economic and social issues. I mentioned China about a trillion dollars, Russia about 885, Mexico the third, and then India is the fifth. Another member of the BRICS, India is the fifth with about 343 billion, Brazil is the seventh with almost 200 billion a year. Oh, sorry for this period, 200 year for this 10 years cumulative, and South Africa about $100 billion. Then the last one was South Africa in terms of numbers is $100 billion which is I suppose a lot of money for any African country including South Africa which is a relatively well-developed country. But in terms of China and Russia, we are talking about a lot of money. I think we can say the three common variables basically drove export misconceiving in the 55 developing countries over the period, over this period 2002, 2011. Two of these common variables are regulatory in nature. Export proceeds, surrender the requirements and capital amount openness. And the third is the state of governance in the country concerned. I mentioned this before that because the countries are growing, developing countries are growing, the illegal or illicit flow of capital has grown on average about 10% per year, 10% per year between 2002 and 2011. Of course they are growing maybe with exception of China. They were growing more than GDP of the countries of developing countries. And what is lost, the $1 trillion that I mentioned is 10 times the amount of the countries receiving foreign aid, something that you have already mentioned, but it seems even a bit funny so to speak because it's 10 times more than the countries that make a lot of effort and the donors make a lot of effort. And 10 times more of these money which is given to aid, especially now if I imagine to Africa and Asia, 10 times more out of the country every year. I will concentrate a bit on Russia now and say some recommendations that were made to the case of Russia. Russia, the illicit flow has been studied in Russia since 1994 and in the period 1994, 2001, the total has reached to 2001 before the other study. In this study, the total has reached almost $800 billion or $44 billion per year. That was in the end of 1990s beginning of the year 2000. The recommendations that were made about what to do to stop or minimize these outflow from Russia. The study strongly recommends that the Russian authorities should examine more carefully whether such illegal practices are undermining the government's fiscal policies. And a specific policy suggested the domestic economy as well as policy actions that need to be taken on a bilateral or multilateral basis. They should maintain or make an effort to maintain price stability and tax structures that do not encourage evasion and strengthen different aspects of governments. In the case of Russia, there is also the Cyprus connection, the connection with the island of Cyprus that we know has been used by Russian millionaires and billionaires as a way to take money out of the country. The other staggering number is that the Russian underground economy is around 46% of GDP, 46%. Actually, in the case of Brazil, it's almost 40%, 39.1%. Then another policy solutions to Russia from completing what I just said is that like in the case of Brazil to boost Russian customs enforcement because misconceiving of price is also used, export price also used, in Russia, monitor the transitions between Russia and tax havens, which is very common. Information on any account opened by any citizen or company in the banks, the country should have this information and try to influence the adoption of these measures and to enforce them. Moving quickly to the case of Africa, South Africa, which is, this 15 is the 11th with something around $100 billion. The international flow in the case of Africa perpetuates African economic dependence on other regions and donors and undermine Africa's capacity for the governments of Africa to implement development in an independent way. They also drain tax revenues in Africa. And make scars for exchange resources. Then African countries suffer from weakness of regulations and are very open or not very strong regulatory standards. Then all of these aspects should be improved in Africa to make the flow of money less than it is. Nigeria is a case in point, not only South Africa. Nigeria is now the biggest economy in Africa. It passed South Africa. It's now the biggest economy in Africa. It passed South Africa this year. And of course, as you were mentioning, the export of oil and gas is the main revenue for Nigeria and one supposes that there is a lot of illicit flow of money from the business of oil and gas in Nigeria. Three main forms of financial flow in Nigeria to add from Africa. One is theft, really bribery and other forms of corruption. Actually, it has been calculated in one of your papers that the amount of corruption, corruption per year in the whole world or in developing countries is about $1 trillion. $1 trillion is the sum of corruption all over the world, particularly in developing countries. Then criminal activities including drugs, counterfeiting and things like that. And also in the third, you have tax evasion, laundering commercial transactions. Then these three aspects are also part of other regions and other areas, but they are particularly relevant for the case of Africa. Actually, Africa has been contrary to what a lot of people expect or their knowledge. Africa has been growing significantly in the last 10 years or so. Many countries of Africa because of natural resources, of course, they have been maintaining a reasonable rate of growth. But as we see the improving of the growth in the GDP, it has a correlation with the amount of money that will go out. So probably Africa has been growing for the last 10 years, but has not been profiting from all this growth because most probably the elicit capital, the elicit flow has been improving. I was going to mention a recent study by the OECD and the recommendations, but I think it will be too long. I will just say something else about