A United Nations Development Program (UNDP) commissioned report from Global Financial Integrity (GFI) (one of Tax Research LLP's partners in the Task Force on Financial Integrity and Economic Development) on illicit financial flows from the Least Developed Countries (LDCs) was presented for discussion yesterday at the United Nations Conference on Least Developed Countries hosted by the Republic of Turkey.
Written by GFI Lead Economist Dev Kar, the report, Illicit Financial Flows from the Least Developed Countries: 1990-2008, examines how structural characteristics of Least Developed Countries could be facilitating the cross-border transfer of illicit funds, discusses methodological issues underlying estimates of illicit flows, presents an analysis of the magnitude of such flows, and makes policy recommendations for the curtailment of these illicit flows.
In her opening remarks for the UNDP Conference yesterday, UNDP Administrator Helen Clark said,
Illicit flows seriously impede LDCs' efforts to raise resources for social and economic development. These flows are often absorbed into banks, tax havens, and offshore financial centers in developed countries.
Key findings of the report include:
Illicit flows divert resources needed for poverty alleviation and economic development.
Approximately US$197 billion flowed out of the 48 poorest developing countries and into mainly developed countries, on a net basis over the period 1990-2008.
The top ten exporters of illicit capital account for 63 percent of total outflows, while the top 20 account for nearly 83 percent.
Based on available data, African LDCs accounted for 69 percent of total illicit flows, followed by Asia (29 percent) and Latin America (2 percent).
Trade mispricing accounts for the bulk (65-70 percent) of illicit outflows from LDCs, and the propensity for mispricing has increased along with increasing external trade.
The top exporters of illicit capital (cumulative outflows) are:
Bangladesh, US$34.8 billion,
Angola, US$34.0 billion
Lesotho, US$16.8 billion
Chad , US$15.4 billion
Yemen, Republic of, US$12.0 billion
Nepal , US$9.1 billion
Uganda, US$8.8 billion
Myanmar, US$8.5 billion
Ethiopia, US$8.4 billion
Zambia, US$6.8 billionThe factors that drive illicit flows from LDCs may be broadly classified into three categories–macroeconomic, structural, and governance-related. It is likely that structural and governance issues are driving the bulk of illicit outflows, but this needs to be examined on a case-by-case basis.
The GFI report on LDCs was commissioned by UNDP as a contribution to the United Nations IV High Level Conference on the Least Developed Countries in 2011.
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These figures are astonishing. The cumulative GDP figure for Lesotho for that period is just under $18bn, which means that over the 18 year period the people of Lesotho have lost just under a half of their country’s total wealth to illicit outflows. Imagine how the US or UK would cope/respond if the same were to happen to us?
Can I also suggest (and I know it’s not ultimately your responsibility 🙂 ) that academics come up with a better term than ‘illicit outflows’? To the uninititated it makes it sound like the emphasis and responsibility for the ‘illicit’ behaviour is on the country from which the ‘outflow’ occurs. This isn’t really the case, as even if the ruling classes or the wealthy of that country are involved in the process, they’re not acting in the interest of the people of that country, but against it. The term ‘illicit outflow’ is effectively describing forceful removal, or stealing, and I think that the ongoing term used should more accurate reflect this reality.
Matt,
Can you suggest a better term?
It’s a tough one, which is why I didn’t offer anything myself to start with :). Hmmm.
Illicit withdrawal
Illicit removal
Expropriation?
I LIKE COINING THIS ILLICIT FLOWS OUT OF ONE’S COUNTRY AS “FISCAL MURDER OF THE ECONOMY” TO BE PUNISHABLE IN THE SAME WAY AS A TERRORIST IS.IT IS NONE THE LESS THAN FINACIAL TERROR AND THOSE WHO ARE ABETTING IT NEED TO BE TRIED LIKE THE TYRANTS! I PITY THE LDCs AND ITS DENIZENS WHO VOTE THE CURRUPT TO RULE THEM.
ONE STUDY GROUP IS LIKELY TO HARP ON ILLICIT FLOW FROM INDIA AND IN THAT PROCESS THEY ARE MORE LIKELY TO ASSOCIATE CHARTERED ACCOUNTANTS SOME THOUSAND OF THEM TO KNOW THE CLASS OF ENTITIES OR INDUSTRIES OR TRADE OR BUSINESSMEN THAT MAKE SLUSH MONEY AND STASH IT AWAY IN SWISS BANKS AND OTHERS. THERE ARE INDUSTRIES WHERE OUT OF BOOKS TRADE IS MORE PRONOUNCED.SOURCE WHERE IT SPRINGS FROM NEEDS TO BE CONTROLLED FIRST.