Commercial Fraud 2022

Ethiopian Civil Service University Commercial Fraud Manual
Commercial Fraud
Contents
Glossary of Terms i
1. Chapter One 2
1.1. Introduction 2
1.2. Commercial Fraud Background 3
1.3. Definition of Commercial Fraud 4
1.4. Typologies of Commercial Fraud 5
1.5. Reasons to Commit Commercial Fraud 5
1.6. Implications of Commercial Fraud 5
1.7. List of Governments’ Policy Decisions that Have a Profound Effect on Fraudulent
Activities 6
1.8. Types of Commercial Fraud 6
1.9. Assessment Activities 6
2. Information Sheet 7
2.1. Types of Commercial/Customs Fraud-Part I 7
2.1.1. Fraud by Smuggling 7
2.1.2. Transit Fraud 10
2.1.3. Mis-description Fraud 12
2.1.4. False Declaration of Quality and Quantity Fraud 14
2.1.5. Valuation Fraud 15
2.1.6. Origin/Preference Fraud 18
2.1.7. Inward/Outward Processing Relief Fraud 20
2.1.8. Temporary Admission Fraud 21
2.1.9. Duty Drawback Fraud 23
2.2. Types of Commercial/Customs Fraud-Part II 25
2.2.1. Import / Export Licensing Fraud 25
2.2.2. End-Use Fraud 27
2.2.3. Trade Description and Consumer Protection Fraud 28
2.2.4. Counterfeit/Pirated Goods Fraud 30
2.2.5. Off-record Transaction Fraud 32
2.2.6. “Ghost” Business Fraud 33
2.2.7. Contrived Liquidations Fraud (“Phoenix Syndrome”) 35
3. Operation Sheet 36
4. Job Sheet/LAP Test (Learning Activity Performance) 41
References: 42
Annexes 43
ii
Glossary of Terms
CITES Convention on International Trade in Endangered Species of Wild Fauna & Flora
EC European Community
GSP General Scheme of Preference
UN United Nations
VAT Value Added Tax
i
Occupational Title: Customs Clearing Agent
Unit of Competency Title (Module Title): Commercial Fraud CCA
Nominal Duration: 8 Hours
Module Description/Objective: the module will address the concepts of commercial fraud, and
enable the learner to know and able to refrain from commercial fraud tendencies and actions.
Unit Learning Outcomes:-
At the end of this unit, the trainees/you will be able to:
➢ Understand basic concept of commercial fraud

➢ Familiarize typologies of commercial fraud
➢ Learn reasons to commit commercial fraud
➢ Recognize Impacts of commercial fraud
➢ Distinguish government policy decisions that have effect on fraudulent activities
➢ Identify the types of commercial fraud
Unit Contents:-
➢ Concept of commercial fraud

