Trade based money laundering takes advantage of the complexity of trade systems, the involvement of multiple parties and jurisdictions make risk management processes more difficult.

The Web Based Customs Clearing (WeBOC) system and the inherent flaws in its risk management system have resulted in significant increase in trade based money laundering through over-invoicing.

Experts believe the WeBOC system and over-invoicing of tax exempted importable goods such as solar panels are draining the country’s foreign exchange and bringing the economy on the brink of bankruptcy.

Sharjeel Jamal, a trader, said the WeBOC had made the business process more difficult. He said globally the trade was based on CnF (Cost and freight) basis or FoB (freight on Board) basis. However, WeBOC has made it mandatory to file Electronic Import Form (EIF) for the processing of Goods Declaration (GD). State Bank of Pakistan (SBP) required that it must be part of record.

Jamal mentioned that mandatory EIF was illegal, and it hurt imports causing delays in the processing of GDs. Due to this delay, importers had to pay millions of dollars to foreign companies as demurrage and detention further purring pressure on country’s resources.

An official admitted the prevalent gross over invoicing of duty free goods such as solar panels. According to available official data, import value of solar panels jumped multiple time quickly after the tax exemptions were announced.

These importers earlier used to under invoice imports and send the money out through informal channels (hundi hawala), which did not impact the official reserves. Now that over invoicing has peaked, this is severe pressure on foreign exchange.

Customs don’t take any action on over-invoicing. Although, there are Valuation Rulings in place determining the reference rates of importable goods, but Customs is not concerned if the imported claimed price of imported goods even abnormal higher than the Valuation Rulings.

Interestingly, all these transactions are related party transactions. Pakistani importers send money to Pakistani owned companies in China, UAE and other exporting countries.

There are many issues with the WeBOC system, which have been highlighted time and again, but to no effect. To mention, Pakistan Revenue Automation Limited (PRAL).

Traders and Customs agents say the WeBOC Modules were prepared without any user acceptance exercise, research or proper viability study. Modules were rolled out and on job trails/training started.

Moreover, the Federal Investigation Agency (FIA) and Inland Revenue Service (IRS) don’t have access to the WeBOC system. “It is one of the greatest developer blunder,” as some people say.

There are reservations of several standards regarding the recording of data records and development of the database in WeBOC system.

It is known that the records, processing and the risk management system of WeBOC have not been audited/scrutinized ever. Sources claim that billions of dollars were drained out due to flaws in WeBOC system, which warrant serious investigation into the WeBOC system and its handlers.

Sharjeel Jamal said Pakistan Single Window (PSW) is no different than weBOC either, since the entire process of PSW implementation is similar to WeBOC. Not even the user acceptance committee was formed for PSW.