A 2017 report by Global Financial Integrity has revealed that Ghana loses over $180 million due to Illicit Financial Flows(IFFs) specifically trade misinvoicing.
Trade misinvoicing is a method for moving money illicitly across borders by deliberately misreporting the value of a commercial transaction on an invoice submitted to customs.
According to GFI’s 2017 report, Ghana is estimated to have lost $184,175,000 over the period between 2005 and 2014, due to trade misinvoicing.
The study also revealed that over the period between 2005 and 2014, IFFs likely accounted for between 14.1 percent and 24.0 percent of total developing country trade, on average, with outflows estimated at 4.6 percent to 7.2 percent of total trade and inflows between 9.5 percent to 16.8 percent. The magnitude of estimated illicit inflows ranges from $1.4 to $2.5 trillion.
Illicit financial flows stem from two sources: (1) deliberate misinvoicing in merchandise trade (the source of GFI’s low and high estimates), and (2) leakages in the balance of payments (also known as “hot money flows”).
Of those two sources, trade misinvoicing is the primary measurable means for shifting funds in and out of developing countries illicitly. Even using the lower of GFI’s two estimates for trade misinvoicing, GFI finds that an average of 87 percent of illicit financial outflows were due to the fraudulent misinvoicing of trade.
This is a staggering figure, underlining the enormous harm done to Ghana and other developing countries by illicit financial flows, however they are generated. The order of magnitude of these estimates, much more so than their exactitude, warrants serious attention in both the developing countries and in the wealthier world.
Maximizing domestic resources and achieving sustainable development goals is dependent upon substantially curtailing illicit financial flows.
Key policy recommendations to African governments
Beneficial Ownership
As part of its policy recommendations to African governments the Global Financial Integrity called for the establishment of public registries of verified beneficial ownership information on all legal entities, and that all banks should know the true beneficial owner(s) of any account in their financial institution.
Anti-Money Laundering
Government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations; laws already in place should be strongly enforced.
Country-by-Country Reporting
Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis.
Tax Information Exchange
All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20.
Trade Misinvoicing
Customs agencies should treat trade transactions involving a tax haven with the highest level of scrutiny. Governments should significantly boost their customs enforcement by equipping and training officers to better detect intentional misinvoicing of trade transactions, particularly through access to real-time world market pricing information at a detailed commodity level.
GFI has developed a product to assist governments in the detection of potential misinvoicing in real time: GFTrade™ is a proprietary risk assessment application developed to enable customs officials to determine if goods are priced outside typical ranges for comparable products.2
Sustainable Development
Governments should sign on to the Addis Tax Initiative to further support efforts to curb IFFs as a key component of the development agenda.
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