Criminals and corrupt politicians steal $1trn a year from the world's poorest countries

Money stolen through shell companies and tax evasion

Political Editor

At least $1trn a year is being “stolen” from the world’s poorest countries by criminals and corrupt officials who siphon cash through money laundering, tax evasion and embezzlement.

The staggering cost of corruption is revealed in a study published today by ONE, the anti-poverty group co-founded by the rock star Bono. It calls on the G20 group of rich nations, including Britain, to expose the anonymous shell companies which are used to “rip off” poor countries. According to ONE, the millions diverted from poverty-stricken nations is channelled through banks and secret companies in places including London, Delaware and Hong Kong.

If the money was retained by the developing nations, it could help avert 3.6m deaths a year between 2015 and 2025, the study concludes. It would also mean that these countries would no longer need to rely on overseas aid from rich nations.

The report found that $3.2trn of the world’s $20trn of undeclared assets originated in developing countries. If the missing millions were taxed, it could bring in revenues of $19.5bn a year. In sub-Saharan Africa alone, curbing corruption could educate an extra 10m children a year; provide antiretroviral drugs for more than 1m people with HIV/Aids and pay more almost 16.5m vaccines.

David Cameron and George Osborne secured the backing of the eight leading economies to crack down on shell companies and tax havens at last year’s G8 summit in Loch Erne, Northern Ireland. But ONE fears that progress around the world is stalling and is warning that the drive must be extended to the top 20 economies, including China and India, at a G20 summit Australia in November.

A four-point plan proposed by ONE urged G20 leaders to:

  • expose the “phantom firms” involved in money laundering by making information about them publicly available
  • bring in strong “payment disclosure laws” on oil, gas and mining to stop natural resources being “stolen” from poor countries
  • crack down on tax evasion through automatic exchange of information so that poor nations can collect taxes they are due
  • ensure all governments publish data so the public can “follow the money” and hold their leaders to account.

Dr David McNair, ONE’s transparency and accountability policy director, said: “In developing countries, corruption is a killer. Up to 3.6m lives could be saved if we end the web of secrecy that helps the criminal and corrupt. When governments are deprived of their own resources to invest in the essentials - like nurses and teachers - the human cost is devastating.”

John Githongo, an anti-corruption campaigner and chief executive of the Inuka Kenya Fund, said: “For too long, G20 countries have turned a blind eye to massive financial outflows from developing countries which are channelled through offshore bank accounts and secret companies. Introducing smart policies could help end this trillion dollar scandal and reap massive benefits for our people at virtually no cost. The G20 should make those changes now.”

The ONE report, The Trillion Dollar Scandal, says: “Corruption is perhaps the greatest threat to economic growth in developing countries and the uncomfortable truth is that, all too often, money diverted from their own budgets ends up in G20 countries and their related jurisdictions.”

It adds: “Illegal manipulation of cross-border trade is the biggest source of losses to poor countries. The secrecy that allows that activity to thrive may also help to conceal financial flows related to criminal bribery and theft by government officials, human trafficking and/or the illegal sale of arms and contraband, depending on the circumstances.”

Some 70 per cent of the 213 biggest corruption cases between 1980 and 2010 involved anonymous shell companies, according to ONE.

“These phantom firms are essential tools of the trade for money launderers. They may hide the identities of individuals who profit from illegal activities, including the trafficking of arms, drugs and people, the theft of public funds and/or illegal tax evasion.

“In dozens of jurisdictions around the world, a phantom firm can be created with less information than is needed to obtain a driving licence or open a bank account. Currently completely legal, they exist solely on paper, and allow the people who own or control them (the ‘beneficial owners’) to keep their identities hidden.”

The report says that  governments, law enforcement agencies and ordinary citizens face “an impossible task” when they try to reclaim the “stolen assets.” It adds: “They are thwarted by the ease with which criminals can create complex, multi-layered financial structures in which an anonymous shell company can be owned by another shell company or a trust, resulting in a nearly impenetrable web of secrecy that can block even the best law enforcement efforts.”

A spokesman for the Department for International Development said: “The UK has made strong progress on trade, tax and transparency following last year’s G8 in Loch Erne, benefiting countries across the world including the poorest nations. Britain will maintain momentum to improve tax collection, break down trade barriers and promote transparency in developing countries.”

How poor countries are robbed

In Zambia, a leaked audit report suggested that Mopani Copper Mines had failed to pay tens of millions of dollars due in local tax. Glencore, which owned 73 per cent of Mopani, denied the allegations.

Five African countries – Ghana, Kenya, Mozambique, Tanzania and Uganda – lost an estimated $15bn in tax revenues between 2002 and 2011 due mainly to “trade mispricing” of imports or exports, allowing firms to shift capital to other countries to evade taxes or launder money.

In 2011, subsidiaries of oil and gas firms Shell and Eni paid $1.1bn to the Nigerian government for an offshore block containing estimated oil reserves of nine billion barrels. The government then transferred precisely the same amount to an account in the name of Malabu Oil & Gas, a phantom firm whose hidden owner was the country’s former petroleum minister Dan Etete.

In 2008, the Zimbabwean army took control of the Marange diamond fields. Since then, government diamond mining concessions have been allocated to several companies in questionable circumstances – including Mbada Diamonds, which is partly controlled through companies registered in the British Virgin Islands and Mauritius.

Source: ONE

Start your day with The Independent, sign up for daily news emails
News
people

Harry Potter actor suffered 'severe flu-like symptoms' on a flight from London to Orlando

Sport
Kim Sears is reported to have directed abuse at Berdych
tennis
News
news

Rap music mogul accused of running two men over in his truck

News
Gywneth Paltrow proposed that women seek out a special herbal steam-treatment service
news
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
News
Toronto tops the charts across a range of indexes
news

World cities ranked in terms of safety, food security and 'liveability'

Voices
A mother and her child
voices
Arts and Entertainment
tv

First full-length look is finally here

Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
Tax now accounts for ‘nearly 80%’ of the price of a bottle of whisky
news

Arts and Entertainment
Peppa Pig wearing her golden boots
film

"Oink! Oink! Hee hee hee!" First interview with the big-screen star

Life and Style
tech

Biohacking group hopes technology will lead people to think about even more dystopian uses

Arts and Entertainment
film
Life and Style
life
Arts and Entertainment
Film director Martin Scorsese
film
News
news

The party's potential nominations read like a high school race for student body president

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Regional Gas Installation Manager - South East England

£36000 per annum: Recruitment Genius: A Regional Gas Installation Manager is r...

Recruitment Genius: Domestic Gas Service and Breakdown Engineer - South East

£29000 - £31000 per annum: Recruitment Genius: A Domestic Gas Service and Brea...

Tradewind Recruitment: Year 3 Teacher

Negotiable: Tradewind Recruitment: My client is a two form entry primary schoo...

Recruitment Genius: Engineering Manager - Alconbury

Negotiable: Recruitment Genius: An opportunity has arisen for an Engineering M...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee