After Years of Leakages, Syrian Capital Flight Likely Intensifying

A forthcoming report by Global Financial Integrity finds that Syria lost US$23.6 billion in illicit financial outflows from 2000-2009

Protesters rally in Damascus, Syria in April 2011

Syriana2011/Flickr*

Syria’s regime, led by President Bashar al-Asad, is on the ropes. Protests began in January, following uprisings across the Arab world, and have continued despite the regime’s efforts to stop them. These actions, according to Reuters, included having the Syrian Navy shell protesters in the city of Latakia, killing 36.

Even after the crackdown, Syrian officials have not succeeded in quelling the protests. In a sign that the regime may be failing, the Financial Times reported that capital flight from Syria into Lebanon is accelerating, despite strict new capital controls implemented in August. Any sharp increase in financial outflows signals that individuals inside Syria are losing faith in al-Asad’s ability to govern. Members of the regime may attempt to move their money into any number of international secrecy jurisdictions to protect it from seizure were al-Asad to fall.

Illicit outflows are not new to Syria. An upcoming report by Global Financial Integrity estimates that from 2000-2009, Syria lost $23.6 billion from corruption, trade mispricing, bribery, and other illicit activity. In a country with a per capita GDP of just US$2,891 in 2010, these outflows represent a loss of US$1,048 for every Syrian citizen. GFI’s study also finds evidence that bribery, kickbacks, and corruption increased dramatically from 2005-2009. It’s no wonder that Syrians are discontent.

An international shadow financial system is enabling wealthy Syrians, including corrupt public officials, terrorist financiers, and tax evaders, to move their money into safe havens offshore. In many countries, including the United States, individuals can form shell (anonymous) corporations to shield their money from the eyes of authorities. It was one of these shell corporations that allowed the government of Iran to own a skyscraper on Fifth Avenue in Manhattan for over 30 years before it was seized in 2009. Iran was able to evade sanctions for years using many layers of anonymous corporations, and it is likely that the regime in Syria uses similar vehicles to circumvent international sanctions.

Countries like the United States can make it more difficult for corrupt public officials like al-Asad to smuggle stolen assets out of their countries by eliminating anonymous corporations and strengthening anti-money laundering laws.

The collapse of the Gaddafi regime in Libya revealed billions of dollars hidden offshore, representing proceeds from four decades of corrupt rule. In October, The Los Angeles Times reported that Moammar Gaddafi and his family hid more than US$200 billion in assets—more than US$30,000 for every Libyan citizen—across the globe. While U.S. and European authorities were able to freeze over US$67 billion in assets, the remainder is still hidden.

If the Syrian regime fails, we may find similar sums stashed away. Like the Gaddafi regime, the al-Assad family has ruled Syria for more than four decades, and, according to Fortune Magazine, has been linked to vast sums of laundered money before. Since much of it is hidden behind a web of anonymous corporations, much of the money may never be found.

Editorial Note: Later this month, Global Financial Integrity will release its new report, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, measuring illicit financial flows out of 160 different developing countries.Sign up here to receive notices when new GFI reports are released.