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Exporters, importers shift Rs 13.2 trillion overseas via dodgy invoicing
View(s):By Kapila Bandara
Importers and exporters intentionally falsify the declared value of goods on invoices filed with Sri Lanka Customs, to make an average of US$ 4.093 billion (Rs 1.471 trillion) evaporate every year, an extensive investigation by Washington, DC-based Global Financial Integrity has revealed. 
Data show the plunder has accelerated from US$ 2.650b in 2009 to US$ 5.026b in 2017. The US$ 4.093 billion that disappears annually from Sri Lanka is enough to pay the entire yearly fuel import bill, with millions in USD change left over.
Global Financial Integrity is a think tank which tracks illicit financial flows, corruption, illicit trade, and money laundering. It analysed 10 years of global trade data for 134 developing countries, including Sri Lanka.
Findings on Sri Lanka dissected the goods trade with all its international trading partners over nine years from 2009. Data for 2018 had not been available. Global Financial Integrity recommends that falsifying trade invoices be criminalised and that national asset forfeiture and recovery units be set up.
This trade research covers the tenures of Mahinda Rajapaksa, Ranil Wickremesinghe, as well as Ratnasiri Wickramanayake, and D. M Jayaratna as prime ministers.
Global Financial Integrity’s 2021 report found Sri Lanka’s importers and exporters are using bogus customs declarations to illegally move billions of US dollars — if not trillions of rupees — across international borders.
In this way, traders evade tax and/or customs duties, launder the proceeds of criminal activity, sidestep forex controls, and hide their profits in offshore bank accounts.
The scale of the forex plunder reinforces the view of the incestuous business community-politicians-officials-customs nexus, which surfaces regularly such as when Pyramid Wilmar (Pvt) Ltd., and businessman Sajjad Mowzoon, as well as then-finance minister Mahinda Rajapaksa, and P. B. Jayasundara, the then-secretary to the president, were accused by JVP leader Anura Kumara Dissanayake in Parliament of a nearly Rs 16 billion tax fraud from white sugar imports between October 2020 and February 2021. The national auditor determined later that ‘foregone revenue’ was Rs 15.95b.
Kuok Group owned commodity trader Pyramid Wilmar, which entered Sri Lanka in 2012 by opening a warehouse, has denied profiteering. Kuok Group also owns Shangri-La hotels and resorts. And in September 2021, the Consumer Affairs Authority uncovered an imported garlic deal (56,000 kilograms) involving two businessmen, Sri Lanka Ports Authority, and state retailer Sathosa. At the time, Mr Bandula Gunawardena was trade minister. Customs valuation standards under the World Trade Organisation’s Valuation Agreement apply to imports, but not for exports. This means over-invoiced imports, under-invoiced exports, and over-invoiced exports are rarely pored over.
Countries generally report import values on a ‘cost, insurance and freight’ basis, but exports are deemed ‘free on board’.
Global Financial Integrity says misinvoicing is also used to launder money earned from criminal activity.
Transparency International Sri Lanka has noted that illicit money can even be laundered through casinos.
The Tax Justice Network’s ‘Illicit Financial Flows Vulnerability Tracker’, has found that Sri Lanka’s illicit cash (flowing through trade, foreign direct investment, bank deposits and the like) commonly ends up in Singapore, Hong Kong, Maldives, Seychelles, Thailand, Bangladesh, Mauritius, India, Malaysia, and British Virgin Islands.
According to Global Financial Integrity, the annual pillage engineered by Sri Lanka’s traders far exceeds agricultural export earnings (US$2.72b in 2021), the import cost of medicines (US$882.5 million), and most of all, the US$3.74b fuel tab (including US$2.84b for refined petroleum, and U$625.1m for crude oil), that year. Forex spirited away illegally in a year by traders would be enough to double the national food imports, including, cereals (such as milled rice and corn), dairy products, and sugar (US$1.66b in 2021).
Billions in remittances of Sri Lankans slaving overseas to keep the country afloat are also misused by businesses through commercial banks for all manner of imports including intermediate goods (such as textiles, chemicals and agri inputs), and personal luxuries such as yachts, helicopters, and Lamborghinis.
Citing the United Nations Comtrade database, macroeconomic data provider, Trading Economics has reported that in 2021 Sri Lanka imported US$ 801m worth of yachts and other vessels for pleasure, or sport from the United Kingdom.
In 2013, the Mahinda Rajapaksa government imported 54 Mercedes Benz cars valued at more than Rs 910m from Germany for the Commonwealth Heads of Government Meeting, through indenting agent Diesel and Motor Engineering Plc, the Sunday Times reported in January 2014. JVP leader Anura Kumara Dissanayaka raised in Parliament the lost tax revenue of more than Rs. 700m.
And yet, recently, a tycoon-turned politician, a mega exporter and importer who had gained billions in tax benefits in 2019, insisted that Sri Lankan migrant workers send forex for fuel imports.
Previously, too, the Sunday Times, citing Global Financial Integrity, reported for the first time in April 2016, that politicians and businessmen have moved out US$ 19.96b in the 10 years to 2013. It covered a period when Mr Wickremesinghe was PM for a second time, and Mahinda Rajapaksa also held that office.
Global Financial Integrity says traders either over-price or under-price the declared value of imports or exports, and illegally transfer money across international borders by hiding it within the regular payments for commerce in the international trading system.
This causes the loss of billions of US dollars in uncollected trade-related tax revenues every year. Global Financial Integrity said researchers checked the latest international trade data officially reported by governments to the UN Comtrade database to estimate the extent of trade misinvoicing.
Global Financial Integrity has analysed 10 years of trade data for 134 developing countries to identify the mismatches, which it describes as “value gaps’’, between trade data that any two countries had reported. The mismatches show “that developing countries are not collecting the correct amount of trade-related taxes and duties that are owed, leading to potentially massive amounts of revenue losses’’.
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