The soaring number of refugees pouring into Europe, as well as the recent collapse of worldwide stock markets, is believed to have been caused in part by the record outflow of illicit money from developing economies around the world.
In the case of China, an estimated US$1.25 trillion was taken out of the country illicitly between 2003 and 2012, with China’s wealthiest individuals getting their money and their families out of the country in order to settle in the US, Canada, Australia or the UK.
A recent crackdown announced by the Chinese government on underground banking to curb money-laundering and illegal funds transfers led to a surge in the outflow of capital from its economy, and is believed to have triggered the stock market crash.
With China trying to curb capital outflow, similar capital and migration outflows are also taking place in poorer nations, resulting in the collapse of their economies, a brain drain, and an increasing number of refugees seeking protection around the world. The greatest damage is said to have occurred in three regions – Sub-Saharan Africa, the Middle East and developing Europe, which collectively lost US$2.5 trillion in capital between 2003 and 2012.
The flight of capital from poor nations is destabilizing, while the money that ends up in rich markets creates disruptions of its own. In cities like Toronto, Vancouver and New York, the billions being invested are typically invested in real estate and ends up making house prices unaffordable for locals.
The movement of money and migrants from poor to rich nations looks set to continue. According to a 2013 United Nations survey, around 230 million people live outside their home country by choice, while another 640 million would leave their home country if they had the opportunity to do so.
This social impact of these outflows affects all the countries involved. Illegal immigration is particularly visible in Europe and the US and has destabilizing effect.
Finding a solution to this problem is proving to be difficult for all governments. A crackdown on illegal outflows of capital appears to lead to a continued surge in outflows.