Annex 5_B_4
Syllabus: Commercial Fraud Analysis
Course Name:
Subject:
Intelligence Analysis course for Customs Officers in the East African Region
Commercial Fraud Analysis
Hours of Lesson: 825 Minutes
Text: Handbook & PPT
Lesson Objective: Participants will be able to Detect and Analyze Commercial Fraud
Process
Contents
Time
Instruction Guide
Introduction
Development
Overview of the
Lesson
1. Introduction
36
(10)
(3)
2. Objectives
(3)
a) Definitions
b) Reasons for
Commercial Fraud
(10)
(5)
PPT
Text
Explain the coverage of Commercial Fraud
P145
Introduction, Definition Reasons for Commercial Fraud,
Implications from Commercial and Types Fraud.
Commercial fraud is a long standing issue In Customs P147
that is becoming increasingly sophisticated in its Pg 58
execution yet it has great implications to the
developing and developed countries.
Indicate to the trainees the objectives of this lesson
What is expected of it:
 To gain an understanding on Commercial Fraud
 To detect and analyze commercial fraud
 Apply the knowledge in their daily operations
Discuss:
P149
(Q.1) What does the word “fraud” mean to you?
Pg 58
Fraud means deceit, tricky, sharp practice or breach of
confidence, perpetrated for profit or to gain some fair
or dishonest advantage.
Commercial fraud means, any offence against statutory
or regulatory provisions which Customs are responsible
for enforcing, in order to:
Evade, or attempt to evade, payment of duties/
levies/taxes on movements of commercial goods.
Discuss:
(Q.2) Why is commercial Fraud committed?
P151
Reasons:
Pg 59
 Evasion of duties and taxes
 Financial gain: The pressure on those who commit
fraud is often financial, such as unrealistic profit
margins
 Commercial advantage: The fraudster is likely to
gain commercially from fraudulent activities
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Annex 5_B_4

c) Implications for
Commercial Fraud
3. Types of Fraud.
(5)
789
10
1) Fraud by
Smuggling
Pressure from competitors: To protect or maintain
the market share
 As a means for money laundering
 High rates of Customs duties
 Trade restrictions such as quotas
 Shortage of certain goods in the market
 Imbalances in tax regimes across regions
 Non-punitive penalties
 Weak Customs controls
Discuss:
(Q.3) What are some implications of commercial P153
fraud?
Pg 59
Implications
 Loss of revenue to the state
 Injury to the industry
 Distortion of trade statistics
 Unfair competition
 Social harm to the economy
Explain: List the different types of fraud
P154
Fraud by smuggling, Misclassification Fraud, Valuation
fraud, Origin/Preference fraud, Inward/outward Pg 60
processing relief fraud, Temporary admission fraud,
Import/export licensing fraud, Transit fraud, False
declaration of quality and quantity fraud, End-use
fraud, Trade description and consumer protection
fraud, Counterfeit/pirated goods fraud, Off record
transactions fraud, Drawback fraud, Ghost business
fraud and Contrived liquidation fraud
68
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P158172
Pg6066
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Annex 5_B_4
a) Definition
(5)
Discuss
P 158
(Q.4)What
is
smuggling?
Smuggling is defined as
WCO Definition:“To bring into or take out of a country
goods in breach of any law or prohibition or evade or
attempt to evade any taxes leviable without making a
declaration or by avoiding controls.”
According to EACCMA, 2004 smuggling means the
importation, exportation, or carriage coastwise, or
transfer or removal into or out of a Partner States, of
goods with intent to defraud the customs revenue, or
to evade any prohibition of, restriction on, regulation or
condition as to, such importation, exportation, carriage
coastwise, transfer, or removal, of any goods.”
b) Causes of
smuggling
(5)
c) Reasons
(10)
d) Categories of
smuggled goods
(10)
Discuss causes of smuggling
• Imbalance in the supply and demand
• Other Economic factors
• Inadequacy of customs controls
P160
Pg 61
Discuss:
(Q.5) Why do you think smuggling occurs
• Evading duties and taxes
• Gaining commercial advantages
• Acquiring financial gains
• To circumvent the trade sanctions or embargoes
• Avoiding local revenue controls, bureaucratic
control and processing, quotas, having to obtain
import or export licensing or to meet permit
requirements and exchange control regulations
P161
Pg 61
Explain the categories of smuggled goods
• Goods attracting high rates of Customs duty (high P162
risk goods)e.g. textiles, beers, spirits, cigarettes, Pg 61
khanga/kitenge
• Goods subject to national prohibitions and
restrictions e.g. Polythene bags
• Goods subject to international trade sanctions
(endangered species of flora & fauna)
•
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Goods subject to international control
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Annex 5_B_4
e) Types of
smugglers
(3)
f)
(5)
Discuss:
a) Customs control points,
b) Areas outside of normal Customs controls
P 164
(15)
Discuss & Explain with Examples
P 165
Areas where
smuggling
occurs
g) Smuggling
Methods
Explain the types of smugglers
Commercial and Individual smugglers.
P163
Pg 62
Pg 63
1) Smuggling by concealment. (example)