the BRICS, the BRICS countries. As far as I know, I might be wrong because I don't follow everything, but as far as I know, this theme has not been mentioned or has not been part of the now the sixth meeting of the heads of states of the BRIC countries which took place a couple of months ago here in Brazil in Fortaleza. A lot of themes are being mentioned as probably no BRICS is evolving as an organization, but it's still looking for things to do, let's say. And this could be an interesting way of galvanizing many sectors of the countries to create a sort of a group or maybe it could be a emergency group, something like that, that we'll study these aspects of trade economics and lack of taxes and they could maybe try to create a common code of behavior the country of BRICS which could make them not the first, second, fourth and seventh and 11 amongst 150 countries but they could become more aware about this big problem. Thank you. Thank you, Dr. Robel. So we'll have a discussion here. I'll ask a few questions from the panelists and then we'll open it up to Q&A in a few minutes so that everybody can participate in the discussion. I just sort of wanted to start with, so the report that GFI did talks about 1.5% of GDP being lost each year from illicit financial outflows. What does that mean to Brazil's economy? Brazil just as I saw in the news the other day just entered recession, what does 1.5% of GDP mean? I'll open it to Dr. Robel, do you want to start? Yeah. Low growth, probably 2014 would be close to a year ago and 1.5% of the GDP is around 1.5 billion, 1.5 billion reais, it won't make the calculation up but it's quite a lot of money, quite a lot, especially because there is a consensus now in the country that investment, government and private investment, education for the crucial issue, crucial for development, sort of new cycle of development that has been fought. Let's consider if $100 billion disappears out of a country, what would happen if that money stayed in the country? Some people think that this is all about tax collection by the government. Well, tax collection is important but if that $100 billion stayed in the country, you know, maybe 20 or 30% of it will ultimately accrue as tax collection by the government but it's the other 70 or 80% of it that will remain in the economy to be invested, consumed or saved and will have a multiplier effect in the economy. That's the more important part of this flow. Nevertheless, the amount that accrue to government can have a significant impact on health and education and infrastructure and stadiums and whatever else you want to build in Brazil. It can have a significant amount, it can produce a significant amount of money for development within the country. Same is true of other emerging market and developing countries. It's important to grasp that it is the amount of money that would remain in the economy that has a multiplier effect that is important. I'm not suggesting that if $100 billion stayed in Brazil, 100% of it would remain in Brazil. What might happen is that some companies that are using trade as a mechanism for sending money out of the country would then go ahead and earn their profits in Brazil and use dividends to send money out of the country. So out of the 100 billion that illicitly disappears, if it stayed in the country, some of it would go abroad. But we don't think very much. By far the greater part of it will have a multiplier effect in the economy and will accrue as taxes available to the government. Well, and if that is being paid back as dividends though, then there is tax being paid on it and there is still some benefit. That's exactly right, yes. It's interesting to connect this to the BRICS too because for the past couple decades, these countries have all been experiencing enormous growth. But that slowed in recent years. Brazil this year entering recession, Russia's on the verge of recession, they're not growing. India and China are experiencing the slowest growth in years on record. Is there, you know, what, is there going to be an emerging effort to sort of curtail these flows? I think there is a lot of exaggeration about what is going on with the countries of the BRICS. So first, that China is exceptional because China has grown over 10% for 30 years which is now growing 7.5%. You still have a very spectacular rate of growth. But the other four countries, each one have different problems. But it seems to me that is part of the process of growing tests for a number of years. I don't see, well, in the case of Brazil that of course any more familiar, it was implemented in the last 10 years a sort of a model based on the costuming and financing by federal and private banks that it's reaching its limit, so to speak. Then the country needs to invest much more to invest in infrastructure. The infrastructure in Brazil is very poor. Then each of the countries have their own it's just synchronized so to speak. In the case of Russia, for instance, Russia is now mainly great power in energy, oil and gas. Russia is now the first producer of oil in the world, the second exporter after Saudi Arabia. In gas is amongst the three countries along with Iran and Qatar which have 50% of all the reserves of gas, natural gas. That the country is very wealthy and very rich in terms of natural resources and probably this is why Russia is trying to become a great power again as we are seeing in the Ukraine, for instance. The case of India is similar. India was growing a lot for 7, 8% for a number of years but of course several domestic problems, inflation got a bit out of control, inflation reached almost 10%. There was a presidential election now and the new president has another vision of how to develop the country. In the case of South Africa, South Africa is still in a transition for apartheid and the great problem of South Africa is unemployed. South Africa has a very high rate of unemployment especially amongst the young, over 25% of them. Then it's part of the evolution of their