draining development.pdf - Khazar University

496 Draining Development?In terms of the Blankenburg and Khan taxonomy of definitions of capitalflight in chapter 2, this definition is legalistic, with its emphasis on theformal law, regardless of whether the regime enacting the law has sociallegitimacy. It ignores the distinction between the terms illegal and illicit,whereby the latter term covers concepts of morality.Illicit includes some actions that are not covered by illegal, and viceversa. 17 For example, if Zambia has no transfer pricing regulations, thena contract with abusive transfer pricing terms may be illicit, but not illegal.Meanwhile, moving private funds out of Myanmar almost certainlywill be illegal, but may not be illicit if it represents the assets of an individualescaping the inhumane rule of that nation.Whether the distinction turns out to be important cannot be determineda priori; it involves sensitive judgments. If governments lackingmoral legitimacy account for a small share of IFFs, then this becomes aminor issue. However, the estimates do not allow such a simple solution.The government of China, which accounts for such a large share of IFFestimates, has delivered extraordinary economic prosperity to its peopleover the last 30 years. It may not be democratic, but its achievement givesthe government an important element of legitimacy. Does this imply thatall violations of the government’s many unreasonable restrictions on economicactivities and individual mobility should be considered illicit?The Russian Federation, also among the top 10 nations in terms ofestimated IFFs, presents another difficult case. The government has beendemocratically elected, but has used capital control violations for politicalends. This was one of the weapons it used to close down Yukos OilCompany and target the Yukos chief executive officer, Mikhail Khodorkovsky,for allegedly political reasons (Sakwa 2009). Are all violations ofthe Russian government’s controls illicit?One argument for using a legally oriented definition is that it simplifiesthe task. However, it does so at the expense of conceptual clarity.Moreover, it grants a legitimacy to regimes with foundations that areanything but licit. Major developing countries such as Iraq, Libya, Nigeria,and Pakistan have, at times in the last 20 years, been ruled by regimesthat violated any notion of democracy and created legal systems thatbenefited only a small, privileged subset of the population. To assert thateach of these nations would have been benefited if legitimately earnedmoneys had not been smuggled away from brutal and corrupt regimes is