➢ Typologies of commercial fraud
➢ Reasons to commit commercial fraud
➢ Impacts of commercial fraud
➢ Government policy decisions that have effect on fraudulent activities
➢ The different types of commercial fraud
Training Delivery Methods:
➢ Lecture
➢ Discussion
Prerequisite
➢ International trade and Customs procedure Courses
1
1. Chapter One
1.1. Introduction
This module communicates the underlying concepts under commercial fraud. Commercial fraud
means, any offence against statutory or regulatory provisions which customs are responsible for
enforcing, committed to: evade, or attempt to evade, payment of duties/levies/taxes on movements
of commercial goods; and/or evade, or attempt to evade, any prohibitions or restrictions applicable
to commercial goods; and/or receive, or attempt to receive, any repayments, subsidies or other
disbursements to which there is no proper entitlement; and/or obtain, or attempt to obtain, illicit
commercial advantage injurious to the principle and practice of legitimate business competition.
Commercial fraud is done due to many reasons. And its practice is in different forms.
The material is designed to help trainees for their compliance in customs laws. It is also prepared
to enhance trainees not to be trapped by defrauders. Rather, having understood of the types and
implications of commercial fraud, trainees will distant themselves from the involvement of such
treachery act. We use the term commercial fraud as a synonym for customs fraud across this
manual.
This manual is structured into four sections. The first section introduces the concept of commercial
fraud. The background brings the trainees to understand how commercial fraud is a big crime and
the laws related to whistle-blowers that governments have set to manage such crimes. The section
also provides a brief clue of the typologies of commercial fraud and reasons to commit commercial
fraud. Implications of commercial fraud, governments’ policy decisions that have a profound
effect on fraudulent activities, and the different types of commercial fraud also discussed in this
section.
The second section, information page, provides a deep description of the different types of
commercial frauds committed in different way and for different motive. Trainees will understand
the fraud methods in each type of commercial frauds and the different reasons to commit each
types of commercial fraud.
2
The third section, the operation sheet, provides trainees the skills necessary to their job activities
in the actual deployment. It also discusses the necessary measures needed to follow when
delivering services that will help trainees to keep themselves not to involve in commercial fraud
actions.
The last section, job sheet, delivers the learning activity performance (LAP) tests. Each of the
activities in this section would help trainees to have insight for the different fraudulent activities
happened in different ways and for different motives.
1.2. Commercial Fraud Background
Information from different sources indicates that countries lose hundreds of millions of dollars in
revenue as a result of commercial fraud. Customs/commercial fraud perpetrators are taking
advantage of every opportunity presented in the multi-modal transportation systems and trade
patterns to execute a variety of schemes. It is suspected that some aspects of customs/commercial
fraud, in particular overvaluation, have been linked to the money laundering scheme. Such
disguised illegal capital outflows could provide criminal groups with funds for other criminal acts
such as arms and drug smuggling.
Commercial fraud is a complex but increasingly common issue which often has extremely
damaging consequences for the reputation and financial standing of businesses and individuals
alike. Once discovered, it is vital to act swiftly in order to protect assets and maximize
recovery. Where you are facing allegations, it is equally important that urgent steps are taken to
robustly defend those claims.
In most cases, commercial fraud involves some kind of misrepresentation that ends with corporate
executives making more money or earning more in bonuses than they otherwise would. This
includes stock and securities manipulations as well as false testimony, tax return inaccuracies and
schemes to shield money and profits off-shore. Even something as simple as using a corporate
account for a family vacation can be seen as company fraud, particularly if the executive writes
off that vacation as a business expense. In so doing, he/she is taking something that is not his/her,
claiming it as his/her own, and then lying about it.
3
It can be tempting to think of commercial fraud as somewhat insular: how a company wants to
handle its affairs is largely that company’s concern, or so the sentiment goes. To a certain extent,
this is true. Most corporations are publicly funded, however. Investors from the private sector often
own a significant portion of many businesses in the form of stock shares and futures interests.
Fraud and fiscal mismanagement amongst executives defraud not only the company as an entity
but also every individual investor who owns an interest.
Commercial fraud is also bad for the economy more generally, as it sends a signal that big
businesses are unchecked and not to be trusted. This can discourage investments, which can
deadlock growth. It is for this reason that governments set and enforce corporate fraud law.
Identifying commercial fraud is usually a job for government enforcement agencies. Individuals
can also report corporate fraud. Many governments have established laws that protect employees
and others who wish to reporting fraudulent corporate conduct. These laws are often called,
“whistle-blower” statutes. The main goal of whistle-blower statutes is to encourage people to
report questionable practices and incidents of potential business fraud in exchange for immunity
and insulation from retaliatory action. This scheme is also embodied in the Ethiopian customs
proclamation number 859/2016. It also has directive number 78/2011 for the management of
whistle-blowers to inform the possible customs crimes.
1.3. Definition of Commercial Fraud
Commercial fraud is a legal term that describes deceptive practices or legal violations committed
by business people for financial gain. There are many different kinds of commercial fraud.
Commercial fraud/Customs fraud means, any offence against statutory or regulatory provisions
which Customs are responsible for enforcing, committed in order to:
1. Evade, or attempt to evade, payment of duties/levies/taxes on movements of commercial

