How Industrialized West Enables Corruption in Developing World

Some have called London the "Money Laundering Capital of the World" where corrupt leaders from developing nations use looted wealth from their people to buy expensive real estate and other assets. Private individuals and businesses from poor nations also park money in the west and other off-shore tax havens to hide their incomes and assets from the tax authorities in their countries of residence.

The multi-trillion dollar massive net outflow of money from the poor to the rich countries has been documented by the US-based Global Financial Integrity (GFI). This flow of capital has been described as "aid in reverse". It has made big headlines in Pakistan and elsewhere since the release of the Panama Papers and the Paradise Leaks which revealed true owners of offshore assets held by anonymous shell companies. Bloomberg has reported that Pakistanis alone own as much as $150 billion worth of undeclared assets offshore.

Politicians Dominate Off-shore Company Owners in Panama Leaks

Aid in Reverse:

In 2012, the latest year for which data is available, developing countries received $1.3 trillion, including all aid, investments, worker remittances, and other income from abroad. In that same year some $3.3 trillion flowed out of them. In other words, developing countries sent $2 trillion more to the rest of the world than they received, according to the data compiled by the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics and reported by the UK's Guardian newspaper.

Laws in America and Europe allow the creation of anonymous shell companies. An anonymous shell company is a corporate entity that has disguised its ownership in order to operate without scrutiny from law enforcement or the public. These “phantom firms” can open bank accounts and wire money like any other company, making them a favorite tool for money launderers to hide their business and assets from authorities, according to the US-based Global Financial Integrity (GFI).

GFI estimates that developing countries have lost as much as $13.4 trillion through unrecorded capital flight since 1980. Bloomberg reports that Pakistanis own $150 billion worth of undeclared offshore assets, attributing this estimate to Syed Muhammad Shabbar Zaidi, a partner at Karachi-based A.F. Ferguson and Co. -- an affiliate of PricewaterhouseCoopers LLP.

Impact on Economic Growth:

There's a direct relationship between investment and GDP. Flight of capital reduces domestic investment and depresses economic growth in poor countries. Lower tax revenues also impact spending on education, health care and infrastructure, resulting in poor socioeconomic indicators.

In Pakistan, for example, it takes investment of about 4% of GDP to grow the economy by 1%. Lower levels of investments in the country has kept its GDP growth below par relative to the rest of South Asia.  Any reduction in the outflow of capital to offshore tax havens will help boost economic growth in Pakistan to close the gap with its neighbors, particularly Bangladesh and India whose economies are both growing 1-2% faster than Pakistan's.

Panama Papers Leak:

There is an entire industry made up of lawyers and accountants that offers its services to help hide illicit wealth. Mossack Fonseca, the law firm that made headlines with "Panama Leaks", is just one example of companies in this industry.

Mossack Fonseca's 11.5 million leaked internal files contained information on more than 214,000 offshore entities tied to 12 current or former heads of state, 140 politicians, including Pakistan's now ex Prime Minister Nawaz Sharif's family.  Icelandic Prime Minister resigned voluntarily and Pakistani Prime Minister was forced out by the country's Supreme Court.

The Panama list included showbiz and sports celebrities, lawyers, entrepreneurs,  businessmen, journalists and other occupations but it was heavily dominated by politicians.

War on Tax Evasion and Money Laundering: 

Organization of Economic Cooperation and Development (OECD), the club of world's rich industrialized nations, and some of its member states appear to be taking some steps to stem the global rising tide of tax evasion and money laundering.

OECD is promoting  enhanced co-operation between tax authorities through AEOI (Automatic Exchange Of Information) to bring national tax administrations in participating countries in line with the globalized economy.

Several countries, including the United Kingdom, are working on legislation forcing the disclosure of the ultimate beneficial owners of the properties held by anonymous shell companies. The new laws will establish publicly accessible registry of beneficial owners of real estate.

Tax Amnesty Schemes:

Developing countries are offering tax amnesty schemes to bring back the off-shore wealth to help their economies. Argentina and Indonesia did this recently.  Indonesia's tax amnesty in 2017 saw $330 billion worth of assets declared.   Pakistan is in trying to the do the same to help build its dollar reserves and expand its tax base.

