Unrecorded capital flight from developing countries, aided by tax havens, has made these countries net creditors to the rest of the world, according to a new report by a group of experts from Brazil, India, Nigeria, Norway and the US.

Their report shows that since 1980 developing countries lost $16.3 trillion dollars through discrepancies in balance of payments and recorded financial transfers as well as through trade mis-invoicing.


“These resources represent immense social costs that have been borne by the citizens of developing countries around the globe,” noted the research project, which was funded by the Research Council of Norway, with research assistance provided by economists in Brazil, India, and Nigeria, represented by Professor Godwin Akpokodje of the Nigerian Institute of Social and Economic Research.

In the financial analysis, according to the report, developing countries have effectively served as net creditors to the rest of the world with tax havens playing a major role in the flight of unrecorded capital.

For example, the report notes, in 2011 tax haven holdings of total developing country wealth were valued at $4.4 trillion, which exacerbated inequality and undermined good governance and economic growth.

Sub-Saharan Africa was the biggest loser, as assets held in tax havens grew at an annual rate of over 20 per cent from 2005 to 2011, a faster rate than that of any other region either developed or developing, the report notes.

Washington, DC-based Global Financial Integrity (GFI), the Centre for Applied Research at the Norwegian School of Economics and the team of experts spent three years on the project.

“This report is the most comprehensive analysis of global financial flows impacting

developing countries compiled to date,” said GFI President Raymond Baker.

The report was highly critical of offshore tax havens, which were accused of undermining “the capitalist system by facilitating criminal, corrupt, and tax evading commercial financial flows, which has an especially detrimental impact on growth in poor countries”.

“There is perhaps no greater driver of inequality within developing countries than the

combination of illicit financial flows and offshore tax havens,” said Mr. Baker, who presented the report in Bergen in Norway at the end of November.

The report calls for “much improved statistical compilation and reporting…in order to have a more adequate picture of global financial flows”.

The experts say that this task is to be undertaken by various multilateral financial institutions such as the International Monetary Fund (IMF), World Bank and the Bank for International Settlements.

The report also highlights the need for much greater transparency in domestic and global financial systems, particularly with regard to tax haven jurisdictions.

GFI has called on governments to create public registries of beneficial ownership, so that companies and individuals cannot keep secret accounts to transfer and use funds, illicit or otherwise.

Financial institutions and governments should be wary of transactions without verified beneficial ownership information and consider applying extra scrutiny in such cases, GFI suggests.

Source: GNA/


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