Less Corruption than Advertised: African Capital Flight

Over the last 40 years, African has lost roughly $1 trillion (12 zeros) in money that fled overseas illegally. The first image that will come to most people's minds is likely government theft: a little embezzlement here, some graft there, and a handy foreign bank account make for a nice retirement package, no? Bribery accounts for a mere ... THREE percent of that total.

Watson, I hate to break this to you, but that's still over $30 billion. No small sum.


Yes, yes. But where does the rest come from? A new report finds that one-third is drug trafficking and two-thirds (roughly $666 billion) are ... corporate tax evasion from trade mis-invoicing. The volume of capital flight grew over the last decade thanks to rising commodity prices.

Illicit capital flight from Africa "drains hard currency reserves, heightens inflation, reduces tax collection, cancels investment, and undermines free trade," according to the report. The authors blame "a global shadow financial system comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, and money laundering techniques".

In the poorest countries that receive the most in financial aid, $10 leave the country for every $1 that goes in. However, even if every penny that government officials were taking out of the country came from aid, that would mean $0.30 of each dollar. That's bad, but it's ... less corruption than advertised. And it shows the importance of getting some international capital controls and international governance in place. The OECD countries aren't doing the job they should policing their own corporations.

(Hat tip: PNB. The World Bank discusses other forms of corruption that don't involve off-shore bank accounts, such as "the absence of action for very little money.")