The IMF and World Bank are the world’s two leading lending institutions, but much of their monetary assistance disappears once it enters the banking systems of developing countries. Cite concrete evidence that supports the assertion that much assistance to developing countries is simply stolen by officials. Determine other main factors that account for the misuse of these funds.
There really is no good source of verifiable data on the theft of international aid money by corrupt government officials. Money, of course, is a fungible commodity, and once aid money from the International Monetary Fund or the World Bank enters a government’s budgetary stream, it become difficult to trace. Even to the extent loans and grants are tied to specific projects, for example, construction of infrastructure, it can be difficult to track. The larger problem of government corruption, however, is well-known. The principal nongovernmental source on corruption around the world is Transparency International, a link to whose website is provided below. Transparency International conducts annual assessments of corruption in every country in the world and ranks each country according to its level of corruption. For example, Denmark and New Zealand are rated as the least corrupt countries in the world, with Afghanistan, North Korea and Somalia ranked as the most corrupt. Unsurprisingly, the correlation between a country’s level of development and its position on the corruption ladder clearly indicates that a relationship between level of development and corruption exists. As the least developed countries are also the more corrupt countries, in most instances, and as the least developed countries are the main recipients of World Bank assistance, it can be deduced that international aid disappears into the coffers of corrupt leaders and officials in those countries. Similarly, IMF loans, which are usually provided to help stabilize a country’s currency, are vulnerable to pilfering, although precise or reliable data is, again, difficult to come by.
Part of the problem with determining how much international assistance is stolen is inherent in the murky world of international finance and the historical success of Switzerland and so-called “off-shore” tax havens in attracting money, illicit or legal. In fact, Switzerland’s bank secrecy laws, currently under attack by the U.S. Department of Justice for sheltering large amounts of money hidden for tax purposes, has represented a huge “black hole” as far as investigations into stolen wealth are concerned. Money stolen by corrupt leaders frequently ends up in countries like Switzerland precisely because of that country’s “no questions asked” approach to international banking. As Transparency International, quoted in a major report of the United Nations Office on Drugs and Crime and the World Bank, titled Stolen Asset Recovery Initiative: Challenges, Opportunity and Action Plan (2007), noted between $20 and $40 billion “…has over the decades been illegally and corruptly acquired from some of the world’s poorest countries, most of them in Africa, by politicians, soldiers, businesspersons and other leaders, and kept abroad in the form of cash, stocks and bonds, real estate and other assets.” The U.N./World Bank report then states that “[t]his stock figure is much lower than what one might expect, given the flow of 25 percent of African GDP often cited as being lost in total corruption, which amounts to $148 billion per year in current dollars.” [http://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf]
So, it is difficult if not impossible to state with authority how much IMF and World Bank money has been stolen, but it is routinely determined that billions of dollars do disappear annually into the bank accounts of corrupt officials. That said, it is incorrect that “most” foreign aid money is stolen by recipients. Much may be wasted through inefficiency and funding of dubious projects, but it cannot simply be stated that most is stolen. The U.S. Department of State Bureau of International Narcotics and Law Enforcement Affairs (INL), also known as “Drugs and Thugs” for the bureau’s focus on international criminal activity and government corruption, annually publishes its International Narcotics Strategy Report, the second volume of which is always dedicated to a lengthy discussion of money laundering and financial crimes in every country of the world. This annual report is considered authoritative and reflects a great deal of research by U.S. Foreign Services officers posted in U.S. embassies and consulates around the world. The most recent version of this report includes the following notation on Switzerland:
“Reports indicate that criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide. These illegal activities include, but are not limited to, financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorism financing, and corruption. Although both Swiss and foreign individuals or entities launder money in Switzerland, foreign narcotics trafficking organizations, often based in Russia, the Balkans, Eastern Europe, South America, and West Africa, dominate the narcotics-related money laundering operations in Switzerland.”
This statement speaks to the difficulties inherent in tracking money once it has been “laundered” through ostensibly legitimate financial institutions. Having been responsible for tracking money laundering issues around the world while employed with the U.S. Senate Banking Committee, this educator can attest to those difficulties. Governments in Equatorial Guinea, Nigeria and many other developing countries are rife with corruption, whether involving embezzlement of state-owned assets, skimming from the revenues associated with natural resources like oil and diamonds, accepting bribes from foreign companies seeking preferential treatment, involvement in narcotics trafficking or any other illicit activity. Corruption, unfortunately, is a fact of life in much of the world. Quantifying it, however, is rarely easy.