Monday, December 24, 2012

India Loses US$1.6 Billion in Black Money in 2010, Loses US$123 Bill


December 17, 2012
Clark Gascoigne, +1 202 293 0740 x222

WASHINGTON, DC – The Indian economy suffered US$1.6 billion in illicit financial outflows in 2010, capping-off a decade in which the world’s largest democracy experienced black money loses of US$123 billion, according to the latest report released today by Global Financial Integrity, a Washington-based research and advocacy organization.

The GFI study, titled “Illicit Financial Flows from Developing Countries: 2001-2010,” ranks India as the decade’s 8th largest victim of illicit capital flight behind China, Mexico, Malaysia, Saudi Arabia, Russia, the Philippines, and Nigeria, respectively.

“While progress has been made in recent years, India continues to lose a large amount of wealth in illicit financial outflows,” said GFI Director Raymond Baker.  “Much focus has been paid in the media on recovering the Indian black money that has already been lost.  This focus is for naught as long as the Indian economy continues to hemorrhage illicit money.  Policymakers and commentators should make curtailing the ongoing outflow of money priority number one.”

“$123 billion is a massive amount of money for the Indian economy to lose,” said Dr.Dev Kar, GFI Lead Economist and co-author of the report.  “It has very real consequences for Indian citizens.  This is more than $100 billion dollars which could have been used to invest in education, healthcare, and upgrade the nation’s infrastructure.  Perhaps last summer’s electrical blackout would have been avoided if some of this money had remained in India and been used to invest in the nation’s power grid.”

Co-authored by Dr. Kar and GFI Economist Sarah Freitas, the study is GFI’s annual update on the amount of money flowing out of developing economies through crime, corruption and tax evasion, and it is the first of GFI’s reports to include data for the year 2010.

The report—the first by GFI to incorporate a new, more conservative, estimate of illicit financial flows—found that all developing and emerging economies suffered US$858.8 billion in illicit outflows in 2010, just below the all-time high of US$871.3 billion set in 2008—the year preceding the global financial crisis.

“Astronomical sums of dirty money continue to flow out of the developing world and into offshore tax havens and developed country banks,” noted Mr. Baker.  “Regardless of the methodology, it’s clear: developing economies are hemorrhaging more and more money at a time when rich and poor nations alike are struggling to spur economic growth. This report should be a wake-up call to world leaders that more must be done to address these harmful outflows.”

Methodology

As developing countries begin to loosen capital controls, the possibility exists that the methodology utilized in previous GFI reports—known as the World Bank Residual Plus Trade Mispricing method—could increasingly pick-up some licit capital flows.  The methodology introduced in this report— the Hot Money Narrow Plus Trade Mispricing method—ensures that all flow estimates are strictly illicit moving forward, but may omit some illicit financial flows detected in the previous methodology.

“The estimates provided by either methodology are still likely to be extremely conservative as they do not include trade mispricing in services, same-invoice trade mispricing, hawala transactions, and dealings conducted in bulk cash,” explained Dr. Kar, who previously served as a senior economist at the International Monetary Fund.  “This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates.”

Findings

The US$858.8 billion of illicit outflows lost to all developing countries in 2010 is a significant uptick from 2009, which saw developing nations lose US$776.0 billion under the new methodology.  The study estimates the developing world lost a total of US$5.86 trillion over the decade spanning 2001 through 2010.1

“This has enormous ramifications for the developing world,” explained Ms. Freitas, a co-author of the report.  “Poor countries lost nearly a trillion dollars that could have been used to develop economically, a trillion dollars that could have been used to pull people out of poverty and save lives.”