economy. It will be possible with the acceptance of China for it to grow for a long time with this sort of... Let me add a point also. When unrecorded money goes out of a country, some of it may round trip and come back into the country. How does this work? Unrecorded money goes out, goes let's say into a tax haven entity into the Cayman Islands, into an entity that is incorporated in the Cayman Islands or elsewhere and then that money can come back into the country as foreign direct investment. In other words, it has gone out illicitly and it has come back legally as foreign direct investment. I don't get the impression that that's affecting Brazil very much because Brazil has some very aggressive policies looking at tax havens entities. But you've talked about China. It certainly affects China. It's estimated that perhaps 30 or 40% of the total amount of foreign direct investment that comes into China is in fact Chinese illicit money that has gone out, incorporated itself as a foreign entity and come back in as FDI. You might be surprised to know who's the second biggest investor in China. Hong Kong is the biggest investor in mainland China. The second biggest investor in mainland China is the British Virgin Islands. That's all Chinese money that has gone into BVI, incorporated itself as a foreign entity and come back into China as foreign direct investment. Of course, recognize when it comes back in as FDI, it is intending to go out again in the form of dividends or interest paid on loan capital or principal payments on loan capital or what have. But it has acquired a foreign nationality which allows it to conduct its business in a somewhat different fashion than if it were a domestic entity. They receive tax benefits too for foreign direct investment. Many countries give tax benefits for FDI and in many cases, these are in the case of China, these are Chinese that are enjoying those tax benefits. This report, I guess these findings bring up looking at some of the other countries, Russia with its natural resources, South Africa with its natural resources. Is there a connection to the resource curse between illicit financial flows and natural resources? I think that's a fair statement. We've done two reports on Africa and certainly it is the resource exporting countries in Africa that are the main movers of illicit money going out of that continent. I must admit, I don't altogether understand why resource exporting countries are so much bigger in this phenomenon than other countries. But let me give you perhaps a few thoughts on that. Let's take a country like Zambia. Zambia exports copper. The biggest copper mine in Zambia is owned by Glencore established in Switzerland. Glencore buys from its own entities that is to say everything it imports in terms of equipment and materials to do its copper mining is invoiced by its own buying company in Europe. And then Glencore sells to itself the copper that it mines in Zambia. If you control the price of what you import and the price of what you export, you can operate forever without showing a profit in Zambia. I've seen it all over the world in the case of many, many, many companies going all the way back to the first person that I talked to when I got to Africa and he says I'm not trying to make a profit. Because resource business in many developing countries has such a significant component of multinational companies operating in those countries. I think that's a big part of the explanation of why resource exporting countries are in fact sending so much of their money abroad. It's because there are a lot of multinational corporations that are doing the price manipulations that allow them to minimize profits in those entities. A lot of joint ventures around the world between governments and foreign corporations are operating at a break-even point or a very low profit margin. You shouldn't think for a moment that the multinational corporation that is invested in that entity is operating at a break-even point. On the contrary, the multinational can make money on what it is supplying to the entity, whether it's an oil company or a mining company. It can make money on the equipment and material that is being supplied there. I think this is what's going on. We would frankly like to study this question a great deal more. And there is data that would enable us to do that. We're reasonably sure that we can produce the data that will show that, for example, a compressor that is used in the oil industry is exported from the United States to Canada at one price and exported from the United States to Nigeria or at Gola or Brazil or elsewhere at a quite different price, at a higher price. But that's a piece of work that we haven't done yet, but we would very much like to do that kind of work. Of course. And there is a point about this issue. It's a simple point, but perhaps, because the countries with more natural resources export natural resources, they will become richer. And there is a connection between becoming richer and more inflows, in the city flows going out of the country. Perhaps this connection should be considered as well. Of course, much simpler than the role of the multinationals and the government. But it's just a point that came to my mind that we talk about this many times. So we're talking about natural resources. It's sort of staring us in the face right now is Petrobras. And the first five pages of the global today I opened up is Petrobas scandal. Yeah. You're Brazilian. Is there a connection between natural resources in other countries, natural resources in this country and illicit flows? No, I think the case of Petrobras which has been going on for quite some time. It's, I have to say, it's a form of internal corruption that has been going on. It's the biggest company in Brazil. It's the biggest company in Latin America. It's the proud of Brazilian. But unfortunately, a lot of bad decisions were made in Petrobras in the last years. And now there is, it's quite clear that some form of