How Trade Fraud Robs Liberia of Revenue

7
2002
“Customs duties and taxes that would have otherwise been collected by the government to make development and public welfare interventions, are undercut by a party or parties to an international trade transactions,” said Saa Saamoi, Liberia Customs Commissioner.

By Alloycious David

Liberia is losing a large amount of revenue to trade mis-invoicing, a practice by which importers and exporters wrongly declare the value of their wares with the aim of dodging taxes or illegally sending money out of the country, a document obtained by this newspaper has said.

How does it work in the country was not established until Liberia Customs Commissioner, Saa Saamoi, informed reporters that any products of high commercial value, and high duty and tax rates are the most likely to be mis-invoiced in the country. Such products would include alcohol, cigarettes and vehicles.

“Therefore, while high value and high duty goods are most susceptible to trade mis-invoicing, the exercise may happen with any product that is of commercial value and dutiable by Customs,” Saamoi said in an interview.

In other cases, importers declare the value as higher than in reality, but Saamoi said this kind of trade mis-invoicing may occur as an attempt to launder illicit money or to evade capital restrictions, which set a limit on how much money Liberians can take out of the country.

In both cases, the value of the goods traded between parties may be over-invoiced, so that the supplier or exporter receives payment for the actual value of the transaction and the difference is moved to an off-shore account.

“Considering that Liberia is an import-oriented country where a significant portion of the domestic resource envelope is dependent on Customs, trade mis-invoicing directly affects the country’s economy through the under-reporting of taxes,” said Saamoi.

“Customs duties and taxes that would have otherwise been collected by the government to make development and public welfare interventions, are undercut by a party or parties to an international trade transactions,” he said.

Saamoi said it was difficult to estimate the dollar value of revenue loss as the result of trade mis-invoicing in Liberia due to the low level of automation and interfaces between our IT systems and those of other institutions such as commercial banks, and insurance companies.

According to him, trade mis-invoicing accounted for millions of dollars in lost revenue in the past few years.

“The gap is being gradually narrowed, yet more work needs to be done in terms of investment in IT systems and legislation for the establishment of platforms for direct, but confidential access to third party information on businesses,” Mr. Saamoi said.

Washington, DC-based research and advisory organization, Global Financial Integrity (GFI) corroborated Saamoi’s statement that due to a lack of good data, it is very difficult to estimate a dollar value of Illicit Financial Flows (IFF) in the country; the propensity for trade mis-invoicing in the West African Country, or to ascertain the impact these flows have on the economy.

Tom Cardamone, GFI managing director, called on President George Weah to inform heads of all ministries and departments – in writing – of his complete commitment to curtailing illicit flows of the country’s revenue through full transparency of corporate ownership; public contracting; government budgets and spending.

“Additionally, the President should instruct the heads of all ministries and departments to convey this support for transparency, and the goal of reducing IFFs to all government employees,” he said.

Cardamone said without such a policy, public announcement of political will to address the problem from the President, any other steps taken are likely to have limited impact.

He said a permanent inter-agency team of government officials from all relevant departments, including FIU, Finance, Revenue and Customs, Central Bank, law enforcement and others, should be assembled to cooperate, coordinate and exchange information to address illicit flows in all their forms.

Special focus, he added, should be put on providing all technical assistance necessary to help the customs department identify trade mis-invoicing when goods are still in the port.

“Mis-invoicing is one of the easiest ways to evade tax, launder the proceeds of crime and move money illicitly out of the country. Helping Customs to be more effective in this area would be of great financial benefit to the country,” Cardamone added.

But Mr. Saamoi said that a number of steps have been taken to minimize trade mis-invoicing, including subscription to international price databases for reference whenever there is a case of dubious transactions.

He said that the establishment of exchange of information agreements with other tax jurisdictions – an arrangement through which particular transactions can be verified with the corresponding tax jurisdictions— has been of great help to curtail trade mis-invoicing.

The use of third party information such as bank letters of credit, bank transfers, shipping contracts, and others are also helping the Liberian tax authority fight false declaration.