Dr. Kar and Ms. Freitas’ research tracks the amount of illegal capital flowing out of 150 different developing countries over the 10-year period from 2001 through 2010, and it ranks the countries by magnitude of illicit outflows. According to the report, the 20 biggest exporters of illicit financial flows over the decade are:

1. China ............ ......... .. $274 billion average ($2.74 trillion cumulative)
2. Mexico ............ ......... ......... ...... $47.6 billion avg. ($476 billion cum.)
3. Malaysia ............ ......... ......... .... $28.5 billion avg. ($285 billion cum.)
4. Saudi Arabia ............ ......... ....... $21.0 billion avg.  ($210 billion cum.)
5. Russia ............ ......... ......... ........ $15.2 billion avg. ($152 billion cum.)
6. Philippines ............ ......... ......... . $13.8 billion avg. ($138 billion cum.)
7. Nigeria ............ ......... ......... ....... $12.9 billion avg. ($129 billion cum.)
8. India ............ ......... ......... ......... . $12.3 billion avg. ($123 billion cum.)
9. Indonesia ............ ......... ......... ... $10.9 billion avg. ($109 billion cum.)
10. United Arab Emirates ............ ... $10.7 billion avg. ($107 billion cum.)
11. Iraq ............ ......... ......... ......... $10.6 billion avg. ($63.6 billion cum.)2
12. South Africa ............ ......... ....... $8.39 billion avg. ($83.9 billion cum.)
13. Thailand ............ ......... ......... .... $6.43 billion avg. ($64.3 billion cum.)
14. Costa Rica ............ ......... ......... . $6.37 billion avg. ($63.7 billion cum.)
15. Qatar ............ ......... ......... ........ $5.61 billion avg. ($56.1 billion cum.)
16. Serbia ............ ......... ......... ....... $5.14 billion avg. ($51.4 billion cum.)
17. Poland ............ ......... ......... ...... $4.08 billion avg. ($40.8 billion cum.)
18. Panama ............ ......... ......... .... $3.99 billion avg. ($39.9 billion cum.)
19. Venezuela ............ ......... ......... $3.79 billion avg. ($37.9 billion cum.)
20. Brunei ............ ......... ......... ....... $3.70 billion avg. ($37.0 billion cum.)

For a complete ranking of average annual illicit financial outflows by country, please refer to Table 2 of the report’s appendix on page 36, or download the rankings by average annual illicit outflows here  [PDF | 51 KB].

Also revealed are the top exporters of illegal capital in 2010, which were:

1. China ............ ......... ......... ......... ......... ..... $420.36 billion
2. Malaysia ............ ......... ......... ......... ......... .. $64.38 billion
3. Mexico ............ ......... ......... ......... ......... .... $51.17 billion
4. Russia ............ ......... ......... ......... ......... ...... $43.64 billion
5. Saudi Arabia ............ ......... ......... ......... ..... $38.30 billion
6. Iraq........ ......... ......... ......... ......... ......... ..... $22.21 billion
7. Nigeria ............ ......... ......... ......... ......... .... $19.66 billion
8. Costa Rica........ ......... ......... ......... ......... ..... $17.51 billion
9. Philippines ............ ......... ......... ......... ........ $16.62 billion
10. Thailand.... ......... ......... ......... ......... ......... .. $12.37 billion
11. Qatar ............ ......... ......... ......... ......... ....... $12.36 billion
12. Poland ............ ......... ......... ......... ......... ..... $10.46 billion
13. Sudan ............ ......... ......... ......... ......... ....... $8.58 billion
14. United Arab Emirates ............ ......... ......... .. $7.60 billion
15. Ethiopia ............ ......... ......... ......... ......... ..... $5.64 billion
16. Panama ............ ......... ......... ......... ......... ..... $5.34 billion
17. Indonesia ............ ......... ......... ......... ......... .. $5.21 billion
18. Dominican Republic ............ ......... ......... ..... $5.03 billion
19. Trinidad and Tobago ............ ......... ......... .... $4.33 billion
20. Brazil ............ ......... ......... ......... ......... ......... $4.29 billion

An alphabetical listing of illicit financial outflows is available for each country in Table 9 on pg. 62 of the report. You can also download the alphabetical listing of illicit financial flows data for each country here [ PDF | 64 KB].

Previous Country-Specific Report on India

A November 2010 GFI report, “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008,” found that the Indian economy lost $462 billion to illicit financial outflows from 1948 through 2008. Authored by Dr. Kar, the report measured India’s underground economy as 50 percent of GDP, with cumulative illicit outflows accounting for an increasing share of the total underground economy.

