Countries rethink how to tackle the shadow economy at UN illicit trade forum

From multi-billion dollar thefts of crude oil to counterfeit medical goods, to smuggled gold, trafficked wildlife or cultural artefacts stolen in war, illegal trading activities have thrived alongside global trade and are estimated to be sapping roughly two trillion dollars from the world’s economy each year.

A United Nations forum being held in Geneva until Wednesday 7 September will gather states and representatives from different sectors targeted by illicit trade to address the impact on global development.

The United Nations Conference on Trade and Development (UNCTAD) Second Illicit Trade Forum comes after member states tasked the UN body to expand its work on the issue at its last ministerial meeting in October 2021.

Covid and other global crises have also given rise to new opportunities for the shadow economy to thrive as governments and supply chains have come under pressure, Graham Mott, economic affairs officer for UNCTAD’s department for international trade and commodities, said. He spoke with Geneva Solutions ahead of the forum.

GS News: What is illicit trading and what does it encompass?

Graham Mott: We have a very big umbrella of what we include as illicit trade. Essentially, we consider any kind of trade in a product which does not follow the legislative and regulatory environment and frameworks as illicit. Some organisations, or some definitions, consider only illegal products as illicit trade. But we go further and say if a product like fish, which isn't illegal, has been harvested illegally then traded, then we consider that illicit trade.

In what ways does illicit trade pose a threat to development and the global economy?

Illicit trade poses a triple threat to financing for development. On the one hand, it reduces government revenues because they're not taxing the illicit trade as they would do with regular trade. So, it reduces government abilities to provide social services and support for people. That's the first threat. The second is that it crowds out regular activity such as jobs and investment, so it pushes out regular and legitimate economic work. Thirdly, in terms of the sustainable development goals (SDGs), it pushes back the status quo. It makes people unhealthier, it destroys the environment, and makes it more expensive to achieve the SDGs. It's an erosion of the progress we've made. The harms of illicit trade affect everyone but they’re particularly felt in developing countries.

You estimate illicit trade to be worth around two trillion dollars a year. How has this figure changed over time, for example, since the pandemic?

Illicit trade is largely clandestine activities, so getting a very precise measurement to say how this amount has changed over time is quite difficult. We would say that in the last few years, over the course of the pandemic, we've seen rises in certain aspects of illicit trade in terms of seizures from governments, institutions such as Interpol, or customs authorities.

So, we've seen a five per cent increase in 2020 of illicit trade in medical products, for example. As you would expect in a pandemic, supplies are stretched, demand is increased, and people are more desperate. There's an opportunity there for some people to take advantage of crises, and different regulation and enforcement priorities.

Can you give us a breakdown of this two trillion figure? What kinds of goods are the most illicitly traded?

Again, it depends on how you measure it but counterfeit products account for a large proportion of the total value of illicit trade, along with trade in illegal drugs. The illicit trade in pharmaceuticals has been estimated to be in the hundreds of billions of dollars. The trade in wood or forestry products from illegal logging or other illicit sources is estimated to be up to $150bn a year.

How did Covid increase opportunities for illicit trade and which sectors were particularly vulnerable?

In any crisis, whether that be a health pandemic, natural disaster, war or financial crisis, it's very much about sudden shock to demand and supply. So, you might have strain on supply networks, or a scarcity of inputs, and demand spiking for certain goods. During the pandemic this was the case for personal protective equipment, vaccines and other kinds of medications that people just found hard to get hold of. You may also have a change in enforcement priorities with resources from governments being put to other uses, which means enforcement and checks can't take place as frequently as usual. There are  gaps in provisions and enforcement that provide opportunities for actors in illicit trade to come forward.

During the pandemic you also saw people not having the correct information or turning to other sources. They can read false advertising or misleading adverts online, causing them to buy substandard mislabeled, or falsified products, whether it be medication or masks or other protective equipment. There's been a trend, even prior to the pandemic, of illicit trade moving online. It is well reported that the dark web and cryptocurrencies are being used to mask identities so that transactions can be taken away from the eyes of the authorities. Also, social media networks have a huge volume of data, which make it very difficult for people to track in real time. These trends have been accentuated during the pandemic.

Next week’s forum is the second held by UNCTAD. How long has the UN body been tracking illicit trade and is it a new priority area?

Across Geneva’s trade institutions, illicit trade is a relatively new issue that's come to the forefront in the last several years. So, whereas we may have done work which is related to illicit trade, it hasn't always been labelled as such.

The reason this forum has been established is because institutions that have worked on illicit trade tended to work in illicit trade on a sector by sector basis. For instance, you have the UN Office on Drugs and Crime (UNODC) working on drugs and guns, the World Health Organization (WHO) working on falsified medicines, or the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) on the illegal wildlife trade.

Our aim is to say there are commonalities across all of these sectors. For example, you have the same kind of transport routes, or the same kind of illicit trading groups that work in one sector also work in another. So, the idea was to bring people together, to offer this cross-cutting approach, and to look at the threats to wider development from illicit trade and not just on a sector by sector basis.

Who is involved in these talks and coming to the forum? Do these include representatives responsible for enforcement?

We're expecting a lot of member states, intergovernmental organisations, academia, and significant representation from the private sector. Enforcement is also an important part of trade, so we’ll have representatives from governments who are from the customs authorities.

One of the issues that we're looking at in this year's forum is illicit trade across the maritime transport network. Shipping accounts for 70 per cent of the value of global trade. This means that illicit trade is carried out primarily in global shipping. So, we need to work together with the private sector, customs and international organisations to look at how you facilitate trade and make trade work quickly and serve the global supply chain, but also, at the same time, detect illicit trade in those networks. You can't possibly check every shipping container so what’s the best way of detecting illicit trade? Part of that question means working with customs authorities, and having them come to the forum and share their own experiences.

How can UN bodies like UNCTAD help countries to better defend against illicit trade?

UNCTAD was given a new mandate by member states (at UNCTAD’s ministerial conference in 2021– ed.) to work on illicit trade. UNCTAD has already been working on illicit financial flows – the flow of money from illicit trading, fraud, tax evasion or corruption – now, in addition to that, we’ve been tasked with working on the illicit flow of goods.

Our first goal has been to help break down silos and to focus on cross-cutting trade and development issues. This is how we're lending our expertise to the illicit trade environment. We don’t want to replicate the work of other institutions who are already incredibly knowledgeable in dedicated sectors. In the mandate, member states have asked us to find methodologies and frameworks for measuring illicit trade. The forum is a chance to discuss with member states the direction they would like us to take.

Can you give any examples of where countries or sectors have been most successful in clamping down in illicit trade?

Our keynote speaker at the forum is Paula Gopee-Scoon, the minister of trade of Trinidad and Tobago, and she's really been at the forefront of identifying illicit trade as an area that should be a priority for the government. So she's going to be talking about the measures that they've taken recently in terms of implementing a task force and identifying particular sectors in their economy that are vulnerable to illicit trade.

Also on the panel on illicit trade in times of crisis, ambassador of Ecuador to the WTO and other UN organisations in Geneva, Jose Valencia, will be talking about how Ecuador is implementing a wider anti corruption agenda initiative. Part of that is identifying sectors that are vulnerable to illicit trade activity. They have identified numerous sectors of their economy, including oil. They're two examples of countries who are driven to implement anti illicit trade measures and I think it's an opportunity for other member states to see what those countries are doing, how they're doing it, and then what can be learnt from them.