This report examines the latest official government trade data reported to the United Nations to estimate the magnitude of trade misinvoicing – one of the largest components of measurable illicit financial flows (IFFs) between and among 135 developing countries and 36 advanced economies. Trade misinvoicing occurs when importers and exporters deliberately falsify the stated prices on the invoices for goods they are importing or exporting as a way to illicitly transfer value across international borders, evade tax and/or customs duties, launder the proceeds of criminal activity, circumvent currency controls, and hide profits offshore.
It is important to note that while the term “illicit financial flows’’ (IFFs) tends to include many types of activities, such as trade misinvoicing, smuggling, tax evasion, etc., this report only focuses on trade misinvoicing, or the trade-related aspects of illicit financial flows. It does not address all forms of IFFs. The countries included in this report are based on the International Monetary Fund classification system, which is comprised of 148 developing countries and 36 advanced economies. However, 13 of the developing countries did not report sufficient trade data to the United Nations to be included in this analysis.
In order to identify a country’s imports/exports that may have been misinvoiced, Global Financial Integrity (GFI) conducts a value gap analysis by examining data submitted by governments each year to the United Nations Comtrade database and applying a series of filters to ensure unmatched trades are omitted. GFI then uses a partner-country analysis to compare and contrast the differences between any set of two countries in order to identify value gaps, or mismatches, in the reported data. For example, if Ecuador reported exporting US$20 million in bananas to the United States in 2016, but the US reported having imported only US$15 million in bananas from Ecuador that year, this would reflect a mismatch, or value gap, of US$5 million in the reported trade of this product between the two partners for that year. While the available data is not perfect and country figures are not exact, the resulting value gap estimates are the result of rigorous analysis and provide an order of magnitude view of each country’s trade misinvoicing challenge, reflecting the degrees of trade misinvoicing happening between any two countries.