“When the first post-war government was elected, the budget was under US$100 million until today, when domestic revenue, excluding grants, has grown by four times the amount in 2006. This is a combination of the development of tax officers’ skills, and the enhancement of systems to mitigate trade mis-invoicing and other tax-related frauds,” Saamoi said.

But experts say there are other ways revenues could be increased. For example, Paul Columbus Collins, a Liberian certified internal auditor and lawyer wants the sitting government to review all concessions entered by the last regimes.

Dr. Collins, an economist and a fellow of the Association of Chartered Certified Accountants (ACCA) of UK, said a number of international firms had been granted tax exemptions under their concessions to operate, and were taking advantage of them in ways detrimental to the country.

Collins, a former head of the Liberia Internal Audit Agency (IAA), said in an op-ed published this year that some companies were abusing tax exemptions by “over invoicing imports, and under invoicing exports to evade taxes, and avert capital controls through routine trade.”

He further said this month, there is one way for the importation, in which companies, especially multi-national concessions, engaged in transfer pricing and trade misinvoicing is the importation of old equipment which has been used by their sister companies in other countries to Liberia. According to him, companies bring in such used machinery and claim that they are brand new, invoicing them at inflated levels to reduce profits. For instance, he explained when ‘company x’ says she is investing US$ 3 Million in the economy, it is not physical money they are bringing in the country; the cost of all their equipment and others are included in that so they will have to deduct the equipment cost as expenditure even though they have been depreciated by their sister companies.

“And this is how they cheat our government; they can’t pay tax when they don’t make profit. So every time you will hear them say the prices of iron ore and rubber have dropped on the global market, but you see them operating still. If they are not making profit why are they operating? They don’t sell to anybody; they are only lying that the price has dropped. It is a clever attempt to ship money outside,” he said in a telephone interview.

The Liberia Chamber of Commerce turned down every opportunity to speak officially on the matter following several visits and honoring of a request to send questions via email.

But a high ranking staff member there who is not authorised to speak to the press dismissed Dr. Collins’ assertions that companies falsely declare their imports and exports and said its members are reputable institutions.

Although the staff member denied that its members were involved in the act of falsely declaring their imports and exports, the person attributed false declaration at the Free port of Monrovia to the lack of system there and said businesses were taking advantage of loopholes at the facility to rob the government.

This story was written as part of Wealth of Nations, a Pan-African media skills development program run by the Thomson Reuters Foundation. Get more information at www.wealth-of-nations.org

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7 COMMENTS

  1. If Customs at the Ports of Liberia have up till now not included up to date equipment to be measured on par with other ports of incoming trade nations, than data bases were replaced as administrations and custom officers were removed. If you did not include removable government combating instruments in budgetary appropriations to content with contemporary activities, than give the capable a chance to serve Customs. The President will not politicize a tax collection issue on books just to satisfy carrier loop holes. You cannot blame the Port either if the amount was not provided. Automated accounting is a science to the exact. If Customs has not purchased the equipment to check the figures, when the amount is provided by the Liberian people, who do you blame? Are you again blaming the last administration for stealing or selling the equipment to update? Cyber automation is on equal levels. If you accept the fact that time out of process magnifies errors, can be stored, but slows down the actual special funds required to keep the Liberian Government in full tax operation. Let Liberians know. Do not answer my box.

  2. Even irremovable cyber data in the eastern world as mainframes for Governments checks on commercial operations cannot be search and determined on earth. Very expensive and used by space shuttles and developed nations into explorations as such. Yet cyber is dark, not visible and no one can see in the dark out of the earth’s obit. If the developed west cannot see or control it, what can you vision in an under developed unequipped customs collection. You can no longer fool the Liberian people with your academic rhetorical quest for political positions to corrupt. The Liberian illiterates will ask for explanation in tribal common customary languages for which they sent Liberian literates to school to learn. Customs collection is a very important point to benefit the flow of goods and services to Liberians and should begin with tariffs leveled on foreign trade to help the Liberian people as long as it has an easy entry to all Liberians. Thinking about about cassava and smoked fish gravy. Not invited in my box. Gone to silent majority.