corruption involved not only the company but also state governors, senators, members of Congress. Which is very sad and very dangerous, less than one month before presidential election which were happening in Brazil on the peak of October. But differently from that, the role of Petrobras as a oil company, especially explorer of oil, particularly in what we call the pre-salt area, which is a very deep area in the Bay outside the states of Rio and Sao Paulo. It has been explored in the last couple of years in this producing significant, more than half of Brazilian oil which is about two million barrels a day, more than half has been produced by these camps and it seems that the reserves are very big. Then there are, so to speak, two Petrobras in parallel. One which continues to work as a major oil company. And the other which is very unfortunate that was somehow dominated sort of again for some time. Now, another issue that this Brazil report brings up and some of the other reports I know explored by GFI have found connections to with the models are inequality and illicit flows. In India there was a connection and in this report there's a connection. Would you care to touch on it? No, I think it's a good point. I think I forget to mention that. I think in your study, it's clear that another element we should be taking into consideration is inequality in a country. As much unequal a country is, more the possibility that more money will come out of it, illicit. And of course we are talking about countries. The five countries of the Bricks, all of them, they have high inequality. China is growing inequality in the last 20 years. Russia as well. India, we know, and South Africa, we know. The case of Brazil is that in the last 10, 12 years or in the last 15, 20 years inequality has gone down the deal. It's still very high, but there was some concerted social policies to try to lead to the gap, which was very big. It is smaller and smaller and smaller, but a lot of things to do. We study global inequality in GFI. All of our data on inequality is short of the mark, is less than the inequality realistically. And the reason for that is because none of our data includes the earnings on assets that have been taken abroad. None of our data picks up for Brazil or other developing emerging market countries. Our data does not pick up how much people are earning on those assets that they have taken permanently abroad. If we were able to include the earnings on those assets that have been taken abroad into our inequality calculations, we would see that inequality is much wider than it appears in the data. There is a global consensus that extreme poverty needs to be addressed. And this is certainly a prevailing theme in the current Millennium Development Goals and in the Sustainable Development Goals, which will follow over the next 15 years. There's a consensus that we've got to wipe out extreme poverty. There is no similar consensus on the question of inequality. We don't know what to do with this. And part of the reason is because we don't know what level of inequality is acceptable and what level is not acceptable. I think inequality is a huge problem going forward, but we don't know what to do with it. And GFI held a conference at the Brookings Institution this past April in which we, for the first time, linked the subject of illicit financial flows and global inequality together and had a powerhouse group of people addressing this issue. It was all extremely interesting, but we did not come out of there with any really good ideas as to what to do about the problem of inequality. All right, well, we've got about 25 minutes left on the panel, so I wanna make sure that we can open it up for questions from the audience. So Moctesh and has some microphones in the back. So if anybody has any questions, you could raise your hand and they'll come find you with a wireless mic. So up here, we've got a couple. Please introduce yourself and your name, where you're from as well, before asking your question. Thank you. I'll keep the English. I, something that came to my mind, I haven't seen all the studies, but is there any correlation? Have you test the correlation between the international illicit flows and any other variable like education in a country? Have you checked if a country that has higher index of international financial flows has something to explain it besides good governance and the way the institutions are organized? Thank you. I'm sorry, Adriana, UK trade and investment. Thank you for that question, Adriana. I, it's a fascinating question. And I'm gonna give you a bit of a long answer to it. It took us about four or five years to get the community of economic development scholars to accept what we were talking about in terms of illicit financial flows, but they finally did. And then the question turned to, okay, we recognize your methodology and your numbers and so forth. What does that mean in terms of health and education and so forth in a country? Can you relate that directly to what it means, what could be done in those countries if the money stayed within those countries? We're turning our attention to that question right now and spending more time trying to answer that. Indeed, we are giving consideration to compiling indexes of illicit financial flows compared to education expenditures, compared to social expenditures altogether, compared to imports and exports, compared to the number of people who are living in the lowest 10% of the economy and so forth. We're thinking about that, but it's not easy, it's a complicated subject matter and if we do it, we wanna do it right, but you're absolutely on the mark. That's the next step in what we are trying to do. And I say, yeah, I'm not going to take a rule from that, of course, but the case of China, for instance, China is number one of conflict, but education in China seems to be very good, at least when you compare these taxes in secondary education, primary education, Asians usually are first and second