Corruption, Crime, and Tax Evasion Drained US$946.7 Billion from Developing Countries, Study Finds

 Corruption, crime, and tax evasion drained US$946.7 billion from the developing world in 2011, up more than 13.7 percent from 2010—when illicit financial outflows totaled US$832.4 billion – a new study has found. 

The findings—which peg cumulative illicit financial outflows from developing countries at US$5.9 trillion between 2002 and 2011—are part of a new study published by Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization.

The report, “Illicit Financial Flows from Developing Countries: 2002-2011,” is GFI’s 2013 annual update on the amount of money flowing out of developing economies as a result of crime, corruption, and tax evasion, and it is the first of GFI’s reports to include data for the year 2011.

“As the world economy sputters along in the wake of the global financial crisis, the illicit underworld is thriving—siphoning more and more money from developing countries each year,” said GFI President Raymond Baker.  “Anonymous shell companies, tax haven secrecy, and trade-based money laundering techniques drained nearly a trillion dollars from the world’s poorest in 2011, at a time when rich and poor nations alike are struggling to spur economic growth.  While global momentum has been building over the past year to curtail this problem, more must be done.  This study should serve as a wake-up call to world leaders: the time to act is now.”

The US$946.7 billion of illicit outflows lost in 2011 is a 13.7 percent uptick from 2010—which saw developing countries hemorrhage US$832.4 billion—and a dramatic increase from 2002, when illicit outflows totaled just US$270.3 billion.  The study estimates the developing world lost a total of US$5.9 trillion over the decade spanning 2002 through 2011.

“It’s extremely troubling to note just how fast illicit flows are growing,” stated GFI Chief Economist Dev Kar.  “Over the past decade, illicit outflows from developing countries increased by 10.2 percent each year in real terms—significantly outpacing GDP growth.  This underscores the urgency with which policymakers should address illicit financial flows.”

Moreover, the US$946.7 billion that flowed illicitly out of developing countries in 2011 was approximately 10 times the US$93.8 billion of net official development assistance (ODA) that went into these specific 150 developing countries that year. This means that for every US$1 in economic development assistance going into a developing country, roughly US$10 of capital are lost via illicit outflows.

“Illicit financial flows have major consequences for developing economies,” explained GFI Junior Economist Brian LeBlanc, the co-author of the report.  “Poor countries hemorrhaged nearly a trillion dollars from their economies in 2011 that could have been invested in local businesses, healthcare, education, or infrastructure.  This is nearly a trillion dollars that could have been used to help pull people out of poverty and save lives.  Without concrete action, the drain on the developing world is only going to grow larger.”

Dr. Kar and Mr. LeBlanc’s research tracks the amount of illegal capital flowing out of 150 different developing countries over the 10-year period from 2002 through 2011, and it ranks the countries by the volume of illicit outflows. According to the report, the 25 biggest exporters of illicit financial flows over the decade are:

  1. China ............................US$107.56 billion average ($1.08 trillion cumulative)
  2. Russia......................................... US$88.10 billion avg. ($880.96 billion cum.)
  3. Mexico ....................................... US$46.19 billion avg. ($461.86 billion cum.)
  4. Malaysia .................................... US$37.04 billion avg. ($370.38 billion cum.)
  5. India ........................................... US$34.39 billion avg. ($343.93 billion cum.)
  6. Saudi Arabia................................ US$26.64 billion avg. ($266.43 billion cum.)
  7. Brazil ........................................... US$19.27 billion avg. ($192.69 billion cum.)
  8. Indonesia ..................................... US$18.18 billion avg. ($181.83 billion cum.)
  9. Iraq ................................................ US$15.76 billion avg. ($78.79 billion cum.)
  10. Nigeria ......................................... US$14.23 billion avg. ($142.27 billion cum.)
  11. Thailand ...................................... US$14.09 billion avg. ($140.88 billion cum.)
  12. United Arab Emirates .................. US$11.46 billion avg. ($114.64 billion cum.)
  13. South Africa ................................. US$10.07 billion avg. ($100.73 billion cum.)
  14. Philippines ....................................... US$8.89 billion avg. ($88.87 billion cum.)
  15. Costa Rica ....................................... US$8.06 billion avg. ($80.65 billion cum.)
  16. Belarus ............................................. US$7.51 billion avg. ($75.09 billion cum.)
  17. Qatar ............................................... US$6.28 billion avg. ($62.82 billion cum.)
  18. Poland .............................................. US$4.94 billion avg. ($49.39 billion cum.)
  19. Serbia ............................................... US$4.94 billion avg. ($49.37 billion cum.)
  20. Chile ................................................. US$4.52 billion avg. ($45.20 billion cum.)
  21. Paraguay .......................................... US$4.01 billion avg. ($40.12 billion cum.)
  22. Venezuela ........................................ US$3.90 billion avg. ($38.97 billion cum.)
  23. Brunei .............................................. US$3.84 billion avg. ($38.37 billion cum.)
  24. Panama ............................................ US$3.81 billion avg. ($38.09 billion cum.)
  25. Turkey .............................................. US$3.73 billion avg. ($37.28 billion cum.)

GFI also found that the top exporters of illegal capital in 2011 were:

  1. Russia.................................................................. US$191.14 billion
  2. China................................................................... US$151.35 billion
  3. India....................................................................... US$84.93 billion
  4. Malaysia ............................................................... US$54.18 billion
  5. Saudi Arabia.......................................................... US$53.63 billion
  6. Mexico................................................................... US$38.09 billion
  7. Brazil..................................................................... US$34.10 billion
  8. Thailand................................................................ US$29.11 billion
  9. South Africa.......................................................... US$23.73 billion
  10. Costa Rica............................................................. US$21.11 billion
  11. Indonesia............................................................... US$19.60 billion
  12. Iraq........................................................................ US$15.03 billion
  13. Belarus................................................................... US$14.09 billion
  14. Nigeria................................................................... US$12.89 billion
  15. Philippines............................................................. US$12.19 billion
  16. United Arab Emirates............................................ US$11.70 billion
  17. Turkey................................................................... US$10.20 billion
  18. Qatar....................................................................... US$9.31 billion
  19. Poland...................................................................... US$9.14 billion
  20. Kazakhstan.............................................................. US$8.22 billion
  21. Paraguay................................................................. US$7.99 billion
  22. Trinidad and Tobago............................................ US$7.64 billion
  23. Sudan....................................................................... US$6.83 billion
  24. Egypt......................................................................... US$6.41 billion
  25. Syrian Arab Republic............................................ US$5.66 billion

The new report is the first GFI study to examine illicit financial outflows on a regional basis as a percent of GDP, determining that Sub-Saharan Africa—whose illicit outflows averaged 5.7 percent of GDP each year—suffers the most due to such outflows.  Globally, annual illicit financial outflows averaged 4.0 percent of GDP.

 Contact the author at smeyerow@optonline.net

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