Behavior Change
Corruption Costs Developing Countries $1 Trillion Each Year

Developing countries lose at least $1 trillion every year through shady deals for natural resources, the use of shell companies, money laundering and illegal tax evasion, according to a new report by the ONE Campaign.

The ONE Campaign, co-founded by Irish rocker Bono to end extreme poverty and disease, says curbing corruption in sub-Saharan Africa could provide money to educate an extra 10 million children a year. Money recovered from corrupt activity could pay the salaries of an additional 500,000 primary school teachers in Africa, provide antiretroviral drugs for more than 11 million people living with HIV and fund nearly 165 million vaccine shots.

According to Reuters, ONE looked at three sets of numbers to arrive at the $1 trillion figure: Global Financial Integrity's work on the scale of illicit financial flows, the U.N. Office on Drugs and Crime on money laundering and estimates by Christian Aid and others of tax revenues lost as a result of trade mispricing.

ONE released the report ahead the G20 summit in Australia in November, where it plans to lobby the group to do more to grapple with corruption and "the uncomfortable truth" that money diverted from poor countries' budgets often ends up in G20 countries and their jurisdictions.

The report calls for G20 countries to introduce mandatory reporting laws for the oil, gas and mining sectors; crack down on tax evasion; and publish data so that citizens can hold their governments to account. Natural resource exports from Africa increased fivefold between 2002 and 2012, ONE says. In 2012, exports of oil and minerals from Africa were worth $438 billion — nearly eight times the value of agricultural exports and more than nine times the value of international aid.

Earlier this year, Global Financial Integrity said fraudulent trade invoicing in five African countries — Ghana, Kenya, Mozambique, Tanzania and Uganda — cheated taxpayers out of a combined $14.4 billion in revenue in the 10 years to 2011. Illegal tax evasion is one of the main reasons for trade mispricing, where the value of imports or exports is over or under-valued, ONE claims.

The report also estimates that worldwide $20 trillion of undeclared assets are held offshore — $3.2 trillion of it originating from developing countries.

ONE says anonymous shell companies were involved in 70 percent of the more than 200 biggest corruption cases between 1980 and 2010, and called on G20 leaders to "shine a light" on phantom firms.

Despite these problems, Africa is viewed by many as being on the verge of a full economic and social renaissance. Last year, the United Nations Global Compact announced it is redoubling its efforts to scale up corporate sustainability in Africa and emphasized the private sector’s role in contributing to this revival. With an average growth rate of 5 percent since 2000 and expectations for growth to surpass all other continents over the next five years, investment in Africa has increased and economic development is being stimulated by a growing wave of entrepreneurs, workers and consumers. However, corporate reporting on sustainability issues in Africa remains patchy and should be expanded in scope, according to the Africa Sustainability Barometer, which gauges the state of corporate sustainability reporting (CSR) on the continent.