Source: World Bank
This study shows the coincidence of aid and increases in holdings in off-shore tax havens. To put the findings crudely: when aid arrives, the funds in the tax havens increase – indicating that the aid has been diverted for corrupt practices.
This is what the study says – full report here.
In this paper, we study aid diversion by combining quarterly information on aid disbursements from the World Bank (WB) and foreign deposits from the Bank for International Settlements (BIS). The former dataset covers all disbursements made by the World Bank to finance development projects and provide general budget support in its client countries. The latter dataset covers foreign-owned deposits in all significant financial centers, both havens such as Switzerland, Luxembourg, Cayman Islands and Singapore whose legal framework emphasizes secrecy and asset protection and non-havens such as Germany, France and Sweden. Equipped with this dataset, we study whether aid disbursements trigger money flows to foreign bank accounts. In our main sample comprising the 22 most aid-dependent countries in the world (in terms of WB aid), we document that disbursements of aid coincide, in the same quarter, with significant increases in the value of bank deposits in havens. Specifically, in a quarter where a country receives aid equivalent to 1% of GDP, its deposits in havens increase by 3.4% relative to a country receiving no aid; by contrast, there is no increase in deposits held in non-havens. While other interpretations are possible, these findings are suggestive of aid diversion to private accounts in havens.
Letter from Eritrea Focus, Jubilee Campaign USA and The America Team for Displaced Eritreans
President David Malpass
The World Bank Group
1818 H Street NW,
Washington, D.C. 20433
cc: Ethiopis Tafara
Acting Vice President
Integrity Vice Presidency
The World Bank Group
1818 H Street NW,
Washington, D.C. 20433
Dear World Bank President David Malpass and INT Vice President Ethiopis Tafara,
We, the undersigned, are a collection of individuals and organizations who collectively strive to promote religious freedom and human rights around the world. We would first like to express our gratitude to the World Bank for its leadership in continuously providing development assistance and aid to developing nations in order to encourage necessary economic and infrastructural development in such stagnating or slowly developing nations.
Keeping in mind the unending visible benefits and new opportunities that the World Bank’s provision of foreign development aid provides to hundreds of nations around the world, we would like to express our concern regarding the findings related to Eritrea In the February 2020 World Bank Policy Research Working Paper 9150, Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts. This report examined whether there is a visible and verifiable relationship between World Bank receipt of foreign aid to a certain country and correlating money flows from such countries to foreign banks, which suggests that corrupt elites are capturing the aid and pocketing it for themselves rather than using it for their nation’s development plans. This research found that “in a quarter where a country received aid equivalent to 1% of GDP, its deposits in havens [foreign banks in nations whose laws allow for secrecy regarding personal finances and private assets] increase by 3.4% relative to a country receiving no aid.”
In this policy paper, the World Bank Group determines that “aid disbursements are associated with wealth accumulation in offshore accounts” and that data leaks and tax documentation conclude that such accounts remain at the top of the wealth distribution and therefore that these accounts are owned by elites. Of greater interest, however, is that Eritrea is one of the nations whose statistics represents this corrupt phenomenon: in Eritrea, World Bank aid flows account for 3.2% of the annual GDP, the nation has 8 deposit accounts in foreign bank ‘havens,’ and the nation exhibits a 2.29% quarterly growth rate in deposits to foreign accounts.
We fear that the statistics raised in this policy paper reveal the extent to which corruption is an overwhelming political problem in Eritrea and, similarly, the extent to which the World Bank’s foreign aid directed to Eritrea is not utilized for its intended purposes, thus feeding increasing corruption. It is reprehensible that the funding provided by the World Bank to Eritrea for the purpose of development is simply being stockpiled in overseas banking institutions by wealthy elites and corrupt government officials to fund their personal expenditures and prop-up the oppressive authoritarian regime.
Eritrea is one of, if not the most, repressive nations on the African continent, and is a repetitive perpetrator of human rights violations. The most noteworthy and deplorable of these violations includes arbitrary and prolonged detention with no access to legal counsel and exposure to overcrowded prison conditions; curtailment of freedom of speech and expression, and targeting of independent journalists; harassment and imprisonment of religious minorities, as well state-supported mass closures of churches and houses of worship; and Eritrea’s infamous program of indefinite military and labor conscription forced upon the majority of the nation’s citizens, including men and women, who are forced to work extended hours in lifelong careers that the government chooses for them regardless of their interests or qualifications, where they are paid extremely insufficient wages and often experience substandard working conditions.
In addition to the World Bank’s acknowledgement of the growing corruption in Eritrea, Eritrea is consistently considered highly corrupt by Transparency International, and was ranked the 38th most corrupt nation in the world as of 2019. Such corruption hinders the advancement of the nation’s citizens, as Eritrea is recognized by numerous human rights organizations to be ‘the North Korea of Africa’ due to its fervent repression of civil, political, and social rights. Moreover, the 2017 Natural Resource Governance Index measures the governance standards of developing countries’ extractive industries. Eritrea ranks dead last over all – 89th place and its state-owned mining company is ranked as the worst governed state enterprise.
Given the well-documented concerns regarding the mismanagement of state funds by the Government of Eritrea, we collectively and respectively make the following recommendations regarding the World Bank’s future investments in Eritrea:
- Decrease with immediate effect foreign aid transfers to Eritrea until Eritrea improves its human rights record and government transparency practices; or
- Deliberately consider ceasing the practice of providing large sums of foreign aid to Eritrea;
- Require mandatory monitoring and reporting mechanisms to ensure that World Bank foreign aid is being used for its intended purposes of economic and social development
Respectfully signed with great appreciation for your attention to these matters,
Jubilee Campaign USA
Eritrea Focus (UK)
The America Team for Displaced Eritreans