Why capital flight takes place

Transferring money and financial assets illegally from one country to another is not a new phenomenon.  History of development shows that such illegal transfer of financial assets has been taking place in different countries at different times over the last hundred years or so. It is generally known as capital flight as money and financial assets fly from one country to another in the form of investment. The flight may be legal or illegal. But in popular notion, capital flight is identified as illegal transfer.
The reasons underlying illicit capital flight, as mentioned in economic literature, include political instability and economic uncertainty in the country of origin. But these two broad reasons do not necessarily fuel capital flight. The recent global trend of illicit financial flow reveals that policy incoherence, unfair business practices, domestic corruption and social dissatisfaction are some of the factors responsible for this. Needless to say, these factors, in many cases, are integrally linked with political and economic conditions.
GLOBAL TREND: Curiously, Bangladesh has recently joined the global rally of illicit financial flow, and the country figures in the list of countries where capital flight is on the increase. Several international research and advocacy organisations prepare such lists.
The Washington-based Global Financial Integrity (GFI) works regularly and rigorously on illicit financial flows from the developing and least developed countries (LDCs). The latest GFI report, published in December 2014, revealed that some $1.78 billion was transferred illegally from Bangladesh to some other countries in 2012, mainly through trade over-invoicing. Over the decade, such outflows stand at $13.16 billion. Two years back, International Tax Justice Network also revealed an estimation which showed almost similar amount of illegal capital flight from Bangladesh.  
As calculation of illicit financial outflow is a very sensitive matter, such estimation is usually conservative in nature. It means actual outflow could be significantly high.
The GFI list, which compiled data of 145 developing and least developed countries, brings forth some striking questions on illicit outflows.  Just look at the top 10 countries of the list. All BRICS (Brazil, Russia, India, China and South Africa) countries are there whose growth has been robust for last one decade. Establishment of the BRICS Bank last year reflects the strength of these advanced developing countries on the global platform. In fact, China and Russia are two topmost countries, while India, Brazil and South Africa are in the 4th, 6th and 10th position in the list of `Illicit Financial Outflows from the top 10 Developing Economies' in last one decade (2003-2012). In 2012, about $ 249.56 billion was transferred from China to other countries and from India, $ 94.75 billion.
Why does flight of such huge amounts of financial assets take place from these countries whose rate of growth and development is enviable? Despite recent slowdown in BRICS economies, high growth rate of these countries was a source of inspiration for many other developing and least developed countries.  
INEQUALITY MATTERS: Basically, high growth and income disparity go hand in hand in these countries. The larger slice of the benefit of growth goes to a small section of highly affluent people while the masses keep struggling to attain a better quality of life. The Gini-index, a measurement of income or expenditure distribution pattern, depicts a dismal picture of these economies. Usually Gini-index of `0' indicates perfectly equal distribution while '1' shows fully unequal distribution of income (the index ranges from 0.00 to 1.00).
The World Bank compiled data on different countries' Gini-index or Gini co-efficient. These data revealed that during the last decade, Brazil's Gini-index declined from 0.593 to 0.530 in 2012 while China's Gini-index dropped to 0.370 from 0.426 during the period.  But, having average economic growth rate of double digit during the period also shows that income distribution is far from equal. India's Gini-index has improved very little from 0.334 in 2005 to 0.340 in 2012 while 8 plus growth was a marked as a big achievement of the country.  South Africa is world's one of the most unequal country in terms of resource distribution and over the decade the situation worsened (see Table). The situation is Russia is also not good. In fact, around 35 per cent of the country's total wealth is in the hands of less than 0.05 per cent of the Russians, or 110 out of a total population of 143 million are enjoying more than one-third of the national resources in this former communist country.
Going beyond statistical indicators, one can also find uneven lifestyle of millions of people in these countries. Just look at India where some 67 per cent of rural households have no toilet and over half of all Indians defecate in the open. In contrast, less than 1.0 per cent of people in China, 4.0 per cent of people in Bangladesh, and about a quarter of the people in Sub-Saharan Africa defecate in open places. At the same time, India's 100 richest people are all billionaires, and their combined wealth exceeds $386 billion, as revealed by Forbes magazine.
Thus growing inequality poses the risks of social unrest and disturbance. Before the World Cup football tournament in 2014, mass protest in major cities in Brazil on public transportation mismanagement reflected a blip of the inequality problem there.
The widening inequality in the developing countries threatens to create social instability and insecurity. People in the higher income group feel unsafe and anxious regarding their wealth and assets earned and plundered by exploiting resources. Thus they look for safer places to transfer and park their assets, and there are safe places across the world. These countries and territories, known as tax havens, offer huge incentives for keeping assets from other countries.
BANGLADESH CASE: As Bangladesh economy is moving ahead with 6 plus growth rate for a decade, a good number of entrepreneurs and businessmen have also emerged. At the same time, with the help of political patronage, a section of people has successfully built up assets by defaulting bank loans, large-scale evasion of taxes and extortions. Besides, the wide ranging corruption helps many fortune seekers stock up on illegal assets.  
At the same time, people in general are struggling every day to manage their hard-earned income. Most of the people don't have adequate medical access, their mobility is hindering due to lack of well-designed public transportation and are facing uncertainty of all hues due to poor rule of law.
Thus a sharp division among people in terms of income and resources are there. Although official statistics of inequality does not adequately reflect the situation, it is very much indicative of income disparity. Over the decade, income inequality increased reflecting more concentration of resources to a limited number of people. It also brings social imbalance and discontent among the people.
In this context, the resourceful section of society, like their peers in India and China, opts to transfer assets to safer place. As it is not possible to transfer capital and financial assets from Bangladesh by legal means, they resort to illegal and tricky methods.  Bangladeshis are second in availing second home scheme in Malaysia. Every year, a good number of people is taking permanent residency in Canada and Australia. All this requires transfer of a handsome amount of financial asset transfer. Political turmoil and uncertainty further fuels such transfer.
 A politically-troubled, socially disturbed and resource-unequal country has to pay such price. Growth will continue, and so will disparity if development process doesn't address resource distribution.

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