Presenting a New Atlas of Illicit Financial Flows from Trade Misinvoicing

90 Pages Posted: 20 Dec 2021 Last revised: 28 Nov 2022

See all articles by Alice Lépissier

Alice Lépissier

Brown University

William Davis

no affiliation

Gamal Ibrahim

United Nations Economic Commission for Africa; Economic Research Forum (ERF)

Date Written: December 13, 2021

Abstract

Trade misinvoicing is an illicit practice designed to move money in and out of a country through the deliberate falsification of customs invoices at import and export. Existing estimates of trade misinvoicing have typically relied on the simplifying assumption that discrepancies in mirror international trade data over and above costs of insurance and freight represent misinvoicing. We propose an improved methodology that adjusts for many of the other potential sources of "non-illicit discrepancies" in mirror trade statistics. We present a global dataset of trade misinvoicing estimates for 167 countries for the period 2000-2018. We find that developing countries lost $1.7 trillion in gross illicit outflows during that period, an average of $131 billion a year. Our dataset provides disaggregated estimates of illicit financial flows by sector and country and will allow policy-makers to identify sources, sinks, and sectors to focus their efforts on. We find that the sectors that account for the most misinvoicing are mineral products and machinery and electrical. The top destinations of outflows from developing countries are rich countries and those with high levels of financial secrecy. Trade misinvoicing hampers development by diluting public revenues, undermining tax authorities, weakening governance, and eroding state institutions. Combating trade misinvoicing is crucial for the mobilization of domestic resources and can help catalyze sustainable development.

Keywords: illicit financial flows, trade misinvoicing, trade-based money laundering, international trade, mirror statistics

JEL Classification: F1, F5, F6, O1

Suggested Citation

Lépissier, Alice and Davis, William and Ibrahim, Gamal, Presenting a New Atlas of Illicit Financial Flows from Trade Misinvoicing (December 13, 2021). Available at SSRN: https://ssrn.com/abstract=3984323 or http://dx.doi.org/10.2139/ssrn.3984323

Alice Lépissier (Contact Author)

Brown University ( email )

111 Thayer Street
Box 1970
Providence, RI 02912-1970
United States

HOME PAGE: http://watson.brown.edu/rhodes/people/alice-l-pissier

William Davis

no affiliation

Gamal Ibrahim

United Nations Economic Commission for Africa ( email )

Addis Ababa
Ethiopia

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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