A recent report commissioned by the United Nations Development Program (UNDP) from Global Financial Integrity (GFI) has been delivered at the United Nations IV Conference on Least Developed Countries. This conference, hosted by Turkey, concerns the flow of illicit capital from the world’s 48 least developed countries.
The report, entitled “Illicit Financial Flows from the Least Developed Countries: 1990-2008”, was written by GFI Lead Economist Dev Kar. It concerns the detection and subsequent reporting on the flow of capital from these countries by illegal means. It also takes in the following key points:
- The top ten exporters accounted for 63 percent of illegal capital outflow while the top 20 accounted for 83 percent
- These illegal outflows drain much needed capital away from programs meant to alleviate poverty and other adverse social conditions
- The period from 1990 to 2008 saw a total of $197 billion removed from the 58 countries on this list into mainly developed nations
- According to the data, the outflow from Least Developed Countries in Africa accounted for 69 percent of the outflow, followed by Asia at 29 percent and Latin America at 2 percent
- 65-70 percent of these illegal outflows of capital were due to trade mispricing. As external trade in these nations has increased, so has resulting trade mispricing and continued illegal cash outflow
Who Were the Top Exporters of Illicit Capital?
The top ten nations found to be chronic exporters of illicit capital included:
Bangladesh with a total of US$34.8 billion
Angola with a total of US$34.0 billion
Lesotho with a total of US$16.8 billion
Chad with a total of US$15.4 billion
Yemen with a total of US$12.0 billion
Nepal with a total of US$9.1 billion
Uganda with a total of US$8.8 billion
Myanmar with a total of US$8.5 billion
Ethiopia with a total of US$8.4 billion
Zambia with a total of US$6.8 billion
What Are the Factors That Drive the Outflow of Illicit Cash?
There are a number of important factors that drive the flow of illicit cash from Least Developed Countries. These can be broadly classed as macroeconomic, structural, and governing-related. It is also very likely that structural and governance issues are the catalyst for most of the continuing outflow of illegal capital. However, this is an issue that must most likely be determined on a case by case basis.
Illegal Cash Outflow Destroys Financial and Social Stability
Illegal outflow of cash from these Least Developed Countries is an issue that affects all citizens in the end. While several steps are being mooted in order to deal with this continuing issue, it must be said that the problem shows no signs of abating at any time in the near future.
These financial outflows currently total nearly $1.3 trillion per year. They have the harmful effect of undermining, or in some cases, nearly destroying, the tax base in these nations. As a result, these illegal outflows also serve to chip away at the basic social and financial accountability that is needed to ensure reliable governing and stability.
It should also be kept in mind that the continuing instability created by these illegal cash outflows is also in some degree responsible for budget crises that periodically cripple governments in developed countries. This boomerang effect is one that the G20 has continually attempted to address, with little if any result to show for their inquiries.
What Can Be Done to Halt the Outflow of Illegal Cash?
A number of measures have been proposed in order to stop the continuing money laundering and outflow of illegal cash from Least Developed Countries. Some of these measures include, but are not limited to, the following:
- Nation by nation reporting of all asset transfers
- beneficial ownership of accounts
- automatic exchange of tax related data
- improved efforts to end trade mispricing
- stepping up efforts to criminalize tax evasion as part of a greater anti-money laundering initiative
While these measures are slowly being rolled out in some of the world’s developed countries, it must also be noted that little is actually being done to coordinate in order to put a decisive halt to illegal outflows of cash. As a result, it will be some time before any real results are obtained from these measures, many of which remain at the purely theoretical stage.