draining development.pdf - Khazar University

10 Draining Developmentand present descriptive evidence that supports the view that profit shiftingtakes place from many developing countries into tax havens.Illegal MarketsThe international flows of funds in illegal markets, apart from the marketsfor drugs, have not been the subject of systematic empirical study.Nonetheless, it is routinely asserted that they also generate large flowsfrom developing countries, where cocaine and heroin are produced andfrom which many humans are trafficked. For example, as noted above,Raymond Baker (2005) estimates that illegal markets account for US$168billion–US$231 billion of the illicit flows from developing nations.In “Illicit Capital Flows and Money Laundering in Colombia” (chapter5), Francisco Thoumi, a Colombian economist, and Marcela Anzola,a Colombian legal scholar, assess illicit flows in Colombia primarily generatedby the trade in illegal drugs. They show that Colombia’s principalproblem is the inflow rather than outflow of drug moneys and that thishas had important economic and political consequences for the nation.For example, these flows have exacerbated the concentration of landownership in rural areas and, by providing access to foreign funds, alsoexacerbated the long-running insurgency. Though Colombia has enactedmodel asset-recovery and anti–money laundering (AML) control laws, adetailed examination of the record of the last decade indicates that it hasfailed to provide a serious threat to the financial well-being of traffickers.In turn, this reflects the failure of the Colombian state to establish normsof compliance with financial laws.Thoumi and Anzola argue that the key to these failures of wellwrittenlaws, as well as an important factor in Colombia’s prominencein the international cocaine trade, is the broad lack of compliance withlegal norms and the general weakness of the state.In “Human Smuggling and International Financial Flows” (chapter6), Pierre Kopp, an economist at the University of Paris (Sorbonne),examines the markets for human smuggling in the first such essay by aneconomist. These markets are varied, ranging from successfully assistingworkers to cross illegally into the United States to coercively employingsex workers from Thailand in Belgium. Drawing on basic economic concepts,Kopp shows that the financial flows vary by type of trafficking. In