The Absorption of Illicit Financial Flows from Developing Countries: 2002-2006 Kar, Dev Cartwright-Smith, Devon Hollingshead and Ann Capital outflow, Banking secrecy, Illicit wealth The purpose of this paper is to link outflows with major points of absorption consisting of offshore financial centers and developed country banks. The paper argues that both need to greatly improve the transparency of their operations. Regular reporting of detailed deposit data by sector, maturity, and country of residence of deposit holder would close many of the data gaps identified in this paper and allow for a more robust analysis of the absorption of illicit flows from developing countries. Given data limitations, certain assumptions had to be made regarding the behavior of illicit flows and investments. These assumptions were formulated as control variables for a simple model of absorption. Several simulations of illicit outflows against absorption (defined as the non-bank private sector deposits of developing countries) were carried out using different settings of the control variables. The paper finds that while offshore centers have been absorbing an increasing share of illicit flows from developing countries over the five-year period of this study, international banks have played a pivotal role in facilitating that absorption. Depending upon whether one uses the narrower Bank for International Settlements or broader International Monetary Fund definition (a control variable), offshore centers hold an estimated 24 or 44 percent of total absorption respectively, while banks hold the balance. As total absorption consists of both licit and illicit funds, the paper presents a simple algebraic analysis to estimate the portion of such deposits in banks and offshore centers. Furthermore, the analysis shows that the polar extreme (all illicit or all licit) in such holdings by either group is not tenable given the overall volume of illicit flows and absorption USA: Global Financial Integrity, 2008. 2008. Text 52p. iffoadatabase.trustafrica.org/iff/the_absorption_of_illicit_financial_flows_from_developing_countries_2002-2006.pdf