Persons on foot
Crew of commercial ships and aircraft
Commercial cargo including articles of mail
International air, road, rail or passengers
Goods are hidden in the vehicle and retrieved after
passing through the border
2) Smuggling
by
means
of
misdeclaration
(Example): This appears in form of extra cargo
not declared, or in false compartments or
hidden inside legitimate cargo.
3) Outright smuggling (Example)
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Annex 5_B_4
h) Methods of
detection
(15)
P169
Pg 65
Discuss:
Methods of detection at Customs control points
• Scrutiny of documents on importing/exporting
goods during routine Customs control
• Physical examination of vehicles, passengers,
crew and cargo
• Non-intrusive inspection of consignments (Xrays, scanners, etc.)
• Intelligence informationgiven in e.g. from
informers
• Post clearance audit scrutiny of documents
found on importers’ premises (communication,
financial records etc.)
• Risk analysis
• Information from other government bodies and
business organizations
• Information obtained from other Customs
administrations
Methods of detection away from Customs control
points
• Patrolling the land or sea borders and remote
areas
• Inspecting local markets or premises of local
trade companies
• Information from local enforcement officers of
the areas to be used for smuggling e.g.
beaches, airstrips, roads
• Using Customs intelligence information
(informants)
• Using information obtained from other
Customs services
• Using information received from other
national/international law enforcement
agencies e.g. RILO
• Getting evidence of the smuggled goods on the
local economy
• Risk analysis
• Using trade/industry information
2) Misclassificatio
n Fraud
63
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Annex 5_B_4
69
a) Definition
(3)
Explain:
Misclassification occurs when a false declaration is
made with regard to the description hence need for
intervention to be able to identify the items for
properproperties or description.
P173
Pg 66
Misclassification fraud is a deliberate attempt to
mislead Customs by misclassifying goods in order to
gain commercial advantage
b) Reasons
(10)
P174
Discuss why Misclassification Fraud occurs
• To gain from a reduced rate of duty or other taxes
Pg 66
• To evade prohibitions, restrictions or import quotas
• To avoid exchange control regulations
• To
evade
the
imposition
of
antidumping/countervailing duties or regulatory taxes
• To evade internal taxes
• To gain unfair market advantage
• To manipulate the quota system and thereby gain
benefit from the above.
• To retrieve a high amount of duty compensation from
the exportation of locally produced goods which are
entitled by law to such compensation.
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Annex 5_B_4
c) Knowledge
Required to
Detect
Misclassificatio
n Fraud
(10)
Discuss:
(Q.6) What knowledge is required to identify P 176
Misclassification Fraud
Pg 67
• The system of classification of goods
• Current tariff rates
• The terms used in international trade processes
• International banking systems/modes of payment
• Knowledge of and access to available reference
material
• The existence of local and international experts in
classification matters
• Knowledge of previous cases, modus operandi and
convictions
• Knowledge of local and international trade patterns
• National legislation, relevant international laws,
conventions,
agreements
and
enforcement
resources
• Accounting and book keeping skills
• Knowledge of computer system
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Annex 5_B_4
d) Indicators
(20)
Discuss & Illustration byExamples
P 183
•
Generalized description of goods on the invoice
•
Incomplete documentary information
•
Incorrect origin of the goods
•
High-duty/risk goods
•
Inconsistency with importer’s business
•
Unlikely market destination
•
Goods imported under part shipments
•
Use of vague addresses
•
Tax Compliance history of the importer
•
Terms of payment
•
First time importer
•
Sudden changes in the traders business
practices
•
Change in the trader’s name or trading style
•
Related party transaction
•
Changing the port of clearance
•
Changes in the marks and numbers of the
packing
•
Famous brand goods not matching classification
•
Credibility of the declared weight of goods
•
Under- or over-valuation of goods
•
Disproportionate transportation costs
•
Nature of packing
•
Mistakes in describing statistical units (rolls of
steel declared as bales)
•
Other information received (e.g. anonymous
letter)
•
A declarant or an agent pressing for release of
the goods
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Annex 5_B_4
e) Detection
Methods
(20)
3) Valuation Fraud
68
(3)
a) Definition
Pg6974
P187
Explain :
Valuation Fraud is fraud related to the value declared Pg
to Customs for goods imported or exported. It relates
to any statement, document or declaration presented
to Customs for valuation purposes.
(2)
(3)
b) Types of
Valuation Fraud
Discuss: Detection Methods of Misclassification Fraud
P 184
• Conducting physical examination of goods i.e. at
Pg
entry ports, bonded warehouses
• Drawing of samples for further analysis or expert
opinion
• Checking of prior classification rulings
• Checking the results of previous examinations of
similar goods, shipped by the same trader
• Obtaining other relevant data on previous
consignments that might help to determine the
nature and extent of the fraud (e.g. technical or
statistical data on the goods)
• Processing and analysis of information by
considering changes in trading patterns and
whether these changes coincide with the
introduction of punitive measures.
• Comparing statistical data obtained from different
sources (e.g. import/export figures obtained from
the countries of origin and destination)
• Post-clearance audit (c omparing purchase invoices
and Customs declarations with stock and sales
invoices)
According to EACCMA, 2004“Customs value of
imported goods means the value of goods for the
purposes of levying advalorem duties of customs on
imported goods”
(Q.7) What are the types of Valuation fraud?
P 189
Pg
1. Undervaluation
2. Over valuation
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Annex 5_B_4
c) Definition of
Undervaluation
Fraud
d) Reasons for
undervaluation
Fraud
e) Definition of
Overvaluation
Fraud
(2)
Undervaluation Fraud
This is making a false declaration indicating a lower
value than the actual transaction value.
P190
Discuss:
(3)
(2)
(3)
f) Reasons for
overvaluation
Fraud
(15)
g) Methods of
over/under
valuation fraud.
P189
Discuss:
• To pay lower duties
• To gain unfair advantage over competitors
• To avoid quota restrictions
Discuss:
Overvaluation fraud is the fraud committed by making
a false declaration indicating a higher value than the P189
actual transaction value.
Discuss:
• To obtain higher refunds and duty drawbacks on
exports
P191
• To suppress domestic taxes (Example)
• As a means of capital flight
• As a means of money laundering
Discuss:
Pg 71
• Falsification of commercial documents (e.g.
Commercial Invoice, Packing List, Freight Invoice,
Insurance Invoice, Bill of Lading, etc.) by
Supplier/Importer/Agent
• Double Invoicing
• Invoice excludes some dutiable charges (e.g.
assists, royalties or licence fees, selling
commissions, proceeds of subsequent resale
(Example)
• Partial payment
• Failure to disclose related party transaction
(Example)
• Apportionment of freight
• Mis-description of the product or origin
• False declared weights or quantities
• Currency manipulation
• Exchange rate manipulation
• Overvaluation just in excess of minimum import
prices
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Annex 5_B_4
(15)
h) Indicators of
over/under
valuation fraud.
Discuss:
P192
• Disagreement between commercial documents
Pg 72
• Mistakes (spelling/numerical) on presented
documents (Example)
• Currency declared not commonly used in country of
export
• High amounts of Bank Transfers versus value
declared
• Inconsistency between weight and quantity
declared
• Non-standard packaging
• False official seals or stamps
• High value goods shipped without insurance
• High insurance cost for low value goods
• Proportioning of insurance among low and high
rate duty goods
Discuss:
P194
(20)
i)
•
i) Detection
Methods of
Under/Over
valuation Fraud
•
•
•
Program on Capacity Building of Master Trainers
Risk assessment
P197
Knowledge of the structure of internal tax and duty Pg 74
structure (free duty rates, anti-dumping duties,
etc.)
Profiling of importers and overseas suppliers
Recognition of the common and most often used
types of transactions in each market/industrial
sector
Price analysis (market situation, pricing of products,
etc.)
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Annex 5_B_4
ii)






