Rs70b money laundering uncovered
According to the FBR report, the worth of 39 importers was just Rs14.7 billion but they imported Rs201 billion worth of goods. photo: file
Pakistan’s tax chief on Wednesday disclosed that two importers of solar panels were involved in a Rs70 billion money laundering scheme after an internal investigation revealed the involvement of five commercial banks in transferring funds to destinations like Switzerland and Singapore.
“It is trade-based money laundering,” said Amjad Zubair Tiwana, the Chairman of the Federal Board of Revenue (FBR), while briefing the Senate Standing Committee on Finance on the alleged money laundering of Rs69.5 billion by two companies.
The money was transferred to countries like Switzerland, Singapore, and the United Arab Emirates against imports from China, according to FBR investigations. Over Rs16.5 billion was laundered to the UAE and Singapore alone, as shown in the report. The FBR investigation further revealed that five well-known commercial banks were used for laundering money overseas through heavy cash transactions.
M/s Bright Star transferred Rs47 billion out of Pakistan against solar panel imports and did not file income tax returns. M/s Moonlight Traders transferred Rs23.7 billion overseas despite having a “very weak financial position.”
The FBR worked out the Rs69.5 billion figure based on the scrutiny of the data of 63 importers, although almost the entire amount was transferred by just two companies.
If the data of all the 450 importers is properly scrutinised, the quantum of money laundering would be anywhere between $2 billion to $2.5 billion during the past five years, said Senator Musaddaq Malik of the PML-N.
Malik said that the State Bank of Pakistan (SBP) played the role of a silent spectator during this period and was still not forthcoming in taking action against the banks involved in the money laundering.
“Commercial banks allowed the transfer of import remittances to third countries without any no objection certificate from the Chinese exporters in violation of foreign exchange regulations and SBP’s instructions,” showed the report submitted before the Senate Standing Committee on Finance by the FBR.
“Banks’ statements of M/s Bright Star and M/s Moonlight Traders reflect mutual transfers of funds and indicate a business association between the two suspected companies that transferred Rs70.7 billion out of Pakistan on the basis of duty and taxes-free import of solar panels,” according to the report.
Scrutiny of import data and income tax declarations of 39 importers reflected high disparity between financial worth and import values, according to the FBR report. It added, the worth of 39 importers was just Rs14.7 billion but they imported Rs201 billion worth of goods. Similarly, the scrutiny of bank accounts records of 44 importers showed that they deposited Rs47 billion in cash, which was equal to one-fourth of the total bank deposits of these branches.
In many cases, over Rs10 million was deposited in these accounts as cash transfers in a single transaction, bringing these accounts into the category of “high-risk suspected category for money laundering considerations.”
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Between 2017 and 2022, there has been a massive increase in solar panel imports, accompanied by the emergence of shell and dummy companies exploiting duty and tax-free imports for illicit financial activities.
In October 2022, the FBR initiated an audit and picked 63 solar panel importers out of a total of 450 importers of Chinese origin solar panels, resulting in the identification of Rs69.5 billion money laundering. The money laundering was done through 6,232 import invoices through commercial banks, the committee was informed.
So far, the FBR has registered eight FIRs covering Rs41 billion worth against three Quetta-based dummy companies and two Peshawar-based companies. The FIRs have recently been lodged against M/s Bright Star Business Solution (Pvt) Ltd and M/s Moonlight Trader (SMC) Pvt Ltd.
The funds were transferred to a Dubai-based company, Ocular General Trading, against imports made from China, said Director Customs FBR, Sheeraz Ahmad.
The FBR’s investigation revealed that Bright Star Business, having a financial worth of a mere Rs10 million, imported Rs47 billion worth of solar panels and laundered Rs30.64 billion overseas through over invoicing.
Bright Start did not file income tax returns in 2018 but imported Rs5.4 billion panels. In 2019, the company imported Rs18.8 billion panels but declared Rs13.9 million incomes in the returns. In 2021, when Bright Start imported Rs16.9 billion panels, it did not file any return nor got the FBR activated against it. Similarly, in the tax year 2022, the company again imported Rs3.1 billion worth of panels but did not file the income tax returns.
MoonLight Traders, having a financial worth of a mere Rs101 million, imported Rs25.7 billion worth of goods and laundered Rs7.1 billion, according to the documents submitted before the Senate Panel.
The FIRs have been registered on charges of fiscal fraud and trade-based money laundering involving the exploitation of import transactions to transfer funds out of Pakistan through the use of unlawful activities, use of illicit cash, and illicit financial flows to Dubai, Singapore, Switzerland, and other countries.
The standing committee appreciated the findings of the FBR and grilled the SBP for its lack of support to the committee in the investigations. The central bank has been instructed to conduct a detailed review and inform the standing committee about the actions that it took against these commercial banks.
Published in The Express Tribune, November 30th, 2023.
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