Under Pakistan's announced tax amnesty, Pakistani citizens can declare previously undeclared foreign assets and still keep them abroad by paying 5% penalty for liquid assets and 3% penalty for real estate. Alternatively, they can declare and repatriate liquid assets to Pakistan by paying just 2% penalty.

The assets covered by the amnesty include "real estate, mortgaged assets, stock and shares, bank accounts, bullion, cash, jewels, paintings, accounts and loan receivables, beneficial ownership or beneficial interests or contribution in offshore entities and trusts."

Summary:

Laws and practices in the West and other offshore tax havens encourage corruption in developing nations that results in net outflow of trillions from poor countries to the rich industrialized world, according to the US-based Global Financial Integrity (GFI). There are some efforts underway to stem this outflow. Pakistanis hold as much as $150 billion in undeclared assets overseas. The latest tax amnesty in Pakistan is an attempt to bring some of it back to the country, or at least collect 3-5% of it in the form of penalties.

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Views: 332

Comment by Riaz Haq on April 16, 2018 at 7:39am

Pakistan Seeks Up to $1 Billion From Expats as Reserves Dwindle
By 
April 15, 2018, 11:48 PM PDT

https://www.bloomberg.com/news/articles/2018-04-16/pakistan-seeks-u...

Pakistan seeks manager for certificate sale due by June
South Asian nation foreign reserves falling fastest in Asia
Pakistan plans to raise as much as $1 billion from its diaspora in its latest effort to boost foreign-exchange reserves that have dropped close to the lowest in three years.

The government plans to launch an overseas certificate in U.S. dollars and rupees by June to raise between $500 million and $1 billion a year, Zafar Masud, director general of National Savings at the finance ministry, said by phone on Monday. Pakistan seeks bids for financial managers by April 30 for the transaction, he said.

“We were among the only few countries which didn’t have this product for expats,” said Masud. The sale will offer returns “better than what they’re getting in their home markets.”

Pakistan’s economy is facing headwinds before elections in July with foreign exchange reserves dropping at the fastest pace in Asia in the past year. The government also announced an amnesty offer this month that allows overseas Pakistanis to repatriate funds after paying a 2 percent cash tax. Islamabad decided not to issue international bonds after global rates spiked.

Comment by Riaz Haq on April 19, 2018 at 8:26pm

How to defeat Pakistan’s corrupt elite and return wealth to the people
The Pakistani opposition leader, Imran Khan, outlines his vision for change.

https://www.newstatesman.com/world/2018/04/how-defeat-pakistan-s-co...

For PTI, it is not just “politics”: it is a commitment to building a welfare state where the rule of law, meritocracy and transparency are guaranteed to all of our citizens. Pakistan is a country with abundant natural resources and wealth that have been stolen by a corrupt and predatory elite. We are committed to bringing this stolen wealth back to be used for the welfare of our people.

-------------

The Pakistani state must be responsive to the people in an accountable and transparent manner, and the nation’s development must be on the basis of equality and inclusivity. Only then can Pakistan play a stabilising role in the region, resolving to seek peace with its neighbours through conflict resolution and co-operation. Our general election in July is critical for the future of my country. 

Comment by Riaz Haq on April 29, 2018 at 4:16pm

Sharif’s legal woes, which the veteran leader says are politically motivated, could further boost Khan in the run up to the elections as an anti-corruption court is due to soon deliver a verdict on another Sharif trial. Khan has predicted Sharif will be jailed before the polls, likely in July.


To dislodge Sharif’s Pakistan Muslim League-Nawaz (PML-N) party, Khan’s PTI will have to make inroads into Pakistan’s biggest province, which is home to 110 million people and a well-oiled PML-N electoral machine built over several decades.

https://www.reuters.com/article/us-pakistan-politics-khan/pakistans...

With the red-brick minarets of Lahore’s Mughal-era Badshahi mosque in sight, Khan outlined a populist 11-point plan to usher in a new era of prosperity that he envisages for Pakistan after the general election at which he hopes to become prime minister.