Origin/ Preference
Fraud
Finding proof of the real transaction price
Before accepting the entry, ask the importer to
provide further supporting documents/explanation
Undertake post clearance audit where necessary
Check the entire documents related to the
transactions to establish whether the importer
made his declaration in compliance with the
requirements of the Fourth Schedule of EACCMA,
2004
Check accounting documents, bank records,
shipping documents, contracts, purchase orders,
confirmations etc. to establish whether the value
declared is in accordance with the Fourth Schedule
of EACCMA, 2004 (with special focus on the
consistency of these documents, i.e. look for the
possibility of double invoices)
Use internet to compare prices
Compare prices with valuation database
35
(5)
Pg 7476
P203
Explain:
Origin/Preference Fraud is defined as any attempt Pg 74
knowingly to violate or abuse rules of origin and/or
Customs documentary requirements as laid down by
bilateral or multilateral agreements in force in the
a)Definitions
country concerned
Origin: Origin is the status of the goods either wholly
obtained/produced in a country in accordance with
rules which govern the use of imported materials
Preference: It means granting of zero or reduced rates
of import duty subject to the satisfaction of certain
criteria regarding the goods and their origin
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Annex 5_B_4
(5)
b)Reasons
for
Origin/Preference
Fraud
(10)
Explain:
P205
Pg 75
 To gain from the preferential rates of duty
 To lower the tax liability e.g.by under declaring
transport costs, quality
 To gain unfair advantage over competitors
 To circumvent trade restrictions and embargoes
 To avoid quota restrictions and countervailing antidumping duties
P206
Explain:

c)
Methods
to
Perpetrate
Origin/Preference
Fraud
(10)
Concealing the true origin of goods by
transhipping them through a third country. For
instance, back-to-back bills of lading and other
documents could be prepared at this stage to
give the impression that the goods originate
from the third country.
 Falsification of the Certificate of Origin
 Commingling goods of one country with those
of another to conceal the true country of origin.
 Physically changing the presentation of the
goods by re-boxing, re-packing or re-labelling.
 False statement of country of origin
 Misdescription on documents and other items
related to Customs formalities
 Declaration of incorrect customs procedure
codes
P208
Explain:


d)
Indicators
of

Origin/Preference
Fraud





Program on Capacity Building of Master Trainers
Merchandise that does not meet country of
origin marking requirements
Merchandise bearing an appellation of origin
imported from a country in which the region
identified by the appellation is not located
Consignments declared as originating in
countries that are not known for producing of
subject goods
Alterations on the certificate of origin
Misspellings on merchandise, packing, labels,
boxes or tags
Merchandise with poorly translated title,
instructions or labels
Incomplete
or
incorrect
documentary
information
Changes in the marks & numbers on the
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Annex 5_B_4
e)Detection
Methods for
Origin/Preference
Fraud
(5)



Explain






5) Inward/
Outward
Processing Relief
Fraud
a) Definitions
packaging or labelling
Inconsistent nature of packing
Information received
Exporter and carrier profiles
P211
Pg 76
Physical examination of goods to confirm origin of
goods
Documentary checks to confirm the authenticity
and consistency of supporting documents
Confirmation of signatures on the certificate of
origin against specimen signatures of authorized
signatories provided from the country of supply
To check the origin criteria indicated on the
Certificate of Origin
Requesting for samples of the goods
Verifying from the country of supply
55
(10)
Pg 7679
Explain:
P213
The EACCMA, 2004, defines inward processing as “ the Pg 76
customs procedure under which certain goods can be
brought in a Partners state conditionally exempted P214
from duty on the basis that such goods are intended for
manufacturing , processing or repair and subsequent
exportation”
Also outward processing is defined as “the customs
procedure under which goods which are in free
circulation in a Partner state may be temporarily
exported for manufacturing, processing or repair
outside the Partner state and then re-imported”
Inward/outward processing relief fraud is the fraud that
relates to the abuse of the inward/outward processing
relief facility.
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Annex 5_B_4
b) Reasons for
Inward/
Outward
Processing Relief
Fraud
(5)
Discuss:
c) Methods to
(5)
Perpetrate
Inward/Outward
Processing Relief
Fraud
d) Indicators of
(20)
Inward/Outward
Processing Relief
Fraud
P217

To evade payment of import duties & taxes

To evade prohibitions & restrictions

To divert imported goods into the local market

To gain unfair market advantage

To avoid quota restrictions



Pg 76
Explain:
P218
Over declaration of the wasted materials
Diversion of the processed products into the
local market
Pg 77
Failure to account for goods under the regime
Explain the Indicators of Inward Processing Relief
i)









Manufacturing/processing risk indicators
Nature of the manufacturing process
Excessive amount of wastage exceeding the
limits allowed
Excessive delay between the importation of
goods and the processing/manufacture of the
goods
Failure to comply with prescribed time limits
Disproportionate imports of raw materials to
manufacturing capacity
Importing high-quality goods to manufacture
low quality products
Complex nature of inputs and manufacturing
process
Susceptibility to interchange and substitute
imported goods
Change of trader’s name or trading style
ii) Export risk indicators
 Quality and quantity of exported goods do not
match imported material
 Container too light or too heavy
 Nature of the exported goods
 Value of goods exported is too low
 Too many amendments on documents
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P219232
Annex 5_B_4




