U4 Helpdesk Query

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This question was submitted as an urgent query and therefore the response is relatively brief.

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You are right to indicate that this is a serious development issue. The impact of illicit misappropriation of the state assets on development processes and poverty eradication is enormous. It has both direct and indirect negative impact on development.

It directly diverts public funds, including general budget support and aid money, away from the public sectors (and spending on such services as health, education and others) into the hands of the select few. Further, it directly undermines the public's trust in the ruling government and governance processes - a factor essential for good governance and lasting development reforms. Corruption and looting of state assets at the top sends a negative signal to the rest of the civil servants and can encourage a corrupt culture and unethical conduct throughout the civil service. Without a strong, competent and clean civil service development reform is bound to fail.

It also has several indirect consequences on development. When preparing public spending programmes and budgets, corrupt public officials are likely to allocate public spending to such areas that present the best opportunities for corruption and misappropriation of funds as opposed to those sectors that would benefit development and poverty eradication processes most. These may include expensive infrastructure and construction projects that would be commissioned to officials' agents and colluders. Money will then be misappropriated, stolen and end up in the pockets of top officials - resulting unfinished and poor quality roads, buildings and other infrastructure works, which might have not been a public spending priority to start with. Another example of indirect negative impact on development is that knowledge and awareness that corruption at the top exists in a country acts as a deterrent for foreign investors and businesses. This in turns hinders growth and development processes.

There are numerous other ways that development can suffer as a result of corruption and misappropriation of funds at the top. Top politicians may introduce policies and laws that protect the interests of the select few as opposed to being in the public interest, they may authorise illegitimate licences, subsidies, monopolies and privatisation deals - all with the intention to take a big helping from the public resources. Needless to say, all this will have a tremendous impact on development.

Figures and data
Human Rights Watch charges that over the past five years, $4.2 billion of Angolan state oil revenues disappeared before it could reach the coffers of the Central Bank. That sum is roughly equivalent to the total foreign aid Angola has received in that period.

Up to $30 billion in aid for Africa - an amount exceeding the annual gross domestic product (GDP) of Ghana, Kenya and Uganda combined has ended up in foreign bank accounts, according to the anti-corruption organization Transparency International.
Source: Backgrounder no 3 to the UN Congress on Prevention of Crime, UN Department of Public Information, February 2000.

On the other hand, countries that tackle corruption and improve their rule of law can increase their national income by as much as 4 times in the long term, and child mortality can fall as much as 75 per cent, WBI research shows and asserts that they have found what can be labelled as the '400 per cent governance dividend'.

The table below (taken from TI's Global Corruption Report 2004) illustrates the scale of the problem of alleged political corruption through estimates of the funds allegedly embezzled by some of the most notorious leaders of the last 20 years. To put the figures in context, the right-hand column gives the GDP per capita of each country.

The 10 leaders in the table are not necessarily the 10 most corrupt leaders of the period and the estimates of funds allegedly embezzled are extremely approximate. The table is drawn from respected and widely available sources. In general, very little is known about the amounts allegedly embezzled by many leaders.

Sources:
GDP figures: UN Human Development Report 2003 (New York: Oxford University Press, 2003); IMF Country Report No. 02/269 (2002).

Suharto: Time Asia, 24 May 1999; Inter Press, 24 June 2003.

Marcos: CNN, February 1998; Time Asia, 24 May 1999; UN Office on Drugs and Crime (UNODC), Anti-Corruption Toolkit, Version 3 (2004).

Mobutu: UN General Assembly, 'Global Study on the Transfer of Funds of Illicit Origin, Especially Funds Derived from Acts of Corruption', November 2002; Time Asia, 24 May 1999.

Abacha: UNODC, Anti-Corruption Toolkit; BBC News (Britain), 4 September 2000; see also 'Repatriation of looted state assets', Chapter 6, page 100.

Milosevic: Associated Press, 2 December 2000.

Duvalier: Robert Heinl, Nancy Heinl and Michael Heinl, Written in Blood: The Story of the Haitian People 1492-1995 (Lanham: University Press of America, 1996); Time Asia, 24 May 1999; UNODC, Anti-Corruption Toolkit; L'Humanité (France), 11 May 1999.

Fujimori: Office of the Special State Attorney for the Montesinos/Fujimori case, Peru.

Lazarenko: Financial Times (Britain), 14 May 2003; Chicago Tribune (United States), 9 June 2003.

Alemán: BBC News (Britain), 10 September 2002.

Estrada: CNN, 22 April 2001; Inter Press, 24 June 2003.

Further Reading:

Asset looting ruins economy, undermines development
Nduka Uzuakpundu, May 2005

Repatriation of looted state assets: selected case studies and the UN Convention against Corruption
Tim Daniel, GCR 2004, Part I, Chapter 6 (Legal Hurdles)

Report on Misappropriation of Funds from Oil Revenues and Revenue Transparency
Global Witness, March 2004

UNODC to assist States trying to recover stolen assets
UNODC, 2005