draining development.pdf - Khazar University

148 Draining Development?if this person is part of a group that influences political elections, whosemembers are friends and relatives of the political elite, and that has astrong private military arm, the corrupt official would be tempted toinvest locally. Indeed, doing so, the official will obtain not only an economicreturn, as he would abroad, but also political influence. So, in thiscase, there is not much incentive to invest abroad. 1 This explains whymost funds generated through corruption are likely to remain in thecountry. The exceptions are the money paid to local politicians or decisionmakers by transnational corporations that deposit the funds in foreignaccounts or unusually large bribes associated with big governmentcontracts.Thus, in Colombia, where an important part of the economy is involvedin illicit, but socially legitimate economic activities and where corruption isnot centralized, but widespread, the need to send capital abroad to avoidseizures and expropriations is not particularly great. As a result, during thelast few decades, the domestic risk has been low, and so has the incentivefor outflows. Even though this might have changed recently, the incentivesto invest illegal capital in Colombia discourage illegal capital outflows.The most recent cases of corruption in Colombia have providedevidence of the existence of bank accounts and investments abroad.However, in many cases, it is possible that the related illicit paymentshave also been made abroad. The authorities have not yet reported anycapital outflows associated with these cases.This chapter analyzes why Colombian institutions constitute a fertileenvironment for the laundering and concealment of the proceeds of certainunlawful activities such as the illegal drug industry, kleptocracy, andorganized crime, provide good support for their resiliency, and, as aresult, encourage illegal capital inflows and reduce the need to launderillegal capital abroad.Using country-specific characteristics as explanatory variables is discouragedin the social sciences because doing so opens a Pandora box thatexplains everything through these particularities. However, Colombia hasbeen experiencing almost constant conflict for at least seven decades. Asshown below, official data indicate that 9 percent of the country’s populationhas been internally displaced. The International Organization forMigration estimates that, in 2008, there were 4.2 million Colombians livingabroad (Ramí rez, Zuluaga, and Perilla 2010). This means that about 18