Internal Audit unfolds the layers of gold import/export mega scam

KARACHI: The Directorate of Internal Audit (Customs) has unfolded a multi-pronged scam, wherein not only the national exchequer was deprived of approximately Rs35 billion, it also involves forgery of documents as well as money laundering in respect of import and export of gold and other precious report.

The audit of the affairs of M/s Makkah Enterprises only found an evasion of over Rs900 million of duty/taxes evaded through mis-declaration, fraud and submission of forged documents.
An exercise was initiated to conduct the audit of import/export of gold and other precious metals under SRO 266(1)/2001 and SRO 760(1)/2013. Director Audit Zahid hussain Bhayo formed an audit team headed by Additional Director Omar Shafique and comprising of Deputy Directors Baleeg-ur-Rehman, Sabir Jamal; Senior Auditors Adeel Shah, Ahsan Ashraf; Superintendent Rizwan Ali Khan and Examiner Zikar-ur-Rehman.
The Audit Team scrutinised the relevant record pertaining to around 40 companies/traders and it was found that the conditions of SRO 266(I)/2001 were not fulfilled by them and it was also observed that this was also the case of mis-declaration of classification. Total recoverable amount comes to approximately Rs35 billion. Further audit is underway.
The record revealed that gold weighing tons was imported in 2013 under Entrustment Scheme of the SRO 266(I)/2001, which was cleared on irrelevant documents. Export of gold/ornaments in lieu of these imports has been found to be less than 20 percent of imports as such the remaining 80 percent was imported in the country without payment of duty/taxes availing exemption under the relevant SRO and was never exported back.
Furthermore, the exports were made on self-consignment basis and were made on fake E-forms with the intention to defraud the government of foreign remittances. Neither any imports were done subsequent to these exports nor were the remittances realized.
According to SRO 266(1)/2001; under Self-Consignment Scheme an entity registered with TDAP/relevant association could locally procure gold/silver, manufacture jewellery and export it to a foreign destination. TDAP was to issue export entitlements and subsequent import authorizations. The exporter than was to bring back the foreign remittances in shape of value of commodity exported plus the value addition as specified in the said SRO. The exporter also had the option to bring in equivalent quantity of the commodity exported. However, the value addition was to be brought back in shape of foreign remittances. Under, Entrustment Scheme an entity registered with TDAP/relevant association could import from abroad from a contracted partner who would supply the commodity and the same was to be manufactured into jewellery by the local partner and re-exported. Value addition done in terms of labour charges and gems/stones was to be repatriated in shape of foreign exchange. The import entitlements/export authorizations were to be maintained on a pass book by the importer/exporter duly authenticated by TDAP.
The Audit observed that proper verification procedure in light of the said SRO was not adopted by Customs at the time of import under the scheme; all the E-forms were found fake that were submitted at the time of export by these companies/traders, as such no foreign remittances were received.
Moreover, Audit was not conducted by MCC Preventive and MCC Exports, while proper Pass Books were not maintained and imports/exports were allowed to these companies under SRO 266(I)/2001 even after it was rescinded. The Customs authorities did not authenticate the shipping bill for release of 1.0 percent margin at the time of imports.
The Audit Team observed that Customs officers did not examine the consignments of gold properly and not even a single GD was found with proper examination report.
The Audit Team has suggested formulation and implementation of an elaborate procedure to fix all the loopholes and lacunae as this would plug all loopholes exploited by unscrupulous exporters/importers of gold and other precious metals causing huge loss to the economy; all the relevant staff should be regularly trained on clearance processes and then posted on sensitive assignments; the E-form issuance and reconciliation system should be immediately brought online onto the WeBOC system wherein E-forms are issued on the system by the concerned banks and there should be inter-agency coordination so that mega scams of this nature do not occur.
The Directorate of Internal Audit (Customs) has detected irregularities of grave nature internally within the department and added that if the Directorate is given due human & other allied resources like logistics, infrastructure and is strengthened properly, it can deliver in a much better and effective way and can internally detect any misdoings and anomalies which are usually overlooked due to already overburdened staff at the clearance collectorates .
Director General Internal Audit Rubina Wasti has appreciated the entire team for their untiring efforts in this regard.

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