Commodities: a suspect trade

GENEVA Developing countries could be losing between $8bn and $120bn a year as a result of commodity mispricing in Switzerland, the world’s leading commodities trading hub, according to a report published by the Centre for Global Development in January.

Co-author Alex Cobham explained on the CGD’s website that it had also found evidence of “larger illicit flows from Switzerland to other OECD countries, potentially in excess of $500bn a year.”

The report analysed 244 jurisdictions and 2,596 commodity categories. It found that the average price of exports to Switzerland is lower than to other jurisdictions. The Alpine nation also declares higher re-export prices. As a result, developing countries may be losing billions of dollars in potential tax revenue each year.

“Systematic mispricing of trade allows money to be laundered, corrupt payments to be made and corporate profits to be illicitly shifted from their originating jurisdiction to another jurisdiction with much lower taxes,” Alex Cobham told Le News.

Switzerland accounts for 35% of global physical oil trade, 60% of metals and minerals and 50% of traded coffee and sugar.

Some 500 companies are active in the industry with 10,000 employees. The commodities sector also contributes 3.5% to Swiss GDP. Some 75% of Russian crude oil is traded through Geneva, which is also No.1 for grain and oilseed trading. “More than 90% of some developing countries’ declared exports to Switzerland cannot be found in the data, because of the lack of comparable statistics on transit trade,” the report said.

Most traded commodities never physically enter Switzerland and hence are not registered by the Swiss Federal Customs Administration. Instead, this “transit trade” is only recorded by the Central Bank as an export of services. “The scale of even our most conservative estimates suggest that the phenomenon should concern policy makers in Switzerland and internationally,” the report said.

Stéphane Graber, secretary general of the Geneva Trading and Shipping Association, which represents more than 80 companies in the city, told Le News: “In addition to the role played by strong competition in preventing price manipulation, there are already tools in place to avoid mispricing and illicit movement of capital. Commodity trading houses are already highly regulated.” Swiss trading companies, he said, “are not opposed to new regulation when relevant. But rather than adding new rules, it is more important to ensure consistency between regulations at the international level.”

Switzerland, which faces intense competition from abroad, has been scrutinized by campaigners raising questions about transparency and corruption . “It’s an important issue of tax justice and accountability for Switzerland,” Edward Harris, head of communications at the Africa Progress Panel, told Le News. In a March 2013 sector review, Bern noted the strategic importance of commodities. However, it stopped short of proposing new regulations for the industry. An inter-ministerial working group is due to report to the Swiss government by April 2014 to monitor and provide early recognition of national and international developments in the commodities industry.

Moyette Marrett