Misdescription of the goods
Incorrect classification
Unlikely market destination
Differences
between
the
commercial
documents and the export documentation in
respect of value Unusually short time between
imports-manufacturing- exports
 Abnormally long delay between the import and
export stages
 Export through several consignments and
different Customs offices
Explain the Indicators of Outward Processing Relief
a) At Pre-exportation Phase
Too generalised description on Customs
documents
 High duty/risk goods
 First time applicant
 Profile of the exporter
 No listing in the trade registry
 New entrants as clearing/forwarding agent
b)
At Exportation Phase
 Replacement of high tech equipment with
inferior technology
 Substitution of original manufacturing number
with false identification number
 First time importer/exporter
 Unrealistic time taken for completion of
Customs formalities
 Inconsistency with the declarants business
practices
 Inconsistent use of points of clearance/routing
 Generalized description of goods
 Incomplete/inconsistent documentation
 Mode of transport inconsistent with goods
 Packing inconsistent with goods
 Records of related parties involved in
transaction
 Inconsistencies in the weight.
 Quality/quantity of the imported goods
inconsistent with the goods to be produced

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Annex 5_B_4
c) At Re-importation Phase
e) Detection
Methods of
Inward/ Outward
Processing Relief
fraud
(10)
 Incorrect or false declaration concerning the
goods originally exported
 Incorrect or false declaration regarding the
process carried out on the goods during the
processing phase abroad
 False shipping documentation
 Incorrect declaration concerning the value of
goods
 Importing through several consignments and
different Customs houses
 Declaration for free of charge outward
processing
Explain:
Program on Capacity Building of Master Trainers
 Review the import/export declaration to obtain
the base data and tariff description
 Use samples to determine the nature, value
and quality of the goods
 Establish the relevant regulations of
Inward/outward relief processing
 Obtain additional information, (e.g. bank
statement, shipping, export manifest, etc.)
 Collate the obtained data with the production
documents held by the company to determine the
ratio between authorized production and actual
quantities of goods produced
 Check that rejects have been duly entered in
the accounts
 Ensure that quantities of exported goods are
correct and the goods meet stipulated conditions
 Monitor the movements of the goods
 Make analysis of existing information and
documents
 Take decisions on the action to be taken
 Interview/interrogate witnesses and suspects
 Request information from other Customs
administrations through mutual administrative
assistance agreements
 Obtain and properly document evidence
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Annex 5_B_4
6) Temporary
Admission Fraud
45
a) Definition
(5)
Explain:
Temporary Admission means the Customs procedure
under which certain goods can be brought into a
Customs territory conditionally relieved totally or
partially from payment of import duties and taxes; such
goods must be imported for a specific purpose and
must be intended for re-exportation within a specified
period and without having undergone any change
except normal depreciation due to the use made of
them.
P233
Pg 8082
Temporary Admission fraud is the fraud that occurs
through evasion of customs duties and taxes on goods
imported under temporary admission regime
b) Reasons for
Temporary
Admission
Fraud
(5)
c) Methods to
Perpetrate
Temporary
Admission
Fraud
(5)
d) Indicators of
Temporary
Admission
Fraud
Discuss:




(15)
P235
To evade payment of duties and taxes
For commercial gain
For financial gain
To avoid bureaucratic controls
P236
Explain:

By hiring or selling the goods under temporary
admission

By exchanging high quality/value products for
inferior quality/value

By under declaring the value at the time of
importation
P237244
Discuss:
At Pre-entry Phase:








Program on Capacity Building of Master Trainers
Too generalised description of the goods
High duty/risk goods
High value goods coming in for repairs
First time operator
Discrepancy in the Import licence
Licence application submitted at the last
minute
Profile of the operator
Value of the consignment
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Annex 5_B_4


Temporary admission procedure not applicable
to goods in question
Machines and appliances of general use
At Import Phase:
 First-time importer;
 Temporary importer is a national/citizen
especially with personal vehicles
 Unknown project in relation to the importation
 Unrealistic deadlines for fulfilling formalities;
 Incompatible
with
importer’s
business
practices;
 Inconsistent use of points of Customs
clearance/routing;
 Vague description of goods;
 Incoherence of documents
At Temporary stay Phase:
 Goods are not found at declared premises;
 Facilities are not consistent with goods
imported
 Continuous renewal of the temporary import
documents
At Re-export Phase:
 Excessive wear and tear;
 Time lapse between importation and
exportation of goods;
 Quality and quantity of goods exported doesn’t
match imported material;
 Several consignments and different Customs
warehouses involved;
 Unlikely destination
 Weight of the container is too light,
 Packaging inconsistent with goods
 Discrepancies in values of goods between
commercial and export documents;
 Any discrepancy between imports and exports;
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Annex 5_B_4

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



e) Detection
Methods of
Temporary
Admission
Fraud
(15)
P
Discuss:












7)Import/Export
Incorrect classification
Unlikely commercial use;
The amount and form of deposit given;
Inconsistent documentation;
Too many amendments on documents;
Transfer of benefits to any other person
Collect and study all official documents
comprising legal framework for temporary
admission procedure;
Be aware of the categories of goods falling
under temporary admission regime;
Conduct a periodic review of the status of
temporary imports
Obtain all the information and documents on
the consignment in question from Customs
database;
Obtain and analyse business and financial
records of parties involved;
Search traders business premises to obtain
relevant information and documents (bank
statements, import/export and shipping
documents, communications between the
importer/exporter and the shippers, including
faxes, letters, telexes, memos, etc.);
Thoroughly
examine
information
and
documents of his previous transactions;
Monitor the trader’s future business activity
and transactions to establish his modus
operandi;
Detain and interview suspects and witnesses;
Seizure of goods;
Take samples for further analysis and expertise;
Ensure that quantity, quality and other
specifications of exported goods match those
of the goods imported;
31
P245248
P
Pg 82
Pg 8284
Licensing Fraud
Program on Capacity Building of Master Trainers
Pg80
Page 20
Annex 5_B_4
a)Definition
b)
Reasons
(3)
for (3)
Explain:
P249
Import/Export Licensing Fraud is the abuse of import or
export licenses which are sometimes required due to
conditions or restrictions imposed on the import or
export of certain goods e.g. multifibre arrangements,
military equipment, and pharmaceutical products
Pg 82
Explain:
P250
Import/Export



Licensing Fraud
(5)
c)Methods
Explain:
to

Perpetrate
Import/Export

Licensing Fraud



(10)
d)Indicators
Import/Export
Licensing Fraud
of
To circumvent Restrictions
For commercial gain
To avoid bureaucratic procedures
P251
Counterfeit license (entirely forged , not
obtained from the relevant authority)
Altered genuine license(properly obtained
licence with certain changes introduced)
False statements made to obtain a license
Failure to produce a license
Misdescription of goods to avoid licensing
requirements
P252254
Explain:












