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 Illicit finance leaving the 150 developing countries totaled $946.7
billion in 2011, up 13.7 percent from the prior year and the largest
amount in a decade, according to Global Financial Integrity, the
Washington-based group that exposes financial corruption.
This means that for every $1 in economic development assistance
going into a developing country, $10 are lost via these illicit
outflows.
"As the world economy sputters along in the wake of the global
financial crisis, the illicit underworld is thriving — siphoning
more and more money from developing countries each year," said GFI
President Raymond Baker.
The issue has caught the attention of G20 global leaders, who are
struggling to repair their economies after the 2008-2009 recession
and face a widening gap between rich and poor citizens. They are
cracking down on tax evasion and the corporate structures used to
launder money and hide criminal wealth.
The Middle East and North Africa saw the most rapid increase in
dirty money, which is the proceeds from illicit business, crime and
corruption. Illicit outflows rose 31.5 percent between 2002 and
2011, the decade leading up to the Arab Spring uprisings during
which a rallying cry was fighting corruption in the regimes. It was
followed by sub-Saharan Africa, up 20.2 percent in the decade ended
2011, the latest period for which data are available.
Asia lost the largest amount of money accounting for 40 percent of
the $5.9 trillion of illicit financial outflows from the developing
world in the 10-year period, and the vast bulk of that came from
China at $1.08 trillion, GFI said.
But when outflows are measured as a percentage of annual growth,
sub-Saharan Africa faces the biggest problem. GFI said 5.7 percent
of its Gross Domestic Product left each year on average over the
decade, compared with 4 percent globally. Nigeria topped the list at
$142.3 billion, followed by South Africa at $100.7 billion.
"The evidence continues to mount — illicit financial flows have a
devastating impact on economic development and stability in Africa,"
said Dev Kar, GFI's chief economist.
The research tracks illegal money flowing out of 150 developing
countries, using trade and balance of payments reports filed with
the International Monetary Fund.
Illicit flows cannot be precisely measured, since by their nature
they are hidden but GFI's data provides an approximation. It updated
its methodology this year to include re-exporting through Hong Kong
and different types of trade data.
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Trade misinvoicing, whereby exports and imports are booked at
different values to avoid taxes or to hide large transfers of money,
is the most popular method accounting for over 79 percent of the
illicit flows, according to GFI's calculations.
The researchers also looked at balance of payments data to analyze
how much money flows into a country through portfolio investment,
foreign direct investment, aid and loans etcetera, and how that
money is used. Abnormally large discrepancies point to illicit
capital flight, separate from the trade misinvoicing route.
In this regard, Russia has the biggest problem, GFI said. It was the
top exporter of illegal capital in 2011, losing $191.14 billion,
followed by China at $151.35 billion and India at $84.93 billion.
Global policymakers are ramping up their efforts to crack down on
money laundering and illicit financial flows. The G20 summit of the
world's leading economies in September for the first time agreed to
automatically exchange tax information starting at the end of 2015
as a way to capture tax dodgers and transfer of illegal money.
They also are tackling shell companies, a popular tool for money
laundering since they allow the true owner of the corporate assets
to remain anonymous.
The G8, biggest industrial nations, in June agreed anonymous shell
companies are an international problem, and Prime Minister David
Cameron last month announced the United Kingdom will create a
central public registry of the beneficial owners of phantom firms
registered there. Meanwhile, a panel of world leaders has recommended that the United
Nations make curtailment of illicit financial flows an explicit goal
of the anti-poverty agenda when the UN sets new global development
targets from 2015 onwards.
(Editing by Doina Chiacu)
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