Monday, January 24

Fraudulent billing costs South Africa R325bn per year

The US think tank Global Financial Integrity (GFI) has published its 2021 report on Trade-related illicit financial flows in 134 developing countries, for the years 2009 to 2018.

Fraudulent billing continues to be a major challenge for tax and customs authorities around the world, with a global loss of around $ 1.4 trillion a year.

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It is orchestrated when importers and exporters deliberately falsify the declared value of goods on invoices sent to customs authorities.

The difference between what South Africa reported for trade data in 2018 compared to what its trading partners reported, known as the value gap, is estimated at $ 22.142 billion.

The average value gap over 10 years is estimated to be $ 20.435 billion. At the current exchange rate of R15.88 per dollar, this equates to R325 billion per year.

Forgery of invoices or forgery of invoices avoids taxes and / or customs duties, enables the illicit transfer of money across national borders, and circumvents currency controls. The benefits of this illegal activity will be hidden in offshore bank accounts.

Fraudulent billing is one of the most important components of measurable illicit financial flows (IFFs). Other types include tax evasion (such as when an expense is manufactured) and smuggling.

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Methodology for determining the value gap

GFI compiled and analyzed 10 years of international trade data for 134 developing countries and 36 advanced economies in the global trading system, which governments report to the United Nations (UN). Developing countries that had not reported sufficient annual trade data to the UN were excluded from this report.

The aim of the report is to identify mismatches, or value gaps, between what two countries had reported regarding their trade with each other. GFI analyzed its trade with a set of 36 advanced economies, as well as its trade with all of its global trading partners for each year over the 10-year period to identify potentially incorrectly billed imports / exports.

GFI encapsulated all identified value gaps for all products traded between countries each year, while applying a series of filters to ensure that unmatched trade-offs are ignored.

For example: if country A exported $ 200 million of gold to country B, but country B reported importing only $ 150 million of gold from country A that year, this would reflect a mismatch, or value gap, of $ 50 million in the informed trade of this product. between the two trading partners for that year.

Sub-Saharan Africa

While the GFI report covers 36 advanced economies and 134 developing economies, this article only looks at data for Sub-Saharan Africa (SSA).

The identified average value gap in US dollars within the bilateral trade between Sub-Saharan Africa and the 36 advanced economies as a whole over the 10-year period is $ 25.2 billion.

GFI cautions that the data available in the UN database “is not perfect and the country figures are not exact”, but that the estimates of the value gap provide “an approximation of the degrees of erroneous commercial invoicing that they occur between two countries ”.

The analysis also does not indicate on which side of the transaction the shipment was incorrectly valued.

The value gap in Sub-Saharan Africa in dollars and as a percentage of total trade

2016 2017 2018 10-year average
Value gap $ 22.6 billion $ 26.2 billion $ 24.4 billion $ 25.2 billion
% of total trade 20.5% 21.4% 19.5% 21.7%

Value gaps in trade between sub-Saharan Africa (SSA) and developing Asia (DAsia), developing Europe (DEur), the Middle East and North Africa (Mena), and the Western Hemisphere (WHem)

2016 2017 2018 10-year average
billion dollars billion dollars billion dollars billion dollars
DAsia / SSA 18.1 18.4 19.7 15.7
Door / SSA 1.5 2.2 2.1 1.5
Ore / SSA 3.6 3.8 4.0 2.6
WHem / SSA 1.0 1.2 0.9 1.4
SSA / DAsia 18.1 18.4 19.7 15.7
SSA / DEur 1.5 2.2 2.1 1.5
SSA / Mena 3.6 3.8 4.0 2.6
SSA / WHem 1.0 1.2 0.9 1.4

The developing Asia region and its trade with all other developing country regions has the largest value gap, probably reflecting the role played by China within this region.

Differences in value between sub-Saharan Africa and the various regions as a percentage of each region’s total trade with the other

2016 2017 2018 10-year average
% % % %
DAsia / SSA 23.2 23.0 23.8 22.8
Door / SSA 22.2 26.2 23.5 23.3
Ore / SSA 25.9 24.5 22.5 23.4
WHem / SSA 16.8 17.7 18.2 19.4
SSA / DAsia 23.2 23.0 23.8 22.8
SSA / DEur 22.2 26.2 23.5 23.3
SSA / Mena 25.9 24.5 22.5 23.4
SSA / WHem 16.8 17.7 18.2 19.4

Negotiate erroneous billing during Covid-19

Differences in value in international trade data illustrate the inability of governments to stop capital flight and illicit outflows through the international trading system.

The value of total world merchandise exports decreased from $ 19 trillion in 2019 to $ 17.6 trillion in 2020 (according to the United Nations Conference on Trade and Development).

“Many countries faced a decline in exports, an interruption in tourism and a slowdown in remittances from foreign workers and, in some cases, serious food crises.”

The Covid-19 pandemic increased opportunities for crime, smuggling, and illicit financial flows, and created new incentives to illicitly remove wealth from developing countries.

Foreign investors may have “sought unofficial means of illicitly transferring wealth, including through the fraudulent billing channel.”

Corrupt officials, as well as counterfeiters and smugglers, were offered new opportunities to exploit inefficiencies in customs departments. For example, the sudden increase in health-related cargo made it difficult for customs officials to properly inspect containers and related customs documentation.

Read: Sars 2021 scorecard in the fight against crime

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