Program on Capacity Building of Master Trainers
Late presentation of Customs documentation
Documents containing amendments
Pg83
Unusual routing of consignment
Irregular terms of payment
Country of origin - not typical for the product
Unusual destination country for the kind of goods
concerned
High-duty/high-risk goods
Importer or agent pressing for release of goods
Transport or insurance costs inconsistent with the
goods
First-time importer/exporter
Packaging inconsistent with the type of goods
Vague description on invoice
Page 21
Annex 5_B_4
(10)
Methods


of
Import/Export


Licencing Fraud





8) Transit Fraud
43
a)Definition
(10)
P255256
Explain:
e)Detection
Check the validity of the licence
Check the authenticity of signatures, stamps Pg 83
and dates
Carry out an examination of the consignment.
Identify
any
previous
importations/
exportations by the same importer/exporter.
Consultation with other interested agencies or
authorities and, if appropriate, exchange
information.
Interview suspects or witnesses
Obtain business records of suspect companies
Analyse all documentation
Request information from other Customs
Administrations through mutual administrative
assistance agreements
Pg 8486
Explain and Discuss:
Under the EACCMA, 2004transit is defined as ‘the
movement of goods imported from a foreign place
through the territory of one or more of the Partner
States, to a foreign destination;’
Challenges when Handling Transit Goods:






Program on Capacity Building of Master Trainers
Difficult to control goods moving from one
customs office to another
Notification from origin to destination office
too slow
Time limit for transporting may be too long
Suspension of duty and tax payment
Danger of revenue loss if goods are not
exported or if duty/ tax is not paid i.e. The
higher the duty, the greater the revenue loss
Possibility of goods diverting onto home
market
Page 22
P257260
Pg 84
Annex 5_B_4
b)
Reasons
for (3)
Explain:
P261





Pg 84
Transit Fraud
(10)
c)Methods
Discuss:
P262
to


Perpetrate Transit
Fraud

d) Indicators of
Transit Fraud
To evade payment of duties and taxes
To evade prohibitions and restrictions
To gain unfair market advantage
To avoid quota restrictions
To avoid bureaucratic controls
(10)
Diversion of transit goods into local market
Substitution of high value/quality goodswith
inferior value/quality goods
Use of substituted or false documents by
falsifying the transit security bond/guarantee,
misdescription of goods in transit and
undervaluation of transit goods
Explain:











Program on Capacity Building of Master Trainers
P263
Pg 85
Inconsistent or incomplete documentation
Selection of an unlikely or unusual transit route
Undue delay between the arrival of the goods
and the request for transit facilities
Undue delay in the movement of the
conveyance from one point to another
Seals and locks found tampered with
Unusual breakdown or malfunctioning of the
conveyance
Unscheduled switching of goods from one
conveyance to another during transit
Report of an accident or incident indicating that
the goods have been damaged or lost, without
substantial evidence
Unusual breakdown or malfunctioning of the
conveyance
Unscheduled change of route without sufficient
cause
Inconsistencies with respect to the weight,
quantity, package, container or receptacle
Page 23
Annex 5_B_4
e)Detection
Methods of Transit
Fraud
(10)
Discuss:












P265
Pg 85
Knowledge of national customs legislation,
transit regime and procedures
Knowledge of International Conventions and
other bilateral/regional agreements on the
Customs transit
Knowledge of a recipient country market
conditions
Awareness of past transit fraud cases and their
way of operating
A Customs officer must check seals and
reconcile all the documents furnished in the
entry or pre-entry stages to establish
compliance with all export rules and
regulations
Office of departure notifies destination office
Application of Customs seals or electronic seals
if in use
Time limit for transport and exportation e.g.
How long a truck would take to reach the point
of exit from the Entry point
Export certification and bond cancellation
Guarantee in place
Use of transit licenced trucks
Scanning of transit goods
9)False Declaration 35
of
Quality
Pg 8687
and
Quantity Fraud
a)Definition
(5)
P266
Explain:
Pg 86
False declaration fraud occurs when any information to
Customs authorities concerning physical attributes,
nature, volume, quantity or measure of goods declared
is not correct.
Program on Capacity Building of Master Trainers
Page 24
Annex 5_B_4
(5)
b)Reasons
False
of
Explain:
P267
for



Declaration
Quality
and
Quantity Fraud


To avoid quota restrictions
To evade payment of duties and taxes
To circumvent import restrictions/prohibitions
based on quality
To gain competitive advantage
To claim higher refunds
P268
c)
Methods
Perpetrate
to (10)
False
Declaration
Quality
Discuss:
At Importation stage:




of
and
Quantity Fraud
Under declaration of quantity of goods
Misdescription of goods
Use of false certificates of origin
Use of false permits
At Exportation Phase



Program on Capacity Building of Master Trainers
Over declaration of quantity of goods
Misdescription of goods
Several claims for export refunds could be
made for the same goods
Page 25
Annex 5_B_4
(15)
d)
Discuss:
P270
Detection

Methods of False
Declaration
Quality
of

and

Quantity Fraud


10)End-Use Fraud
33
a)Definition
(5)
Reviewing import/export declarations to have
the basic information on the consignment of
goods
Taking samples (if available) to establish the
nature of the goods, their real value and quality
Obtaining bank and shipping documents (such
as bank statements, shipping files, export
manifests, etc.)
Comparing this information with the
production documents held by the company to
determine if the quantities of the goods
produced are compatible with the production
capabilities and are within authorized
production limits; verify that the rejects have
been duly entered in the accounts
Conduct physical verification to ensure that
qualities
and
quantities
of
the
exported/imported goods correspond to the
declaration
Pg 8788
Explain:
P272
End-use fraud involves diversion of goods from an Pg 87
authorised end-use in order to gain from a zero or
lower rate of duty.Examples of end-use provisions
include:
agricultural,
diplomatic,
governmental,
medical/scientific and specific economic promotion
regimes. These should be supported by certificates
from the relevant Authorities.
Program on Capacity Building of Master Trainers
Page 26
Annex 5_B_4
b)Reasons for EndUse Fraud
Explain:


(3)
P273
To evade payment of duties and taxes
To gain from a zero or lower rate of duty
Explain:
c)Methods
of (5)
Perpetrating End-

