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Global Financial Integrity (GFI), a US-based research and advisory organization, Tuesday in Washington DC , published its annual update, “TRADE-RELATED ILLICIT FINANCIAL FLOWS IN 135 DEVELOPING COUNTRIES: 2008-2017 ”, examining trade-related illicit financial flows across 135 developing countries and 36 advanced economies by trading partner, commodity, region, and percent of total trade, among other indicators.
By analyzing individual country government trade statistics supplied to the United Nations Comtrade database, GFI identifies “value gaps,” or mismatches, in the reported data.
GFI identified a total value gap of US$8.8 trillion in trade between the
135 developing and 36 advanced economies over the ten-year period. In 2017, the most recent year for which data are available, the total value gap in trade between advanced economies and developing countries was
US$817.6 billion.
The act of trade misinvoicing is a major type of illicit financial flow
and can be used to evade customs duties, VAT taxes, and currency
controls among other illicit activities. It also deprives developing country governments of desperately needed tax revenues.
Tom Cardamone, President/CEO of GFI, said, “Developing countries are losing a significant percentage of the value of their trade transactions – Indeed, in 2017, the value gap
associated with trade misinvoicing amounted to 18 per cent of
developing country trade. If the integrity of trade transactions cannot be assured, it is unlikely countries will be able to achieve the UN Sustainable Development Goals by the 2030 deadline.
Cardamone also noted that poorer nations are often the hardest hit by
misinvoicing.
“Of the ten countries with the largest average value
gap from 2008-2017, six are in Africa and are among the poorest
countries in the world, including SAO TOME AND PRINCIPE, THE GAMBIA, AND
BURUNDI,” he said.
GFI also revealed, among others, the following notable findings:
* The developing countries with the largest annual average value gaps
in their bilateral trade with 36 advanced economies over the ten-year period 2008-2017 were CHINA ($323.8 billion); MEXICO ($62.9 billion); RUSSIA ($56.8 billion); POLAND ($40.9) billion; and MALAYSIA ($36.7 billion).
* Developing countries with the largest value gaps as a percent of
their total bilateral trade with the 36 advanced economies over the
ten-year period were THE GAMBIA (37.3%); TOGO (30.2%); The MALDIVES (27.4%); MALAWI (26.8%); and the BAHAMAS (26.6%).
* Regionally, the largest value gaps in trade with the 36 advanced
economies over 2008-2017 were: DEVELOPING 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 ($27.2
billion).
* The largest value gap between developing country regions was $63
billion, in 2014 between MIDDLE EAST/NORTH AFRICA and DEVELOPING ASIA.
* The average sizes of the value gaps as a percentage of total trade
between Developing-Developing and Developing-Advanced trade partners
were broadly similar – indicating trade misinvoicing is
proportionately a similar problem in trade among developing economies as
it is in trade between developing and advanced economies.
According to Cardamone, “Data asymmetry is a key problem in trade misinvoing. This report provides a host of global and national policy
recommendations to reduce information asymmetry. Implementing these will
help countries crack down on trade misinvoicng and start capturing more trade-related revenue.”
