Abstract
The commodity trading sector has historically presented particular corruption risks. From the extraction of raw materials to the final sale of refined goods, commodities pass along complex supply chains with multiple overlapping intermediaries. For each firm along the chain, commodity trading is a low-margin, high-volume activity, where profits depend on arbitrage. In this market, offshore financial centers (OFC), minimally-regulated global financial hubs and professional “enablers” facilitate everything from questionable deals to outright theft. Corruption at this crossnational scale does not simply distort competition and prices. It can erode political stability, exacerbate conflict, and jeopardize national security by allowing powerful actors to behave with impunity.
Commodity trading, as a form of international trade, is subject to trade-related corruption, such as trade-based money laundering and mispricing. Events, such as the 2022 war in Ukraine and resulting trade sanctions, further aggravate these risks. In addition to the disruptions caused by conflict, the commodity trading sector is currently being transformed by two broader transformations of the global economy: the climate crisis, and policy responses to it, and the digitalization of trade enabled by new technologies like blockchain. This report provides an overview of anti-corruption evidence, as well as evidence gaps and opportunities, in the commodities trading sector. It does this by contextualizing these emerging developments - food insecurity, the climate transition and the rise of blockchain - in relation to long-standing corruption trends.
The report draws on a multidisciplinary review of the academic and policy literature on trade-related corruption in the commodities sector, an analysis of incidents of enforcement and other litigation against the largest commodities trading firms over the past two decades and elite informant interviews. The report draws these sources together thematically. An introductory section sets out overall corruption risks and patterns in the commodity trading industry, while three topical sections consider how these overall patterns are reflected in the food, energy and cryptocurrency commodity sectors.
These topical sections additionally highlight emerging corruption risks, opportunities for further research and avenues for policy intervention in each sector. We find that the empirical body of evidence on food is strongest when documenting corruption risks at the level of domestic consumption or production, and that domestic trade measures, despite their vulnerability to corruption, remain the prevalent toolset to manage acute food security issues.
In the energy sector, evidence trends point to two major corruption risks that are neither new nor unknown: the production of raw materials needed for new green technologies, which are subject to the same pressures as other raw extractive commodities; and the emerging voluntary markets for carbon offsets, which saw collapse a decade ago under the weight of fraud and weak regulation, problems that our analysis finds remain unresolved.
In the emerging sector of blockchain, our analysis finds that evidence pulls in two directions. Blockchain-supported cryptocurrency, which can evade the reach of established financial regulation, carries new corruption risks, including trade in illicit goods and sanctions evasion. At the same time, blockchain record-keeping has been elevated as a possible solution to forms of trade-based corruption in global supply chains, but evidence of their efficacy is not yet robust, and more research is needed to justify their adoption.
A final concluding section highlights patterns arising across the three sectors. These include local and regional variation in corruption risks, corruption risks in periods of upheaval and economic transition, the anti-corruption potential of emerging private and inter-governmental integrity standards - and new risks from efforts to subverting them -, and the rise of new enforcement tools that extend beyond anti-corruption statutes. The concluding section sets out the implications of these trends for researchers and policymakers.
Commodity trading, as a form of international trade, is subject to trade-related corruption, such as trade-based money laundering and mispricing. Events, such as the 2022 war in Ukraine and resulting trade sanctions, further aggravate these risks. In addition to the disruptions caused by conflict, the commodity trading sector is currently being transformed by two broader transformations of the global economy: the climate crisis, and policy responses to it, and the digitalization of trade enabled by new technologies like blockchain. This report provides an overview of anti-corruption evidence, as well as evidence gaps and opportunities, in the commodities trading sector. It does this by contextualizing these emerging developments - food insecurity, the climate transition and the rise of blockchain - in relation to long-standing corruption trends.
The report draws on a multidisciplinary review of the academic and policy literature on trade-related corruption in the commodities sector, an analysis of incidents of enforcement and other litigation against the largest commodities trading firms over the past two decades and elite informant interviews. The report draws these sources together thematically. An introductory section sets out overall corruption risks and patterns in the commodity trading industry, while three topical sections consider how these overall patterns are reflected in the food, energy and cryptocurrency commodity sectors.
These topical sections additionally highlight emerging corruption risks, opportunities for further research and avenues for policy intervention in each sector. We find that the empirical body of evidence on food is strongest when documenting corruption risks at the level of domestic consumption or production, and that domestic trade measures, despite their vulnerability to corruption, remain the prevalent toolset to manage acute food security issues.
In the energy sector, evidence trends point to two major corruption risks that are neither new nor unknown: the production of raw materials needed for new green technologies, which are subject to the same pressures as other raw extractive commodities; and the emerging voluntary markets for carbon offsets, which saw collapse a decade ago under the weight of fraud and weak regulation, problems that our analysis finds remain unresolved.
In the emerging sector of blockchain, our analysis finds that evidence pulls in two directions. Blockchain-supported cryptocurrency, which can evade the reach of established financial regulation, carries new corruption risks, including trade in illicit goods and sanctions evasion. At the same time, blockchain record-keeping has been elevated as a possible solution to forms of trade-based corruption in global supply chains, but evidence of their efficacy is not yet robust, and more research is needed to justify their adoption.
A final concluding section highlights patterns arising across the three sectors. These include local and regional variation in corruption risks, corruption risks in periods of upheaval and economic transition, the anti-corruption potential of emerging private and inter-governmental integrity standards - and new risks from efforts to subverting them -, and the rise of new enforcement tools that extend beyond anti-corruption statutes. The concluding section sets out the implications of these trends for researchers and policymakers.
| Original language | English |
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| Place of Publication | Washington, DC |
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| Publisher | Global Integrity |
| Number of pages | 36 |
| Publication status | Published - 17 Oct 2022 |
