Economists working for the World Bank have compiled a report on how much foreign aid ends up in offshore bank accounts. But was it meant for publication?
The study by three economists titled «Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts» led to an abrupt departure from the World Bank: Pinelopi Goldberg, the chief economist, has left the supra-national organization and will return to Yale University.
The probable reason for her departure after only 15 months on the job was her bosses’ intention to prevent the publication of the study by Jørgen Juel Andersen, Niels Johannesen and Bob Rijkers, according to a report by «The Economist» (behind paywall). The conclusion of the three economists must have made for unwelcome reading at global organizations such as World Bank.
Huge Amounts in the Wrong Hands
Based on information provided by the Bank for International Settlements (BIS) and the World Bank, the paper showed that an average 7.5 percent of foreign aid dedicated to 22 countries ended up on bank accounts in tax havens. And the stronger the dependence of a country on donations from richer countries, the higher the percentage syphoned off.
This phenomenon, dubbed ‘elite capture’, diminished the efficacy of the measures meant to boost the economies of the recipient countries. Instead, richer nations and their financial markets profit indirectly from foreign aid.
Much Like an Oil Price Stimulus
Switzerland, the biggest offshore market, managed 2.3 trillion Swiss francs ($2.34 trillion) in assets for non-Swiss customers in 2018. It is the most important destination of money flowing from transparent tax regimes to tax havens, according to the study authors.
The findings haven’t fundamentally changed since Switzerland introduced improved transparency regulation in the years after 2009. Two of the study authors in another paper had looked into the relationship between oil revenues and the flow of money to offshore markets. And found that, much like with the stimulus provided by foreign aid programs, the increase in the oil price boosted the assets under management in those markets.
