Effects of trade misinvoicing on money laundering in developing economies

Abstract

Purpose This study aims to define the concepts and determine the extent to which trade misinvoicing influences money laundering activities in developing countries. Design/methodology/approach A qualitative research methodology was adopted using a descriptive synthesis of secondary data due to the heterogeneous nature of data sources (empirical evidence and content analysis). Findings Analysis revealed that in recent times trade misinvoicing accounts for over 20% of international trade value between developing and developed countries, and trade misinvoicing has been identified as a trade-based money laundering mechanism. Research limitations/implications Unavailability of homogenous data relating to trade misinvoicing among developing countries, different methods for measuring trade misinvoicing and inadequate high-quality research papers that led to the use of reports from reputable organisations. Originality/value To the best of the author’s knowledge, this study is among the few research works to assess the effects of trade misinvoicing and how it influences money laundering activities in developing countries.

Unveiling The Shadows: Exploring Money Laundering Mechanisms In Bangladesh's RMG Sector

“…One of the worst things about TBML is that it takes advantage of how complicated foreign trade is. Because cross-border trade is so big and complex, it is an excellent place for people to hide money (Umar, 2023). They take advantage of the wide range of goods and services traded between countries and change bills and financial records to conceal the fundamental nature of their transactions (Naheem, 2017).…”

“…Fictitious transactions make things even more confusing because they involve making up trade deals that don't exist (Sinno, Baldock and Gleason, 2023). These deals look fine on paper, but they don't help the economy in any way (Umar, 2023). This makes them perfect for hiding dirty money (Grujić and Šikman, 2021).…”

Assessing the Introduction of Anti-Money Laundering Law on Trade Misinvoicing: The Case of Vietnam

“…Moreover, since illegal traders could buy or sell foreign exchange on the black market, the black market premium is also another determinant of misinvoicing (Barnett, 2003;Biswas & Marjit, 2005). In addition, trade misinvoicing is also referred to as a trade-based money laundering mechanism (Umar, 2021). Specifically, export under-invoicing and import over-invoicing may result from hiding "dirty" money from the government's scrutiny.…”

“…While funds could be moved between economies via export over-invoicing or import over-invoicing, outflows or inflows embedded in goods could be facilitated by both export under-invoicing and import under-invoicing (Tandon & Rao, 2017). Trade misinvoicing, hence, could function as a money laundering mechanism (Bohoslavsky, 2018;Umar, 2021). While export under-invoicing and import over-invoicing would conceal the illicit financial outflows out of This practice is increasingly used to move "dirty" money across economies by facilitating illicit financial flows (GFI, 2019).…”

Illicit capital movement through trade misinvoicing in Burundi: a disaggregated approach

“…Trade misinvoicing is a method for moving money illicitly across borders by falsifying the value or volume in an international commercial transaction of goods or services (Global Financial Integrity, 2019). Although the classic motive of trade misinvoicing is often to evade taxes, duties or capital controls, trade misinvoicing can also be a trade-based technique for smuggling or money laundering (Umar, 2013). Import underinvoicing and export overinvoicing can be the ways of disguising inflows of capital to avoid capital controls or anti-money laundering scrutiny, and by doing so, money is slipped into a country (UNCTAD, 2016).…”