Global Financial Integrity


Trade Integrity

Trade integrity is defined as international trade transactions that are legitimate, properly priced and transparent. Supporting and implementing policies to promote trade integrity can create permanent change by helping governments to significantly curtail illicit financial outflows so that more domestic resources can be mobilized for national economic development goals. It is the low-hanging fruit of financial transparency reforms, which can help countries recover from the Covid-19 pandemic and fund social programs needed to reach the 2030 UN Sustainable Development Goals.

Developing country governments are losing massive amounts of vitally important revenue due to opacity, corruption and criminal activity related to international trade transactions. Global Financial Integrity (GFI) research has shown that from 2008-2017 there was an US$8.7 trillion value gap between what developing nations reported as the value of imports and exports in trade with advanced economies, and vice versa. This gap, or mismatch, translates into potential revenue losses as high as US$1.5 trillion. This practice, known as trade misinvoicing, is severe and ubiquitous across international trade transactions, across advanced and developing countries alike.

Additionally, GFI’s 2017 report ‘Transnational Crime and the Developing World’ found that illegal trade in legitimate business sectors such as timber, fish and mining generate as much as a quarter of a trillion dollars in illicit proceeds each year. This deprives governments of even more income and has an adverse impact on human and worker’s rights. Furthermore, the notorious opacity of free trade zones (FTZs) around the world facilitates corruption, trade-based money laundering and the smuggling of goods.

The opportunity cost of the lost revenue due to these activities is massive and it is clear that trade integrity around the globe is sorely lacking.

The international community has also underscored the importance of trade integrity, especially in times of crisis. In March 2020, the G20 Trade and Investment Ministers noted that “as we fight the pandemic . . . , we will continue to work together to deliver a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.” And in mid-April the International Monetary Fund Managing Director’s Global Policy Agenda noted “the Fund will continue to support efforts to modernize the rules-based trading system through advocacy, policy advice, and analyses.”

Among the many steps needed to work towards achieving trade integrity, GFI encourages multilateral organizations and governments to:

  1. Identify the beneficial ownership of freight forwarders, shippers and other firms that are in the business of moving cargo;
  2. Undertake high-level discussions regarding the feasibility of all customs departments publicly posting all trade transaction information online so civil society, academics, researchers and journalists can analyze it;
  3. Investigate the feasibility of using distributed ledger technology in international trade transactions to eliminate the information asymmetry that is a major facilitator of trade misinvoicing;
  4. Promote public-private cooperation to develop information sharing strategies to curtail trade-based money laundering and;
  5. Improve transparency and accountability in FTZs, which are infamous for their lack of direct oversight.

By taking these steps, GFI believes developing countries can effectively realize trade integrity and reap the due benefits of their trade transactions.