* 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
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
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.