Ghana loses over $180m to trade misinvoicing, key policy recommendations for Gov’t

Tracking illicit financial flow in Africa

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 which involves 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 about 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 governments in Africa

Beneficial Ownership

Governments should establish public registries of verified beneficial ownership information on all legal entities, and 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.

Report by Gideon Sarpong | Policy and Content Analyst | Source: Global Financial Integrity, 2017 Report

 

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Gideon Sarpong

2017 Thomson Reuters Foundation Fellow: Gideon Sarpong (G. K. Sarpong) is a media practitioner with over six years of experience in content development and management, data and investigative journalism, policy analysis, production and e-commerce strategizing. Gideon is currently Director of Policy and Content Analysis at iWatch Africa. He is also the Brands and Communication Manager for Football 360, Kwese SportsXtra, on KFS and Celebrity Fanzone, The Tonight Show, and After Hours. Gideon is an e-commerce consultant for Department of Geography & Regional Planning and Department of Religion & Human Values at the University of Cape Coast. He is also a farmer and columnist for several local and international news portals. Gideon holds a Post Graduate Diploma in Policy Journalism and Illicit Financial Flows and is committed to promoting transparency and accountability using investigative & data journalism. Gideon is an author with over eight publications and a fellow of the Young African Leadership Initiative (YALI), Thomson Reuters Foundation (Wealth of Nations Program) and Bloomberg Philantropies (Data for Health).

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