CAPITALISM'S ACHILLES HEEL Dirty Money and How to

uy U.S. Treasury notes or make a real estate investment in Europe or set up
a factory on another continent and does so with a transfer through the banking
system and properly documents that transfer in local journal entries and
receives statements and reports on that investment, that’s legal and open and
recognized and shows up properly in national accounts. Illegal transfers are
structured to disappear and remain unrecorded in local accounts, and return
statements or reports are usually not allowed, except perhaps occasionally by
telephone or e-mail. In short, the legal component stays on the local books,
and the illegal component disappears from the local books. And there are
plenty of ways to maintain the legal flows while substantially curtailing the
illegal flows, as will be covered in Chapter 12.
Myth 5
“I Don’t Understand” and “Don’t Tell Anyone” 245
When a struggling state gets its affairs right, ill-gotten gains that have been
spirited furtively away will return. Not so. By far the greater portion, probably
upward of 80 to 90 percent, is outplaced “permanently, permanently!” in
the words of a banker in Africa. Small amounts occasionally come back, for
example, to Poland because it’s the darling of ex-communist states, to Russia
because it takes a little working capital coming in to keep flight capital going
out, to Egypt to settle local debts, to Kenya in years past to buy government
bonds paying high interest rates, and periodically to Nigeria to buy votes in
free and fair elections.
Illegal money taken abroad that does turn around and come back into a
country almost always returns as foreign direct investment (FDI). In other
words, the money sent abroad acquires a foreign nationality as a company or
partnership or investment fund. If it comes back, it does so identified with
that nationality as a foreign investment, intending to go abroad again in future
years as interest or principal on loans or as dividends on share capital. I
have asked central bank governors in many countries if they regard this sort
of FDI as the return of citizens’ flight capital. The answer is always no; it’s
FDI just like any other FDI. Citizens almost never want to admit that they
earlier took that money abroad illegally. They don’t bring it back in their
own names. The little that comes back does so as foreign investment, often
with the source disguised in a tax haven or secrecy jurisdiction.
Mexico is sometimes an exception to the general rule. A small percentage
of illicitly transferred proceeds comes back as investment funds belonging to