“Today we are at crossroads,” said Khan, a former cricketing hero and founder of the Pakistan Tehreek-e-Insaf (PTI) party.

“It is time to change our destiny and think big.”

Khan told a boisterous crowd of about 100,000 people that Pakistan was “heading towards destruction” but his plan would help forge a fairer society and steer Pakistan towards a path first envisaged by the nation’s father, Muhammad Ali Jinnah.

Khan said that if elected he would build schools and “world class hospitals” across the country, while farmers would get cheap loans. He also pledged to build 5 million homes for the poor, which would create jobs and stimulate the economy.

After spending much of his post-cricket political career on the fringes, Khan has in recent years emerged as a key challenger to Sharif, a three-time prime minister who was ousted by the Supreme Court last year but whose party retains power.

Sharif’s legal woes, which the veteran leader says are politically motivated, could further boost Khan in the run up to the elections as an anti-corruption court is due to soon deliver a verdict on another Sharif trial. Khan has predicted Sharif will be jailed before the polls, likely in July.


Khan, who has sought to shed his playboy image of the past, is betting that his anti-corruption message, coupled with anti-America rhetoric and a projecting image of pious devotion, will propel him into power in the deeply conservative Muslim nation of 208 million people.

In Lahore, Khan’s message resonated with many of the bandana-wearing young men waving PTI’s green and red-color flags.

“Imran Khan has given us the slogan of ‘New Pakistan’ and that’s what we want,” said Shahzad Khan, 17, in reference to the “Naya Pakistan” slogan used by PTI.

Sharif has accused Khan of being a puppet of the powerful military establishment that has a history of meddling in Pakistani politics. Khan denies colluding with the army and the military denies interfering in modern-day politics.

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Sharif was the chief minister of Punjab in the 1980s and his younger brother Shahbaz has ruled the province since 2008, entrenching PML-N’s support across the wealthiest of Pakistan’s four provinces.

“We feel they are weakening with every day,” Khan told foreign journalist ahead of the rally.

He added that unlike in 2013, when PML-N swept to power, this time around many of the so-called “electables” - politicians who carry large rural vote banks due to their status as tribal elders, feudal lords and heads of various clans - will switch allegiances away from PML-N to PTI.

“The electables...weigh things up, they want to be on the winning side,” Khan told foreign media.

But at the Lahore rally, Khan shunned talk of electables and focused on promising a new dawn for Pakistan’s poor.

“This system cannot run unless we stand up with the downtrodden,” he said. “I am standing with you, it is time of make new Pakistan.”

Comment by Riaz Haq on May 2, 2018 at 3:18pm

With new order on unexplained wealth, UK can seize assets of corrupt politicians, criminals
Property in London and other major cities in the United Kingdom is said to be the major destination of corrupt cash.

https://www.hindustantimes.com/world-news/with-new-order-on-unexpla...

Corrupt foreign politicians and criminals who launder an estimated £90 billion every year through the United Kingdom will need to explain their wealth under a new law called Unexplained Wealth Order (UWO) that came into force this week, or face seizure.

Property in London and other major cities in the United Kingdom is said to be the major destination of corrupt cash. The British news media mention Russian oligarchs in this regard, but the measure applies toindividuals from all countries.

Transparency International UK has identified £4.4 billion worth of property in the UK that may be the target of UWOs. Five properties it suspects had been bought using corrupt wealth includes two by former Pakistan prime minister Nawaz Sharif in London.

Provided under the Criminal Finance Act, the UWO allows authorities to freeze and recover property if individuals are unable to explain how they acquired assets in excess of £50,000. Previously, British authorities had few powers to act unless the individuals had a conviction in the country of origin.


Ben Wallace, security minister, told The Times on Saturday that he wanted the “full force of the government” to bear down on criminals and corrupt politicians using Britain as a playground and haven: “When we get to you we will come for you, for your assets and we will make the environment that you live in difficult”.

