Karachi: Post Clearance Audit (PCA) South revealed that solar panel importers have engaged in a large-scale over-invoicing / trade-based money laundering operation.

The PCA South conducted audit of solar panel importers, uncovering over-invoicing at the import stage amounting to a staggering Rs. 69.5 billion. This alarming discovery indicates the existence of black money transfers out of the country, raising concerns about illicit financial activities.

To ensure appropriate action against those involved in this fraud, the National Accountability Bureau (NAB) has taken up the case with FBR. Given the substantial amounts of money involved in over-invoicing and trade-based money laundering, the NAB’s involvement will help bring the culprits to justice and preserve the country’s economic integrity. State Bank of Pakistan has also asked federal ministries to develop a list of reputed solar panel importers who can be permitted to import solar panels without the risk of money laundering and over-invoicing and the audit findings of FBR can be appropriately helpful in this respect.

The audit findings indicate that in the case of 6,232 Goods Declarations (GDs) of 63 importers, solar panels were imported at prices significantly above their market value. Additionally, a substantial amount of the funds used for these imports is suspected to be illicit money that has been transferred out of Pakistan. This operation has exploited the duty and tax-free import regime applicable to solar panels, thus facilitating trade-based money laundering.

In case of 39 importers, income tax declarations reflected high disparity between financial worth (equity and liabilities) and import volumes, such that 39 importers having financial worth of Rs. 14.7 billion, imported solar panels worth more than Rs 201 Billion. Scrutiny of bank-account transactions of 44 importers confirmed heavy cash deposits amounting to Rs. 47 billion (i.e almost 24% of the total bank deposits worth Rs. 193 billion). In many instances, heavy amounts (10 million or above) were deposited in the bank accounts as “cash transfers” in a single transaction, while in case of many bank accounts, yearly quantum of cash transactions was more than Rs. 20 million, that places said importers and bank accounts under high-risk suspected category for money laundering considerations in terms of FMU’s reg flag indicators. 22 importers (with imports remittances worth Rs. 50 million or more), transferred Rs. 16.5 billion to third countries (especially UAE and Singapore) whereas respective imports of solar panels had originated from China. Commercial banks lacked due diligence and allowed transfers of import remittances to third countries without any NOC from the Chinese exporters in violation of Foreign Exchange Regulations and SBP’s instructions vide “Framework for Managing Risk for Trade Based Money Laundering and Terrorist Financing”.

Federal Board of Revenue (FBR) had tasked Directorate of PCA South to carry out sector-based audit of solar penal importers to check twin aspects of over-invoicing and trade based money laundering (TBML) and the then DG PCA Dr Farid Iqbal Qureshi had tasked Director PCA South, Mr Sheeraz Ahmed, for speedy action. Director PCA South constituted a team comprising of Additional Director Gulam Nabi Kambo, AOs Abdul Gaffar, Hubban Ch, and Rehan Iqbal, to carry out audit of solar panel sector.

The PCA’s audit observations are being issued, and further scrutiny of available records will be conducted for necessary action under the relevant provisions of the law. The following violations and offenses have been identified:

1. Fiscal fraud associated with imports by physically non-existent importers.

2. Fiscal fraud involving the use of shell companies, dummy owners, and the utilization of illicit funds to finance imports that exceed the genuine financial worth of the proprietors or owners.

3. Misdeclaration of the value of imported solar panels to transfer funds out of Pakistan through over-invoicing, resulting in an astonishing amount of Rs. 69.5 billion.

Trade-based money laundering poses a serious threat to the economy, as it undermines legitimate trade, compromises fiscal revenues, and facilitates the transfer of illicit funds across borders. The detection of such a massive scam highlights the need for stronger regulatory measures and enhanced coordination between the concerned authorities to curb such criminal activities effectively.

The proactive actions of FBR and PCA formations are necessary to combat financial crimes and crucial in safeguarding the country’s economic interests. As the investigation progresses, it is essential for the relevant authorities to ensure that the culprits face strict legal action to prevent similar incidents in the future. Furthermore, raising awareness among importers, customs officials, and the public about the consequences of engaging in trade-based money laundering is vital to thwart such criminal practices.