Diversion upon importation:Goods are
imported with the intent to divert them to a
non-authorised end-use such as EPZ goods

Diversion after importation: Goods are
imported for a qualified end-use but are later
diverted for unauthorised end-use e.g. goods
under the exemption regime

Falsification of documents
Use Fraud
(5)
d)Indicators
P274
Explain:
of
End-use Fraud






Program on Capacity Building of Master Trainers
P275
High duty/risk goods
Amended end-use certificates
First-time importer
Consignee or commodity does not correspond
to the specified end-use
Unable to produce an end-use certificate
Quantities for which end-use relief claimed
appears to be disproportionate for the purpose
specified
Page 27
Annex 5_B_4
Explain:
e)Detection
(15)

Methods of End-



Use Fraud






11)Trade
Description
P276
Substantiate any suspicion of fraud by
consulting with experts
Check the validity of the end-use certificate
Examine the consignment
Identify previous importations by the same Pg 89
importer
Interview suspects or witnesses
Obtain business records of suspected
companies
Analyse all documentation obtained
Check credibility of transaction i.e. quantity of
imported units compared to output from
manufacturing.
Identify other interested agencies or
authorities and, if appropriate, exchange
information
Obtain information from other Customs
through mutual administrative assistance
agreements
50
Pg 8891
and
Consumer
Protection Fraud
a)Definitions
(5)
Explain:
P278
Trade Description fraud is defined as the abuse of
technical requirements/specifications applied to goods
by national legislation to ensure minimal quality
standards of goods, and notified to Customs for
implementation at national borders.
Pg8890
Consumer Protection fraud is defined as the abuse of
requirements/specifications applied by national
legislation to ensure minimal safety standards of goods,
and notified to Customs for implementation at national
borders.
Program on Capacity Building of Master Trainers
Page 28
Annex 5_B_4
b)Reasons
to (10)
Perpetrate
Trade
Description
and
Explain:

Consumer

Protection Fraud



c)Methods
to
Perpetrate
Trade
Description
and
P280
To facilitate the importation of inferior goods in
order to obtain unfair advantage against other
goods on the domestic market;
To effect the importation of merchandise
otherwise subject to prohibitions or
restrictions;
To facilitate advantageous duty preference
quotas by manufacturing in underdeveloped
countries (using cheap labour, poor
manufacturing processes etc.) Inexpensive and
inferior goods;
To obtain maximum fiscal advantage in
manufacturing cost by producing in countries
with no quality control;
To obtain advantageous duty preference
quotas by misdescribing the country of origin.
Explain:
(5)
Consumer
Protection Fraud
Program on Capacity Building of Master Trainers




P281
Wrong description of country of origin, trade
names/brands, expiry dates etc
Avoidance of quotas
Incorrect tariff codes
False country of origin
Page 29
Annex 5_B_4
(15)
d)Indicators
of
Trade Description
and
Consumer
Protection Fraud
Explain:
P282
 Merchandise that carries no country of
origin/weight markings, ingredient listings,
electrical/consumer standards, etc.;
 Merchandise bearing an appellation of a point
of origin inconsistent with geographical
allocation of the country/region of exportation;
 Consignments declared as originating from
countries unknown as manufacturers of the
types of goods in question;
 Merchandise with inferior packaging;
 Merchandise with non-standard packaging
material;
 Merchandise not accompanied by the usual
guarantee or a warranty certificate;
 Merchandise with poorly translated titles,
instructions or labels;
 Merchandise missing lot numbers, factory
codes, expiration dates, dates of manufacture
or other standard markings;
 Merchandise that is substantially undervalued
and/or under insured for goods of that type;
 Merchandise not accompanied by licenses
where
regulations
specify
licensing
requirements;
 Merchandise which is subject to importation
only via officially notified sole agents or
concessionaires, where the importer is not one
of these approved licensees;
 Related company transaction.
Program on Capacity Building of Master Trainers
Page 30
Annex 5_B_4
e)Detection
(15)
Methods of Trade
Description
and
Consumer
Protection Fraud
Discuss:
P284
 Obtain and review the information and
documents on the consignment in question;
 Make seizures of goods;
 Take samples to determine the origin, quality
and value of the goods;
 Send documents for the expertise;
 Detain possible suspects and search their
premises;
 Interview suspects and witnesses;
 Check business records of importer/exporter;
 Make use of local experience and experts;
 Identify other sources of information/evidence;
 Obtain and properly document evidence
 Follow up and supplement checks carried out
by the officers responsible for control and riskanalysis;
 Attempt to discover specific areas in
importations or exportations leading to these
violations.
 Request information from other Customs
through mutual administrative assistance
agreements.
12)Counterfeit/Pi 48
rated Goods
Fraud
a)Definitions
(10)
Pg 9193
P286290
Explain:
Counterfeit (trademark) goods are:
Pg 911. Any goods, including packaging, bearing without
authorizationa trademark which is identical to the 93
trademark validly registered in respect of such
goods, or which cannot be distinguished in its
essential aspects from such a trademark, and which
thereby infringes the rights of the owner of the
trademark in question under law of the country of
importation;
2. Any trademarkdesigned without authorization to
be applied to goods, whether presented separately
or not, in the same circumstances as the goods
referred to at 1 above; or
3. Any goods bearing marks which are identical to, or
Program on Capacity Building of Master Trainers
Page 31
Annex 5_B_4
substantially indistinguishable from, protected
trademarks, when used on goods or services
differing from those for which a trademark is
registered, causing confusion as to source of origin;
b) Reasons for
Counterfeit/Pirate
d Goods Fraud
(3)
c) Methods to
Perpetrate
Counterfeit/Pirate
d Goods Fraud
(5)
Pirated (copyright) goods are any goods which are P291
copies made without the consent of the right holder or
person duly authorized by the right holder in the
country of production and which are made directly or
indirectly from an article where the making of that copy
would have constituted an infringement of a copyright
[or related right under the law of the country of
importation.
P292
Explain:
 To circumvent prohibitions and restrictions
 For commercial gain
 For financial gain
 Gaining competitive advantage
Program on Capacity Building of Master Trainers
Page 32
Annex 5_B_4
Explain:
d)Indicators
of (20)
Counterfeit/Pirate
d Goods Fraud















