Trade misinvoicing is occurring at “massive scale” across Asian supply chains, with discrepancies in reported invoice values reaching a record $1.7 trillion in 2022 across developing Asia, Global Trade Review reported. 

Citing new research by Global Financial Integrity (GFI), the news outlet said the gap between what companies reported on opposite sides of cross-border transactions rose from $1.5 trillion in 2021 and was roughly double the level recorded a decade earlier. The findings point to what researchers described as a “huge hidden leakage” of funds tied to possible trade-based money laundering (TBML), import tax evasion, and capital flight, GTR said.

China accounted for by far the largest share of the invoice value gap, at an estimated $7 trillion over the past decade, according to the report. Global Financial Integrity said the figure reflected China’s position as the world’s largest trading nation and indicated misinvoicing was taking place on a broad scale across its supply chains. 

The think tank said the disparity was similar in China’s trade with both developing and advanced economies, with one major driver believed to be underground banking networks using false import or export invoices to evade currency controls.

Thailand was the second-largest contributor to the regional invoice value gap, at about $1.2 trillion since 2013, followed by India at $1.1 trillion, where outflows were seen as likely signs of customs-duty evasion and capital flight, the report said. Researchers also highlighted risks tied to Mongolia’s minerals exports and the Maldives’ dependence on fuel and luxury-goods imports, which they said may be vulnerable to under-invoicing. 

The report said the findings also underscore reputational, business and, compliance risks for banks involved in trade finance. It noted that lenders face practical difficulties in verifying invoice prices, including inconsistent documentation, limited detail in open-account trade, and the challenge of separating the price of goods from bundled costs such as freight and insurance. 

A February paper produced under the International Trade and Forfaiting Association’s Financial Crime Compliance Initiative found there is no single standardized method for detecting TBML through price verification, GTR said. Banks instead use a range of approaches, including comparing invoices with internal historical data, checking external price sources, applying discrepancy thresholds, and using customs “mirror” data to identify high-risk trade corridors.

Read more at Global Trade Review

Read the GFI report here