“If they are an MP in a country where they don’t receive a big salary but suddenly they have a nice Knightsbridge townhouse worth millions and they can’t prove how they paid for it, we will seize that asset, we will dispose of it and we will use the proceeds to fund our law enforcement,” he added.

Rachel Davies Teka of anti-corruption Transparency International UK, said: “The introduction of UWOs is a significant moment in the fight against dirty money flowing into the UK. They will allow law enforcement to much more easily investigate assets that are highly likely to have been bought using corrupt money, often stolen from populations in some of the poorest parts of the world.”

“From Russia to Nigeria to the Middle East it is no secret that corrupt officials have channelled ill-gotten funds into the UK via the property market”.

Comment by Riaz Haq on May 10, 2018 at 11:04am

Confessions of an Economic Hitman by John Perkins

https://jamesclear.com/book-summaries/confessions-of-an-economic-hi...

The Book in Three Sentences
The United States is engaging in a modern form of slavery by using the World Bank and other international organizations to offer huge loans to developing nations for construction projects and oil production. On the surface this appears to be generous, but the money is only awarded to a country if it agrees to hire US construction firms, which ensures a select few people get rich. Furthermore, the loans are intentionally too big for any developing nation to repay and this debt burden virtually guarantees the developing nation will support the political interests of the United States.

Confessions of an Economic Hitman summary
This is my book summary of Confessions of an Economic Hitman by John Perkins. My notes are informal and often contain quotes from the book as well as my own thoughts. This summary also includes key lessons and important passages from the book.

“Few swim in riches and the majority drown in poverty, pollution, and violence.”
The top 1 percent of third world households account for 70 to 90 percent of all private financial wealth and real estate ownership in their country.
There are (were?) a famous group of pirates in Indonesia known as the Bugi. They so terrorized early European sailors that the sailors came home and told their children, “Behave yourselves or the Bugimen will get you.” Crazy origin of the phrase.
“The beacon shines on a destiny that is not always one we envision.”
The imperialist and capitalist drive is so strong and so pervasive that it has become the primary cause of most wars, pollution, starvation, species extinctions, and genocides.
Life is composed of a series of coincidences over which we have no control. Once we are presented with such coincidences, we gave choices. How we respond, the actions we take in the face of coincidences, makes all the difference.
How many decisions (including ones of great historical significance that impact millions of people) are made by men and women who are driven by personal motives rather than by a desire to do the right thing?
This book offers a startling reminder that debt is the new form of prison. Entire countries are handicapped by their debt to the United States and other major players.
Lesson: avoid debt at all costs of you want to remain free.
We decry slavery, but our global empire enslaves more people than the Romans and all other colonial powers before us.

Comment by Riaz Haq on May 14, 2018 at 5:16pm

$5 Billion Investment to Boost Pakistan Real Estate, as Major Developers Participate at the Dream Home Expo

https://www.albawaba.com/business/pr/5-billion-investment-boost-pak...

UAE-based BMS International Commercial Investment LLC, one of the Royal Group Companies of Sheikh Saeed Bin Khalifa Al Nahyan, has shown interest in investing $3 billion in different economic sectors of Pakistan, with a focus on real estate.

Louai Mohammed Ali, chairman of BMS International Commercial Investment, made the commitment to invest in Pakistan’s real estate development, agriculture and fisheries, energy, hospitality and leisure, healthcare and education sectors.

In December 2017, Egyptian tycoon Naguib Sawiris of Ora Developers and Pakistan’s Saif Group announced investing over $2 billion in real estate ventures in Islamabad.

Pakistan’s near-term outlook for economic growth is broadly favourable, the International Monetary Fund (IMF), said in a recent statement.

“Real GDP is expected to grow by 5.6 percent in FY 2017/18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained,” the IMF said in a statement in March 2018.

Total Foreign direct investment (FDI) into Pakistan surged 68.9 per cent to $4.45 billion in the nine months of FY2018, according to the central bank data.

With a population of almost 208 million people, Pakistan is suffering a shortage of 12 million houses, said a latest report. Karachi, with its behemothian population of 16.6 million, has an annual shortage of 300,000 houses. 

