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Illicit financial flows and extractive commodities: false claims in an UNCTAD report

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  • Olle Östensson

    (Caromb Consulting)

Abstract

A report by UNCTAD on illicit financial flows claims that misinvoicing of extractive commodity exports accounts for very large illicit financial flows from African countries. The report has received considerable attention, and it is possible that governments may take actions based on the assumption that the claims in the report are true. The present paper analyses these claims, focusing on South African gold exports, which account for the vast majority of the alleged illicit financial flows. Data in the source used for the UNCTAD report (UN Comtrade) are analysed in greater detail than is presented in the UNCTAD report. It is shown that the claims in the UNCTAD report are not supported by the data. It is impossible to prove any misinvoicing and anomalies in the statistics cannot be shown to be due to illicit financial flows. The authors of the report were clearly aware that misinvoicing could not be proved and that there were alternatives, more likely explanations of the statistical anomalies identified. They chose, however, to still present their claims of misinvoicing. UNCTAD produced a report with similar claims in 2016, and those claims were disproved at the time. There is very little evidence of misinvoicing in extractive commodities trade, and mirror trade analysis is in any case of very limited value when it comes to detecting or proving it. The UNCTAD report also uses mirror trade analysis in a highly questionable way that differs from the way it is applied by respected researchers. Different methods are necessary to identify or assess the magnitude of any illicit financial flows associated with the extractive industry. More granular data, supported by an understanding of international trade statistics, the international trading system and trading practices for the commodities concerned are needed in order to arrive at estimates with some degree of accuracy. UNCTAD was given an opportunity to comment on the article and did so. UNCTAD did not dispute the substance of the present article. Unfortunately, UNCTAD has refused to allow Mineral Economics to publish the comments. Nothing in the comments justified any changes in the text of the article.

Suggested Citation

  • Olle Östensson, 2024. "Illicit financial flows and extractive commodities: false claims in an UNCTAD report," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 37(2), pages 393-407, June.
    • Handle: RePEc:spr:minecn:v:37:y:2024:i:2:d:10.1007_s13563-023-00374-2
    DOI: 10.1007/s13563-023-00374-2
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    References listed on IDEAS

    as
    1. World Bank, 2008. "Democratic Republic of Congo : Growth with Governance in the Mining Sector," World Bank Publications - Reports 8072, The World Bank Group.
    2. Yeats, Alexander J, 1978. "On the Accuracy of Partner Country Trade Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 40(4), pages 341-361, November.
    3. Grynberg, Roman & Nyambe, Jacob & Singogo, Fwasa, 2019. "Illicit Financial Flows, Theft and Gold Smuggling in Africa," Tanzanian Economic Review, Department of Economics, University of Dar es Salaam, vol. 9(1), pages 35-59, June.
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    More about this item

    Keywords

    Misinvoicing; Extractive commodities; Commodity trade; Tax evasion;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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