ILLEGAL ACTIVITIES IN THE 1993 SNA Joint UNECE/OECD/ EUROSTAT Meeting UNECE, Geneva April 2006 UN STATISTICS DIVISION Economic Statistics BranchNational Accounts SectionUN STATISTICS DIVISION Economic Statistics BranchNational Accounts Section

Point of departure Handbook, Measuring the Non-Observed Economy has provided guidance to countries for recording illegal activities Handbook was a joint publication in 2002 by Organisation for Economic Co-operation and Development, International Monetary Fund, International Labour Organisation, Interstate Statistical Committee of the Commonwealth of Independent States

Illegal activities in the 1993 SNA illegal activities that have the characteristic of transaction – notably that there is mutual agreement between parties – are treated in the same way as legal actions Accounts could be significantly distorted if significant redistribution of assets through actions without mutual agreement is not recorded as other flows on other changes in volume accounts

Examples of illegal activities Production and distribution of illegal goods Production of illegal services Production of legal goods and services undertaken by unauthorized producers Production of counterfeit products Smuggling Resale (fencing) of stolen goods.. And the like

Theft “If thefts, or acts of violence (including war), involve significant redistributions, or destructions, of assets, it is necessary to take them into account. …… they are treated as other flows, not as transactions. Less significant redistributions, such as shoplifting, may be included in change of inventories and therefore need not be recorded separately” (SNA para 3.56).

Theft SNA treatment: unclear about theft of exceptional value which occurs either on a regular or irregular basis NOE Handbook: recommends that widespread practices of illegal appropriation of the output is treated as production and additional compensation of employees AEG recommendations: Regular theft (of whatever size) of value of finished goods and services is excluded from output Regular theft (of whatever size) of materials and supplies is included in both output and intermediate consumption Irregular theft of exceptional value of finished goods and services is production and materials and supplies is NOT considered in intermediate consumption. Both are adjusted in OCVA

Re-sale of stolen goods (fencing) SNA: involves transactions by mutual consent AEG recommendation: Fencing should be recorded as sales of second-hand goods – as trade margins

Bribery SNA: does not provide guidance NOE Handbook: In the provision of market goods and services, increase in value of output by the bribe matched by increase in compensation of employees In provision of non-market goods and services as accepted practice, the bribe is recorded as additional compensation of employees In provision of non-market goods and services as unaccepted practice, the bribe is recorded as current transfer AEG recommendation: Disagreed with NOE Handbook. Bribery is considered inconsistent with the SNA production boundary. No explicit references to treatment of bribery in 1993 SNA Rev.1 will be made.

Extortion SNA: no explicit reference NOE Handbook: No mutual consent thus recorded under other volume of assets account AEG recommendation: agreed with NOE Handbook.

Money laundering 1993 SNA: no explicit reference NOE Handbook: difference between the value of the illegal cash and the value of the laundered cash should be considered a provision of services AEG recommendation: agreed with NOE Handbook.