Pakistan’s growing economy supported by its investment sector has remained instrumental to the country’s economic growth over the last five years. With a spend of about $5.2 billion on real estate construction backed up by price correction of up to 20 percent and major advancements in the overall industry dynamics, the property market has enabled strong returns among investors compared to other investment avenues.

Likewise, recent studies have indicated a significant move in the local real estate market of Pakistan towards overseas investment, being identified as one of the largest investors in the International Property Market. Pakistan’s property buyers have increasingly secured homes and investment in Europe, GCC, Canada and UK.

Global real estate transaction value reached $698 billion in 2017, 6 percent above the total transacted in 2016, according to Jones Lang LaSalle, a global real estate advisory. Pakistani investors represented a good chunk of this.

Pakistani nationals have invested Dh24.98 billion in Dubai’s real estate through 19,955 transactions in the last four years (2014-2017), according to Dubai Land Department (DLD) making them the third largest non-Arab investor group by nationality.

DOME Exhibitions in collaboration with Pakistan’s leading media house Jang Media Group is back this year to bring the International Real Estate Investment opportunities in the heart of Pakistan with its much-awaited participation at the Dream Home Expo, Pakistan’s leading property and investment exhibition.

“Pakistanis and Non-Resident Pakistanis (NRP) alike have increasingly been investing within Pakistan and in international markets. Such investors have made their mark in countries across the world, acquiring not just investments but also citizenship opportunities through various investment programs,” said Antoine Georges, Managing Director of DOME Exhibitions, International Pavilion organizer of the exhibition.

Comment by Riaz Haq on May 27, 2022 at 4:23pm

HOUSE OF GRAFT: Tracing the Bhutto Millions -- A special report.; Bhutto Clan Leaves Trail of Corruption

https://www.nytimes.com/1998/01/09/world/house-graft-tracing-bhutto...

Officials leading the inquiry in Pakistan say that the $100 million they have identified so far is only a small part of a windfall from corrupt activities. They maintain that an inquiry begun in Islamabad just after Ms. Bhutto's dismissal in 1996 found evidence that her family and associates generated more than $1.5 billion in illicit profits through kickbacks in virtually every sphere of government activity -- from rice deals, to the sell-off of state land, even rake-offs from state welfare schemes.

The Pakistani officials say their key break came last summer, when an informer offered to sell documents that appeared to have been taken from the Geneva office of Jens Schlegelmilch, whom Ms. Bhutto described as the family's attorney in Europe for more than 20 years, and as a close personal friend. Pakistani investigators have confirmed that the original asking price for the documents was $10 million. Eventually the seller traveled to London and concluded the deal for $1 million in cash.

The identity of the seller remains a mystery. Mr. Schlegelmilch, 55, developed his relationship with the Bhutto family through links between his Iranian-born wife and Ms. Bhutto's mother, who was also born in Iran. In a series of telephone interviews, he declined to say anything about Mr. Zardari and Ms. Bhutto, other than that he had not sold the documents. ''It wouldn't be worth selling out for $1 million,'' he said.

The documents included: statements for several accounts in Switzerland, including the Citibank accounts in Dubai and Geneva; letters from executives promising payoffs, with details of the percentage payments to be made; memorandums detailing meetings at which these ''commissions'' and ''remunerations'' were agreed on, and certificates incorporating the offshore companies used as fronts in the deals, many registered in the British Virgin Islands.

The documents also revealed the crucial role played by Western institutions. Apart from the companies that made payoffs, and the network of banks that handled the money -- which included Barclay's Bank and Union Bank of Switzerland as well as Citibank -- the arrangements made by the Bhutto family for their wealth relied on Western property companies, Western lawyers and a network of Western friends.

As striking as some of the payoff deals was the clinical way in which top Western executives concluded them. The documents showed painstaking negotiations over the payoffs, followed by secret contracts. In one case, involving Dassault, the contract specified elaborate arrangements intended to hide the proposed payoff for the fighter plane deal, and to prevent it from triggering French corruption laws.

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