Illegal Financing Skyrocketed in 2011


Corruption and fraud are on the rise throughout the world, jumping sharply, according to 2011 data from Global Financial Integrity, Reuters reports.

The sum of $946.7 billion worth of illegally financed money is what left developing countries in 2011, up more than 13 percent from the year before. This means that nearly $1 trillion of funds was being laundered, stolen, moved through tax loopholes, and hidden from the authorities in 2011, according to calculations by Global Financial Integrity. The group is dedicated to providing information on corrupt activities and exposing them for authorities and the general public.

The sharp increase in illegal activities highlights a dichotomy that is emerging in developing nations. While their economies continue to struggle and governments remain strapped for cash, the underground economy has taken off, attempting to cut out taxes and levies altogether. This can be dangerous for governments in emerging countries, which often face political instability as well as economic hardships.

According to GFI, the greatest jumps in illegal financing over the past decade have been in the Middle East and North Africa, where levels are up by more than 30 percent since 10 years ago. Though an agenda of the Arab Spring was to combat corruption on the national level, many of the movements simply replaced one set of corrupt leaders with another. Additionally, local-level corruption and fraud, as well as actions by well-connected individuals, remain rampant.

The other area singled out by GFI was sub-Saharan Africa, where illegal transactions have jumped by more than 20 percent since 2002. Nigeria and South Africa were two of the biggest offenders. In an area of the globe where aid money is badly needed, corruption acts both as a draw of money from the region and as a way to undermine the legitimacy of foreign aid payments.

Among the techniques used by GFI to monitor illegal flows of money are trade mis-invoicing, in which imports and exports are recorded at different values in order to hide flows of cash. Another popular way to hide illegal financing is through discrepancies in investment numbers in both stock portfolios and other financial instruments.

The Group of 20 has taken one step to fight the rise in illegal financing, agreeing for member countries to begin sharing tax information by the end of 2015. This will allow international authorities to have a better grasp on how money is moving between nations and give them a tool to search out and investigate discrepancies with greater efficiency. Many countries, including those in the Group of 8, are also taking measures to combat shell corporations, looking for ways to crack down on the phantom firms that are often used to hide illegal money transfers.

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