Third World cash exodus 'points to laundering'

By Philip Thornton, Economics Correspondent
Published: 16 May 2006

Money flowing into UK bank accounts from developing countries has surged in the past few years, dwarfing Britain's official aid budget, figures show.

The amount flowing in from poor countries in areas such as Africa and South America surged more than $115bn (?61.2bn) last year to $385bn.

The scale of the exodus of capital from countries with major social problems will raise fears of massive corruption and money laundering that will hurt the welfare of the world's most vulnerable people.

The New Economics Foundation said deposits had risen noticeably over the past five years, with inflows from Cameroon up 516 per cent, from Ethiopia rising 103 per cent and Nigeria up by 47 per cent. The UK aid budget has also risen sharply - 37 per cent between 2000 and 2004 - but the $6.4bn paid out in 2004 is tiny compared with the inflows.

Andrew Simms, the NEF policy director, said: "There's a huge irony that the UK's aid budget has gone up while there is this scale of money coming back. This is the first time the scale of capital movements has really come to light. It raises the potential for a scandal."

He said the volume of cash coming out of Africa pointed to the existence of an "awful alliance" between the giant mining companies, the elite in the developing world and agents in rich countries such as the UK. "If there's evidence of the fingers in the tills of developing countries, the feet are usually well planted in the West," he said. "There are some legitimate questions to be answered."

The UK Treasury said financial liberalisation could lead to significant gains for developing countries. "The same process of liberalisation that leads capital to flow to the UK also leads to significant flows from the UK to developing countries," a spokeswoman said.

She said total UK bank claims on South Africa have risen from $1.8bn to $54.1bn in the three years to September 2005, and on India from $9.6bn to $19.3bn over the same period.

The NEF said all the issues magnified the need for transparency in countries benefiting from debt relief and greater aid payments to ensure the money was reaching the intended destination.

It also said the outflows from Bolivia, which recently elected a left-wing leader, had raised the possibility of a repeat of the exodus of money from Brazil after the election of Luiz Inacio Lula da Silva.

http://news.independent.co.uk/business/news/article485079.ece