Illicit finance hidden in trade numbers fed $9tn loss for developing nations: GFI

As featured in Risk Screen

Illicit finance


“The main point of the report is just to show that the magnitude of the overall problem is still so huge,” said senior GFI economist Rick Rowden, in an interview. “Each one of these value gaps represents the loss of revenue for each country, which isn’t so much a problem for the rich countries but it is a huge problem for the developing countries.” One reason for this magnitude is that it is very difficult to detect fraudulent trading activity, according to Anton Moiseienko, a research fellow at RUSI’s Centre for Financial Crime and Security Studies. “If a client asks a bank to wire money as payment for goods, it’s very difficult for the bank to say whether that payment is adequate, too much or too little,” he said. “Because it won’t necessarily know what the goods are, what the quality is, and it can be difficult to price them anyway. So banks just don’t have enough information to be able to say, ‘this is trade-based money laundering.'” But this is different from trade financing, where banks can request more documents as a condition for financing trade, Moiseienko added. “They can ask questions about the business, about the kinds of goods that they trade. The bank has more information and so more opportunity to detect money laundering.” Because a very small proportion of trade is being financed by banks, this information is mostly unavailable. While access to the right data is a barrier in detecting this type of activity, more can also be done to empower customs officials, according to Alexandria Reid, also a research fellow at RUSI. “Good data—both in terms of quality and quantity—is a barrier to detecting TBML, but not necessarily the main barrier,” she said. “In most cases, it’s actually the fact that customs are traditionally focused on the detection of misinvoicing as a part of their revenue collection functions, so they’re not necessarily looking to detect TBML, and they’re not necessarily mandated to detect it either. This means that very few systems and processes are set up to empower customs to detect TBML.”