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TYPES OF FRAUD
• Smuggling
• Undervaluation
• Overvaluation
• Underdeclaration of quantity
• Overdeclaration of quantity
• Misdescription of tariff classification
• False declaration of origin
• False licences, permits and health certificates
• False declaration of destination (or end-user)
• CAP Fraud
1.2 Smuggling
Reason:
Complete evasion of Customs control in relation to:
copyright (counterfeit).
ALCOHOL
Surabaya Antwerp
Container was checked on the basis of risk analysis of the cargo manifest.
The container was loaded completely with cardboard cases. On every carton a yellow
label with Spanish text was attached. Every carton contained a white plastic drum with
a liquid, that smelled like alcohol. We brought some samples to the lab and the analysis
showed that liquid was alcohol 96%.
photo 4: close up of the label that was attached on every cardboard case.
During the physical exam of the container we saw that the doors of the container could
be opened without breaking the seal of the container. In the second row of the container
we examined one of the large cartons said to contain detergent products.
On the carton we noticed arrows indicating the top of the carton.
When opening the carton we found under the detergent product (brand Laser) 16 x 20
packages of “REGAL” cigarettes. In the same carton, under these cigarettes, was found
a complete carton of 10.000 cigarettes.
The bushing of the pivoting section turned out to have a screw thread. The bushing
could be screwed into a matching threaded socket in the bolt hole of the door. Remove
the bushing and the door could be opened without breaking the Customs seal.
photo 8: close up of the nuts on the inner side of the container door.
Notice the difference of nuts.
Monrovia Antwerp
During the physical examination of the container we found out that in 90 % of all the
bags there was a plastic bag amongst the charcoal. In all these plastic bags were five 1 kg
blocks herbal cannabis. The total weight was 3.405 KGs.
photo 4: view of some bags of charcoal and one plastic bag with herbal cannabis.
Lianyungang Antwerp
During the physical examination of the container we found out that the first three rows
of the container were loaded with cartons containing canned peaches.
Behind them there were similar cartons and white polyester foam boxes all containing a
clear or white plastic drum.
418 transparent drums contained PMK with a total of 5.016 litres;
177 white drums contained BMK with a total of 1770 litres.
Shippers-own container
demonstration material
FCL - FCL
ex vessel
The container was selected for examination from the risk analysis of the manifest.
During the physical exam we saw tree-trunks on the first row, behind these trunks were
crates which contained military-equipment (machineguns, communication equipment,
infra-red night-glasses, binoculars, etc.). The equipment had been shipped to Burma
where it was used to give a demonstration. Afterwards it was shipped back to South-
Africa via Antwerp. No transit licences were submitted to the Customs.
Because the goods were declared as demonstration-material all the military –equipment
was seized in Antwerp.
The container was selected for examination from risk analysis of the manifest,
because it mentioned as consignee: Ministry of National Defence and immigration, att.
Colonel Akendenguey, Libreville Gabon.
During the physical exam of the containers we saw that the vehicles were manufactured
according to military specification (colour, equipment, point of support for a machine-
gun on the roof). No transit-licences were submitted to the Customs.
A shipment of goods was presented to the Belgium Customs in the port of Antwerp for
transport to Eritrea. The goods arrived in Antwerp partly by road, partly by train from
the Netherlands. They were described as “car spare parts”.
The shipment consisted of 91 containers and 40 Mercedes-Unimog vehicles.
When the containers were checked, in co-operation with members of the Belgian army,
the contents were recognised as old and new parts for T-55 combat tanks.(tracks,
communication equipment, intercoms, T-55 dash-boards, infra-red lights,
T-55-binoculars, firing-equipment, etc.)
The trucks were in military camouflage (brown-green) colours. After contact with the
importer of UNIMOG in Belgium we find out that these vehicles were manufactured
according to the military specification of the German Army (recognised from the
chassis-numbers). We find out that the vehicles were still registered as military vehicles.
No transit-licences were submitted to the Customs.
photo 6: close up of two loaders for ammunition found in one of the 91 containers.
