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| Over-invoicing, under-invoicing exports common method of fraudulent money transfer across borders: Report | | | Syed Junaid Hashmi
JAMMU, Sept 23: Money laundering through the over-invoicing and under-invoicing of goods and services, which is one of the oldest methods of fraudulently transferring money across the borders, remains a common practice today.
The key element of this technique is the misrepresentation of the price of the good or service in order to transfer additional value between the importer and exporter. Over-invoicing of exports is one of the most common trade-based money laundering techniques used to move money. This reflects the fact that primary focus of most income tax assessing agencies is to stop importation of contraband and ensure that appropriate import duties are collected.
This has been stated by "Committee on measures to tackle black money in India and abroad" which submitted its report to the Union Ministry of Finance in March 2012. A copy of the report is with Early Times. It has stressed that Union Finance Ministry should take up the issue with Jammu and Kashmir Government.
The nine member committee was headed by Chairman of Central Board of Direct Taxes (CBDT) Dr. Poonam Kishore. Committee has made specific mention of Jammu and Kashmir while recommending for review of continued tax exemptions being enjoyed by industrialists who have established units in both the regions of State.
Another technique used to 'launder' funds involves issuing more than one invoice for the same trade transaction, says the report of the committee. Regarding Jammu and Kashmir, the committee has said that by invoicing the same good or service more than once, a money launderer or terrorist financier is able to justify multiple payments for the same shipment of goods or delivery of services.
Unlike over-invoicing and under-invoicing, it should be noted that there is no need for the exporter or importer to misrepresent the price of the good or service on the commercial invoice. The committee has further said that in addition to manipulating export and import prices, a money launderer can overstate or understate quantity of goods being shipped or services being provided. In the extreme, an exporter may not ship any goods at all, but simply collude with an importer to ensure that all shipping and customs documents associated with this so called "phantom shipment" are routinely processed.
Banks and other financial institutions may unknowingly be involved in the provision of trade financing. In addition to manipulating export and import prices, a money launderer can misrepresent the quality or type of a good or service. Quoting an example, the report says that an exporter may ship a relatively inexpensive good and falsely invoice it as a more expensive item or an entirely different item.
This creates a discrepancy between what appears on the shipping and customs documents and what is actually shipped. The use of false descriptions can also be used in the trade in services, such as financial advice, consulting services and market research. Evasion of service tax and generation and movement of money in the services sector is also an area which needs to be examined in detail.
Payments for majority of the services are still made in cash and many such payments are not accounted for and no bill is issued against the provision of such services, thereby facilitating the generation and flow of 'black' money. The magnitude of 'black' money involved in such cases is expected to be huge as the sheer number of such service providers and their consumers is very large.
For example, most of beauty parlors and hair cutting salons do not raise any bill against the services provided by them. Moreover, most of such services are in the unorganized sector. In cases where credit against payment of service tax cannot be claimed, the service provider and the consumer may agree to suppress the actual amount paid for providing the service. The amount over and above bill amount is thus the 'black' money generated in such transactions.
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