Financial Times

Conspiracy to defraud Lankan authorities, says Customs
Sri Lanka Customs, in documents filed in the Court of Appeal, has claimed it has unearthed an alleged scheme to subvert officials in at least three government departments in what it describes as a conspiracy to defraud the country of millions of rupees in revenue.

The import of certain Gold Quest products are mentioned in this connection. The Sunday Times FT and Lanka Business Report television, which carried out a joint investigation, have been informed of shocking contents in e-mail correspondence believed to have been exchanged between SAR Shipping, a local firm which imported the goods, and GoldQuest International of HongKong.

A Customs team which raided SAR shipping has seized documents and obtained copies of the email correspondence from a laptop computer belonging to the shipping company. These documents, the Customs believe, could indicate an attempt to dupe the government. Investigators had obtained the printouts in the presence of a director of the company. The Customs, in his submission to the Court of Appeal a

lleged that the "email correspondence established inter alia that the SAR Shipping conspired with GQI (GoldQuest International) to evade the payment of the full import duty payable for the gold coins by withholding remittance details in contravention of regulations and by under valuing the gold coins."

One such e-mail filed in court was addressed to a Magandran Rajadurai of GoldQuest Hong Kong from Raju Radha of SAR... Shipping, under the caption Sri Lankan Delivery.

It refers to a telephone conversation Radha had with a Mr Vijayeshwaran and says that "I explained to Mr Vijayeshwaran that with great difficulty and for a consideration (taken care by us) we have convinced the concerned persons in the Exchange Control dept that for M/s SAR Shipping (our company which will handle all logistic and transport requirement of the captioned shipment) - the current "pending" lot of about 3,000 articles at HKG delivery to SH, Exchange Control should not probe for the "remittance" factor. They have agreed for same for your shipments which will commence under M/s SAR Shipping and with the understanding that for future remittances, same are routed by M/s Quest Lanka (joint venture BOI company which is being formed) via the Exchange Control."

It also speaks of many rounds of meetings with Customs officials and of having convinced the Customs for a similar "consideration" to charge a uniform rate of about Rs 2,500 per 10 gram gold coin for CIF value not exceeding US $ 130 per coin. Another explosive reference is contained in a letter addressed to 'Dear Mr. Mag/Mr. Joseph', from one Ivan, which ends as follows:

"Confidentially we have invested in the Controller of Exchange and Controller of Imports and Exports and will obtain a letter that we could bring down these articles without the remittance details (will not demand for any remittance advise)."

A letter issued by the Controller of Import and Export giving blanket approval for SAR Shipping to import Gold and Silver coins is also filed at Court of Appeal. The letter only speaks of a list of consignees and no mention is made of submitting remittance details.

"I have no objection to grant clearance of such consignments. Provided a list of recipients and their addresses in Sri Lanka are supplied to me at the time of arrival of each and every consignment," the letter issued in February 2004 said. Subsequently in May the Department of Import and Export Control issued another letter following the detention of the last shipment by Customs.

This letter issued in Sinhala under the signature of the incumbent Controller said permission cannot be granted because remittance details have not been provided as required by Regulation 2(1x)(a).

Customs have told court that seven previous shipments had also been cleared without the payment of the full import duty payable and defrauded Customs. Customs seized the goods on charges of under-valuation and failure to submit remittance details as required by regulation 2(1x)(a) of the Import and Export Control Act where payments have been made in advance. The customers of GoldQuest paid for the gold products in advance via their credit cards at prices ranging from US $ 560 to US $ 1000.

However, SAR Shipping did not disclose the transaction price to Customs, but instead submitted a commercial invoice from GoldQuest containing lower amounts.

Customs submitted to court that the shipping company had cleared seven consignments, falsely declaring the payment terms were documents against payment, when in fact it was advance payments. Customs say the company had also managed to get their 'numismatic' products classified under a different HS code (the international customs harmonization code which identifies a product) relating to precious metal or plated products.

The authority to clear the gold articles had been vested with the Controller of Imports and Exports by the Exchange Control Department. After investigators at Sri Lanka Customs detained the last shipment, the Department had withheld permission to release the goods. Customs alleges that the clearances of earlier shipments were also illegal and the duty was not paid.

Meanwhile, contradicting all previous claims that GoldQuest products are priced at several times their real gold value because of a supposed 'numismatic' value, the company has revealed in a document submitted to the Court of Appeal that its products are priced high because it has membership maintenance fees incorporated into the sale price.

"Please note that the sales price contained in the web-site consists not only of the product cost but also the administration and membership maintenance fees. Therefore the receipt for the product is higher than the invoice which accompanies the product," GoldQuest's Chief Legal Officer Daniel Porceddu said in a letter to Court.

Pricing membership fees into a product is a characteristic of product based pyramids. Unlike old-style voucher based pyramids, where only membership fees are charged, in complex pyramid scams, also known as referral frauds, the membership fees are built into an overpriced product.

The revelation is contained in a covering letter accompanying a customer list after the Court of Appeal ordered GoldQuest to supply the actual transaction values to Sri Lanka in the on-going under-valuation case.

The products were bought by individual Sri Lankan customers via GoldQuest's, QuestNet website. The top leaders who are alleged to have promoted the scheme in Sri Lanka have already been fined Rs 88 million by the Department of Exchange Control for foreign exchange fraud.

More details next week
The Sunday Times FT will be publishing more details of the e-mail correspondence next week.

Back to Business