Nearly two-thirds of trade-based money laundering over the past decade relied on misleading or false invoices, with metals and minerals among the sectors most commonly targeted, fresh research has found.
Washington, DC-based think tank Global Financial Integrity (GFI) says the findings follow a mapping exercise of all publicly available cases that involved trade-based money laundering between 2011 and 2021.
GFI says it has identified more than US$60bn in dirty money that was laundered through international trade transactions during that period, causing economic damage to countries involved – particularly in developing markets.
“One of the most prevalent channels for illicit financial flows is through the international trade system,” says the GFI report, which was co-authored by Colombian think tank Fedesarrollo, Transparency International Kenya and Ugandan policy research group ACODE.
“As of 2021, GFI estimates that the annual value of trade-related illicit financial flows in and out of developing countries amounted to, on average, about 20% of the value of their total trade with advanced economies.”
63% of cases identified involve trade misinvoicing, which can include giving false information about the value, country of origin or ownership of goods being shipped, or issuing multiple invoices for the same products. In cases of “phantom shipments”, the goods do not exist at all.
Though cars are the single most common product exploited to move illicit funds, metals and minerals account for 17% of cases identified, while agricultural goods represent another 13%.
The report does not distinguish between open account trade or documentary finance transactions, both of which can be exploited by financial criminals.
Case studies from Colombia, Uganda and Kenya demonstrate how different commodity trade flows are used to move funds undetected.
In Colombia, more than 70% of trade-based money laundering cases involve proceeds from narcotics sales, with illegal mining making up another 10%.
Following a study of the country’s key export sectors, think tank Fedesarrollo identifies palm oil as a potential risk, after discovering discrepancies between Colombia’s reported exports and the reported imports of the corresponding trading partners.
This discrepancy, known as a value gap, could signal “intentional manipulations of the value of palm oil exports”.
“This value gap is supported by price abnormalities in the customs declarations prepared by the companies,” the report adds.
Uganda’s gold sector – which accounted for nearly 60% of its export earnings in 2020 – is also vulnerable to trade-based money laundering schemes, GFI finds. As well as being a cash-intensive industry, illegally mined gold is often co-mingled with legitimate gold to disguise its origin.
The report notes that domestic production of gold has not grown in line with increasing export values, and that imports of gold do not make up the difference.
“These inconsistencies in trade data raise the trade-based money laundering risk profile of the Ugandan gold sector,” it says.
And in Kenya, GFI finds evidence of misinvoicing for exports of coffee, tea and spices, citing an example of a criminal syndicate that established a legitimate tea trading company as a means of concealing illegal shipments of ivory to Thailand and Singapore.
The report makes several recommendations to governments on how to tackle trade-based money laundering.
It says authorities should compare export data from one country with corresponding import data from its trading partner in real time, rather than after the fact.
It also suggests using technology to assess whether trade transactions are priced correctly, screening shipments and flagging up potential discrepancies.
“The use of these new technologies can help to combat trade misinvoicing, prevent trade-based money laundering, and curtail customs revenue loss,” it says.
GFI’s latest findings likely represent a small proportion of overall trade-based money laundering. Around a third of cases were identified in the US, Mexico and Colombia alone, which may reflect “institutional capacity to detect and investigate such cases”, GFI says.
The think tank has previously suggested that overall transnational crime could be worth as much as US$2.2tn each year. UN research suggests Africa loses an average of US$88bn to illicit financial flows per year, while Latin America and the Caribbean miss out on around US$76bn in revenue – equivalent to over 3% of trade in the region.