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Nine Trillion Dollars: Global Trade Hi-Jacked By Criminals

As Boris Johnson plans controversial Free Trade Zones, Mark Conrad reports on how UN Sustainable Development Goals are at risk due to the expansion of trade fraud.

Nine Trillion Dollars
Global Trade Hi-Jacked By Criminals

As Boris Johnson plans controversial Free Trade Zones, Mark Conrad reports on how UN Sustainable Development Goals are at risk due to the expansion of trade fraud.

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Almost nine trillion dollars’ worth of global trade between 2008 and 2017 has been identified as potentially illegal, shocking new figures have revealed.

A comprehensive study of ‘trade mis-invoicing’ by the Washington-based think-tank Global Financial Integrity (GFI), published on 3 March, has identified considerable gaps in the values of official trade deals between 171 developing and developed states which report annual figures to the United Nations (UN).

GFI analysts have identified a global trade ‘value gap’ of $8.8 trillion between what states declare as the value of trades with other countries – and what their trade partners declare for the same deals.

The problem of illegal trade is now so severe that experts have warned it is depriving developing states of vital tax revenues and hindering progress against the UN’s Sustainable Development Goals (SDGs).

Maureen Heydt, spokesperson for GFI, told Byline Times: “This study demonstrates that trade mis-invoicing is a severe, ubiquitous and persistent challenge to curbing illicit financial flows and achieving the UN Sustainable Development Goals by the 2030 deadline.

“Trade mis-invoicing poses a serious risk to the economic security and growth of all nations, but developing ones in particular, as it frequently results in a loss of collected tax revenues for governments. This is money that could have otherwise made an impact had it been allocated to social spending programs, such as poverty reduction or women’s health.

“Long term, these losses can stall efforts towards achieving sustainable global development, which has everyday consequences for billions of people around the world.”

The Sustainable Development Goals are a set of seventeen global targets designed to achieve a better, more sustainable future for the world and were agreed by the United Nations in 2003. They include tackling poverty, hunger, health and education inequalities, implementing sustainable economic development and addressing climate change.

Trade ‘mis-invoicing’ occurs when importers or exporters deliberately falsify the stated value of goods or services they supply or buy. It is one of the most significant components of measurable illicit finance globally.

This surprisingly common crime can be used to launder money, evade tax, avoid currency controls or VAT and shift profits or illegal cash to offshore centres.

Using the UN’s trade data, GFI researchers identified a large number of deals in which exporters and importers officially declare significantly different values for the same trade. The developing countries with the biggest value gaps in bilateral trade with the developing world between 2008 and 2017 were China ($323.8bn), Mexico ($62.9bn), Russia ($56.8bn), Poland ($40.9bn) and Malaysia ($36.7bn).

But when calculated as a percentage of a state’s total bilateral trade, it becomes clear that the problem impacts most heavily on African economies. Using this calculation, African nations make up four of the five most affected nations: Gambia (value gap of 37.3% of all bilateral trade), Togo (30.2%), The Maldives (27.4%), Malawi (26.8%) and the Bahamas (26.6%).

Electrical machinery ($153.7bn) and mineral fuels ($113.2bn) topped the list of global commodities most commonly linked to deliberate trade mis-invoicing over the period. But, as a proportion of total deal values, artwork, antiques, furs and boats topped the list of trades used to mask illegal activity.

GFI reports that criminals have become more sophisticated at using what looks like ‘genuine’ trade to massively increase the value of illicitly traded goods as global trade has become easier to undertake. In 2017, it is estimated that just 2% of all shipping containers, for example, were subject to searches used to verify the value of goods imported or exported.

The globalisation of trade has increased opportunities for criminals to manipulate the system, often through the number of ports, areas or regions now defined as ‘Free Trade Zones’ (FTZs), which use a light-touch regulatory regime to facilitate speedy and low-cost trade.

Britain’s Conservative prime minister, Boris Johnson, plans to establish as many as ten FTZs in the UK following Brexit – but critics have warned they could be targeted by criminals. 

Heydt added: “If the UK government moves ahead with its plan to create the new FTZs, GFI would strongly urge the UK to also increase the law enforcement abilities of customs authorities, and to also commit to greater oversight of the new FTZs.”

One senior customs official told Byline Times: “There is a misperception that illicit finance flows are all about the importation and export of drugs, or activities such as direct smuggling. That is not the case and it hasn’t been for some time.

“The bigger threat, financially at least, to economies is the volume of trade-based illicit finance because it can be used to mask serious illegality, avoid taxes and give money launderers and criminal gangs a veneer of respectability.”

Incredibly, however, trade mis-invoicing is not a criminal act in some countries. So GFI’s recommendations for tackling problems include calls to make the activity illegal globally. Other recommendations include.

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