Trade Fraud: Report Uncovers $8.8tn Illicit Financial Flows in 135 Countries
A report released by the United States-based Global Financial Integrity (GFI), has revealed that the sum of $8.8 trillion was involved in illicit financial flows (IFFs) resulting from trading activities by 135 developing countries and 36 advanced countries.
The report covered trading activities in these countries between 2008 and 2017.
Part of the illicit financial flows was trade mis-invoicing which was described as a deliberate practice by importers and exporters to embark in fraudulent exercise of falsification of the actual figures or amount of their trade.
The report explained trade mis-invoicing as specifically a practice in which importers simply alter figures on their voices for goods they have purchased or want to export simply for the purpose of evading payment of correct duties.
It could also be for the purpose of laundering the proceeds for criminal activity,” circumvent currency controls, and hide profits offshore”.
The report further described illicit financial flows to include smuggling and tax evasion, among others.
According to the reporting organization, GFI, the investigation was conducted with the use of International Monetary Fund (IMF) classification system involving 148 developing countries and 36 advanced countries.
The report added that 13 developing countries were not covered in the report because they do not have sufficient data to be part of the report.
A news report by THISDAY Newspaper suggested that Nigeria may be part of this 13 countries since it was not mentioned among the countries in Sub-Saharan Africa which suffered from the $8.8 trillion IFFs .
This according to the news report was based on the disclosure by President Muhammadu Buhari last year ,that Nigeria lost $157.5 billion to illicit financial flows between 2003 and 2012.
THISDAY report presents the following details:
“Details of the report show that in 2017 alone, $817.6 billion was the gap identified in trade between 135 developing countries and 36 advanced economies.
“Developing countries with the largest annual average value gaps (in US dollars) in their bilateral trade with 36 advanced economies over the ten-year period were China – $323.8 billion, Mexico – $62.9 billion, Russia – $56.8 billion, Poland – $40.9 billion, Malaysia – $36.7 billion
“Developing countries with the largest value gaps as a percentage of their total bilateral trade with the 36 advanced economies over the ten-year period are The Gambia – 37.3 per cent, Togo – 30.2 per cent, The Maldives – 27.4 per cent, Malawi – 26.8 per cent, and The Bahamas – 26.6 per cent
“By contrast, China ranked 80th out of the 135 developing countries analysed, with an average value gap of 18.8 per cent of its total bilateral trade with the 36 advanced economies over the same period.
“Developing countries with the largest average value gaps as a percentage of total trade between the 135 developing countries and all trading partners over 2008-2017 are The Gambia – 46.8 per cent, Seychelles – 38.3 per centParaguay – 27.1 per cent, Ghana – 26.5 per cent, The Bahamas – 25.9 per cent
“The three largest value gaps (in US dollars) by harmonized system (HS) chapter between the 135 developing countries and 36 advanced countries are Electrical Machinery (HS 85) – $153.7 billion, Mineral Fuels (HS 27) – $113.2 billion, Machinery (HS 84)– $111.7 billion
“The average sizes of the value gaps by dollar amount between the developing country regions and the 36 advanced economies over the review period are Asia – $476.3 billion, Developing Europe – $167.9 billion, Western Hemisphere – $131.5 billion Middle East/North Africa – $70.6 billion, and Sub-Saharan Africa – US$27.2 billion.
“A closer analysis indicate that $63 billion was the largest value gap identified when examining trade misinvoicing between developing country regions over the ten-year period was between Developing Asia and the Middle East/North Africa in 2014.
“The lowest value gaps identified when examining trade ($1 billion)misinvoicing between the developing country regions over the ten-year period were between Sub-Saharan Africa’s trade with Developing Europe, Middle East/North Africa and the Western Hemisphere in several of the years”.
The average sizes of the value gaps as a percentage of total trade within South- South trade and within North-South trade, which suggests that trade misinvoicing is proportionately a similar problem in trade among developing countries as it is in trade between developing countries and advanced economies.
Overall, the the report showed that trade misinvoicing is a persistent problem across developing countries, resulting in potentially massive revenue losses – at a time when most countries are struggling to mobilise domestic resources to achieve the internationally-agreed UN 2030 Sustainable Development Goals (SDGs).
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