goods; and/or
2. Evade, or attempt to evade, any prohibitions or restrictions applicable to commercial goods;
and/or
4
3. Receive, or attempt to receive, any repayments, subsidies or other disbursements to which

there is no proper entitlement; and/or
4. Obtain, or attempt to obtain, illicit commercial advantage injurious to the principle and
practice of legitimate business competition.
1.4. Typologies of Commercial Fraud
➢ Evasion of the duty/tax payment;

➢ Evasion of prohibition, restriction or requirements for import and/or export;
➢ Unauthorized receipt of repayment, subsidy and/or disbursement;
➢ Gaining illicit commercial advantage; and
➢ Transfer of proceeds of crime using import or export of goods (Trade-based money
laundering)
1.5. Reasons to Commit Commercial Fraud
➢ Incentives for Financial gains

➢ Commercial advantages
➢ Personal Challenge
➢ Disregard for the law
➢ Pressure from Competitors
➢ Motivation of potential offenders
➢ Opportunities to commit crime(s)
➢ Technical ability of the fraudster
➢ Expectations of consequences of discovery (including non-penal consequences)
➢ Conditions under which people can rationalize their prospective crimes away
1.6. Implications of Commercial Fraud
• Loss of revenue to the State

• Injury to the domestic industry
• Distortion of trade statistics
• Unfair competition
• Social harm to the economy of the State
5
1.7. List of Governments’ Policy Decisions that Have a Profound Effect on Fraudulent
Activities
• Customs duty levied at very high rates (100 %);

• Use of restrictions such as import licences or quotas;
• Shortages of consumer goods in domestic markets;
• Strict exchange controls;
• Imbalances in tax regimes (personal, corporate, Customs).
1.8. Types of Commercial Fraud
The following are the types of commercial fraud covered in this module.
 Fraud by Smuggling  False Declaration of Quality & Quantity Fraud

 Mis-description Fraud  End Use Fraud
 Valuation Fraud  Trade Description & Consumer Protection Fraud
 Origin/Preference Fraud  Counterfeit/Pirated Goods Fraud
 Inward/Outward Processing Fraud  Off-record Transactions Fraud
 Temporary Admission Fraud  Duty/Tax Drawback Fraud
 Import/Export Licensing Fraud  Ghost Business Fraud
 Transit Fraud  Contrived Liquidation Fraud
1.9. Assessment Activities
1. What do you understand from the term commercial fraud? Discuss with your pair?
2. Discuss the different typologies of commercial fraud?
3. Why do people commit commercial fraud?
4. What are the implications/consequences of commercial fraud? Discuss briefly?
5. Discuss the policy decisions taken by governments that have profound effect on the
fraudulent activity.
6. List some of the types of commercial fraud you have introduced in this module.
6
2. Information Sheet
Unit Description/Objective:
The unit addresses the different types of commercial fraud concepts, and enables the trainer to
understand the methods on which each type of commercial fraud committed.
Unit Learning Outcomes:
At the end of this unit, the trainees/you will be able to:
➢ Understand the different types of commercial fraud

➢ Familiarize methods on which commercial fraud committed
➢ Learn reasons to commit each types of commercial fraud
Unit Contents:
➢ Types of commercial fraud

