Corrupt elites siphon aid money intended for world’s poorest

A new study has found that as much as a sixth of foreign aid intended for the world's poorest countries has flowed into bank accounts in tax havens owned by elites.

The report from the World Bank, opens with the simple question: "Do elites capture foreign aid?". 

The overriding conclusion of the 46-page report says they do: "Our results document cleanly and robustly that aid disbursements are associated with wealth accumulation in offshore accounts".

On average 7.5% of the aid given over the 10-year period between 1999 and 2010 ended up in tax havens, such as Switzerland and Luxembourg. However, this increases with the ratio of aid to GDP, the study found, with as much as 15% "leakage" for the most aid dependent countries. The average of total foreign deposits was $199 million.

The authors point out that the same correlation was not found for normal banking jurisdictions. Instead it went to countries where banking secrecy is upheld. "If the money derives from corruption and embezzlement, we should not be surprised to see it flowing to jurisdictions with legal institutions emphasizing secrecy," says the Elite Capture of Foreign Aid report. 

These findings will add fuel to the fire of foreign aid cuts. President Donald Trump has proposed slashing the foreign aid budget by 21% in his 2021 budget. In the U.K., Boris Johnson has ordered a review into how the £14.6 billion ($18.7 billion) foreign aid budget is spent.

Tax havens and wealth managers could also face tougher scrutiny for their role in banking the aid money. Luxembourg, Cayman Islands, Bahamas, Hong Kong and Singapore were singled out in the report. However, Switzerland received the largest funds over the review period. The country has recently been forced to repatriate funds siphoned by the late dictators of Nigeria and the Democratic Republic of Congo. 

Aid money funds luxury lifestyles 

It is possible that more than one sixth of aid money ends up in the hands of corrupt elites. The World Bank report only includes aid diverted to foreign accounts and not "money spent on real estate, luxury goods etcetera." 

Nor is it possible to say who is moving the money, though the study notes that it is "certain that the beneficiaries of the money flowing to havens at the time of aid disbursements belong to economic elites."

However, European courts have recently been alive with stories of just such corruption. Last year, Swiss authorities seized and sold a collection of sports cars belonging to the son of Equatorial Guinea's dictator Teodorin Obiang.

On February 10th, an appeal court in France fined Obiang €30 million ($33 million) for using public money to fund his lavish lifestyle, including properties in Paris valued at over €25 million ($26.9 million).

Then, on Tuesday February 11th, Portugal ordered bank accounts belonging to Angolan billionaire Isabel dos Santos to be frozen following requests from a criminal investigation in Angola, where she is being investigated over misappropriation of funds from the state oil company, Sonangol.

Rattled cages at the World Bank

The report has already proved controversial at the World Bank, which delayed its publication. The three economist-authors used data from the Bank which they compared with foreign-owned deposits in all significant financial centres. 

Then, ahead of its publication, the World Bank's chief economist unexpectedly quit. Penny Goldberg told the Economist the report had been "challenged a lot by people inside the World Bank."

Now the report will be challenged by politicians and aid donors ready to cut budgets. Nobody likes to hear their money is lining the pockets of corrupt elites. Sadly, as ever, it will be the poor who will loose out.

View the World Bank report: Elite Capture of Foreign Aid : Evidence from Offshore Bank Accounts 

Original source: Forbes

Image credit: Zeze Ballah, The Bush Chicken