April 22, 2013
Clark Gascoigne, +1 202 293 0740 ext. 222
Fraudulent Trade Misinvoicing Drained US$9.54 Billion in Illicit Money from Argentina from 2001-2010
Trade-Based Money Laundering Technique Siphoned US$4.69 Trillion from Poor Countries between 2001-2010; Facilitates Sex Slavery, Terrorism, Tax Evasion
WASHINGTON, DC – As the U.S. Department of Justice announced today that Ralph Lauren Corporation (Ralph Lauren) utilized fraudulent misinvoicing tactics to funnel bribes to Argentinean customs officials over the course of five years, Global Financial Integrity (GFI) noted that trade misinvoicing drained US$9.54 billion from the Argentinean economy between 2001 and 2010. The deliberate misinvoicing of trade documents is used to launder all types of illicit money, and it costs the developing world roughly US$4.69 trillion in illicit financial outflows from 2001 through 2010, according research by GFI, a Washington, DC-based research and advocacy organization.
“More money flows illicitly out of developing countries through fraudulent trade misinvoicing than through any other vehicle,” said GFI Director Raymond Baker, a longtime authority on financial crime. “Sadly, Ralph Lauren’s transactions are emblematic of a problem draining roughly a billion from the Argentinean economy every year.”
“While the DOJ alleges that Ralph Lauren utilized the misinvoicing of trade transactions to mask bribes to government officials, the same tactics are used by companies and individuals to evade taxes, by human traffickers to launder the proceeds of sex slavery, and by terrorists to finance deadly attacks,” continued Mr. Baker. “Trade misinvoicing is also one of the biggest causes of poverty, it’s a serious impediment to national security, and it threatens the stability of the international financial system.”
In order to tackle trade misinvoicing, GFI recommends the following policy solutions.
- Eliminating Anonymous Shell Companies: World leaders should require that information on the beneficial ownership and control of companies, trusts and foundations be readily available in public records to facilitate effective due diligence by financial institutions and to prevent legal entities from being used as shields of anonymity; and explicitly require that financial institutions identify the ultimate beneficial owners or controllers of any company, trust or foundation seeking to open an account.
- Transparency and Disclosure of Trade Data: All countries should be encouraged to make all trade data publicly available online on a monthly basis, identifying products traded by the 10 digit Harmonized System identifications. The United States already does provide this information. The European Union does this partially, but it discloses the trade data only to the less-specific, 6 digit categories. Accessible trade data can do more to curb abusive transfer pricing and other trade mispricing than any other process. The importers and exporters would not need to be identified in the data. This is simply about shining a light on prevailing price norms, without infringing on the privacy of the individual traders and companies.
- Customs Reforms and Data Access: Countries should prioritize moving sophisticated software to analyze international price norms into the hands of Customs officials in developing countries. Combined with access to better trade data, this would make it easy for an average Customs official to detect which transactions fall outside the range of international pricing standards in real time, increasing the ability to enforce customs duties at ports of entry.
- Power of the Signature: Require that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing has taken place in an attempt to avoid duties or taxes and that the transaction is priced using the OECD arms-length principle. While this will not deter many criminal forms of trade misinvoicing, it will discourage a number of corporate actors from engaging in the practice.
“Argentina is an influential member of the G20, and the G20 has failed to make any progress on the issue of anonymous shell companies over the past year,” added Mr. Baker. “Argentina should push its G20 peers to move beyond the weak Financial Action Task Force standards on beneficial ownership to adopt meaningful standards that would eliminate anonymous shell companies.”
Notes to Editors:
- To schedule an interview with Mr. Baker, Heather Lowe, or other GFI spokespersons, contact Clark Gascoigne at +1 202 293 0740, ext. 222 / email@example.com. On-camera spokespersons are available in Washington, DC.
- Click here to read the press release from the U.S. Department of Justice announcing the agreement with Ralph Lauren.
- Reference Table 7 on page 54 of GFI’s December 2012 report, “Illicit Financial Flows from Developing Countries: 2001-2010,” (PDF) for full details on illicit financial outflows from Argentina resulting from trade misinvoicing.
- Click here to read GFI’s April 19, 2013 analysis of the G20’s lack of progress on the topic of anonymous shell companies.
- Click here for GFI’s February 2012 analysis of the Financial Action Task Force (FATF) standards and how they relate to anonymous shell companies.
+1 202-293-0740 ext.222
Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system as a means to global development.
For additional information please visit www.gfintegrity.org.