Draining Development?
Controlling Flows of Illicit Funds from Developing Countries
March 2012
The book provides the first collection of analytic contributions, as opposed to advocacy essays and black box estimates, on illicit financial flows (IFFs). Some of the chapter presents new empirical findings; others, new conceptual insights. All of them enrich the understanding of the dynamics of the illicit flows phenomenon. The book does not offer a new estimate of the global total of these flows because the phenomenon is too poorly understood.
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Abstract
A remarkable consensus emerged during the first decade of the 21st century on the need for the wealthy countries of the world to increase their aid sharply to developed states. At Monterrey, Mexico, in 2002, the world’s leaders committed to a “substantial increase in official development assistance [to help] developing countries achieve internationally agreed development goals and objectivesfi (United Nations 2003, 14). Three years later, at Gleneagles, United Kingdom, the heads of the G-8 nations reaffirmed this commitment, and in Doha, Qatar, in 2008, the nations of the world again recognized the need to increase development aid and pledged to do so. However, although development assistance steadily increased over the decade, rising from US$58 billion in 2000 to a projected US$125 billion in 2010, it still falls far short of what the developed world promised, and what many believe poor countries need if their citizens are to escape poverty.
As it became clear over the decade that the wealthy world’s commitments would not match the rhetoric, the development community began searching for other sources of funding to fill the development finance gap. At the same time, reports of massive, illegal outflows from developing countries began appearing. In 2004, Transparency International estimated that 10 of the most notoriously corrupt heads of state in developing countries may have, together, spirited as much as US$60 billion out of their countries during their respective tenures in office (Transparency International 2004). In 2005, Raymond Baker estimated that more than US$540 billion flowed out of developing countries each year thanks to a combination of tax evasion, fraud in international trade, drug trafficking, and corruption (Baker 2005). In 2007, Christian Aid and the Tax Justice Network produced studies reporting similar figures (Kapoor 2007; TJN 2007).
These reports and their implications were not lost on those looking for ways to fill the development finance gap. If, in fact, the amount of money illicitly flowing out of developing countries was anywhere near the amounts estimated in these reports, even partially staunching the flow held significant promise for filling the gap. Two questions thus immediately arose. Are the outflows large enough to justify efforts to staunch them? And, if so, what can be done? In 2008, the Norwegian government asked the World Bank to undertake a research project that would address these questions. The Bank, in turn, commissioned the editor of this book to organize a conference with authors of original papers and to edit the proceedings. The purpose of this book is to assess what is known about the composition of illicit ?ows, the processes that generate these flows, the role of tax havens in facilitating them, and the effectiveness of programs aimed at either preventing the flows or locating and recouping them once they have left.
The book provides the first collection of analytic contributions, as opposed to advocacy essays and black box estimates, on illicit financial flows (IFFs). Some of the chapters present new empirical findings; others, new conceptual insights. All of them enrich the understanding of the dynamics of the illicit flows phenomenon. The book does not offer a new estimate of the global total of these flows because the phenomenon is too poorly understood.
The chapters are based on papers first presented at a September 2009 conference at the World Bank. Each paper had one or two assigned discussants, and the revisions reflect the often searching critiques of the discussants, as well as additional comments from the editor and from two external peer reviewers. The chapters have been written to be accessible to non-experts.
Following this introduction, the book has five parts: the political economy of illicit flows; illegal markets; to what extent do corporations facilitate illicit flows? Policy interventions; and conclusions and the path forward.