➢ Methods on which commercial fraud committed
➢ Reasons to commit each types of commercial fraud
Training Delivery Methods:
➢ Lecture
➢ Discussion
2.1. Types of Commercial/Customs Fraud-Part I
2.1.1. Fraud by Smuggling
Smuggling is defined as a Customs fraud consisting in the movement of goods across a Customs
frontier in any clandestine manner (Nairobi Convention Article 1-(d)).
Smuggling is also meant to bring into or take out of country goods in breach of any law or
prohibition or evade or attempt to evade any taxes livable without making a declaration or by
avoiding controls.
7
It is a Customs offence involving the movement of goods across a Customs frontier in any
clandestine manner, thereby evading Customs control.
Note that:-
1. This term may also cover certain violations of customs legislation relating to the possession
and movement of goods within the customs territory.
2. In certain countries:
▪ The concept of clandestine movement of goods across frontiers is not a
mandatory feature of smuggling.
▪ An offence is not defined as smuggling unless it is international.
This piece deals principally with smuggling by the evasion of either the payment of Customs duties
and taxes or legislative controls on imported or exported goods by not declaring the goods to the
Customs.
Smuggling is likely to occur when there is either an imbalance in the supply and demand
requirements for particular goods in a country or there are other economic factors prevailing which
make it attractive. For example, prior to the imposition of the CITES list, there was little need to
smuggle ivory. It was only when ivory was listed under CITES, and supply was therefore limited,
that the smuggling of ivory escalated in order to satisfy the continued demand.
Likewise, if there are significant differences in the levels of tax on cigarettes between two
countries, then the likelihood of cigarette smuggling increases.
The final element in the smuggling equation is the adequacy of Customs controls put in place to
detect smuggling. If the smugglers believe that there are insufficient controls and that they have a
good chance of not being detected, then the environment for smuggling is right.
From the definition of smuggling it can be seen that smuggling can be separated into two different
categories:
(a) To evade or attempt to evade any duties and/or taxes levied, or

(b) To import or export or attempt to import or export goods in breach of legislative prohibitions,
regulations or restrictions.
8
2.1.1.1. Principal Reasons for Smuggling to Occur
 To evade duties, levies and other taxes

 To gain a commercial advantage
 To avoid:
▪ Local revenue controls
▪ Bureaucratic control and processing
▪ Quota limitations
▪ Import or export licenses or permit requirements
▪ Exchange control regulations
2.1.1.2. Major Categories of Goods Smuggled
There is a wide variety of types of goods smuggled, most of them falling into several broad
categories. Listed below are the major categories of goods smuggled and examples of the types
of goods which fall into those categories:
 Goods attracting high rates of Customs duty e.g. cigarettes, alcohol, automobiles, jewelry.
 Goods subject to national prohibitions and restrictions e.g. currency, heritage goods, arms,
agricultural livestock, drugs, pornographic material, government subsidized goods, items
subject to CITES listing, goods subject to religious and cultural observance, as well as, to
military requirements.
 Goods subject to international trade sanctions e.g. goods subject to UN controls, hi-tech
equipment, goods subject to intellectual property rights infringements.
 Goods subject to international control e.g. radioactive materials, toxic waste.
Whilst smuggling may occur for different reasons there are primarily only two types of smugglers:
(a) The commercial or professional smugglers - whose principal objective is to get their
contraband into or out of a country so that it can then be sold for high profits e.g. drugs,
cigarettes
9
(b) The individual smuggler - whose aim is to acquire goods at a lower cost to themselves or to
have goods which they ordinarily would not be allowed to possess. E.g. CITES listed goods,
weapons
It should be noted that the same goods can be smuggled by both types of smugglers but for quite
different reasons. Weapons for example may be smuggled by the professional smuggler or "gun
runner" so that the weapons may be sold for high prices to terrorist organizations who ordinarily
would not be able to acquire the weapons. Conversely the same weapons may be smuggled by gun
enthusiasts for their private collection.
2.1.1.3. Reasons smuggling to occur
 An imbalance in the supply and demand for goods