and third in the case of China, then it's a complication of this correlation because China, as I said, is about a trillion dollars of flows and the education of the country is very good. Another question up here. Paulo from BNDS. First point, can you separate which kind of thing that's, it's money from Brazil or things like, for example, Starbucks doing the Nigerian trick that you learned when you arrived there, having no profits in UK because the coffee comes from Switzerland. So we can see that there's two points. Maybe some of this is money that is being taken from the third world. Maybe some is money that's being taken from first world. Forms of tax management, tax evasion, stuff like this. So how do you separate this? Second point, in this, which kind of goods are used is the response for this, for example. If this is done, Brazil, when we export soybeans, they are exported not by the Brazilian producers, but they are exported by Cargill, Dreyfus, Bungie and some companies like Lencore. So how much of this is evasion by the Brazilian producers or the untaxed gains of the international traders? So I think that's our two points that, I would love to see this data open by products. By products. I think that question of the commodity exporting countries would be explained with this. And further point, a global talking about this is like Fox News discussing Obamacare. So you must take with a very big grain of salt the way that is dealing, we have an election now and this is our taking example in the United States. This is our Benghazi. So understand this, understand that there are sides in the press and it's not New York Times. We don't analyze unrecorded flows out of the richer countries because the same methodologies that we use for the developing countries don't necessarily work in the richer countries. Take the United States as an example, the United States dollar is a global currency and it is very difficult to do the kind of analysis that we do with a country where the currency is a global currency in trade. I wish we could. There have been some analyses. Take the Cayman Islands, the Cayman Islands. The last time I looked at the figures had $1.7 trillion in deposits of which about 800 billion was from US depositors. But that's a stock analysis rather than a flow analysis. So it's pretty difficult to do what we do concerning the developing countries. Now you ask what kinds of products lend themselves to this sort of misinvoicing. Despite the fact that I use copper out of Zambia as an example, there is a world market price for copper and we can see that Zambia is losing about $500 million a year in that world market price being underpriced in copper going out of Zambia. Having said that, commodities such as rice and wheat and copper and oil and so forth tend to have a world market price and you can compare the prices to those world market norms and typically the pricing will not vary by more than five or six or seven percent or something like that. World commodities tend to have a price that you can look at and compare to fairly clearly. Where mispricing, misinvoicing can amount to 500% or 1,000% is in specialized machinery or other kinds of specialized pharmaceuticals or software or that sort of thing. You can get enormous variations in prices there and you can't tell it. The reason that trade misinvoicing is the most popular mechanism for sending money unrecorded across borders is because it's difficult to see what's going on. An individual managing director in a company and I have seen this in the developing world, an individual managing director in a company can misprice what he's buying or selling and even his accountant cannot tell it because he's doing it by maybe a fairly modest percentage, accumulating money abroad and even his accountant cannot tell it. It only takes two people to misprice the transaction, the buyer and the seller and it doesn't matter whether they're dealing at arm's length with each other or whether it's within a multinational corporation, only takes two people, buyer and seller to agree to misinvoice the transaction and that transaction is misinvoiced and money goes abroad. Broadly speaking, the more specialized the item being dealt with, the easier it is to misprice by larger percentages. One of the popular things that we've heard about recently is actually it's wine. There's been a whole bunch of media about the value of wine because a bottle of wine can be $5, a bottle of wine can be $5,000 and no customs officer is gonna be able to tell the difference unless they're an expert in the field. So that is the perfect example of an easy thing to misinvoice whereas like you said copper, oil, world market price is much harder. Dr. Robles, do you wanna add anything? No, do we have another question right up here in the front? Leona had a question from the Brazilian Center for International Relations. Something struck my attention and perhaps Raymond somehow started to answer my question is where are the developed countries in the IFF map in the rankings because of course you are talking about the BRICS, it's a BRICS panel so it makes sense to talk about the developing world but hardly you and Paulo talked about developed countries. Where are they? And somehow when Paulo made the correlation between having more money from developing countries, make more room to elicit flows. So when I get thinking about Italy, Spain, UK, France, even Australia perhaps that they have a different currency. You mentioned the program with dollar. So those guys have fairly big economies so there is not room to do that and they also have a lot of multinationals that make sense moving that money illicitly. So where are the developed countries in the IFF map? Thank you. Certainly the richer countries are participants in this. Again, it's more difficult to produce the data on it but let's give you a few examples. Greece has been sending money out of Greece for a long time and it in part accounts for the problems that Greece, the economic problems