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Trade misinvoicing persists in BD: GFI

'Value gap in reported bilateral trade indicates illicit financial flows'

FE REPORT | March 04, 2020 00:00:00

Continued mismatch or value gap in reported bilateral trade of Bangladesh with the rest of the world has indicated that trade misinvoicing is persisting there.

The latest report of the Global Financial Integrity (GFI), a Washington-based research organisation, estimated the value gap of 135 developing countries including Bangladesh and 36 advanced economies over a ten-year period between 2008 and 2017.

The report, released on Tuesday, showed that Bangladesh's average trade value mismatch with all the trading partners (170 countries for the GFI report) stood at around 18.0 per cent of the country's total trade.

For Bangladesh, the amount of annual average value gap was estimated at US$7.53 billion. GFI estimation also showed that the highest value gap was recorded at $11.51 billion in 2015.

The value gap or mismatch is a difference between the reported trade data of two countries. For instance, if Ecuador reported exporting bananas worth $20 million to the United States (US) in 2016 and the US reported having imported bananas valued at only $15 million from Ecuador that year. This would reflect a mismatch or value gap of $5 million.

Nevertheless, unlike in the past year, this time GFI didn't directly say that the amount of value gap was similar to the amount of illicit financial flows from a country. Instead, it emphasised on finding the possible amount of misinvoiced trade by identifying the mismatch.

According to GFI: "Trade misinvoicing is the act of the deliberate manipulation of the value of a trade transaction by falsifying, among others, the price, quantity, quality, and/or country of origin of a good or service by at least one party to the transaction."

GFI, however, added that trade misinvoicing is one of the largest components of measurable illicit financial flows (IFFs).

IFFs are illegal movements of money or capital from one country to another.

GFI classifies IFFs as funds which are illegally earned, transferred, and/or utilized across an international border. The sources of such funds include corruption, tax evasion and transnational crime.

The report also mentioned that for Bangladesh, estimation for the years 2014, 2016 and 2017 were not made possible due to lack of adequate data.

It pointed out that some countries including Bangladesh didn't provide full data on trade for several years for inclusion in the United Nations Comtrade database.

GFI report further showed that Bangladesh's annual average value gap in trade with 36 advanced economics stood at $3.29 billion and the amount was estimated at 14.62 per cent of total trade.

In the previous report, released in 2017, GFI said some 12-17 per cent of the country's total trade value had annually flown out of Bangladesh during 2005-2014 through trade misinvoicing and other illegal transfers. The annual average amount of illicit financial flow was estimated at $7.58 billion.

Global Scenario: By analyzing individual country government trade statistics supplied to the United Nations Comtrade database, GFI identified "value gaps" or mismatches in the reported data.

GFI identified a total value gap of $8.8 trillion in trade between the 135 developing and 36 advanced economies over the ten-year period in its report titled 'Trade-Related Illicit Financial Flows in 135 Developing Countries: 2008-2017.'

"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," it added.

According to the report, the developing countries with the largest annual average value gaps in their bilateral trade with 36 advanced economies during 2008-2017 period were China ($323.8 billion), Mexico ($62.9 billion), Russia ($56.8 billion), Poland ($40.9) billion and Malaysia ($36.7 billion).

"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 that trade misinvoicing is proportionately a similar problem in trade among developing economies as it is in trade between developing and advanced economies," said GFI in a press statement.

Terming trade misinvoicing as a persistent problem across developing countries, GFI added: "It is resulting in potentially massive revenue losses at a time when most countries are struggling to mobilize domestic resources to achieve the internationally-agreed UN 2030 Sustainable Development Goals (SDGs)."

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