Dirty money costs developing world $6 trln, led by China -report

Stella Dawson
Reuters Middle East

* China accounted for almost half of dirty money in 2010

* India, Indonesia, Philippines, Nigeria now in top 10

* Crackdown on bank secrecy, tax evasion urged

WASHINGTON, Dec 17 (TrustLaw) - Crime, corruption and tax

evasion have cost the developing world nearly $6 trillion over

the past decade, and illicit funds keep growing, led by China, a

financial watchdog group said in a new report.

China accounted for almost half of the $858.8 billion in

dirty money that flowed into tax havens and Western banks in

2010, more than eight times the amounts for runner-ups Malaysia

and Mexico. Total illicit outflows increased by 11 percent from

the prior year, Global Financial Integrity, a Washington-based

group that campaigns for financial accountability, said in its

latest report released on Monday.

"Astronomical sums of dirty money continue to flow out of

the developing world and into offshore tax havens and developed

country banks," said Raymond Baker, director of GFI.

"Developing countries are hemorrhaging more and more money

at a time when rich and poor nations 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," he said.

All the countries in the top 10, which this year saw India,

Nigeria, the Philippines and Nigeria join the ranks, face

significant problems with corruption, and in most there are vast

gaps between rich and poor citizens as well as internal security


Leaders of the Group of 20 major economies increasingly are

focusing on ways to crack down on money laundering, bank secrecy

and tax loopholes to prevent funds stolen from public coffers or

earned through criminal activity from depleting the budgets of

developing countries.

The sums are so huge that for every dollar in foreign direct

aid, $10 leaves developing countries.

China lost $420.4 billion in 2010 and over the decade lost a

total of $2.74 trillion. And its losses are steadily rising. In

an October report, GFI said another $602 billion in illicit

flows left China in 2011 for a total of $3.79 trillion between


However, the numbers in the latest report are not directly

comparable with earlier data because GFI has updated its

methodology, making the estimates somewhat more conservative. It

measures illicit flows by calculating the difference between

fund inflows from loans and net foreign direct investment, and

the outflows from a country to pay for trade, cash transfers and

other earnings.

Aware of the destabilizing impact of corrupt money, Chinese

leaders are embarking on a crackdown. Outgoing President Hu

Jintao recently warned corruption threatens to destroy the

communist party and the state. In Russia, President Vladimir

Putin last week also put the issue high on his agenda as citizen

protests over corruption mount.

"Our report continues to demonstrate that the Chinese

economy is a ticking time bomb," said Dev Kar, GFI's lead

economist, who compiled the report. "The social, political and

economic order in that country is not sustainable in the long

run given such massive illicit outflows."

Mexico lost $51.17 billion in illicit flows in 2010 for a

total of $476 billion over the last decade, which does not even

count the billions of dollars in bulk cash that probably left

under organized crime and drug dealing. Malaysia, an

export-dominated economy with a wealthy elite, lost $64.38

billion in 2010 and $285 billion cumulatively between 2001 and

2010, the report said.

Illicit financial flows have grown by 13.3 percent a year

since 2001, robbing countries of wealth and benefiting a handful

of corrupt leaders. Kar said the worsening picture over the past

decade coincides with the globalization of finance and loosening

of capital controls, changes that make it easier to transfer

funds to Western banks and to tax havens.

"Until governance improves and measures to shrink the

underground economy take hold, we will not see a sustained

decline in illicit flows," Kar said.

GFI called on world leaders to accelerate efforts to curtail

the flow of dirty money by clamping down on secret bank accounts

and ownership of shell companies; reforming customs and trade

protocols so that export/import payments cannot be used to hide

illegal fund transfers; requiring multinational companies to

report their profits by country to prevent tax avoidance; and

strongly enforcing anti money-laundering laws.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes