Global Financial Integrity

 

Op-Eds

Trade Misinvoicing, or How to Steal from Africa

Brian LeBlanc

The Little-Understood Practice of Misinvoicing or Re-Invoicing Relies on Legal Grey Areas and Financial Secrecy and Costs the Continent Dearly

Lately, the media has been replete with stories about how Africa is losing billions of dollars a year through a process called “trade misinvoicing.” The concept of trade misinvoicing is simple: companies and their agents deliberately alter the prices of their exports and imports in order to justify moving money out of, or into, a country illicitly.

The practice is very common in Africa. To name just a couple instances, it has allegedly been used to avoid paying import duties on sugar in Kenya and to shift taxable income out of Zambia and into tax havens abroad.

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Looted in Plain Sight: Kenya and Its Multi-Billion Dollar Invoicing Problem

Brian LeBlanc

Kenya lost over $700 million in taxes in 2012 due to smuggling. But despite popular belief, the main problem with smuggling isn’t corruption. It’s tax havens, phantom firms and secrecy.

At the end of January, the Kenya Sugar Board, acting on a tip off, seized and impounded over 1,800 bags of illegally imported sugar. Arrests were made and the board vowed to begin a country-wide crackdown on other cartels who smuggle tons of sugar into the country each year.

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An Indictment of Financial Crime Enforcement

Joshua Simmons

A Year after HSBC, Is the U.S. Doing Enough to Fight Money Laundering?

Writing in the current New York Review of Books, Jed S. Rakoff castigates the U.S. government for failing to prosecute any executives of financial institutions responsible for the recent, world-shaking financial crisis. As a judge on the U.S. District Court for the Southern District of New York, Rakoff has witnessed firsthand much of the legal denouement of the crisis, and his disappointment with the government’s inadequate response carries a great deal of weight. Rakoff questions the government’s reasoning in generally not even threatening criminal charges for executives, despite overwhelming evidence that knowledge and responsibility for the mortgage-backed asset bubble predicating the financial crisis rose to the highest levels in many banks.

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Illicit Trade Invoicing Fuels China’s Currency, Housing Speculation

Brian LeBlanc

US$400 Billion Smuggled into China from Hong Kong through Trade Misinvoicing Since 2006

China’s regulatory body responsible for managing the country’s foreign exchange reserves (SAFE) announced last month that it was planning to increase enforcement and penalties associated with the abuse of trade payments to mask illicit inflows of foreign exchange. The Wall Street Journal reports that Chinese authorities have uncovered 1,076 instances of false reporting of export invoices by 112 companies, adding up to approximately $2.5 billion. Still, SAFE has not disclosed the severity of the problem nor how it would clamp down on such practices—leaving many questions to be answered. Allusions to “fishy” trade with Hong Kong were given, but specifics were lacking.

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Developing Countries Are Being Undermined by Rich Nations’ Greed

Global Financial Integrity
Tom Cardamone
Clark Gascoigne

Australia’s Complicity in Money Laundering Hurts the World’s Poor

When you hear the words ”global development” what comes to mind? Foreign aid? Malaria prevention? Humanitarian assistance?

These are all worthy causes, but the most damaging economic problem facing the world’s poor today is the flow of illicit money leaving developing economies as a result of crime, corruption, and tax evasion. Two recent studies drive this point home.

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U.S. Must Do More to Tackle Phantom Firms on International Anti-Corruption Day

Joshua Simmons

Monday was International Anti-Corruption Day, an occasion for those who work to fight bribery, money laundering, and illicit capital flight to reflect on the past year and set goals for the next. We have many reasons to celebrate 2013, but also plenty of work still to do in 2014. At Global Financial Integrity, our research shows that nearly $1 trillion leaves developing countries each year (many times the amount such countries receive in official development assistance) through illicit financial outflows, a devastating loss of capital facilitated by a shadow financial system more than happy to accommodate corrupt assets. Gains in tax information exchange and other areas this year will surely help curtail some of this moving forward, but there are many more policy changes needed before this economic scourge can be effectively addressed.

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Why Bitcoin (& Other Cryptocurrencies) Will Inevitably Become Tools of the Rich, Powerful & Criminal

E.J. Fagan

Last week, an op-ed that I wrote for The Baltimore Sun prompted a lot of very strong reactions, both positive and negative. I argued that efforts to make Bitcoins functionally anonymous are very dangerous, because money laundering is inherently very dangerous.

To summarize my argument: transnational crime is a global business valued in the hundreds of billions of dollars, and criminals need a way to easily launder, move, and invest that money to make it worth the risk. I brought up two examples—rhino poaching and human trafficking—in the op-ed, but there are dozens more crimes (including drug trafficking and weapons smuggling) to which you can refer.

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Bitcoin and International Crime

E.J. Fagan

A Johns Hopkins professor’s efforts to develop an untraceable digital currency are dangerous

U.S. law enforcement officials have been shutting down giant illegal marketplaces that do business in “bitcoin” and are beginning to lay out plans to regulate such digital currencies — like we do any other kind of money — by requiring that money laundering controls be applied to the transactions.

The virtual bitcoin currency is not backed by any central bank or government and can be transferred “peer to peer” between any two people anywhere. It is created through a complex computer mining process that allows people to earn new bitcoins by solving certain mathematical problems.

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