draining development.pdf - Khazar University

146 Draining Development?Unfortunately, as long as the conflict between the formal (legal) andinformal (social) norms persists, illegal economic activities will flourishin Colombia. This is why cultural change should be a main policy goal.IntroductionMost illegal capital outflows from developing countries are associated withkleptocracy, corruption, and tax evasion and avoidance (Baker 2005).Since criminal gains need to be laundered to disguise their illegal origin,the funds are commonly channeled through scattered accounts at bankssituated in offshore financial centers that either facilitate financial transactionswithout investigating the origin of the funds or do not cooperate inAML investigations. Once the money is laundered abroad, the funds canbe used as legal capital anywhere, including in the country of origin.The need to send illicit funds abroad to be laundered may arise fromseveral situations. Thus, it might arise if the country of origin has thecapability to exercise some control over crime and illicit gains. In othercases, as in countries in which presidents or dictators have transferredbillions of dollars to hidden accounts in the first world, the fear of losingthe illicit money because of political change may explain the need. Countriesin which military forces control the territory and support authoritarianregimes have all experienced large illegal kleptocratic capital outflowsthat have skimmed from the national budget and national resources. Suchhas been the case in Haiti, Indonesia, Nicaragua, Pakistan, Paraguay, Peru,the Russian Federation, Saudi Arabia, and several African countries (Baker2005).The Colombian case differs substantially from the common pattern,however. In Colombia, money laundering has mainly been associatedwith the illegal drug industry, in which criminal activities cross borders,and payments are commonly made abroad. The main concern for therecipients of these funds is not only to launder the money, but also tobring the money to their countries, including back to Colombia. In thecase of kleptocrats, guerrillas, and common organized criminals, eventhough the illegal funds are, in some cases, sent abroad, they are investedor spent directly in Colombia in most cases. The amounts of funds thatthese actors wish to send abroad likely pales in comparison with theamounts that traffickers wish to bring back in.