Trade misinvoicing highlighted in new report on unrecorded capital flight

Since 1980, developing countries have lost US$16.3 trillion through trade misinvoicing, leakages in the balance of payments and recorded financial transfers according to a study by Global Financial Integrity, the Centre for Applied Research at the Norwegian School of Economics and a team of global experts.

Their report maintains that developing countries have effectively served as net-creditors to the rest of the world, with tax havens playing a major role in the flight of unrecorded capital.

In 2011, tax haven holdings of total developing country wealth were valued at US$4.4 trillion according to the study entitled ‘Financial Flows and Tax Havens: Combining to Limit the Lives of Billions of People’.

Significant outflows

Net Resource Transfers (NRTs) for all developing countries have been mostly large and negative since the early 1980s, indicating sustained and significant outflows from the developing world according to the study.

It defines NRTs as net recorded flows into or out of a country inclusive of outflows of illicit and unrecorded capital.

NRT estimates

To estimate NRTs, the report uses balance of payments data and bilateral trade data, which includes capital flows from official development assistance, loans, repayments, debt cancellation and foreign direct investment.

Figures for criminal flows, same-invoice faking, and trade in intellectual property and services do not form part of the analysis.

Chinese focus

The study focuses on the role of China’s capital flows in the analysis of NRTs for all developing countries, which the report says affects the magnitude of cumulative NRTs but not the overall conclusion.

Excluding China’s US$4.6 trillion from the developing world total reduces cumulative NRTs from the remaining developing countries to about US$11.7 trillion.

China’s high level of NRTs is due to large current account surpluses, associated capital and reserve asset outflows and considerable unrecorded outflows.

Categories: Trade Based Financial crimes News

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