Executive Summary
This study provides estimates of illicit financial flows (IFFs) from Mexico over the period 1970 – 2010 and examines the underlying drivers and dynamics in the context of a simulation model. Since the data needed to run the simulation model are only available for the period 1971-2008, the analysis of the factors driving illicit flows is confined to this shorter period.
In our definition, money is deemed to be illicit if the source, use or movement of the funds is illegal. All flow estimates are based on cross-border transfers of illicit money and do not take into account illicit money being laundered inside the country. Moreover, illicit flows resulting from drug trafficking and other illicit activities that are settled in cash are not captured by economic models
such as the ones used in this study. Given the inherent understatement of illicit flows estimated through economic models and methods, we use the non-normalized (or robust) estimate of illicit flows throughout the study, although normalized or conservative estimates are also presented in the Appendix for purposes of comparison. That said the magnitude and growth rate of illicit flows out of Mexico are indicative of the severity of the problem faced by policymakers.
The study’s main findings include the following:
• Over the period 1970-2010, cumulative illicit financial flows from Mexico amount to a massive US$872 billion;
• The outflow of illicit capital has grown significantly from around US$1 billion in 1970 to US$68.5 billion in 2010 after reaching a peak in 2007 when the value was close to US$91 billion;
• Average outflows of illicit capital per annum increased sharply throughout the four decades. They were US$3.0 billion in the 1970s, US$10.4 billion in the 1980s, US$17.4 billion in the 1990s, and US$49.6 billion in the decade ending 2009;
• Flows of illicit money averaged 5.2 percent of GDP over the 41-year period 1970-2010. The peak year for illicit flows as a percentage of GDP was 1995 when it reached 12.7 percent;
• As a percentage of GDP, illicit flows increased from an average of 4.5 percent of GDP in the period before NAFTA was implemented in January 1994 to an average of 6.3 percent of GDP in the 17 years that followed;
• IFFs as a percent of Mexico’s external debt increased from 15.0 percent in 1970 to 28.7 percent in 2010, averaging 16.8 percent over the period 1970-2010. Most of the sharp increase in this ratio came after NAFTA was implemented in 1994;
Detailed report link: here