draining development.pdf - Khazar University

Introduction and Overview: The Dynamics of Illicit Flows 7nance in developing countries, an issue dealt with by Mick Moore in chapter14 in this volume. Attention to the issue has also grown as the demandfor greater resources to finance development has collided with the shrinkingvolume of funds arriving from developed countries following thefinancial crisis and, more generally, with the lack of support by taxpayers.The greater attention has highlighted that illicit flows may be engenderedby official development assistance given that aid represents, in some countries,a substantial share of the money available to central governments. Italso highlights that misuse of the funds helps undermine support for foreignaid. Still, if there are large flows of illicit funds out and if they can becurbed, the development finance gap can be met painlessly.Definition is an important source of controversy in the study of thisphenomenon. 10 “Illicit financial flows” is an ill-defined term, and theboundaries are disputed. “Illicit” is not the same as “illegal.” No one willdeny that the deposit of Mobutu Sese Seko’s corrupt earnings in Swissbanks is an illicit flow. However, there will be less agreement, for example,about flows that represent efforts to evade the arbitrarily administeredtaxes and regulations of corrupt governments; efforts to evade theoppressive economic legislation of President Ferdinand Marcos mighthave been illegal, but they were not necessarily illicit. Perhaps the definingcharacteristic of illicit is that (1) the acts involved are themselvesillegal (corruption or tax evasion) in a regime that has some democraticlegitimacy, or (2) the funds are the indirect fruits of illegal acts (forexample, benefits given to those who have provided illegal funding for apresidential election). Thus, illicit funds are not merely the consequenceof bad public policy and do not include all international illegal financialflows from illegitimate regimes. The questions about definition are takenup in a number of chapters, notably, those of Stephanie Blankenburgand Mushtaq Khan (chapter 2) and Max Everest-Phillips (chapter 3).The remainder of this chapter gives brief summaries of the individualchapters.The Political Economy of Illicit FlowsIn chapter 2, Stephanie Blankenburg and Mushtaq Khan, economists atthe School of Oriental and African Studies, in London, develop an analyticalframework that identifies core determinants and drivers of illicit