Financial Crime Examples in Malawi Reveal Economic Cost of Corruption and Tax Evasion
Introduction
A recent study conducted by the World Bank in collaboration with country experts has shed light on the magnitude of financial crime in Malawi, highlighting its negative impact on economic development and poverty reduction. The study found that corruption and tax evasion are significant sources of ill-gotten money in both Malawi and Namibia.
Corruption and Tax Evasion: A Significant Problem
- In Malawi, income derived from corruption amounts to an estimated 5 percent of GDP.
- Tax evasion is estimated at 8-12 percent of GDP, making it a major challenge for authorities.
Combating Financial Crime in Malawi
In a bid to combat financial crime, country authorities have used financial intelligence to go after tax evaders. The results are promising:
- Between 2008 and July 2011, the Malawi Revenue Authority recovered approximately 340 million Malawi Kwacha (US$2 million) using available anti-money laundering tools.
Challenges in Namibia
In Namibia, crime and public corruption are significant challenges for the economy. The major areas of concern include:
- Illicit diamond trade
- Drug trafficking
- Car smuggling
Tax evasion is estimated at 9 percent of GDP, making it a major challenge for authorities.
Implications for Policy Makers and Practitioners
The findings of the study have significant implications for policy makers and practitioners in developing countries. To effectively combat financial crime activities that negatively affect economic development and poverty reduction:
- Develop customized legal regimes and institutions: Reflecting the local political, economic, and social context is crucial.
- Use anti-money laundering measures effectively: Financial intelligence can be a useful tool in combating corruption, tax evasion, and other financial crimes.
Recommendations for Future Research
The study suggests that conducting similar research in other developing countries could be a next step in testing the existence of such patterns and effects of the circulation of ill-gotten money in developing economies. Focus areas include:
- Development of data and information management
- Flows of ill-gotten money in a cash-based economy
Conclusion
Ultimately, the study highlights the need for policy makers and practitioners to act effectively and early to curb financial crime activities that negatively affect economic development and poverty reduction in Malawi and other developing countries.