More than $6.2 billion was siphoned out of Armenia from 2002 through 2011 as a result of government corruption, tax evasion and other illegal activity, according to an anti-graft group based in Washington.
The watchdog Global Financial Integrity (GFI) cited the figure, worth nearly twice the Armenian foreign debt, in a report on illicit capital outflows around the world during that period. It claimed that developing countries lost almost $6 trillion in cash as a result. It defined illicit capital as "capital that is illegally earned, transferred, or utilized and are unrecorded, unlike broad capital flight which consists of a mix of licit and illicit capital."
The most recent report of Global Financial Integrity (founded in September 2006) had been commissioned by the United Nations Development Program. The report, entitled "Illicit Financial Flows from the Least Developed Countries: 1990-2008," found that "structural characteristics of Least Developed Countries could be facilitating the cross-border transfer of illicit funds," examined issues with estimating illicit flows, analyzed the magnitude of illicit flows, and "made policy recommendations for the curtailment of these illicit flows." The report found that about $197 billion had been taken illicitly out of the 48 poorest developing countries and into mainly developed countries between 1990–2008, and that "African LDCs accounted for 69 percent of total illicit flows, followed by Asia (29 percent) and Latin America (2 percent)." Trade mispricing was found account for over 60% of illicit outflows.
“The US is the second easiest country to open a money laundering firm in. And despite tax reforms, the government is perilously behind in the movement for corporate transparency,” reported the London-based The Guardian newspaper in its coverage of the GFI report last week. “The US Department of Justice acknowledged last year that anonymous shell companies are the number one tool used by criminals to launder their illicit funds,” added the British newspaper.
The GFI report released this month does not specify the source of its information about alleged capital flight from Armenia. It says that cash outflows from the country dramatically increased in 2007, averaging approximately $1 billion per annum through 2011.
The Armenian Finance Ministry, State Revenue Committee and Central Bank have not yet reacted to the GFI claims. Officials there said on Friday that they will comment after looking into the report.
Economists critical of the Armenian government consider the report’s findings credible. Vahagn Khachatrian, a senior member of the opposition Armenian National Congress (HAK), suggested that the large sums were taken out of the country by wealthy government officials and businesspeople evading taxes. He said their reluctance to invest that money in Armenia highlights widespread corruption and other problems with the rule of law.
“That has to do with the existing political situation and political system,” Khachatrian told RFE/RL’s Armenian service (Azatutyun.am). “People are not sure whether they will be able to preserve their money tomorrow.”
Armenia has been ranked 71th, while Azerbaijan in 44th with an estimated $17 billion in illegal outflows. Topping the list are China, Russia, and Mexico. The GFI report rates Russia as the world’s second biggest loser of illicit capital after China. It says that as much $880 billion was taken out of the country from 2002-2011.
GFI's 2013 Russia report found that between 1994 and 2011, $211 billion in illicit financial flows left Russia. The report found that illicit financial flows were a significant driver of the Russian underground economy, including organized crime, human trafficking, arms smuggling and the illegal drug trade, as well as corruption. Unrecorded wire transfers were found to be the dominant method of unrecorded transfers out of the country. The report found that Cyprus held highly suspicious amounts of FDI positions in Russia, equal to about five times the small island's GDP, suggesting round-tripping of illicit money, a fact that was widely reported during the 2012–2013 Cypriot financial crisis.
Another economist affiliated with the opposition in Armenia, Bagrat Asatrian, noted that illicit outflows from neighboring Georgia were estimated by GFI at only $4.5 billion, leaving the country ranked in the 78th position. “Over the past decade Georgia has made substantial progress in fighting against the informal sector of the economy,” he said.
Asatrian claimed that Georgia has lost less capital than Armenia also because of its weaker financial ties with Russia. “For the past two decades Russia has been known for a high scale of shadowy financial turnovers and capital flight in particular,” he said. “A small part of those outflows have come out through Armenia.”
The study also highlighted the pattern of illicit outflows from developing countries on a regional basis. It found that the Middle East and North Africa (MENA) region registered the fastest trend rate of growth in illicit outflows (31.5 percent per annum), followed by Africa (19.8 percent), developing
Europe (13.6 percent), Asia (7.5 percent), and the Western Hemisphere (3.1 percent);
Asia accounted for 39.6 percent of total illicit outflows from developing countries, driven by outflows from China (1st), Malaysia (4th), India (5th), Indonesia (8th), Thailand (11th), and the Philippines (14th), which rank among the top fifteen exporters of illicit capital from the developing world.
Developing Europe (21.5 percent) and the Western Hemisphere (19.6 percent) contributed almost equally to total illicit outflows from the developing world, while outflows from the MENA region account for 11.2 percent of total outflows. Developing Europe’s second-largest share of total outflows is almost entirely driven by Russia (followed by Belarus, 16th; Poland, 18th, and Serbia, 19th), while the Western Hemisphere’s share is driven by Mexico (ranked number 3) and Brazil (number 7). Other Latin American countries are Costa Rica (15), Chile (20), Paraguay (21), and Venezuela (22); Argentina has been ranked in the 51th position.
Oil-exporting countries (Saudi Arabia, 6th; Iraq, 9th; United Arab Emirates, 12th; Qatar, 17th) dominate illicit outflows from the MENA region, and Africa (Nigeria, 10th; South Africa, 13th) leads other regions in terms of the illicit outflows to GDP measure.