Global Financial Integrity

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India Shows Us the Curse of ‘Black Money’

Raymond Baker

This article was originally published in the Financial Times.

India’s opposition party leader L.K. Advani sparked a political conflagration with pre-election campaign remarks that India was losing tens of billions of dollars each year in illicit financial outflows, or “black money”. He asserted that the National Democratic Alliance would vigorously pursue recovery of these lost assets if voted into power. With the rolling election now in progress, the issue of India’s missing billions has grown progressively thornier, as both sides vie to take the moral high ground.


In his discussion of black money, Mr Advani cited our estimates of illicit capital flight, which suggest total illicit outflows from the developing world of $1,000bn (€766bn, £684bn) a year. India ranked fifth highest at $22bn-$27bn a year, coming in behind Russia ($32bn- $38bn), Mexico ($41bn-$46bn), Saudi Arabia ($54bn-$55bn) and China ($233bn-$289bn).

Mainland China’s massive outflows were predominantly the result of trade mispricing – a common practice whereby multinational corporations manipulate figures on commerce and earnings to minimise tax liabilities. A popular means of tax evasion for companies, trade mispricing is the driving force behind most of the illicit capital exiting developing countries.

Second-ranked Saudi Arabia and fourth-ranked Russia were exceptions to the trade mispricing rule because of their status as oil exporters, oil being difficult to misprice.




What needs to happen now is for the G20 to broaden its dialogue on information exchange agreements, inter­national co-operation and international financial protocols. Most effective in curtailing the massive illicit outflows from developing countries would be a requirement for automatic cross-border exchange of tax information on personal and business accounts and country-by-country reporting of sales, profits and taxes paid by multinationals.



The writer is director of Global Financial Integrity

This article was originally published in the Financial Times.