Transparency International asks FIA to investigate money laundering through over invoicing

KARACHI: Transparency International Pakistan has forwarded a complaint to the Federal Investigation Agency (FIA) regarding the money laundering of billions of rupees by through over invoicing in coal imports since 2013.

In a letter to Director General FIA, Vice-Chairman TIP Justice (R) Dr. Ghous Mohammad has informed the agency about the complaint they received regarding money laundering of billions of rupees being carried out by a company of Younus Brother Group (YBG) since the past seven years.

According to details, Lucky Commodities (Pvt.) Limited Pakistan is a commercial importer and an indenter of coal who has been trading since early 2013 and one of the many companies of Yunus Brother Group (YBG).

Tahir Ahmed Khan is the Chief Executive Officer and shareholder of Lucky Commodities (Pvt.) Limited while at the same time he is also the Chief Executive Officer and shareholder of Global Commodities Limited Dubai.

In June 2019, Tahir Ahmed Khan, as CEO of GCL Dubai entered into an agreement with Tahir Ahmed Khan, CEO of Lucky Commodities Limited to sell 37,215 tons of coal.

The same month, Tahir Ahmed Khan, as CEO of GCL Dubai also entered into an agreement to purchase 55,000 MT of coal with Mercuria Singapore at a rate of USD 66.10/MT (FOB basis). The gross calorific value of such coal was stated to be 5,814.

“It cannot be a coincidence that the CEO and signatory of GCL Dubai happens to be Tahir Ahmed, who is also the CEO of Lucky Commodities Ltd.

“Tahir Ahmed, operates from Karachi, also signs all agreements with parties as CEO of GCL Dubai from Karachi. In fact, the correspondence email address provided by GCL Dubai in its agreement with Mercuria Singapore (dated 12 June, 2019) also happens to be of Lucky Commodities Ltd, Pakistan,” stated the TIP’s letter.

All the coal purchased by GCL Dubai from Mercuria Singapore was of the same quality, and the entire consignment was to be shipped from Tanjung Sabau Anchorage, South Kalimantan, Indonesia to Karachi, through one vessel (namely SB/ Taurus), as evidenced from the five commercial invoices issued by GCL Dubai to Lucky Commodities Ltd Pakistan and by Mercuria to GCL Dubai.

“These invoices also confirm that the coal purchased by GCL was never intended to go to Dubai, where GCL Dubai is located. Hence, it is absolutely clear that GCL Dubai is linked with and is a part of Lucky Commodities Ltd. Pakistan, and is acting as a front end shell company through which Lucky Commodities Ltd. Pakistan routes its coal imports into Pakistan,” reasoned the letter.

Later, Lucky Commodities Ltd. Pakistan entered into a coal purchase agreement with GCL Dubai (which has been established to be a part of M/s Lucky Commodities Ltd. only). The coal being sold by GCL Dubai to Lucky Commodities Ltd. Pakistan was the same coal that GCL had purchased from Mercuria.

However, Lucky Commodities Ltd. Pakistan contracted with GCL Dubai for the purchase of the same coal at a much higher rate of USD 76.05/MT (CFR basis).

“The different freight charge issue is clearly evident from the fact that GCL Dubai sold coal consignment to Lucky Commodities Ltd. Pakistan at the CFR rate of USD 76.05/MT, whereas the same consignment has been sold to another buyer (i.e. M.A. Oils (Pvt.) Limited) for a CFR rate of USD 71/MT. At US $ 5.05 per ton, over-invoicing on 2.5 Million Tons of Coal comes to US$126 Million. If checked from records of import handled by Lucky Commodities Ltd. Pakistan from 2013, this over-invoicing may be substantially increased manifold,” stated TIP.

This whole situation means that Lucky Commodities Ltd. has overpaid for the coal sold to it by its related party, the only purpose of which is to illegally transfer funds out of Pakistan whilst giving an impression that such funds were for imported commodities.

In view of the above, it also appears that the entire USD 10/MT freight cost also appears to be dubious and may also be a mechanism to siphon out of the Country by Lucky Commodities Ltd. Pakistan and paid to its own shell company/related party (under the garb of freight charges), resulting in a clear act of money laundering and illegal funds transfer out of Pakistan.

Moreover, Global Commodities Dubai which is a shell company of Lucky Commodities has provided favorable terms to itself – at the expense of the other consignees in terms of overcharging of freight considering that the load port and discharge port of the entire vessel is same. This also translates to possible money laundering of foreign exchange.

Besides, the TIP stated, even if the irregularities in freight (additional USD 2.50) are considered on just one instance these amount to USD 55,000. Additionally, if factors of freight and FOB laundering are considered, this may translate to millions of dollars worth foreign exchange being embezzled out of the country.

“This is also purportedly a case of customs mis-declaration and duty evasion as cargo with one same quality and price was imported, but eventually sold as cargo with higher prices and higher quality.

“GCL Dubai charged different rates from different purchasers and sold the same batch of coal imported via a single vessel at varying FOB cost basis and varying freight basis without any justification or logic.

“This discrimination is undoubtedly deliberate, the aim of which is simply to transfer funds out of the Pakistan in blatant violation of the foreign exchange regulations of Sate Bank of Pakistan,” stated TIP’s letter.

TIP requested to the FIA that under the Federal Investigation Agency Act, 1974 (‘Act’) the FIA has to look into and investigate various offences as stated in the schedule to the Act.

“This act of Lucky is a violation of the following laws over which the FIA has the jurisdiction to carry on an investigation: Foreign Exchange Regulation Act. 1947; Import and Export (Control) Act. 1950; Banking Companies Ordinance, 1962; Anti-Money Laundering Act, 2010,” stated TIP.

Lucky commodities, however, termed the Transparency International claims highly misleading and defamatory.

Lucky maintained the entities mentioned in the said letter, whether foreign or local, were all registered and disclosed in the records of Securities and Exchange Commission of Pakistan (SECP), State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR).

“All transactions are declared trading activities between the entities and the amounts involved have been duly taxed in Pakistan. Also, the consignments imported have been declared on which duties and taxes have been paid as per the laws of Pakistan. Further, all exchange of funds has been through proper banking channel,” Lucky commodities noted.

Last year in October, State Bank of Pakistan (SBP) issued fresh instructions to banks to strengthen their vigilance system to mitigate the risk of money laundering (ML) and terrorist financing (TF) in the name of import and export activities in the country.

“Transferring value through legitimate trade transactions has become increasingly attractive avenue for money launderers (ML) and terrorist financiers (TF), as they are able to easily obscure their transactions in significant volumes of international trade and escape detection,” SBP said in ‘Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing’.

“The main methods by which such people (ML/TF) transfer value through legitimate trade transactions are under invoicing, over invoicing, short/over shipment, obfuscation of type of goods/services etc” it added.

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