Program on Capacity Building of Master Trainers
Imitation of trademarks and packaging
Falsifying country of origin
Product imitation
Production of similar or substantially
indistinguishable products
Merchandise bearing an appellation of origin
imported from a country in which the region
identified by the appellation is not located.
Merchandise in non-standard sized or shaped
packaging.
Merchandise with inferior packaging such as
blurred or distorted printing or poor coloration.
Merchandise with non-standard packaging
material, such as cellophane, shrink-wrap, or
other outer wrapping, or merchandise in
unusual packaging (e.g., watches in plastic bags
rather than boxes and shoes in bags rather than
boxes).
Merchandise accompanied by a photocopied
instruction manual.
Merchandise not accompanied by the usual
guarantee or warranty certificate.
Designer or branded merchandise shipped in
bulk or in component parts, rather than in
consumer packaging, such as designer
perfumes or watches, which are not generally
shipped in bulk or in parts.
Unusual product combinations, such as
collections of computer programs, video
games, sound recordings, or video tapes, when
each component is a product of a different
manufacturer, studio or artist
Merchandise
with
misspellings,
poorly
translated titles, instructions, or labels.
Merchandise with missing lot numbers, factory
codes, expiration dates, dates of manufacture,
or other standard markings.
Clothing or other merchandise of non-standard
sizing or sized according to the standards of a
different country.
Page 33
P293294
Annex 5_B_4
Explain:
 Merchandise missing a copyright or trademark
notice, especially on a well-known copyrighted
work or on goods bearing a well-known
trademark.
 Merchandise imported at a port not usually
used by the importers of genuine merchandise
or by an unusual routing.
 Merchandise that is substantially undervalued
and/or underinsured for goods of that type
 Over stating the beauty of the product with
strange codes, reference numbers, telephone
numbers, warranties i.e. too wordy
(10)
Discuss:
P295
e)Detection
Methods

of
Counterfeit/Pirate

d Goods Fraud


13)Off record
transactions fraud
a) Definition
Examine physically the goods concerned and
compare them with the documentation
provided.
Information gathering techniques, including the
use of statistical information.
Intelligence analysis, risk assessment, targeting,
and profiling techniques applicable to air, land,
and sea environments.
Study of documents and analysis of existing
intelligence information received.
35
Pg 9394
(5)
Discuss:
P296
Off-record transaction is a commercial transaction
which is subject to a tax or duty that must by law be Pg 93accounted for to a tax or Customs authority, when it is 94
not thus accounted for.
Covers off-record transactions relating to internal taxes
and duties, such as value added tax and excise duties.
b) Reasons for Off (5)
Discuss:
Record



Transactions Fraud
Program on Capacity Building of Master Trainers
P297
To reduce the tax liability
For commercial gain
To understate the business turnover
Page 34
Annex 5_B_4
c)
Methods
Perpetrate
to (5)
Off
Discuss:



Record Transaction
Fraud
Non-maintenance of business records
Maintaining two sets of accounting books
Double Invoicing
d) Indicators of (10)
Discuss:
Off

Record
Transactions Fraud






e)
Methods
Detection (10)
of
P299
The declared turnover less than the normal
turnover for the area/season
Higher difference in ratio of purchases to sales as
compared with the previous periods
Lack of use of sequential invoices
Invoices are not pre-numbered by the printer
Different series of invoices or receipts are used in
the business
Receipts are not provided with purchases, or a
trader asks whether a receipt is required
Owners of a company enjoy a lifestyle inconsistent
with rate of profits declare
Explain:
Off
Record


Transactions Fraud




14)Draw Back
Fraud
P298
P301
Review tax returns and payment history
Obtain information from other Government
Departments
Visit the traders premises to look for evidence of
off
record
transactions
and
establish
responsibilities within the company
Checking the traders records, establishing whether
the company has premises elsewhere
Checking if the trader has removed relevant
records to hinder/avoid the amount of tax evasion
to be calculated
Interviewing/interrogating company directors and
employees
35
Program on Capacity Building of Master Trainers
Pg 9596
Page 35
Annex 5_B_4
a) Definitions
(5)
P303
Explain :
Drawback – Drawback Regime is legally backed by Pg 95section 138 & 139 of EACCMA, 2004, and is defined as : 96
“a refund of all or part of any import duty paid in
respect of goods exported or used in a manner or for
purpose prescribed as a condition for grating duty
drawback”.
Drawback fraud is the abuse of the relief which
provides for the repayment of Customs/excise duties
paid on goods that have not been and will not be
consumed in the national Customs territory
c)Methods
to (10)
Discuss:
Perpetrate

Substitution of commodity:This is when other
goods are substituted for the goods on which
drawback has been claimed.

Incorrect quantities: This occurs when quantity
of goods actually exported is lower than the
quantity claimed. This may include goods
whose weight has impact on values e.g. hard
ware.

Fictitious Exportations: This occurs when no
goods have been exported:
Double claims for drawback: when duties have
already been repaid under another procedure,
or
Claiming drawback on goods on which import
duties have not been paid such as goods
originally smuggled into the national territory
or goods originally classified under a duty relief
scheme
Drawback Fraud


Program on Capacity Building of Master Trainers
P304
Page 36
Annex 5_B_4
d)Indicators to
Drawback fraud
Explain & ask question:
P305
(10)
What indicators of draw back fraud do you know?
Indicators of Drawback Fraud









e)Detection
methods of
Drawback
Fraud
15) Ghost business
fraud
Late presentation of export notices
Any amendments on the documents
High volume of exports
Country of destination - not typical for the
product
High duty/high risk goods
Transport or insurance cost inconsistent with
the goods
First-time exporter
Inconsistent nature of packing
Vague description on export sales invoice
P306
(10)
Discuss :
 Identify any previous exportations by the same
exporter for further examination
 Monitor and examine future shipments to
establish modus operandi
 On receipt of drawback claims, compare them
to results of above examinations
 Check the validity of the documents submitted
as proof of exportation with the claim for
drawback
 Identify other interested authorities and
exchange information, if appropriate
 Request additional information and copies of
documents
from
relevant
Customs
administrations through the channels of mutual
administrative assistance
 Properly document all evidence obtained
 Substantiate any suspicion by consulting with
local experts and by document analysis
35
Program on Capacity Building of Master Trainers
Pg 9699
Page 37
Annex 5_B_4
a) Definition
(5)
Discuss:
P307
This happens through Companies, that do not exist (are Pg 96not registered), exist on paper only, are used solely for 99
fraudulent purposes, or are registered under false
names and addresses.
Discuss categories :
‘ Ghost ‘ Importer ‘ Ghost ‘ Consigner ‘ Ghost ‘ business
registered for VAT ‘ Ghost ‘ Supplier Invoices other
functions of ‘ Ghost ‘ companies
b) Reasons for
Ghost business
fraud
(5)
c) Methods to
perpetrate
Ghost business
fraud
(5)
Discuss:
P308
 For financial gain
 To evade tax liability
Discuss:





