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New Trade Brief Finds Large-Scale Trade Misinvoicing in Colombian Timber Exports

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WASHINGTON D.C. – Global Financial Integrity (GFI) today published an analysis of the timber industry in Colombia and found that in one 10-year period more than 40 percent of tropical wood exports were misinvoiced. During the same time frame Colombia reported $65.6 million less in total timber exports than its trade partners reported as having imported from Colombia.

Deforestation is a major threat to Colombia’s environment, economy, indigenous peoples, and security as well as the global effort to fight climate change. Illegal logging is an important component of deforestation in Colombia. With the signing of the peace agreement in 2016 the forests were no longer under FARC’s control and the rate of illegal logging has been increasing. The Colombian government is still trying to tackle the issue.

The trade brief, titled “Out of the Woods,” compared all of Colombia’s reported timber exports to its trading partners’ reported imports from 2009-2018. Major discrepancies between the two figures indicates that trade misinvoicing could have occurred. To arrive at the misinvoicing figure the report analyzed the value, volume and frequency of those identified instances of potential trade misinvoicing based on different variables such as export destination, export company and consignee companies to identify trends in the places or companies where illicit financial flows could have occurred. 

The author of the report, Channing Mavrellis, noted that the Colombian government needs to do a better job of curtailing trade misinvoicing involving the export of Colombian timber products. “This is a critical step towards safeguarding Colombia’s forests and overall biodiversity,” she said.

Transparency is a key factor in addressing trade misinvoicing within the timber sector. GFI recommends that Colombia’s Customs Department, DIAN, should require exporters to record timber species in customs declarations. This will allow the government to monitor which species are being exported, particularly species that are endangered. 

Further, the government should apply stricter scrutiny on pricing abnormalities, high-risk countries, and high-risk customs agencies to help prevent future trade misinvoicing. An additional step that can be taken is improving beneficial ownership transparency, or identifying the real people who control companies. Identifying these beneficial owners makes it harder for criminal actors to hide behind seemingly legitimate shell companies and helps the Colombian government identify who is benefiting from trade misinvoicing as well as other illicit activity.

Findings: 

  • Over the ten-year period more than 40% of tropical wood export transactions were misinvoiced.
  • From 2009-2018 Colombia had a total absolute value gap of US$168.9 million for all timber exports (the difference between total exports reported by Colombia and total imports reported by other countries from Colombia).
    • The largest absolute value gap occurred with Panama, a value of $37.3 million
  • Over the ten-year period, Colombia reported $65.6 million less in timber exports than its trade partners reported in imports.
  • When evaluating by export destination, the most potential trade misinvoicing occurred in trade with China and India.

Policy Recommendations:

  • Address the legality of exports of primary/raw timber. Exports of illegal primary form timber should be addressed, either by requiring proof of origin, or changing the current law to allow timber exports from non-commercial plantations.
  • Apply stricter scrutiny of pricing abnormalities in export transactions. DIAN should apply stricter controls to exports that are priced significantly outside the average per-unit price, which can indicate trade misinvoicing. Tools like GFTrade can help with detecting these occurrences. 
  • Require exporters to record timber species in customs declarations. Requiring declaration of species would allow the government to monitor species at risk for illicit trade and preserve endangered species.

Read the full trade advisory in English here.

Lea el informe completo en Español aquí.

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ABOUT GFI: Global Financial Integrity (GFI) is a Washington, D.C.-based think tank, producing high-caliber analyses of illicit financial flows, advising developing country governments on effective policy solutions and promoting pragmatic transparency measures in the international financial system as a means to global development and security.

CONTACT:

Lauren Anikis

Communications Coordinator

lanikis@nullgfintegrity.org

@IllicitFlows