they've had of late. Portugal was sending a lot of money out. An awful lot of European money has been over decades going into Switzerland. The Germans have been up in arms about German money in Switzerland, other countries as well. But that data is more difficult. It's very interesting to us that we can do a better job with the sources of data are better for money going out of the developing world into the richer world than it is on interchanges within the richer world. The data is better on what's coming out of the developing world. We'd like to change that reality but it's very difficult to do. The Bank for International Settlements in Switzerland, for example, compiles data on cross-border deposits but they do it by groups of countries and they won't break it down into the individual countries. So it's very difficult for us to see how much French money is deposited into other European countries. We'd like to get the BIS to break that data down by each exporting country and each importing country. But that's not the way that the BIS compiles the data and indeed it is the central banks that cooperate with BIS who say we will give you this data but you don't publicize it. You can compile the total amount of Brazilian money that is in other countries but you cannot compile how much of the Brazilian money is in the UK or France or Singapore or where have you. We'd like to break that barrier and get the BIS to give us disaggregated data but that's not where the thinking of the West is at the moment. We'd like to push that if we could. It's a very good point. I have thought about it myself because you mentioned Italy. Italy probably has a subterranean informal economy which is probably one third of GDP as I was told. Then while I mentioned Cyprus. Cyprus is a member of OECD now. It's a member of the EU, it's a member of the OECD and Cyprus is deeply involved of course with the export of Russian money. Then it's a good idea to do it, to try to do it. I understand why you can't do it but it's a good idea. What these countries are doing is not precisely the same but Italy and the UK are two countries that I know that they are including in their calculus of national account of GDP, illegal activities like prostitution, drug trafficking. They estimate how prostitution and drug trafficking and other illegal activities cost every year and they are including it in their national accounts in the GDP which will probably make the GDP of both Italy and the UK go up one to two percent. All right. I think we'll try and take two or three at a time or Leonardo, do you have a question? Peter? Yeah, another problem I keep at the State University of Rio de Janeiro, thank you very much Raymond for another great report. I would like to ask for your reaction to something that occurred to me when you said, I think you mentioned more than once, at least once, if the money had stayed, right? The problem, the whole problem hidden resource for development. If the money has stayed. And then, well, of course, we could have had more development, another percent of GDP growth. But then I thought a little bit more about that same phrase when you're doing your presentation. And well, if the money stays, I would suggest it is a potential resource for development. It's not necessarily a real one, right? Because if it stays, it's liquidity. It's not necessarily productive consumption. It's not gonna, it's not necessarily be used to, as a consumption, as consumption, or even maybe more difficult for productive investment. So in a way, there is a hidden assumption that if the money stays, it will be invested or it will be consumed. And the other not so good alternative to that is that it could stay and as just liquidity, it could be there to inflate a financial bubble. This is one sort of question in terms of if you're thinking also about this global financial integrity. In the other one, it refers to correlation versus causation, which is always a very messy problem, right, for all of us. For example, China. China is obviously big on illicit capital flows, but it's also very big on development. So in that sense, it does both. Gets a lot of money out, most of it illicit and is the champion of growth rates and has been for the last three decades. So how do you react to that? As you've implied, you can do three things with the money that stays in the country. You can invest it, you can consume it, or you can save it. If it's saved, it's probably in a bank account and can be used as the basis for loans that are made for other people's investment or consumption. But those are the three things that you can do with it. Invest it, I agree, but if it stays in the economy, it's gonna have some multiplier effect. I've run into this kind of question frequently in other countries who say, well, does it do us any good if it's just spent on mansions or on Johnny Walker Black Label or on Mercedes-Benz cars or what have you? And my answer is I'd rather have it stay in the country than go out of the country. Even if it's spent on luxury goods, I would prefer that it stayed in the country than goes out. This gets back to the complications of addressing inequality. And we don't have an answer as to how you address inequality, but the beginning point is I'd like Brazil to keep its money. I'd like other countries to keep their money rather than having it flow abroad. There was another part of your question, Leonardo. China is incredible. China is sending more illicit money abroad than any other country. China is also sending more legal money abroad than any other country. It's tops in both of the categories. It's tops in what it invests in foreign securities and it's tops in what it illegally gets out abroad. China's growth rate would have been faster than is shown in the data if the money had stayed in the country. So China is indeed has had exceptional growth and I'm not sure that we are yet quite certain what the future is gonna be in that growth, whether it's gonna continue as fast as it has in the