Program on Capacity Building of Master Trainers
P309
By a ghost importer importing goods
fraudulently, in contravention of a prohibition,
by submitting import papers in the name of a
"ghost" business or if the goods are examined
and the importer cannot then be traced.
By a “ghost” consigner submitting customs
documentation for imported goods with an
invoice in the name of a "ghost" business and
Indicating a value lower than that on the true
invoice to defraud Customs of duty.
Through “Ghost” business registered for VAT by
registering off the “shelf” with false names and
addresses shown for directors, may then be
registered for VAT and open a bank account
with a false name and address, submitting
returns claiming refunds of tax (by claiming to
be an exporter or a supplier of zero rated
goods) or cannot be traced.
Through “ghost” supplier invoices
Page 38
Annex 5_B_4
d) Indicators of
Ghost business
fraud
(10)
Discuss:
P310313
Ghost" importer




First time importer
Overvaluation of highly dutiable items
Not a registered limited company
Wrong address
Ghost" consignor:
 Supplier address on invoice different from
country of exportation
 Invoice issued at a known tax haven country
 Invoice issued by a trader not a manufacturer
 Failure to contact company named on invoice
 Supplier on manifest or airway bill different
from invoice
"Ghost" business registered for VAT













No bank account details shown
Submitted address is an accommodation
address
No telephone number given
Address inconsistent with the business
declared
Address not for conclusive use of business
Misspelled name of applicant
Different signatures on different forms
Failure to contact applicant
New premises rented especially for the
expected visit of the investigator
False set of books and records presented on
such a visit
‘Ghost’ business disappears after contact or
after attempts for verification of tax returns
Similar names of businesses registered in
different regions
Exporting high duty compensation rate goods
"Ghost" supplier invoices
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Program on Capacity Building of Master Trainers
May be found on verification visits to registered
traders
May indicate that it is not a registered limited
company
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Annex 5_B_4
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e) Detection
Methods for
Ghost Business
Fraud
(10)
Wrong address on invoices (multi occupied
house/office)
Unobtainable telephone/fax or telex number
shown on the invoice
False VAT or Registration number on the
invoice
Type face of invoice similar to other known
"ghost" business
Purchase invoices sent by post are not folded
Traders unable to contact “ghost” business
"Ghost" importer
 Try to identify the “Ghost” importer
through the import agent (if
trustworthy)
 If an approach to the import agent is
considered
inadvisable,
then
surveillance on the imported
consignment may be necessary
 Dummy goods substituted in original
packaging
 A Controlled delivery or a Cold
convoy could make it possible to
discover importer’s true identity
“Ghost" consigner
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If a false or “ghost” import invoice is suspected
the imported goods should be detained
Visit the importer with a search warrant, to find
the true documents to the goods
Send a request to other Customs with Mutual
Assistance Agreements (MAA)so as to verify the
invoice and find whether the consignor exists
“Ghost" business registered for VAT
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Program on Capacity Building of Master Trainers
Check all information given in application
documents to find links to the person behind
them (addresses, telephones, bank accounts)
If any of these enquiries are successful, then
observations and surveillance will be necessary
If these enquiries are unsuccessful, a decision
needs to be made whether to pay a repayment
claim.
Once it has been delivered surveillance needs
to be maintained on the cheques
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P314
Annex 5_B_4
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With cooperation of the bank it may be
possible to identify the suspect.
“Ghost” supplier invoices
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16)Contrived
liquidation fraud
Likely to be found on verification visits to
registered traders by tax inspectors
Take copies/originals from the trader for
further checks
Check suspect invoices through the trader’s
books, as well as methods and details of
payment noted
Ask the trader for contact details of the
supplier and details of the goods or service
supplied (if the trader cannot give explanations
the matter should be reported for
investigation)
The trader visited is suspected in these
circumstances
Once found details of false invoices should be
circulated to other tax offices so that other
inspectors will look out for similar invoices
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Pg 100103
Page 41
Annex 5_B_4
a) Definition
(5)
Discussion:
P318
(Q.8)What is Contrived liquidation?
Pg100103
Contrived liquidation fraud occurs when a company
deliberately and needlessly puts itself into liquidation
to avoid tax liabilities.
It: Leaves behind debts, usually to the taxation
authorities. The original company continues to trade as
before under a new name known as the "Phoenix
Syndrome"
This is when companies go out of business leaving
substantial debts while their directors immediately
start new enterprises doing the same business without
having to account for their previous failures.The
business remains the same, though in different names,
the trading premises remain the same, the employees
remain the same, pivotal employees/managers remain
in positions of authority, and directors of the new
companies remain the same or are closely related to
the previous company.
b) Reasons for
Contrived
liquidation
fraud
Conclusion
c) Methods to
perpetrate
Contrived
liquidation
fraud
(5)
Explain:
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P320
To avoid past tax liabilities
To hide previous non-compliance record
(45)
Case Study
10
(10)
(5)
Recap Q&A
Explain:
P321
Closure of previous business without valid reason and
establishing same business in different names, with
same Directors, employees, etc. yet they have tax
liabilities.
Discuss:

d) Indicators of
Contrived
(10)
liquidation
fraud
Program on Capacity Building of Master Trainers
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P322
The business is a limited or corporate company,
usually with a low nominal capital
Lack of tax compliance by the company :
Returns are not rendered or rendered late;
Tax is not paid and the tax debt accumulates
Pagenot
42
The person running the company does
respond to correspondence or is not available
to take telephone calls
The tax authority is the only or main creditor
(trade creditors are paid to ensure that
business is able to continue)