The container was selected for examination by risk analysis of the manifest.
During the physical exam of the containers we saw that there was a helicopter on flat-
container ROXU 895084-0. Container LIRU 432447-0 was loaded with accessories
for the helicopter. On the basis of the colour, marks of identification and a copy of a
design from the helicopter that was found in one of the crates we could say that the
helicopter was destined for the air force of Venezuela.
No transit-licences were submitted to the Customs.
CITES
Smuggling of Ivory
2 shippers-own containers
beeswax
FCL - FCL
ex vessel
Dar-Es-Salaam Antwerp
The container was selected for examination by risk analysis of the manifest.
During the physical exam we saw that the containers were fully loaded with
elephants-tusks. A total number of 1600 tusks were seized.
Manila
COUNTERFEIT
The container was selected for examination from risk analysis of the manifest.
During the physical examination of the container we noticed that the cartons contained
branded shirts “Levi’s” and “Diesel”. In some cartons we also found labels “Levi’s” on
banderoles. The brand-owners of both marks were informed about this shipment. Both
confirmed that the goods were counterfeit. They introduced a complaint through the
court of justice. The goods were seized and afterwards destroyed.
Shanghai Antwerp
The container was selected for examination from risk analysis of the manifest.
During the physical examination of the container we saw that the shirts were labelled
with the mark “ Cristian Dioro” and that the shoes were labelled with the marks
“Carterbilli” and “Jianni Versini”.
The brand-owners of the marks “ Christian Dior “, “Caterpillar” and “Versace” were
informed about this shipment. They confirmed that the goods were counterfeit.
They introduced a complaint through the court of justice.
The goods were seized and afterwards destroyed.
Singapore Antwerp
The container was selected for examination from risk analysis of the manifest.
During the physical examination of the goods we saw that a part of the cartons
contained blank T-shirts. 140 cartons contained T-shirts with the label “Atlanta
Braves”. The brand-owner of the mark was informed about this shipment.
He confirmed that the labelled T-shirts were counterfeit and introduced a complaint
through the court of justice. The T-shirts with the label “Atlanta Braves" were seized
and afterwards destroyed. The blank T-shirts were transported to their final
destination.
Shenzhen
Antwerp
The container was selected for examination from risk analysis of the manifest.
During the physical examination of the container we saw that the cartons contained
different types of consoles. On the boxes were logos of games which are patented by
Nintendo (Mario Bros, Donkey Kong…). The consoles were 8-bit consoles which looked
from the outside like 16-bit consoles.
The brand-owner of Nintendo was informed about this shipment.
He confirmed that the goods were counterfeit and introduced a complaint through the
court of justice. The goods were seized and afterwards destroyed.
Shanghai Antwerp
The container was selected for examination by risk analysis of the manifest.
During the physical examination of the container we saw that the cartons contained
packages of tea. On the packages was a patent logo of “Roodhooft” confectioner’s shop.
The brand-owner of Roodhooft was informed about this shipment.
He confirmed that his logo was being used without permission and introduced a
complaint through the court of justice. The goods were seized and afterwards destroyed.
Reasons:
evasion of import duty;
increased volume of imports over that permitted by an ad valorem quota
licence;
evasion of exchange control in exporting country.
Methods:
double invoicing;
part-payment in cash, not recorded on invoice;
offset accounting;
suppression of certain dutiable charges e.g. freight, insurance, commission,
royalties, consulting fees, design costs, tooling costs, advertising costs, etc.
Example:
An industry wide practice exists in undervaluation of cars and luxury pleasure
yachts. Generally the fraud is effected through the non declaration of the initial
deposits(on average 25% of the commissioned price) or on the non-declaration
of the value of the options.
1.4 Overvaluation
Reasons:
evasion of exchange controls at importation or exportation;
evasion of import restrictions or anti-dumping duty on goods below a certain
value threshold.
Examples of methods:
overstatement of values on invoices.
Reasons:
evasion of import duty or levy on part of the total consignment;
evasion of quantitative quota restriction;
evasion of exchange controls at importation or exportation;
evasion of export levy on part of the total consignment.