past or what. It is an exception to almost everything that we look at except that it is the biggest exporter of illicit capital. It has exported an enormous amount of illicit capital. It has at the same time grown internally substantially. Yeah, I mean, one trillion sounds and it is a lot of money, but you have to take into consideration the size of the economy of China. If I'm not mistaken, China now has an economy of about $9 trillion, reaching $10 trillion. And then it's about 10% of it's a lot, but when you look at one trillion, you think that. Okay, what I maybe I did not make myself clear what I'm really questioning is the assumption that if the money stays, it will have a multiplier, Raymond said it, because if you buy Mercedes or Black Label and said, of course it will because it's consumption. What if this one trillion goes for options in the stock exchange? It's not necessarily have any sort of multiplier. It can inflate a bubble, that's my point. So it's not obvious or guaranteed that if the money stays, it will have a Keynesian type of multiplier. That's my point. Maybe not a Keynesian type of effect, but it will have a multiplier effect, even if the multiplier is inflationary. Agreed, agreed. I'm not making a judgment on the quality of the multiplier. I'm simply saying it will have a multiplier effect. All right, I think it's unpredictable, it's unpredictable. It will feed development. I think the best answer is. It depends on a lot of other things which are domestic, including the way the financial system functions, domestic. That's true, but totally unpredictable. We're getting close to lunchtime, so we'll just try and have one more question. I would like to know about the correlation between political stability and economic fragility between the countries and the growth of illicit financial flows. Political stability with economic fragility related to the flows. Related to the flows. You are asking if the, I suppose you are asking if the political instability goes up, the economic fragility will go up again and what will happen with the flow? Well, we noticed that the country, Russia and India have higher levels than the other countries, Brazil and the China. China, Russia, Russia, particularly Russia, which is, I think it's very difficult to define because one supposes that if there is political instability you are probably referring to any sort of coup d'etat or any sort of election which the result was not accepted by one of the candidates, this sort of thing. It tends to have some consequences for the economy is right. But if the flows will go up or down, I suppose from the rich part of the country they will probably go up because if there is political instability the people with more wealth will be more scared about it then they will try somehow to send it the individuals and the companies which have more to lose if the political instability continues they will try to send money out, legal or illegal. And then you can say that this correlation will lead to the increase of international financial flows but there is a lot of ifs, a lot of speculation that what can happen. But I would just say that these five countries, these five members of the Briggs, not all five democracies as we know, but the all five have a relative political instability for the last 20 years, more or less. Even if what Russia is doing now in Europe, with the Ukraine might create some sort of political instability in the region but so far these countries are politically stable. Actually it was one of the reasons why the- But Russia is in war with Ukraine and India is not a- No, India has a new president, it seems okay. Russia is not officially in war with Ukraine. It's an official war that we have to wait and see but certainly it seems to me that what is happening there is that President Putin is trying to slowly to make Russia a big power again in the international system. How it will end, nobody knows. But I think just to complete what you asked, I think it's probable that the case, the international flow will go up because of the risk and the fear of political instability. When it comes to the fragility of nations, I would refer you to the Fragile States Index. Which is published annually in Foreign Policy Magazine, the work of the Fund for Peace in Washington. And I have to confess, my wife was the creator of the failed state index and was the president of the Fund for Peace for many years. But even as she has retired, the publication of the index continues. I believe we've seen in some of the studies that we've done along with political crises or as well as with different macroeconomic crises, there are spikes in outflows, both legal and illicit. Is that not the case? We've got a chart to that effect concerning Brazil in this report, identifying certain points at which illicit outflows reacted to political and economic events in Brazil. All right, so this will be the last question then. Here we go, we'll do one more and this will be the last question. I'm going to speak in Portuguese. All right, do you have a... Okay, my name is Luis Bicario. I'm from the Federal Recipe here in Brazil and the Institute of Fiscal Justice. And a question that interests us is particularly the existing relationship between the illicit outflows and the illicit outflows. I've heard a lot here about the illicit outflows and the raw internal product, but how much is the percentage of illicit outflows about the illicit outflows within a country like Brazil or other countries? No, I didn't. I had some of them working out. He's asking for the comparison between illicit and illicit funds flows out of the country because we talked much more about illicit funds but we didn't talk about illicit funds only mentioned about illicit funds. Then what is the proportion in any country could be Brazil of illicit and illicit flows from these 40 billion dollars? Fair question, yes. There is legal money that flows out of the country and I have no objection to that whatsoever. The difference between the illicit and the illicit component is quite straightforward. The legal component of money that goes abroad stays on the books of whoever is exporting, whether it's a company or an individual. You're still recording that you own that asset. The illicit component that goes abroad is intended to disappear from the records within the country. It's a quite straightforward difference between the two. We look at both. We look at what we call broad capital flight which is inclusive of the legal component that goes abroad and we look at the illicit component of that that goes abroad. But our focus, our recommendations are focused on how you curtail the illicit part of that. Is that a satisfactory answer to your question? Do you have any percentage for that? Have any? 68% Do you have any percentage for Brazil? 