This presentation by Jack Radisch & Matej Sodin was made at the 2nd Task Force Meeting on Charting Illicit Trade held on 5-7 March 2014. www.oecd.org/gov/risk/charting-illicit-trade-second-task-force-meeting.htm

1. OVERVIEW OF METHODOLOGIES
USED IN MEASURING ILLICIT
FINANCIAL FLOWS
Reform of the Public Sector
Public Governance and Territorial Development
Jack Radisch
Matej Sodin

2. • The World Bank Residual (WBR) Model (1985)
– Broader indicator of capital flight
– Involves comparing a country’s source vs. use of funds
– Drawback: data limitations pertaining to external debt & net FDI
• The (Hot Money) Narrow Model
– Based on the Net Errors and Omissions (NEO) in the Balance of Payments (BOPs)
– IFFs are usually understated in comparison to WBR (latter includes licit capital)
• Department of Trade Statistics (DOTS-) based Trade Mispricing Model
– IFFs via trade mispricing
– Under-invoicing of exports & the over-invoicing of imports main channel of IFFs
5 MAIN APPROACHES (MODELS)

3. • IPPS (International Price Profiling System-) based Trade Mispricing
Model
– Based on individual export and import transactions of the U.S. with the rest of the world
• The Dooley Method
– Encompasses the dynamics of IFFs
– No longer relevant (since 2007) as the 5th edition of the Balance of Payments Manual (BPM)
no longer required capital flows to be classified by maturity
Potential for further assessment in a tailored/modified version of the
Walker Gravity Model if conducted on an aggregate level?
5 MAIN APPROACHES (MODELS)

4. • Over 140 crypto-currency regimes in place (Litecoin, Peercoin, Namecoin,..)
• Bitcoin, introduced in 2009, the most renowned of these.
• Security lies in the hands of the public – mining (keeping up hash rate
difficulty)<
• General observation – cap rate on volume of cyber-currencies issued.
• The latter means escaping hyper-inflation, however may induce hyper-
deflation when emitted volumes come close to cap rate.
CRYPTO-CURRENCIES

5. • Transactions remain pseudo-anonymous
• Rapid transmission
• Limited and controlled money supply
• Lower transaction fees
• Decentralised forms of payment
PERCEIVED BENEFITS & DOWNSIDES
• Highly volatile (speculative)
currency
• Only some may be exchanged for
real fiat currency
• Regulatory institutions weary of the
use
• Some currencies liable to receive
infringement letters

6. POTENTIAL FOR GROWTH AND
ASSESSMENT OF THREATS

7. • Unregulated status well suited for purchasing and selling illegal goods and
for money laundering purposes.
• May 2013 – closure of Costa Rican based crypto-currency firm Liberty
Reserve
• 7th February Mt Gox crash (over 700,000 Bitcoins stolen)
• 4th March 2014 – 900 Bitcoins were stolen from Bitcoin bank Flexcoin
•
HOW CRYPTO-CURRENCIES FACILITATE
MONEY LAUNDERING

8. Please feel free to share (e-mail us) your comments,
queries, but foremost your recommendations and
suggestions by contacting:
jack.radisch@oecd.org and/or
matej.sodin@oecd.org
Thank you for your attention!
Comments, questions, suggestions…