Capital movement through trade misinvoicing: the case of Africa

• Published in: Journal of financial crime 2007-10, Vol.14 (4), p.474-489
• Main Authors: de Boyrie, Maria E., Nelson, James A., Pak, Simon J.
• Format: Article
• Language: English
• Subjects: Africa; Capital movement; Crime; Crimes; Developing countries; Economic statistics; Exports; Foreign exchange; Income redistribution; International trade; Invoices; Invoicing; LDCs; Money laundering; Smuggling; Studies; Tax evasion; Taxes
• ISSN: 1359-0790; 1758-7239
• DOI: 10.1108/13590790710828181

Purpose - The purpose of this paper is to identify capital flows due to trade misinvoicing in 30 African nations.Design methodology approach - Data from 30 African nations were examined for deviations from average import and export prices as an indicator of capital flows This paper uses US customs data to document the amount of capital flows which may be hidden in commodity trade. Deviations from average prices (price filter matrix) within these commodity classes are used to identify abnormal prices and to produce conservative estimates of the amount of capital movement from 30 countries in Africa to the USA.Findings - The results of this study demonstrate that, between 2000 and 2005, capital outflows from all 58 countries in Africa to the USA grew by more than 50 percent, through both low-priced exports and high-priced imports.Research limitations implications - A clear understanding as to the true purpose of the overall capital movement is not easy to determine from the data. Approximately half of the countries (16 out of 30) utilized low-priced exports as a means to move more money into the USA, while the other half (14 out of 30) used high-priced exports to move the most money.Practical implications - When trade misinvoicing is used as a tool to move capital in and out of a country or continent in order to evade taxes and or customs duties, avoiding quotas, smuggling, and laundering illegally obtained money, or as a means of capital flight, the economic development of the given country is severely hindered. This movement of capital may be due to tax evasion, duty reduction, money laundering, capital flight, or other reasons beyond the scope of this paper.Originality value - The technique of using a price filter matrix can be of value to researchers and governments to identify capital flows due to trade misinvoicing.