NGO "ANOTHER WAY" (STICHTING BAKENS VERZET), NETHERLANDS, SUSTAINABLE INTEGRATED SELF-FINANCING DEVELOPMENT PROJECTS AND ADVANCED DEVELOPMENT TECHNOLOGIES

Tax havens in the UK and the G8 have a primary role “in a global merry-go-round that helps keep 1.3 billion people in poverty and hunger, while denying developing countries the ability to benefit from their own wealth, and raise the public funds”. (How Tax Havens Plunder the Poor, Action Aid UK, London, May 2013, executive summary.)

Read Illicit Financial Flows from Africa : Hidden Resource for Development, Kar D. and Cartwright-Smith D., Global Financial Integrity, Washington, 2010. The document can also be downloaded directly through the homepage of Global Financial Integrity. Select “site map” at the bottom of the homepage, then in the Reports Section select “Global Financial Integrity : Illicit Financial Flows from Africa : Hidden Resource for Development”, then select “click here” at the bottom of the summary page.

This resource includes statistical country by country tables for Africa and a good list of references for students wishing to take their analysis on this subject further.

“This massive flow of illicit money out of Africa is facilitated by a global shadow financial system comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, and money-laundering techniques.” (Preface, p. 1)

“Over the 39-year period [1970-2008] Africa lost an astonishing $US 854 billion in cumulative capital flight – enough to not only wipe out the region’s total external debt of around $US 250 billion (at end-December 2008) but potentially leave $US 600 billion for poverty alleviation and economic growth. Instead, cumulative illicit flows from the continent increase from about $US 57 billion in the decade of the 1970’s to $US 437 billion over the nine years 2000-2008” (p. 10).

“Teodorin Obiang, the son and heir-apparent of Equatorial Guinea’s President Obiang, [has been able] to buy a mansion in Malibu, a private jet, several Ferraris and Lamborghinis, and a jewel-encrusted glove belonging to the late Michael Jackson. He even commissioned plans to build the world’s second-biggest yacht worth $380 million — almost three times more than his country spends annually on health and education programs combined, and all this in a country where almost 80 percent of the population falls below the poverty line and a third die before the age of 40.” ( McNair, D., 4 Ways to end the “trillion dollar scandal”, Devex new bulletin, Washington, 03 September 2014.)

For a fascinating account of the situation in Zimbabwe in 2014 see E. Cross, Greed Corruption and Transparency, Zimbabwe Situation, zimbabwesisutation.com, 25 January, 2014.

Adjusted, “total illicit flows from Africa over the period 1970-2008 more than double from $US 854 billion to $US 1.8 trillion. While this is a staggering volume of illicit outflows, it is likely to be still higher if we were to include flows due to other illegal activities.” (p. 16)

“Developing countries lose at least $10 through illegal flight for every $1 they receive in external assistance.” (p. 17)

“The bottom half of the world’s population owns the same as the 85 richest people in the world.’” (Fuentes-Nieva, R. and Galassso, N. Working for the Few : Political capture and economic inequality, Oxfam Briefing Paper 178, Oxfam, Oxford, 20 January, 2014, introduction). The authors continue on p. 11 : “Concentration of wealth in the hands of the few leads to undue political influence, which ultimately robs citizens of natural resource revenues, produces unfair tax policies and encourages corrupt practices, and challenges the regulatory powers of governments. Taken altogether, all of these consequences serve to worsen accountability and social inclusion……..Today’s unprecedented levels of economic inequality tell us that left unchecked representative institutions will decay still further.” On p. 18 they add that “It is estimated that between 2008 and 2010 sub-Saharan Africa lost on average US$ 63.4 billion dollars this way [illicit use of tax havens] each year, more than twice it received in aid.”

Corruption.

Corruption is a major cause of financial leakage from poor countries.

There are many facets to the fight against corruption.

Read Shah A., Corruption , Global Issues, updated: November 07, 2010. This paper includes a good list of references for anyone who wishes study corruption in more detail. Anup Shah cites Dr Susan Hawley, Exporting Corruption; Privatisation, Multinationals and Bribery, The Corner House, Briefing 19, Sturminster Newton, June 2000 as follows: “…multinationals ….bribes are conservatively estimated to run at US$ 80 billion a year – roughly the amount that the UN believes is needed to eradicate global poverty”.

To fully understand the relationship between integrated development projects under the Model and the problem of corruption, refer to Section 6: Corruption of block 5. How project structures solve specific problems of the course.

For corruption in the Sahel read the article by Thurston, A., For Corruption, Few Places Worse than the Sahel, Global Observatory, The International Peace Institute, New York, 24 September, 2012.

Local investment of profits from corruption.

You can see from the slide that local investment of corruption revenues would not necessarily cause financial leakage from the local area.

1. Opinion.

In which situations would there be a financial leakage and in which situations would there be no financial leakage ?

Is local investment of local of corruption revenues common or uncommon in your country ? Why ?

In case of local investment of corruption profits, why would it lead to an unequal distribution of wealth ?

Offshore accounts in industrialised countries.

2. Opinion.

Why would a resident in a poor country prefer to make payments into a foreign bank rather than into a local bank ?

Here are some aspects you might wish to consider :

The security of the investments..

Tax evasion.

Lack of commercial initiatives at local level.

The illegal character of the profits in question.

The illegal nature of the purchases to be made, for instance arms purchases.

This problem is by no means limited to developing countries. For a recent analysis of the situation in the United States read Klinger S. et al, Unfair Advantage : The Business Case Against Overseas Tax Havens, American Sustainable Business Council et al, Washington, 20 July. 2010.

Purchases of luxury goods abroad.

3. Opinion.

Do you know of examples of businesses and businessmen or other persons from your country who possess goods situated abroad?

4. Opinion.

Suppose you are in the happy situation of having financial means to invest. Where would you invest your funds ?Why ?

Importation of luxury goods into developing countries.

A third level of financial leakage is the importation of luxury goods into developing countries.

Warning ! Funds used for these purposes can be either legal or illegal.

5. Research.

Which luxury goods are most commonly imported into your chosen area?

Why are they imported there?

How much are they worth ?