IllIcIt FInancIal Flows

This research paper examines the commercial tax evasion component of illicit financial flows (IFFs) in five African countries: Nigeria, South Africa, Morocco, Zambia, and Egypt. It clarifies the distinctions between transfer pricing, abusive transfer pricing, trade mispricing, and trade-based money laundering (TBML), while estimating the scale of these flows using IMF Direction of Trade Statistics (DOTS) and a developed TBML model. The authors highlight significant data anomalies in international trade databases and advocate for the implementation of the Unique Consignment Reference (UCR) to improve accuracy and curb illicit outflows.

• The research identifies a trend of declining trade mispricing between 2013 and 2015 for South Africa and Zambia, and between 2013 and 2014 for Nigeria, while Morocco and Egypt showed increasing trade mispricing during the 2013-2014 period.
• Using a Trade-Based Money Laundering (TBML) model that incorporates an attractiveness index, the authors found that all five studied countries experienced increasing financial outflows, contradicting some bilateral models that suggested net inflows for Nigeria.
• Trade mispricing is a primary vehicle for IFFs, with Global Financial Integrity (GFI) reporting that over 83% of illicit flows from developing countries in 2012 were due to trade mispricing.
• The authors argue that the current GFI methodology may underestimate trade mispricing because it uses an aggregate method for many countries, which discounts bilateral trade between developing nations, such as trade with China.
• Significant data discrepancies exist between the IMF and UNCOMTRADE datasets, with variances as high as 44% in 2011 for South Africa, largely due to differences in valuation, exchange rates, and estimation methods.
• The paper highlights specific cases of abusive transfer pricing, including an allegation that Lonmin Mines in South Africa paid ZAR 26.2 billion to subsidiaries in Bermuda and the UK, and a case where Mopani Copper Mine in Zambia resulted in an approximate tax loss of $174 million.
• The authors recommend the global implementation of the Unique Consignment Reference (UCR) to resolve data anomalies related to source and destination reporting for goods in transit.
• The study suggests a negative relationship between trade mispricing (or TBML) and both the Gender Index and the Poverty Index, implying that curbing these flows could positively impact gender equality and poverty reduction.

APA

Nicolaou-Manias, K., & Wu, Y. (2016). IllIcIt FInancIal Flows. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2016/10/GA_Th2_DP2_nicolaou-wu_20161123.pdf

Chicago

Nicolaou-Manias, Kathy, and Yuchen Wu. IllIcIt FInancIal Flows. South African Institute of International Affairs, 2016. https://saiia.org.za/wp-content/uploads/2016/10/GA_Th2_DP2_nicolaou-wu_20161123.pdf.

Wikipedia

{{cite report |last1=Nicolaou-Manias |first1=Kathy |last2=Wu |first2=Yuchen |title=IllIcIt FInancIal Flows |publisher=South African Institute of International Affairs |date=October 2016 |url=https://saiia.org.za/wp-content/uploads/2016/10/GA_Th2_DP2_nicolaou-wu_20161123.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nicolaoumanias2016illicit, author = {Nicolaou-Manias, Kathy and Wu, Yuchen}, title = {{IllIcIt FInancIal Flows}}, institution = {South African Institute of International Affairs}, year = {2016}, month = oct, url = {https://saiia.org.za/wp-content/uploads/2016/10/GA_Th2_DP2_nicolaou-wu_20161123.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }