draining development.pdf - Khazar University

How Well Do Anti–Money Laundering Controls Work in Developing Countries? 381money laundering directive and other legislation; or (3) education orhealth payments to family and friends, which can be substantial and canbe paid from corporate or third-party funds, usually overseas. An importantquestion is what proportion of bribes is retained internally (fromdomestic sources) or imported (from external sources); conversely, whatproportion is exported (from domestic sources) and retained overseaswithout being imported (from external sources)? Unfortunately, dataare unavailable to examine this, and it is unclear what proxies coulddefensibly be used instead.It is conventional to start with a discussion of the extent to which theproceeds of corruption are laundered, but, because the issue is dealt withelsewhere in this volume, I make only cursory reference here. Thus,Goredema and Madzima (2009), Chaikin and Sharman (2009), andShaxson (2011) reiterate the estimated global figure of US$1 trillion inbribes, which itself derives from Baker (2005) and Kaufmann (2005). 10This figure is at risk of becoming a “fact” by repetition, but, irrespectiveof arguments about its validity, the numbers are big enough to matter todeveloping countries. Most of it may well go to routine low-level bribes,incidental to the hazards of everyday interactions with officials in manypoor countries; these rarely lead to a demand for money laundering services,but simply help to finance the modest daily lives of low-level officials.It is the high-level corruption that is salient to AML measures.It is often asserted that large sums have been exported by kleptocraticpublic officials, but much smaller sums are usually detected in overseasaccounts, and even smaller sums are recovered. This is true even if nodeals are done, as they were with the Abacha family, thereby allowingfamily members to keep many millions, while they agreed to returnlarger sums to the national treasuries (see Maton and Daniel’s chapter13, in this volume). Some of the attrition may result from sophisticationin the layering of beneficially owned corporate secrecy vehicles, as well asfrom inadequacies or corruption in the pursuit of the money trail. Inaddition to secrecy over the value of exports in the extractive industries,cases in different parts of the world indicate that the nontransparency ofcontracts in the security and intelligence areas offers great scope for corruptionand the nondetection of corruption in the awarding of contractsboth for goods and for protection services, overriding whatever normalinternal audit controls may exist (Daniel and Maton 2008; Salonga 2000;