68% of broad capital flight which is what a combination of illicit and illicit was composed of illicit financial flows. So 68% of the broad capital flight was illicit. The remaining 32% would have been illicit and it was found that illicit flows drove broad capital flight which when you start growing illicit the illicit goes up as well. So that's about a little afternoon now. So hopefully you guys are hungry because we are gonna be breaking for lunch. When is the last question? Give it back to, do we have time? Yeah, okay, I guess we'll have one more question. Okay, obrigado. Vou falar em português também, tá? O que se percebe? Bom, eu tô convencido do que se falou que o fluxo ilícito não é bom para a humanidade. O fluxo ilícito é um fluxo que teria controle dos países, dos órgãos, e chegando-se à conclusão que o fluxo ilícito não é bom para a humanidade, não é bom para as sociedades, para as populações, a gente percebe que o mecanismo em que pra que se haja essa evasão da divisa, pra que se haja essa evasão dos tributos, ele é através do comércio internacional, pelo que tá se mostrando aqui, o comércio internacional tá sendo utilizado largamente ou entre companias diferentes ou entre a mesma compania pra que esse fluxo ilícito ocorra cada vez de forma mais significativa com mais dinheiro. Então, a gente percebe que a ousadia aumentou porque tá muito fácil de perceber ou entre grandes empresas diferentes ou entre a mesma empresa e todas elas podem ser fiscalizadas pelos seus países. E sempre, ou quase sempre, utilizando um terceiro país que se presta a esse papel. Então, voltando ao início do que eu tava falando, a humanidade tá perdendo, as sociedades estão realmente tendo prejuízo, as pessoas estão deixando de ter escola, estão deixando de ter as suas necessidades básicas atendidas em função de uma realização de lucro ilícito através de fluxos em que você tem grandes companias que tem faixadas de legalidade, faixadas que são geridas por pessoas integrais, por interesses íntegros, e países que defendem que se prestam a esse tipo de atividade que também se dizem países desenvolvidos com grande desenvolvimento da sua própria sociedade. Mas, se a gente botar isso as claras, a gente percebe que há um grande mal pra humanidade. Isso poderia ser considerado, talvez, um crime contra humanidade. Então, se a gente consegue escancarar o que tá acontecendo, a gente pode, porque qual é a minha questão que eu coloco pra vocês? Como que a gente vai resolver isso? Eu acho que, através da discussão, descobrindo o que tá acontecendo, e escancarando, mostrando, associando o mal que se faz pra humanidade com esses objetivos que são realmente mesquinhos, que são objetivos de lucro, de fuga, que não me convence qualquer tentativa de explicação ou de associação de fluxos ilícitos a coisas positivas que se faz pra humanidade. Mesmo que se o dinheiro ficar no país, você pode gastar ele com bens de luxo, ele vai tá sob controle. É um dinheiro que vai tá sob controle. Enfim, eu queria entender essa questão política, como que a gente pode fazer com que a humanidade, ou que as organizações que os países percebam, que é a gravidade do que tá acontecendo? Porque isso tem um impacto muito grande na vida das pessoas no mundo inteiro. Yes, I tried to summarize. Can I try to summarize? Oh, sure. Yeah, no, he's just asking, how is it possible to curtail this illicit investment in special the political question of how to turn it more public and force society as a whole to understand that it's a question of crime against society, against humanity. It's more a question of the political question and how to turn it more public and more, well, society to know it better. It's more or less this. Fortunately, we're going to have a panel about how to curtail these illicit flows this afternoon. So we'll have an hour and a half to talk about that in depth. I don't know if there's anything briefly that... I will say very briefly, initiatives like this and others, one hopes, is going to the right way. But it's a process. It's a process. It takes time. It's a process is you have to convince public opinion, you have to convince the government. But everything in the financial sector, particularly, is very difficult to change. We just had a recession, a big recession from 2008 to 2011, 12, and one of the, there was consensus that one activity that had to be done was to change a lot of the financial system in the developed countries, or do not allow what happened to happen again. Was it changed? Was the financial system of the developed countries in New York, or London changed substantially? There was some change, of course, but not substantially. Then it's difficult to change. It's a very important and powerful industry, finance. Even more and more and more. Then the public and the society has to be patient in the sense, as I said, trying to convince public opinion and try to convince government. It's good that we have someone from Receta Federal here who can pass the message up in Brazil that these things are happening in this staggering amount. Well, thank you all very much, Kristy. I'll bring you back up here to close things out. Thank our great panel for getting us started this morning.