Trade misinvoicing is costing government billions of dollars, according to a research paper published by UNCTAD (United Nations Conference on Trade and Development).

The report - Trade Misinvoicing in Primary Commodities in Developing Countries - looks at the cases of five developing countries (four in Africa and one in South America: Chile, Côte d’Ivoire, Nigeria, South Africa and Zambia). It looks at the invoicing of a variety of commodities from these countries, including oil&gas, minerals, ores and metals, and agricultural goods such as cocoa.

It says that “trade misinvoicing continues to be used as a key mechanism of capital flight and illicit financial flows from developing countries”. The report found cases of both over-invoicing and under-invoicing and particularly mentions these in relation to four European commodity importing countries, with over-invoicing in trade with Switzerland, the United Kingdom and the Netherlands, while there is under-invoicing in trade with Germany and the five developing countries studied in the report.

Discrepancies in trade invoicing data can be explained by incorrect recording, delays in reporting and/or differences in pricing mechanisms, however the report states that “the estimated levels of trade misinvoicing do not reflect mere statistical noise in the data”. The report says that trade misinvoicing is becoming increasingly common.

Some of highlights from the study include:

• Chile's copper trade with the Netherlands exhibits the largest amount of export overinvoicing of $16 billion;
• Zambia’s copper export trade with Switzerland and the United Kingdom exhibits export overinvoicing of $31.8 billion and $4.4 billion, respectively;
• During 2006−2014, there was an estimated $29.7 billion worth of overinvoicing of Nigeria's oil exports to just 17 of its major trading partners;
• Côte d'Ivoire's cocoa trade with the Netherlands generates a cumulative amount of $4.9 billion in export overinvoicing;
• South Africa's silver and platinum exports to China generate particularly high export underinvoicing, amounting to $13.9 billion, and with the United States, it amounts to $6.8 billion.

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CTMfile take: This is an important issue for all companies importing commodities from developing countries. It's something that corporate treasury, with its oversight of invoicing processing, should be aware of.