We learned some devastating news last month. A new study from Global Financial Integrity revealed that despite the onset of the global financial crisis in late 2008, the developing world still suffered nearly $1 trillion in illicit financial outflows in 2009, a number that is almost 10 times larger than the official development assistance they receive each year from Western economies like the United States, United Kingdom and Norway.
These outflows — the proceeds of crime, corruption and tax evasion — bleed developing economies of much-needed tax revenue, exacerbate income inequality, and fuel the underground economy. They undermine the rule of law, entrench corruption, and shrink developing nation economies at a time when they can least-afford it.
It is encouraging to see the zealous enthusiasm that has surfaced in India over the past few years on eliminating black money or illicit financial flows. While many other countries are taking modest steps to curtail illicit flows, India has gone ahead to make the issue one of pressing national importance. Applause is due to the nation, while more work remains tobe done.
India has acted strongly to pressurise foreign banks into accounting for and in the future returning illicitly-acquired assets to the country. This is a worthwhile goal. But any asset recovery will be a long-drawn process and is likely to result only in a fraction of illicit dollars being returned. A more productive outcome can be to focus on stemming future illicit financial flows, both domestically through mechanisms such as anti- corruption legislation and by applying pressure on the international community.
Equatorial Guinea is a tiny nation of just 700,000 people, but it is rich in oil and other natural resources. President Teodoro Obiang, Teodorin’s father, has ruled the country since 1979. During that time, he has amassed a massive fortune, including over $700 million that Fortune Magazine estimated Obiang and his government stashed in one U.S. bank as recently as 2006.
They are using the state’s natural resource wealth to enrich the regime and the Obiang family. For example, the U.S. Government has alleged that in his position as Minister of Agriculture, Teodorin imposed a “revolutionary tax” on timber and insisted that the tax be paid in either cash or by check, made out to a company owned by Teodorin.
On September 11, 2001, I was in London. The television images of massive destruction and certain death were no less real for being an ocean away. My wife, departing that morning but turned back to London in mid flight, could not grasp what she was hearing until she, too, saw the falling towers of the World Trade Center and the hole blown into the Pentagon and learned of the flight that went down in Pennsylvania.
The budget 2011 is one among a series of budgets in the medium term that seeks to consolidate the Central government’s fiscal deficit and this is in line with what I had expected. Fiscal consolidation is mainly driven by revenue growth and steps in that direction are crucial in order to reconstitute fiscal space.
Fiscal space means the government can launch a well-targeted expansionary expenditure policy so as to boost investments in infrastructure. Massive increases in infrastructure are needed in order to raise India’s potential rates of economic growth in the long run and to achieve better balance in growth rates among India’s states. The Budget seems to recognise the need to boost growth rates in some lagging areas where there is widespread discontent that is driving certain insurgency groups like the Naxalites. Better balance in economic growth will help to achieve national cohesiveness.
Rumors spread today about the potential departure of Egyptian President Hosni Mubarak, but just last week, the President assured the Egyptian people that he loves his homeland, is proud of his service, and plans to live out his daysin Egypt after he graciously steps aside. And why shouldn’t he love his country? As president he and his family allegedly amassed an enormous fortune, some estimate as much as $40 to $70 billion, believed to be stashed in British and Swiss banks and invested in properties from London to Manhattan to Rodeo Drive. And while he is the corruption bogeyman of the hour, among world leaders he may well represent the rule and not the exception. Mubarak’s fortune points to a story behind the story. It is yet another example of the ease with which corrupt, criminal, and commercially tax evading money can be hidden, moved, and laundered in the global shadow financial system.
This year’s International Anti-Corruption Day is marred by a U.S. Chamber of Commerce attempt to weaken the Foreign Corrupt Practices Act (FCPA), our nation’s flagship anti-corruption legislation. Passed in 1977, the FCPA was a response to eroded public trust in government following the Watergate scandal and the admission by Lockheed and some 400 other American companies that bribery to foreign officials was a commonplace practice in international commerce.
The U.S. FCPA stood virtually alone on the global stage in the fight against corruption until the late 1990s, when other nations began adopting similar prohibitions. Today, the FCPA is buttressed by the UN Convention Against Corruption, a similar document binding members of the Organization for Economic Cooperation and Development, regional commitments, and a significant focus on the issue by the G20.
Writing about India’s booming economic performance and growth potential has become its own cottage industry over the last several years. Indeed, a report out this week predicts that India will become the world’s fastest growing economy by 2012 and, by 2030, will likely be the globe’s third largest economy behind China and the United States. From its educated work force to its embrace of technology and the likelihood it will be among the leaders in developing “green” businesses, it appears that India – other than the Commonwealth Games – can do no wrong. But the rosy picture has a dark underside that must be addressed if India’s stagnant income inequality levels are to be overcome.