Reasons:
false entitlement to export refunds;
fraudulent remission of VAT liability on exports, or false entitlement to
drawback.
Reasons:
evasion of all/part of import duty;
evasion of import/export levies;
evasion of prohibitions;
evasion of quota or origin restrictions.
Methods:
A blatant method is to give the goods the most beneficial description, e.g., to
describe soap powder as butter at exportation in order to obtain an export refund.
This is a crude method immediately identifiably upon examination. Usually, the
misdescription is more subtle and therefore, less likely to be detected.
Example:
“Other computer parts” under chapter 84.73, declared as US origin. It was
suspected that the goods were actually DRAMS(Dynamic Random Access
Memories) of Japanese origin attracting anti-dumping duty(ADD) of 60%.
The entry was amended to pay on deposit pending a definite classification.
The importer was also trying to obtain documentation showing that the Japanese
manufacturer was exempt from ADD(unseccessfully).
The goods were described on the invoice as “16Mb Memory Expansion Sys”
and had been entered to commodity codes 84733090090 and 84733000090.
Samples taken for classifications showed them to be SIMMs(Single In-line
Memory Modules) comprising of DRAMs mounted on a PCB, and according to
the Classification Officer, proper to 84733010040 and therefore liable to ADD.
The container was selected for examination by risk analysis of the manifest.
The goods were declared as 840 cartons refillable lighters.
During the physical exam of the container we find out that 2/3 of the container was
loaded with cartons of non-refillable lighters and also with cartons containing canisters
of gas for lighters.
Because of the Chinese origin of the goods, an anti-dumping duty must be paid.
After stock-taking we found out that the container was loaded with:
- 299 cartons ( 299.000 pieces) of refillable lighters;
- 570 cartons ( 569.900 pieces) of non-refillable lighters;
- 5 cartons ( 480 pieces) of canisters with gas for lighters.
ex truck
Antwerp
The container was located and checked after receiving information from the German
Customs. The goods were declared as “articles of iron and steel”.
The container was to be loaded on a vessel with destination Singapore.
During the physical examination we saw that the container was loaded with engines for
tanks. No transit-licences were submitted to the Customs.
Reasons:
fraudulent entitlement to preferential rates of duty available for products
from specified countries.
evasion of quota restriction or anti-dumping applied to products from
specified countries.
method:
Documents submitted with the Custom declaration indicate a different country
of origin than the true country;
All marks of origin on the goods themselves are removed prior to shipment and
the goods are relabelled to show the false country of origin.
Example 1:
textile products for a company already known for fiscal fraud;
declared origin: Bangladesh.
A check of the bill of lading and the tracking of the container showed the
container was loaded in Shanghai.
Scrutiny of the Bangladesh certificate which was presented in Antwerp
showed there was a false stamp from Bangladesh on it.
Example 2:
16 containers siliciumsteel from China(anti dumping duties: 49%)
declared origin: Vladivostok via Busan to Antwerp.
bill of lading: Busan – Antwerp
previous bill of lading: port of loading = China.
inquiry concerning the routing of the container showed the goods were
loaded in China.
other imports traced:
- 10. 142 tonnes imported in the same way (value 11.500.000 USD).
the Antwerp agencies presented certificate of origin and contracts from an
exporter in Moscow.
the Antwerp agencies received their orders from a company in Austria
working for a company in Switzerland.
Enquiries in Russia showed that the exporters didn’t exist and that all
documents, contracts and stamps were forged.
Enquiries in Austria to interview company representatives who were aware
of the fraud-system.
for 55 shipments we found out that the goods were loaded in China.
EUROPEAN COMMISSION - CUSTOMS 2002 74
Reasons:
evasion of quota restrictions;
evasion of prohibitions;
evasion of health requirements.
Examples of methods:
unauthorized completion of genuine, blank certificates;
forgery of certificates;
fraudulent amendment of details on genuine certificates (e.g. increased
quantities)
Reasons:
evasion of restrictions on exportation to specific destinations;
diversion to home use of goods travelling under cover of a transit document.
