Developing countries lose up to $40 billion per year to corruption

Developing countries lose between $20 billion to $40 billion per year to bribery, embezzlement, and other corrupt practices by public officials, according to the World Bank's estimate. This amount is equivalent to 20 to 40 percent of the flows of official development assistance (ODA).

Unfortunately, over the past 15 years, only $5 billion has been recovered and returned to the public. The process of recovery -- which involves freezing, seizing, and returning the corrupt money-- can be complicated and require cooperation from many agencies in multiple jurisdictions, especially if corrupt money leaves its country of origin.

It can be overwhelming for even the most experienced practitioners. It is exceptionally difficult for those working in the context of failed states, widespread corruption, or limited resources, said Jean Pierre Brun, the World Bank's senior financial sector specialist.

In these tough economic times…corruption [is] such a drain on development, said Ngozi Okonjo-Iweala, a managing director at the World Bank.

Furthermore, the World Bank said the true cost of corruption goes beyond simply the $40-billion price tag. It includes the degradation of public institutions, the weakening if not destruction of the private investment climate, and the corruption of social service delivery mechanisms for basic health and education programs.

Indeed, a major reason that Western aid often doesn't work in the poorest countries is because they never arrive to the intended recipients. Global corporations are similarly deterred to do business in certain countries because of corruption.

While traditional solutions to this problem have focused on addressing issues within the developing countries themselves, they often ignore the other side of the equation, which is that stolen money is often hidden in financial institutions in the developed countries, said the World Bank.

In addition, lawyers, accountants, agents of big corporations, shell banks, hedge funds, and undisclosed trusts from developed countries actually help with the laundering of corrupt money out of developing countries.

In fact, the global flow of money from corruption, combined with tax evasion and criminal activities, is between $1 trillion and $1.6 trillion per year, estimated the World Bank.

To address this other side of the equation, the World Bank, jointly with the United Nations, launched the Stolen Asset Recovery Initiative (StAR) in September 2007.

StAR seeks to strengthen global cooperation in the recovery of corrupt money and urge developed countries to strengthen their legal, financial, and public financial management systems in this regard.

Email Hao Li at hao.li@ibtimes.com