Trade misinvoicing fuels illegal money movement

Businesses that deliberately misinvoice on transactions are contributing to the gap in Namibia’s trade balance and illicit financial flows (IFFs).

“Trade misinvoicing is the practice of knowingly submitting an invoice that misrepresents the value of goods being imported or exported,” notes the United Nations Statistics department.

A participant who cannot be named because of where they work, speaking at the Bank of Namibia workshop on IFFs yesterday, said trade misinvoicing is a primary source of IFFs.

“Which means you’re importing or exporting goods out of the country or you’re exporting services, but the prices at which you are declaring are either more or higher, depending on what you think you’re avoiding,” said the participant.

The participant further said when importing goods, companies often declare lower prices to try to minimise customs and excise duties. Conversely, when exporting, some businesses overinflate their invoices to facilitate profit shifting out of the country.

“We have seen that happening in the fishing sector, where you have people paying more. It doesn’t make sense, but they are paying more as a way of shifting profits,” said the participant.

Similar practices have been observed in the mining industry, with companies exploiting tax treaties to evade taxes.
“There’s also abuse of tax treaties. Tax treaties with countries like Canada allow companies to exploit loopholes, like selling shares to avoid capital gains taxes.”

According to the Financial Intelligence Centre in the National Money Laundering, Terrorist and Proliferation Financing Risk Assessment Report of 2021, Namibia lost an estimated N$33 billion to potential tax related offences.

Finance and public enterprises deputy minister Maureen Hinda-Mbuende said the consequences of IFFs are devastating, particularly for developing nations like Namibia.

“The concept of IFFs is multidimensional and transnational,” she said.

“It transcends borders and diminishes the income of the most vulnerable, while simultaneously fuelling the wealth of the privileged few. It has no place in any economy that strives for sustainable development and a decent standard of living for its citizens,” said Hinda-Mbuende.

She further said IFFs, measured through trade mispricing, are highly concentrated in a few sectors in Africa, especially extractive industries like oil, precious metals and minerals.

“Statistics reveal that between 2000 and 2009, a staggering 56% of IFFs from Africa originated from these sectors,” said Mbuende.

Over the past three years alone, Namibia’s import and export bills have amounted to a combined N$682 billion.

“This enormous figure, potentially even an understatement, highlights Namibia’s extensive global trade connections,” said Hinda-Mbuende.

She further questioned how many of these transactions were conducted legally.

“How much of this trade was conducted under fair market practices, with accurate invoices, appropriate tax charges and assurances that fees weren’t transferred to tax havens, thus fuelling the clandestine economy that benefits the wealthy and the corrupt?”

She said the National Fishing Corporation of Namibia/Seaflower and Meat Corporation of Namibia scenarios currently in the public domain should serve as case studies to test IFF recovery methods to gain immediate mileage instead of questions surrounding validity.