Example of method:
In order to evade restrictions on export, a collaborator is shown as the addressee
and end-user in a transit country.
The consignment is subsequently shipped onward to the intended (but
unauthorized) destination.
Example:
Garlic from China.
To evade the installed quota:
- forged transportdocuments such as bill of lading and ships manifest.
- forged certificates of origin for 6.700 tons
(origin mentioned on certificates = Jordan)
consequences: disruption of the European market.
TRENDS
2.1 Cigarettes
The smuggling of foreign manufactured tobacco products is not merely a fiscal
problem but also, and above all, a social problem which poses a serious
challenge to public order. It continues to be a major threat, bearing in mind the
very close subjective and objective links with drug trafficking; the same gangs
use identical profiles and methods for both types of illicit traffic.
About 80% of all cigarettes smuggled in the European Union originates from
China. Nearly all these cigarettes are counterfeit goods.
Eastern Europe is also a source area. The cigarettes are coming from
Lithuania, Estonia, Latvia and Russia. Sea transport has been used but the
overland system (Carnet Tir) present also a big part of the threat.
Another source area is the Black Sea; containers with cigarettes hidden in or
behind cover loads get shipped to Europe from Turkey or Ukraine.
Other seizures are already made on cigarettes coming from The U.S.A.,
Panama, Egypt, South and West Africa.
Transit
The ports of Dubai (U.A.E), Singapore (Singapore) and Port Kelang (Malaysia)
are major transit points for smuggling of (counterfeit) cigarettes originates from
China. The role of transit ports such as La Valetta (Malta), Limassol (Cyprus),
Piraeus (Greece) and Gioia Tauro (Italy) is increasing.
New trends
Another new trend is that containers with counterfeit cigarettes hidden in boilers
were shipped first from China to Los Angeles (West-coast U.S.A.). From Los
Angeles the containers were sent to Houston (Gulf of Mexico) where the
containers were loaded on board of vessels with destination Europe.
Ethyl Alcohol:
90% of world alcohol production is subsidised and a number of the countries
producing subsidised alcohol do so on very large scale, such as the USA – more
than 4 times total EU production, Brazil – approximately 10 times EU
production, and South Africa. Such subsidised alcohol, if allow to disrupt fair
trade on the European Alcohol market, could destroy European production.
This large subsided production explains that the USA, Brazil or South Africa or
satellite countries (in South- and Middle America, the Caribbean countries and
countries near South Africa) try and circumvent legitimate duties and flood the
market with subsidised alcohol. The current trend of import flows towards the
EU demonstrates that countries with subsidised alcohol production are now
seeking means to import alcohol into the EU by circumventing the applicable
custom tariff duties.
- Blends
Another manner of avoiding tariffs has been to sell blends of ethyl alcohol with
other chemical products and obtain a reclassification of this alcohol blend under
a tariff heading other than the denatured ethyl alcohol, such as tariff
classifications under chapter 38, which provides for very low or minimal duties.
Such imports of blends are arriving from the USA, Former Soviet Union and
South Africa.
Spirits drinks:
A common method of smuggling spirits drinks is that they are loaded amongst
other goods in containers (e.g. foodstuff). Only the other goods were declared.
There have been seizures of spirits drinks hidden in containers amongst other
goods from Turkey (Raki), Lebanon (Arak) and West Afrika (Brandy, Gin, Rum
or Bitter). Since 1994, imports from India into the EU have increased. India has
an enormous capacity for fermentation ethanol which is at present only partly
realised. Recent there have been seizures of alcohol 96% shipped from Malaysia
into Europe.
Sometimes brand new cars are hidden behind of amongst other cargo.
These cars were leased or rent. the Milo-o meter of these cars showed only a few
hundred kilometres. When the vessel has left the port of loading, the cars were
reported as stolen. The chassis numbers of the cars are original.
This system has changed and it is more common for the chassis numbers to be
changed. Sometimes it is very difficult to discover the original number.