Possible Solutions

Global Financial Integrity advocates that world leaders increase the transparency in the international financial system as a means to curtail the illicit flow of money highlighted by Dr. Kar and Ms. Freitas’ research.  Policies advocated by GFI include:

* Addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring confirmation of beneficial ownership in all banking and securities accounts, and demanding that information on the true, human owner of all corporations, trusts, and foundations be disclosed upon formation and be available to law enforcement;
* Reforming customs and trade protocols to detect and curtail trade mispricing;
* Requiring the country-by- country reporting of sales, profits and taxes paid by multinational corporations;
* Requiring the automatic cross-border exchange of tax information on personal and business accounts;
* Harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries; and
* Ensuring that the anti-money laundering regulations already on the books are strongly enforced.

Funding

Funding for the new report, “Illicit Financial Flows from Developing Countries: 2001-2010,” was generously provided by the Ford Foundation.


A friend Abha Singh, lawyer and activist, lays down a journalist's rights and privileges vis-a-vis her sources in black and white:
As per section 13 of the Press Council Act, 1978, Norms for Journalistic Ethics are required to be promulgated by the Press Council of India. The force of law of such Norms is apparent from the legal provision quoted below:

“Relevant part of Section 13(2) of the Press Council Act, 1978:
The Council may, in furtherance of its objects, perform the following functions, namely :
...
(b) to build up a code of conduct for newspapers, news agencies and journalists in accordance with high professional standards;” (Emphasis supplied).

Pursuant to the statutory provisions mentioned above, the Press Council of India has promulgated Norms for Journalistic Conduct, 2005. That being so, the said Norms have got a statutory force of law and the same comes within the definition of ‘law’ contained in Article 13 of the Constitution of India.

It is to be noted further that section 14 of the Press Council Act, 1978, provides for punishment to the person who violates this statutory Norms of Journalistic Conduct, and the punishment provided for is to “warn, admonish or censure” the concerned journalist.

It is further seen that as per Clause 27 of the Norms of Journalistic Conduct, 2005 issued under section 13 of the Press Council Act, 1978, it has been provided that “if information is received from a confidential source, the confidence should be respected.”

It is thus seen that the statutory rules framed under the provisions of Press Council Act, 1978, bans revealing of the names of sources. In case a person reveals the name of a source he would be committing an offence punishable under section 14 of the Press Council Act, 1978. Needless to add that this act shall be classified as a ‘criminal offence’ under the definition of ‘offence’ contained in the Code of Criminal Procedure, 1973.

In sum, since revealing the name of a source is a criminal offence hence the police cannot compel a journalist to reveal the name of the source and thereby commit a crime.

WHAT JOURNALISTS SHOULD DO WHEN THE POLICE OR ANY OTHER INVESTIGATING AGENCY ASKS FOR THE JOURNALIST TO REVEAL HIS SOURCE?

If the police or any other investigating agency calls for revealing the name of source, then the concerned journalist should clearly inform that to reveal the name of source would be a criminal offence under section 14 of the Press Council Act, 1978, and hence the same cannot be revealed. The police should also be told that since they are compelling the journalist to commit and offence, that would amount to the police committing an offence of abetment by the police under section 109 of the Indian Penal Code, 1860 and that would also be an offence under section 166 of the Indian Penal Code, 1860, since the police are required to abide by the conduct rules of behaving in a manner which is not unbecoming of a public servant and that their act can cause professional injury to the journalist.

If still the police insists then they could be hauled up before the Press Council of India or Human Rights Commission or before the senior officer of police and finally even a Writ Petition could be filed in the High Court.

Police can also be told that the police themselves do not reveal the name of their sources even though there is no law with the police on this. If that is so, then how can police compel a journalist to reveal the name of his source when they are a step above, since there is a law which does not permit to reveal name of the source of a journalist.

As an additional measure, a complaint for departmental action also needs to be lodged before the superior officers of police against those police officers who compel journalists to reveal the name of their sources.

TAILPIECE:

While the aforesaid provisions of law do exist, but at the same time it is necessary for the law to be made more specific on this and just as the communication between a husband and wife (section 122 Indian Evidence Act, 1872) or an advocate and his client (section 126 Indian Evidence Act, 1872) are considered to be confidential, the communication made by a journalist with his source also has to be made similarly confidential by making requisite amendments in the Indian Evidence Act, 1872.