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Misinvoicing drains out $1.2bn annually

  • Published at 06:35 pm May 5th, 2014
Misinvoicing drains out $1.2bn annually

The annual average money laundering through manipulation of commercial invoices hit $1.2bn during a period between 2002 and 2011 in Bangladesh, says a latest report of a Washington-based research and advocacy organisation.

The figure of trade misinvoicing was slightly down from $1.4bn estimated between 2001 and 2010, according to the report released by the Global Financial Integrity (GFI) on Saturday.

Trade misinvoicing involves the deliberate manipulation of commercial invoices in order to misreport the value of a transaction, thereby illegally shifting money across international borders without detection.

It is a phenomenon presumably prevalent widely in the developing countries.

“This is due to weak efforts in tackling trade-based money laundering,” former finance adviser to the caretaker government Dr Mirza Azizul Islam told the Dhaka Tribune yesterday.

He said the report explains the massive scale of the problem in Bangladesh, where capital flight is very sensitive due to the vulnerability of the country’s financial sectors plagued by scams.

Dr Aziz said recent data showed capital machinery import rose but credit from banking system declined – the gap is suspicious. “This speaks of capital flight that stumble investment, which is much needed for the faster economic growth of the country.”

He said National Board of Revenue should look at the issue seriously.

According to the report, cumulative amount of illegally siphoning off money stood at over $11bn during the period and over $1.7bn was drained out of Bangladesh in 2011.

From developing countries, illegally siphoning off money was at least $763bn in 2011 through trade misinvoicing that accounts for nearly 80% of all illicit financial outflows, it said.

“The misinvoicing of trade transactions is the most widely used method for transferring dirty money across international borders,” said GFI President Raymond Baker, a longtime authority on financial crime. 

GFI Junior Economist Brian LeBlanc said: “Trade misinvoicing is a massive problem that hampers economic growth, decimates government revenues, and facilitates myriad criminal enterprises.” 

“It is used to launder the proceeds of human trafficking, terrorist financing, and drug dealing; it is used to hide the ill-gotten-gains of kleptocrats; and it is routinely used by companies and individuals to evade taxes and customs duties.”

GFI estimates that trade misinvoicing from developing countries has grown at an inflation-adjusted 8% per year over the last decade, significantly outpacing economic growth.

An earlier United Nations Development Programme (UNDP) study estimated the amount of money, taken out of Bangladesh, at an annual average of $3.1bn between 2001 and 2008, being the highest among all the least developed countries.

And strikingly, such outflows continued. A report by the World Bank, released in two volumes in 2012, said national savings-investment gap as a ratio of Bangladesh’s gross domestic product as one indication about the persistence of capital flight.

Illegal capital flight or outflow is one of the most important characteristics of a hidden economy. A research claimed that the size of the hidden economy of Bangladesh is 20% to 23% of its GDP.