Asian countries head financial
crimes list By Jim Lobe
WASHINGTON - The developing world lost
nearly US$1 trillion in 2010 as a result of
corruption, tax evasion, and other financial
crimes not involving cash transactions, according
to a report by Global Financial Integrity (GFI).
The six-year-old research and advocacy group said
global financial corruption has grown steadily
over the past decade despite unprecedented efforts
by governments and non-governmental organizations
to curb it.
It found that illicit
financial outflows cost developing countries a
total of $859 billion in 2010, the latest year for
which trade and other data compiled mainly by the
International Monetary Fund (IMF) and the World
Bank is available.
That sum was
approximately 10 times the roughly $88 billion
provided to developing countries in official
development assistance that same year. "This means
that for every $1 in economic
development assistance going
into developing countries, $10 are lost via these
illicit outflows", GFI noted.
lead economist and report co-author, Dev Kar,
stressed that the latest estimate almost certainly
underestimated the total amount of illicit flows,
in part because it did not include cash
transactions and because it was based on a new,
more-conservative methodology than GFI used in the
The latter method estimated that
developing economies lost about $1.14 trillion in
illicit outflows in 2010.
provided by either methodology are still likely to
be extremely conservative as they do not include
trade mispricing in services, same-invoice trade
mispricing, hawala transactions and dealings
conducted in bulk cash," according to Kar, who
previously served as a senior IMF economist.
"This means that much of the proceeds of
drug trafficking, human smuggling, and other
criminal activities, which are often settled in
cash, are not included in these estimates," he
The 80-page report, "Illicit
Financial Flows From Developing Countries:
2001-2010", found that China suffered the greatest
losses resulting from illicit outflows a yearly
average of $274 billion over the century's first
decade, or $2.74 trillion from 2001 through 2010,
and $420.36 billion in 2010 alone.
was followed by Mexico, Malaysia, Saudi Arabia,
and Russia. Mexico averaged yearly losses of $47.6
billion and $51.2 billion in 2010; Malaysia, an
average of $28.5 billion but a whopping $64.38
billion in 2010; Saudi Arabia, a $21 billion
yearly average and $38.2 billion in 2010; and
Russia, a $15.2 billion average and $43.6 billion
Other countries that were ranked
in the top 10 for 2010 losses included Iraq ($22.2
billion); Nigeria ($19.66 billion); Costa Rica
($17.51 billion); the Philippines ($16.62
billion); and Thailand ($12.37 billion).
While most of the hardest hit economies
are middle-income countries, or even high-income
nations, such as Qatar and the United Arab
Emirates, some of the worlds poorest countries are
also victims. In addition to Nigeria and the
Philippines, Sudan ($8.58 billion) and Ethiopia
($5.64 billion) were also among the biggest losers
in 2010, while India ranked eighth in average
annual losses over the decade ($12.3 billion).
"Astronomical sums of dirty money continue
to flow out of the developing world and into
off-shore tax havens and developed-country banks,"
said GFI director Raymond Baker.
clear: developing economies are hemorrhaging more
and more money at a time when rich and poor
countries alike are struggling to spur economic
growth. This report should be a wake-up call to
world leaders that more must be done to address
these harmful outflows."
The report comes
amidst increased global attention to corruption as
a hindrance to development. Corruption and its
threats to the long-running rule of the Communist
Party - were a major theme at last months 18th
National Congress in China that transferred power
to the new president, Xi Jinping.
Grassroots anti-corruption movements in
Russia have spurred a major crackdown, in contrast
to India where they have gained the national
spotlight. Meanwhile, both traditional aid donors
are increasingly conditioning their assistance on
how committed beneficiary governments are to
eliminating corruption by officials.
According to the GFI report, "trade
mispricing" accounted for most of the illicit
outflows from developing countries over the past
decade. When, for example, an exporter in a
developing country sells $2 million worth of goods
to a foreign company for $1.5 million, the
exporter may ask that the extra half million
dollars be placed in his or her own private
overseas bank account, presumably to avoid
Conversely, companies may
overprice imports and likewise arrange to have the
illicit proceeds deposited overseas.
Illicit transfers can also be conducted
through related forms of corruption, including
bribery, kickbacks, as well as outright theft,
according to the report.
2001-2010 period, the report estimated that
developing countries lost an annual average of
about $586 billion in such illicit flows - or a
total of $5.86 trillion over the decade.
In dollar terms, illicit flows increased
in real terms by a yearly average of about 8.6%
despite the onset of the global financial crisis
at the end of 2008. The increase took place in
every developing region, with the Middle East and
North Africa leading the pack (26.3% average
annual increase), followed closely by Sub-Saharan
The average annual
increase for Asia, which accounted about 61% of
total illicit flows from the developing world,
came to nearly 8%, while, in Latin America and the
Caribbean, the increase was lowest - at 2.65%.
The latest report did not address cash
transactions, which are far more difficult to
track. In a previous report, GFI estimated that
drug trafficking, which is most often conducted in
cash, produces annual profits of about $320
billion in both developed and developing
Another illicit industry -
counterfeiting of both merchandise and currency -
produces another $250 billion a year, although it
is generally less reliant on cash, according to
GFI. Proceeds from cross-border human trafficking
were estimated at about $31.6 billion a year.
In dealing with the problem of illicit
financial outflows, the report called for, among
other measures, the adoption of new conventions
and laws requiring the identification of the
beneficial owners of all banking and securities
accounts and the "true, human owners of all
corporations, trusts, and foundations" when they
It also called for reforming
customs and trade protocols to better detect trade
mispricing. Moreover, multinational corporations
should be required on a country-by-country basis
to report all sales, profits, and taxes paid. In
addition, tax information on both personal and
business accounts should be automatically
exchanged between countries, according to the
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