Estimating illicit financial flows from trade misinvoicing : introducing the ‘Grey Re-exports’ method (The case of Kyrgyzstan)
Working paper
03 April 2023

Estimating illicit financial flows from trade misinvoicing : introducing the ‘Grey Re-exports’ method (The case of Kyrgyzstan)
Working paper
03 April 2023

The priority of reducing Illicit Financial Flows has been established as part of development plans for many countries and in the 2030 Agenda for Sustainable Development adopted by the General Assembly in 2015.  UNCTAD and UNODC have developed methodological guidelines for countries to estimate illicit financial flows, including financial flows from trade misinvoicing.

The UNCTAD guideline includes two methods for calculating illicit financial flows from trade mis-invoicing, the Partner Country Method (PCM) and the Price Filter Method (PFM). This paper explores calculating illicit financial flows using a new, third method called the grey re-exports method.  Grey re-exports refer to a scheme of misinvoicing which involves the importation and re-exportation of goods. Goods are imported to one country from another country and are then re-exported to a third country as exports from the second country rather than as re-exports. This scheme is seen in countries that have special trade agreements as part of a customs union.

This paper examines mis-invoicing for a trade route between countries with such an agreement; and aims to formally conceptualize grey re-exports. The re-exports are termed grey due to the illicit nature of reporting which generates grey re-exports. This paper provides estimates of illicit flows using the grey re-exports method and compares them to estimates using PCM and PFM. Results show that the grey re-export method is comparable to other methods. Therefore, this new method can be considered an additional method for measuring illicit financial flows from trade misinvoicing, for countries that have similar trade agreements or can otherwise take advantage of such trade flows.

The priority of reducing Illicit Financial Flows has been established as part of development plans for many countries and in the 2030 Agenda for Sustainable Development adopted by the General Assembly in 2015. UNCTAD and UNODC have developed methodological guidelines for countries to estimate illicit financial flows, including financial flows from trade mis-invoicing.

The UNCTAD guideline includes two methods for calculating illicit financial flows from trade mis-invoicing, the Partner Country Method (PCM) and the Price Filter Method (PFM). This paper explores estimating illicit financial flows from trade using a new method called the grey re-exports method. Grey re-exports refer to a scheme of mis-invoicing which involves the importation and re-exportation of goods. Goods are imported to one country from another country and are then re-exported to a third country as exports from the second country rather than as re-exports. This scheme is seen in countries that have special trade agreements as part of a customs union. This study was developed under the project “Statistics and Data for Measuring Illicit Financial Flows in the Asia Pacific Region”, which pilot tested the IFF methodology; one of the pilot countries in the project was Kyrgyzstan, thus, this paper focuses on emergence of such flows in Kyrgyzstan.

About the authors:

  • Anastasia Maga is a researcher in macroeconomic statistics, illicit financial flows (IFFs), and shadow economy; she is a lecturer at Stamford International University, Bangkok, and an ESCAP consultant on IFFs.
  • Alick Mjuma Nyasulu is a Statistician in the Statistics Division of ESCAP
  • Ayodele Marshall is a Statistician in the Statistics Division of ESCAP
  • Chingiz Bekenov is a researcher in Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT), countering drug trafficking, and an ESCAP consultant on IFFs.

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