  3. Liberia needs to learn from other countries how they solve this problem because every country deal with international trade. It’s simple…visit another country with a good trading system and learn. Then come back and reform the process. I think Information Technology could be part of the solution. But this government doesn’t have anyone who handles technology challenges facing the government. That’s why I suggested that the government create a role for a Chief Information Officer (CIO). Every modern government now has a CIO whose job is to implement technology across the government.

  4. Even though two wrongs don’t make a right, I have NO problem with “importers and exporters (who) wrongly declare the value of their wares with the aim of dodging taxes or illegally sending money out of the country..” Why? Because the taxes that are paid by importers and exporters are wasted or STOLEN by government officials.

    Hey Mr. Alloycious David, can YOU tell me who in their right mind will keep paying taxes, when they see, with their own two eyes, government ministers stealing or misusing their tax dollars?? Only people with “STUPID” written across their foreheads will keep giving their hard earned money (taxes) to the born rogues in our government!!!

  5. There use to be a spectrum of such officers through ministerial lines but military take over did not provide the incentives though they initiated it. Prior to and after, the seven corners time, totalitarians in rampant corruption, called ill elective leaders became the Chief Informing Officers. For instance, Leaders, 1950 -2015. It would be a good idea though if properly protected by funding and accountable to the people under executive advice. Yet a long way to go. Tell Liberians. Not for me.

  6. It is absurd for Liberian customs, revenue authorities, and so called International trade experts to speak about fraud when they have no tangible pricing scheme to compare prices from developed countries or from Liberia’s neighbors so as to make real time comparison of the fluctuations in market or trade conditions.

    Another factor being falsely propounded is the perception that trade pricing is fixed obviously this is not true.

    In the United States or Europe goods may be purchased on sale when they are discounted sometimes up to 50% meanwhile Liberian tax policy and price standards does not reflect those changes and possible depreciation in pricing.

    Take for example in Germany due to a long dry drought market experts forecast an appreciation of 30% in meats, dairy, and other associated products from farms because farmers have to buy hay or grass to feed their cows. These dry conditions were also reported in Switzerland.

    Will Liberian tax authorities account for these market fluctuations or will they assume businesses want to defraud the government of revenue?

  7. From the above article, it appears Liberia is a prime location for money launderers. And this is certainly going to impact the revenue intake of the nation. I’m not sure to what extent there’s anti-money laundering policies in both the private and public sectors, but I do know that absence any compliance framework to detect and deter money launderers would have a significant impact on the economy. Money launderers use the schemes described in the article to place illegally gained funds into the legal financial systems by buying properties and other major cash transaction purchases. Or inflating or deflating the values of products, where the excess is intended for a launderer or a deflated amount intended to avoid paying the appropriate taxes.That’s the first stage called “placement”. Once the funds is in the banking or financial system, sometimes with help from these financial institutions, major purchases are then made by loans taken by individuals entitled to the excess or the savings in tax in the placement transactions stage. This stage is the “layering” stage, and it makes it difficult to trace the source of the original funds. Now the funds are in the banking systems, and the launderer can move it freely within the system. That’s the “integration” stage. But a viable anti money laundering framework would catch this by raising red flag alerts on suspicious transactions and monitoring that funds from source to the target. In the U.S. every financial services firm is required to file a Suspicious Activity Report (SAR), with the Regulatory Agency, FINCEN (Financial Crimes Enforcement Network), and all employees undergo training in the detection and reporting of suspicious activities to the appropriate internal Compliance and/or Legal Officer responsible for the firm’s anti-money laundering framework. As a way to ensure compliance, and I actually worked on drafting a compliance manual that detail procedures to mitigate breaching anti money laundering laws by a prior employer in the financial services. Basically all firms follow the same basic steps which is in line with the actual regulations, and they are:
    1) implement internal policies, procedures, and related controls intended to detect, monitor and report 2) appoint a compliance officer accountable 3) develop a thorough training program, ensuring all relevant employees are trained and there’s documentation to validate the training and an ongoing training program for changes in rules and regulations, and 4) have an independent review for compliance. This can include both the firm’s own internal auditor and an outside independent auditor

    If these guidelines are followed across all public and private sector entities, one would see a significant improvement in securing revenue generation.

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