From the World Bank to tax havens, the "route" to financial aid

To what extent is the financial assistance provided by the World Bank to the poorest countries diverted into tax havens? This is precisely the subject of a study, put online Tuesday February 18 by the World Bank, which agitates the venerable financial institution since the beginning of the month.

It all started with the announcement, on February 5, of the resignation of Pinelopi “Penny” Koujianou Goldberg, the chief economist of the World Bank, who only held his post for fifteen months. Penny Goldberg said in a message to her teams consulted by France 24 that she wanted to resume her research work at Yale University. But The Economist magazine suggested another reason for the departure of Penny Goldberg: it would have been “annoyed” that the publication of a study, submitted by three economists to the research department of the World Bank (under his authority) in December 2019 , was “blocked by senior officials,” notes the magazine, citing “informed sources”.

From Burundi, Eritrea to Switzerland or Luxembourg

An interpretation disputed by the World Bank which assures, in a press release, that the work of economists deserved to be clarified on several points. "The revised version, published by the World Bank, responds to several comments made during the review process," the statement said. The organization also reiterates its support for “independent, peer-reviewed research on important topics such as illicit financial flows”.

However, the economists' article was only put online once the controversy was well established and relayed by several media, such as the Financial Times. It must be said that the content of this study could embarrass the World Bank in the midst. Entitled “Financial Aid Captured by the Elites”, the 45-page document demonstrates that when the World Bank loaned large sums to the 22 countries most dependent on financial aid - including Burundi, Eritrea and even l 'Afghanistan - there was systematically a peak in money transfers to states known for their banking secrecy, such as Switzerland or Luxembourg.

The problem of corruption is not new to the World Bank, and a large body of literature already highlights the extent to which it can affect the effectiveness of international financial assistance. But the authors also give, for the first time, a quantified estimate of the share of these funds advanced by the international institution then transferred to tax havens. They estimate that on average 5% is found in offshore accounts. This flight of capital for the benefit of the wealthy would even reach 15% for the seven countries that depend most on World Bank aid (Burundi, Guinea-Bissau, Eritrea, Malawi, Sierra Leone, Uganda, Mozambique).

“Minimum estimate”

Economists also point out that the extent of the capture of this money by a small minority could be much greater. "These rates represent a minimum estimate because the study only takes into account transfers to offshore accounts, without including possible spending on real estate or luxury goods," note the authors of the document.

They recognize, however, that their finding is not proof of cause and effect. They simply noted a strong increase in the deposits of money from nationals of countries receiving financial assistance from the World Bank in tax havens in the quarters when the institution released funds. To do this, they compiled the available data on money transfers to the main financial centers of the planet. But, even if there are other explanations, they believe that the hypothesis of a diversion of international aid by the “elites” of these countries is the most plausible explanation.

This is embarrassing to say the least for the World Bank, the Financial Times estimates. At a time when the debate over the growth of inequality is raging, this study suggests that an organization working to “improve the economic situation in developing countries may, without knowing it, participate in exacerbating the gap between rich and poorest, ”said the British financial daily. Above all, "the study shows that the efforts of the World Bank can prove futile," continues the Financial Times. In fact, it does not have the human and logistical means to ensure that part of the loaned money does not end up in accounts in Switzerland, very far from the populations who need it most.

The France 24 week summary invites you to come back to the news that marked the week

Download the app