'Illicit financial flows' (IFFs) tends to include many types of activities but new report only focuses on trade misinvoicing, or the trade related aspects of illicit financial flows.
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, Global Financial Integrity said.
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.
Key findings include:
US$8.7 trillion: The sum of the value gaps identified in trade between 135 developing countries and 36 advanced economies over the ten-year period 2008-2017;
US$817.6 billion: The sum of the value gaps identified in trade between 135 developing countries and 36 advanced economies1 in 2017, the most recent year for which comprehensive data are available. This analysis adds to what GFI has provided in previous annual reports. (See Table A in the Annex);
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 2008-2017:
China – US$323.8 billion
Mexico – US$62.9 billion
Russia – US$56.8 billion
Poland – US$40.9 billion
Malaysia – US$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:
The Gambia – 37.3 percent
Togo – 30.2 percent
The Maldives – 27.4 percent
Malawi – 26.8 percent
The Bahamas – 26.6 percent
The average sizes of the value gaps by dollar amount between the developing country regions and the 36 advanced economies over the ten-year period of 2008-2017:
Asia – US$476.3 billion
Developing Europe – US$167.9 billion
Western Hemisphere – US$131.5 billion
Middle East/North Africa – US$70.6 billion
Sub-Saharan Africa – US$27.2 billion
Overall, the analysis shows trade misinvoicing is a persistent problem across developing countries, resulting in potentially massive revenue losses when most countries are struggling to mobilize domestic resources to achieve the internationally agreed UN 2030 Sustainable Development Goals (SDGs).
On average over 10 years, the average rate of trade misinvoicing for Croatia as a percent of total trade with all its global trading partners was 17.3%, equal to about $3.75 billion.
This is the value that has been illicitly moved through Croatia's trade, and as a result, has not been properly taxed by the respective authorities.
As you can see this is quite high, meaning the amount of trade that is going undetected and untaxed is equal to a sixth of all Croatian trade. Illicit activity on this scale depletes resources and revenues for governments, often affecting public and social spending. ■
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.