draining development.pdf - Khazar University

The Practical Political Economy of Illicit Flows 463‘paper centers,’ providing a home for shell companies and trusts, proxybanking institutions, and captive insurance companies” (Palan, Murphy,and Chavagneux 2010, 27). They add little economic value and employfew people relative to the number of companies and other legal entitiesto which they are formally home. They exist purely to facilitate the hidingof assets, money laundering, and the evasion of tax. These basic taxhavens are an outcome of high levels of international economic inequality.Most were originally small island colonial dependencies, especially ofthe United Kingdom, that moved into the tax haven business in responseto decolonization, the disappearance of imperial subsidies, and seriousdifficulties of identifying alternative new sources of national income andgovernment revenue (Palan, Murphy, and Chavagneux 2010). The secondtype of tax havens are offshore financial centers, which providesome of the basic tax haven services of secrecy, money laundering, andtax avoidance, but employ more people, undertake a wider range offinancial services, and, to some extent, do add economic value. Whilebasic tax havens tend to be small island jurisdictions, often in the Caribbean,offshore financial centers are more likely to be located within thefinancial service sectors of larger and more prosperous economies,including Singapore, Switzerland, the United Kingdom, and the UnitedStates (Palan, Murphy, and Chavagneux 2010). Both kinds play a centralrole in illicit financial flows. Their existence increases the opportunitiesto transfer money clandestinely and then store it secretly and securely. Itrewards and thus motivates illicit movements of money across internationalborders and the illicit activities such as grand corruption or transfermispricing that often underlie these movements.Natural resource rentsIn quantitative term, rents from point natural resources—that is, mineralsand energy—have grown considerably in recent decades. 3 Althoughthe international energy and minerals economies tend to be unstable,demand and prices have tended upward in recent decades, and extractionactivities have spread into poorer regions hitherto considered toodifficult politically or technically. Relative to the 1960s and 1970s,resource rents are now less concentrated in the Middle East and NorthAfrica and have become more important around the Caspian Basin (theCaucasus, Central Asia, and the Russian Federation) and in Sub-Saharan