Use of mirror analysis for supporting essential data elements for exchange information, in order to mitigate risk of trade mis-invoicing and to reduce the illicit financial flow

The main purpose of this paper is to examine how to use mirror analysis1 for mitigating the risks of trade mis-invoicing and reducing Illicit Financial Flows (IFFs), and affirm it by using mirror analysis in the bilateral trade of four countries. The term IFFs came into the being in the 1990s, and trade mis-invoicing is the main channel of IFFs (Choi and McGauran, 2018). Combatting cross-border illegal movement activities are not only the responsibility of customs administrations, but also many other law enforcement agencies, including intelligence, police, tax and other authorities that need to cooperate in fighting against IFFs. Therefore, close cooperation among these agencies is required on both the strategic and operational levels. Clear essential data elements are the best solution for maintaining, developing and strengthening frameworks for exchanging information among the contracting parties. The methodology used in this paper relied on data available at the international level from the World Customs Organization (WCO), United Nations policy documents and the World Trade Organization’s (WTO) International Trade Centre database. One of the solutions for identifying trade mis-invoicing is to conduct a mirror analysis on bilateral trade. Mirror analysis could guide its users on how to filter specific high-risk goods involved in trade mis-invoicing. In addition, it is a useful tool for analysing primary data. However, it must be followed up by action in order to eliminate IFFs. For example, Memoranda of Understanding (MoU) between trading countries should be established to conduct mirror analyses and exchange information about high-risk goods in real time. Such action improves the quality of risk profiling and supports facilitating legitimate trade movements. This paper comprises five sections. Section 1 presents the introduction and the methodological framework of this study. Section 2 provides the conceptual framework for conducting a mirror analysis and introduces the mode of trade mis-invoicing, which is ...