NAB Initiates Investigation into Money Laundering Scam in Solar Panel Imports Based on PCA South Report

Last Updated: July 12, 2023
Category: Customs News

We have recently uncovered a shocking revelation regarding solar panel importers in Karachi. The Post Clearance Audit (PCA) South has conducted a thorough investigation, which has brought to light a massive case of over-invoicing and trade-based money laundering. The implications of this operation are significant, indicating the outflow of black money from the country and raising concerns about illicit financial activities.

The alarming findings of the PCA South reveal that solar panel importers have been involved in over-invoicing at the import stage, amounting to an astonishing Rs. 69.5 billion. This discovery highlights the existence of a money laundering operation and emphasizes the urgent need for action.

In response to this fraud, the National Accountability Bureau (NAB) has taken up the case with the Federal Board of Revenue (FBR) to ensure appropriate measures are taken against those involved. Given the substantial amounts of money and the trade-based money laundering aspect, the NAB’s involvement will be crucial in bringing the culprits to justice and preserving the country’s economic integrity. The State Bank of Pakistan has also urged federal ministries to create a list of reputable solar panel importers who can be allowed to import without the risk of money laundering and over-invoicing. The audit findings from the FBR will play a crucial role in this regard.

The audit findings indicate that 6,232 Goods Declarations (GDs) from 63 importers showed solar panels being imported at prices significantly higher than their market value. Moreover, a considerable portion of the funds used for these imports is suspected to be illicit money that has been transferred out of Pakistan. This operation has taken advantage of the duty and tax-free import regime for solar panels, facilitating trade-based money laundering.

Further scrutiny of the data revealed that 39 importers declared a significant disparity between their financial worth (equity and liabilities) and the volume of imports. These 39 importers, with a financial worth of Rs. 14.7 billion, imported solar panels worth over Rs. 201 billion. Additionally, the examination of bank-account transactions for 44 importers confirmed substantial cash deposits totaling Rs. 47 billion, accounting for nearly 24% of the total bank deposits worth Rs. 193 billion. Many instances were found where large amounts (10 million or above) were deposited in bank accounts as “cash transfers” in a single transaction. Moreover, several bank accounts had yearly cash transactions exceeding Rs. 20 million, categorizing these importers and bank accounts as high-risk for money laundering.

The investigation also discovered that 22 importers, with import remittances worth Rs. 50 million or more, transferred Rs. 16.5 billion to third countries, particularly UAE and Singapore, even though their solar panel imports originated from China. The commercial banks failed to exercise due diligence and allowed these remittances without the necessary No Objection Certificate (NOC) from the Chinese exporters, violating Foreign Exchange Regulations and the State Bank of Pakistan’s instructions on managing risks for trade-based money laundering and terrorist financing.

The Federal Board of Revenue (FBR) assigned the Directorate of PCA South to conduct a sector-based audit of solar panel importers to address over-invoicing and trade-based money laundering (TBML). The PCA South, under the guidance of Director Sheeraz Ahmed, assembled a team to carry out the audit of the solar panel sector.

The PCA’s audit observations are currently being issued, and further examination of available records will be conducted to take appropriate action according to the relevant provisions of the law. The following violations and offenses have been identified:

  1. Fiscal fraud associated with imports by non-existent importers.
  2. Fiscal fraud involves the use of shell companies, dummy owners, and the utilization of illicit funds to finance imports that surpass 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, amounting to an alarming sum of Rs. 69.5 billion.

Trade-based money laundering poses a significant threat to the economy, undermining legitimate trade, compromising fiscal revenues, and facilitating the illicit transfer of funds across borders. The exposure of this massive scam emphasizes the urgent need for stronger regulatory measures and enhanced coordination among relevant authorities to effectively combat such criminal activities.

The proactive actions taken by the FBR and PCA formations are crucial in combating financial crimes and 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 consequences to prevent similar incidents in the future. Furthermore, raising awareness among importers, customs officials, and the public about the severe consequences of engaging in trade-based money laundering is vital to deter such criminal practices.

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