Illicit Financial Flows: The Missing Link in Development

Featured Speakers: Raymond Baker, Global Financial Integrity; Daniel Kauffman, World Bank; Lord Daniel Brennan, Matrix Chambers; John Christensen, Tax Justice Network; Eva Joly, Norwegian Agency for Development Cooperation; Simon Pak, Penn State; Herman Wijffels, World Bank; Althea Lawson, Global Witness; Sanjay Reddy, Columbia University; Nancy Boswell, Transparency International

The goal of this conference was to examine the ways in which illicit financial flows inhibit development. Recognizing that “development” encompasses more than just foreign aid, presenters at the conference stressed a myriad of ways in which illicit financial flows are detrimental to the third world, and called for a variety of solutions on how to curb the ongoing illicit capital flight which unduly transfers wealth from developing countries to financial centers in developed nations.

Raymond Baker, author of Capitalism: Achilles’ Heel, argued that the “West” has been complicit in illicit financial flows by creating institutions, such as tax shelters and open financial centers, which have redirected 70-90% of the global income to the top 20% of the population since the 1960s. Baker estimated that 50 billion dollars goes into developing countries as foreign aid every year, yet 500 billion leaves these developing countries every year and enters developed countries through loopholes in the economic structures, thus making illicit financial flows one of the biggest obstacles the development community must face.

Participants each brought a specific interest or concern to the table. Daniel Kaufmann of the World Bank, called for a concerted effort towards the recovery and repatriation of stolen assets. Lord Daniel Brennan focused on a “global citizenry” which must react to these illicit flows with more prevention and deterrence. John Christensen discussed the lax regulations and constant secrecy within tax laws and the community of tax professionals. Additionally, Eva Joly argued that the development community would be better served by shutting down tax evasion centers located in developed nations rather than fight corruption abroad. Althea Lawson highlighted the specific issue of klepto-crats, who steal from their developing nations’ aid budget in order to invest in materials and funds in Western nations.

Overall, the conference provided detailed insight into the problem of illicit financial flows which are illegally utilized or created from bribery, theft, criminal proceeds, fraud, and tax havens. The event stressed the need for developed nations to create laws and structures that prevent the inflow of illicit capital. Equally important to combating this problem is the evolving role that banks can play in developing countries to monitor the status of financial resources in their own nations.

Sponsor: Global Financial Integrity, a program of the Center for International Policy

Location: Center for Strategic and International Studies

Date: Thursday June 28, 2007

Time: 8:00 am – 1:15 pm

Approximate Number of Attendees: 150

Intern Attending: Megan Niedermeyer