# Corruption in foreign aid ## Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts Study by the [[World Bank]] in Feb [[2020]] Links: [[Foreign Aid]], [[Censorship]] *Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters, and financial crises, and are robust to instrumenting with predetermined...* **[[Elite-Capture-of-Foreign-Aid-Evidence-from-Offshore-Bank-Accounts.pdf]]** https://documents.worldbank.org/en/publication/documents-reports/documentdetail/493201582052636710/elite-capture-of-foreign-aid-evidence-from-offshore-bank-accounts ### [Corrupt Elites Siphon Aid Money Intended For World’s Poorest](https://www.forbes.com/sites/oliverwilliams1/2020/02/20/corrupt-elites-siphen-aid-money-intended-for-worlds-poorest/) [[Forbes]] on [[2020-02-20]] A new study has found that as much as a sixth of foreign aid intended for the world's poorest countries has flowed into bank accounts in tax havens owned by elites. The report from the World Bank, opens with the simple question: "Do elites capture foreign aid?". The overriding conclusion of the 46-page report says they do: "Our results document cleanly and robustly that aid disbursements are associated with wealth accumulation in offshore accounts". The report has already proved controversial at the World Bank, which delayed its publication. The three economist-authors used data from the Bank which they compared with foreign-owned deposits in all significant financial centres. Then, ahead of its publication, the World Bank's chief economist unexpectedly quit. Penny Goldberg told the Economist the report had been "challenged a lot by people inside the World Bank." ### [Foreign aid corruption paper causes storm at World Bank](https://www.telegraph.co.uk/business/2020/02/18/foreign-aid-corruption-paper-causes-storm-world-bank/) [[The Telegraph]] on [[2020-02-18]] Paywalled, archive link: https://archive.fo/vlbXI A study into large-scale corruption and international aid has finally come to light following reports that its suppression led to the World Bank losing its chief economist. The paper, commissioned by the Bank and written by one of its own economists along with two academics, found that as much as one-sixth of all international aid sent to the most impoverished countries in the world ends up in tax havens, indicating the potential scale of corrupt officials pilfering donations. However, the publication of the research was delayed, leading to speculation as to how the findings were received at the Washington-based institution, which dishes out tens of billions of dollars every year in loans, grants, guarantees and investments. It came after chief economist Pinelopi Goldberg, who joined the Bank in late 2018, announced plans to stand down and return to Yale. Long-serving director of development economics Simeon Djankov, creator of the Doing Business index on competitiveness, has also resigned. The report's authors studied flows of cash from recipient countries to tax havens and financial centres in years in which they received significant amounts of aid. For countries receiving more than 2pc of GDP in aid, “the implied average leakage rate is approximately 7.5pc”, found the study. “On the other hand, raising the threshold to 3pc of GDP (sample of seven countries), we find a higher leakage rate of around 15pc. This pattern is consistent with existing findings that the countries attracting the most aid are not only among the least developed but also among the worst governed and that very high levels of aid might foster corruption and institutional erosion.” These could be under-estimates. “These modest leakage rates represent a lower bound in the sense that they only include aid diverted to foreign accounts and not money spent on real estate, luxury goods et cetera,” the study said. ### [The World Bank's "Papergate": Censorship Is Not the Best Way to Stop Development Aid From Fueling Corruption](https://promarket.org/2020/02/18/the-world-banks-papergate-censorship-is-not-the-best-way-to-stop-development-aid-from-fueling-corruption/) [[UChicago]] Booth School of Business on [[2020-02-18]] This paper, _The Economist_ [writes](https://www.economist.com/finance-and-economics/2020/02/13/the-world-bank-loses-another-chief-economist), > “passed an exacting internal review by other researchers in November. But, according to informed sources, publication was blocked by higher officials.” Today, Johannesen posted the most recent draft to his personal website. It is not difficult to understand why World Bank executives were upset. Andersen, Johannesen, and Rijkers’s paper raises multiple questions. The most serious is regarding the efficacy of the World Bank’s development aid projects and of its anti-corruption provisions: Apparently, they don’t work very well. The second question is on censorship and academic research. Powerful institutions such as the World Bank, the International Monetary Fund, or the Federal Reserve have talented economists and virtually limitless resources for research: Their potential contribution to the advancing of economic knowledge cannot be underestimated. But employees clearly lack the independence and freedom that academics are supposed to have. The alleged censorship of the paper on foreign aid and corruption lasted only a few days because one of the authors decided to post it on his personal website. Johannesen is a tenured professor at the University of Copenhagen, so he is independent of the World Bank. However, every choice comes with a price: He has relied upon World Bank data for many of his projects, and now he has put himself at risk of retaliation from top World Bank officials who will likely oppose the visibility of the paper. International institutions, like private corporations, have what economists need to do research: data. The credibility of research, and the enduring process of the scientific pursuit of knowledge, are seriously damaged if only flattering results are published and troubling findings are hidden or silenced. “Papergate,” as it is now called on Twitter, proves that no censorship is possible if at least one of the people who know the secret is free to speak.