Illicit financial flows and global customs transparency: import over-invoicing 2024

Abstract

In the global context, States require the collection of taxes to fulfill their essential functions, as provided for in their domestic legislation. In theory, all obligors would pay them voluntarily, but in contrast, reality forces the authorities to establish coercive measures to collect them. In global trade, these measures are not sufficient, due to the lack of transparency in customs information, generating the so-called Illicit Financial Flows (FFI).

Illicit Financial Flows originate from various causes, among which the differences between the reports made by the countries regarding imports and exports stand out. They are defined as those that originate from the departure of capital outside a jurisdiction without having made the corresponding payment of the tax.

The objective of this research is to estimate the Illicit Financial Flows derived from over-invoicing of imports in six countries in the year 2024 to demonstrate the need to establish a system that improves transparency in customs around the world.

This investigation was based on a specialized review on Illicit Financial Flows, tax, as well as the compilation and analysis of the United Nations database. As a result, Illicit Financial Flows due to overinvoicing were estimated during the year 2024 in six countries: Mexico, Russia, India, Brazil, Argentina and South Africa. The latter was carried out by applying the Global Financial Integrity methodology, called Gross Excluding Reversals.