India's opposition party leader L.K. Advani sparked a political conflagration with pre-election campaign remarks that India was losing tens of billions of dollars each year in illicit financial outflows, or "black money".
He asserted that the National Democratic Alliance would vigorously pursue recovery of these lost assets if voted into power. With the rolling election now in progress, the issue of India's missing billions has grown progressively thornier, as both sides vie to take the moral high ground.
Whatever the outcome of the election, India's problem has broader implications both for the developing world and for efforts by the Group of 20 developed and developing nations to craft an effective post-crisis economic plan for the global financial system.
In his discussion of black money, Mr Advani cited our estimates of illicit capital flight, which suggest total illicit outflows from the developing world of $1,000bn (Euro 766bn, Pound 684bn) a year. India ranked fifth highest at $22bn-$27bn a year, coming in behind Russia ($32bn- $38bn), Mexico ($41bn-$46bn), Saudi Arabia ($54bn-$55bn) and China ($233bn-$289bn).
Mainland China's massive outflows were predominantly the result of trade mispricing - a common practice whereby multinational corporations manipulate figures on commerce and earnings to minimise tax liabilities.
A popular means of tax evasion for companies, trade mispricing is the driving force behind most of the illicit capital exiting developing countries.
Second-ranked Saudi Arabia and fourth-ranked Russia were exceptions to the trade mispricing rule because of their status as oil exporters, oil being difficult to misprice.
The proceeds of criminal activity, corruption and corporate tax evasion, these flows are clandestine in nature and usually end up in financial centres featuring low regulation and high secrecy. This makes it tricky to study illicit financial flows.
India is the latest of several nations to raise the alarm about illicit capital flight. Following high-profile scandals involving Liechtenstein and Switzerland, the Group of 20 nations has demanded greater co-operation in tackling the shadow financial system.
Made up of tax havens, jurisdictions allowing secrecy, disguised corporations, anonymous trust accounts, fake foundations and assorted money-laundering mechanisms, it is designed to move money and obscure its sources.
What have thus far remained absent are the concrete reforms needed to dismantle this shadowy network and enforce greater transparency and accountability in the global financial system.
The G20 is poised to accept the Organisation for Economic Co-operation and Development standard for exchange of tax information, a well-meaning but weak approach to the problem. While the much-publicised post-G20 arrangements by several havens to sign tax information exchange agreements are welcomed, these agreements are extraordinarily cumbersome.
The onus remains on the requesting nation to prove that the information sought is "foreseeably relevant" to suspected crime or tax evasion. Furthermore, havens and jurisdictions supporting secrecy are not required to provide information they do not normally collect. Under the OECD standard, all elements of the global shadow financial system can remain in place.
What needs to happen now is for the G20 to broaden its dialogue on information exchange agreements, international co-operation and international financial protocols.
Most effective in curtailing the massive illicit outflows from developing countries would be a requirement for automatic cross-border exchange of tax information on personal and business accounts and country-by-country reporting of sales, profits and taxes paid by multinationals.
As world leaders and high-level stakeholders meet this weekend in Washington, the question of India's black money should be considered as a sign of what lies ahead.
The global recession is expected to have a severe impact on developing economies and undo years of poverty alleviation efforts and economic gains. The desire to offset this predicted impact is sincere.
But until efforts are made to dismantle the shadow financial system and mandate more co-operative and rigorous reporting, success will remain as elusive as India's missing black money.
India has shown that this issue resonates with voters. Politicians in other developing country democracies would be wise to take note.
The writer is director of Global Financial Integrity.
Copyright: The Financial Times Limited 2009