WASHINGTON, Dec 11 (Thomson Reuters Foundation) - Developing
countries lost nearly $1 trillion to fraud, corruption and shady
business transactions in 2011, vastly outpacing the foreign aid
they received and the pace of dirty money leaving emerging
nations is accelerating, a new report found.
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
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
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.
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
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.