Often the declaration shows “Cars”, but on the bill of lading and/or manifest the
wrong chassis numbers are shown.
Sometimes the vehicles are dismantled and the parts shipped out to prevent
detection.
Firstly, there is the economic impact of job losses and reduced earnings
(especially exports earnings) in the country where the manufacturer of the
genuine product is located.
Secondly, there is the aspect of product safety; counterfeit goods are not made
in accordance with statutory consumer safety requirements.
The danger of by counterfeit medicines, toys and machineparts
(aircraft/motorvehicle components for example) are only too real.
Thirdly, there are potential revenue losses in that counterfeit goods are often
sold off record as the genuine article, meeting consumer demand which would
normally have been satisfied by purchase of the genuine product through
legitimate commercial channels, with sales tax/excise duty being charged and
paid over to the Revenue departments
Transit
Singapore and Dubai are the major transit points for counterfeit goods coming
from the Far East (China, Hong Kong and Taiwan).
The Convention has set up rules for the international trade in endangered species
in a way that it makes a distinction between different categories.
Each category has its own regulations.
The aim of CITES is to protect endangered species by, depending of the kind
and nature of the species, either forbidding the international trade, or either to
limit the trade to ensure the further existence of the species.
Transport
TODAY:
The cat-likes and other endangered species are persecuted and captured,
Industrial countries
- or to be sold on tourists; Countries who plunder their Endangered species are
- or to be sold on smugglers. one fauna & flora exchanging these sold (dead or alive)
endangered species for foreign currencies, to people in rich countries.
mostly lesser than the real value of the goods.
Mostly military equipment is declared under the right tariff code but no import,
export or transit licences are submitted to the Customs.
Weapons and military equipment are regularly shipped from various Member
States.
The U.S.A., the states of the former Soviet Union, Israel, India, Pakistan, Brazil,
Argentina are main exporters of weapons and military equipment.
They are sending the goods to different unstable countries via ports in Europe.
On the manifest and bill of loading the consignee is sometimes mentioned as:
Ministry of National Defence
Attention of General/ Colonel ……..
Source countries
About 80% of all heroin seized in the European Union originates from
Afghanistan and Pakistan in South West Asia.
Afghanistan is one of the worlds’ leading opium-producing countries.
Transit
In Several Central and Eastern European countries, heroin depots have been set
up to store the drugs, awaiting further transportation on the European Union in
small Quantities, using private cars, buses, minibuses and vans.
According to United States authorities the area under coca cultivation in the
Andean region is 194.100 hectares with a potential production of 650 tons of
cocaine.
In contrast with the early nineties, Colombia is now the main producer of coca
leaves, followed by Peru and Bolivia.
Until now, national plans to significantly reduce the coca cultivation have not
been very successful and it is unclear whether this will change in the future,
despite new initiatives.
Colombia is the main producer of cocaine destined for the Member States.
Trafficking predominantly takes place by sea freight (container- and banana
vessels), making use of commercial infrastructures and geographical
characteristics.
Transit
Most countries in South and Central America are major transit countries.
Also there is secondary distribution from the Caribbean to the United States and
the European Union.
Cannabis, both resin (hashish) and herbal (marihuana) is the prevalent illicit
drug of abuse in the European Union.
Source countries
Colombia, Jamaica, South Africa, Nigeria, Cambodia and Thailand are suppliers
of herbal cannabis to the European Union. Trafficking mostly takes place in
containers.
Transit countries
East Africa (Kenya, Tanzania and Mozambique are transit regions for cannabis
resin from Pakistan destined for Europe.
Also Central and Eastern Europe is a transit region for cannabis destined for the
Member States. To a certain extent this is due to the use of the Balkan routes for
cannabis trafficking from Turkey. However, increasingly there is diversion to
this region of cannabis shipments from Pakistan, Thailand and Colombia, either
directly or via ports in the Member States. Subsequently the drugs are being
smuggled to the Member States.
Cannabis cultivation
Seizures of PMK and BMK were already made in containers shipped from
China.
EUROPE
CHINA