 Significant differences in the levels of taxation between the countries
 Inadequate Customs controls
 Other factors
2.1.1.4. Places Where Smuggling Can Occur
Smuggling can occur at any time and across any part of your frontier. However the places where
smuggling occurs can be grouped in two distinct areas:
 At Customs control points e.g. designated ports and airports, international passenger
terminals, mail exchanges, border posts, warehouses, free trade zones, etc.
 In those areas outside of normal Customs controls e.g. across remote coastlines or borders,
remote airfields, unmanned ports, whilst the goods are in transit.
Note that a number of goods smuggling method is attached in Annex 1 of this module.
2.1.2. Transit Fraud
Customs transit may be defined as the movement of goods from one Customs office to another in
the same Customs territory or to another destination outside that territory (as per the definition of
the term Customs transit in Annex E.1. to the Kyoto Convention).
10
In the legislation of most countries transit movements take place without payment of duties and
taxes. Goods are being transported under Customs control to ensure compliance with the
requirements laid down. Customs transit procedures provided to facilitate international transport
of goods that have to pass through a number of Customs territories. Arrangements are made under
international agreements to apply standard transit procedures for the transit of goods carried in
Customs transit through their territories.
In this part we will deal with commercial fraud carried out by misusing facilitative measures or
transit which exist for ease of transport of goods across Customs territories. Transit fraud normally
involves the evasion of Customs duties and taxes and avoidance of existing restrictions or
prohibitions by the abuse of the transit procedures.
Transit fraud is made with the intention of diversion of goods to home use by:
 Forged/false declaration
 Failure to export goods
 Substitution of goods of inferior and lower quality
2.1.2.1. Stages of the Transit Process
Transit fraud can occur during the following stages of the transit process:
 Pre-entry phase
▪ Prior to the arrival of goods and while applying for the procedure mis-description may
occur.
▪ Falsification of documents can occur to avoid phytosanitary or other restrictions.
 Entry phase
▪ Mis-description of goods i.e. quality and quantity.
▪ Falsification of documents to the true nature of the goods.
 Transit phase
▪ Substitution of goods locally produced for the goods for which the transit facility was
sought; the locally produced goods were goods of lower or inferior quality.
▪ Mis-description as to the true nature of the goods can occur.
▪ Removal of the goods during the transit through the Customs territory.
11
 Export of transited goods phase
At the time of export of transited goods, a Customs officer has to reconcile the documents that
were furnished at both entry and pre-entry stage with those that were produced at the time of export
to establish whether all the rules and regulations with regard to proper export of the goods have
been met. The officer needs, therefore, to consider the applicability of all the phases at the pre-
entry, entry and transit stages.
2.1.2.2. Reasons to Perpetrate Transit Fraud
 To evade the payment of import duties and taxes

 To evade prohibitions or restrictions
 To gain unfair market advantage
 To avoid the rigors of bureaucratic controls
 To evade origin regimes
 To avoid health or phyto-sanitary restrictions
 To avoid quota restrictions
2.1.3. Mis-description Fraud
This part deals with commercial fraud involving mis-description. Mis-description occurs when
any information provided in relation to goods under clearance is false. Mis-description can take
place at both import and export of goods.
2.1.3.1. Areas of Mis-Description
Mis-description may take place in a number of circumstances including, amongst others:
(a) Classification
(b) Origin (including country of origin)
(c) Value
(d) Quantity/quality (including trade description and consumer protection)
(e) Quota limits and trade restraints
12
In this part, it is proposed to deal with cases of mis-description involving classification. Other
cases in which mis-description is said to occur, such as origin, value, etc. are dealt with specifically
in separate parts in this module.
Classification:
Goods are classified for Customs purposes in order to provide statistical information and to assist
in the collection of correct revenue or the administration of other Customs procedures such as
licensing, quotas, etc. Goods are usually classified by means of a code system whereby for each
category of goods a different classification code is applied.
Misclassification:
Misclassification is said to occur when a false declaration is made with regard to the physical
description or properties of the goods.
Misclassification fraud:
This is a deliberate attempt to mislead Customs by use of a false declaration regarding physical
description or properties of the goods to gain some advantages.
2.1.3.2. Reasons to Perpetrate Misclassification Fraud
Misclassification fraud may be perpetrated for the following reasons:
(1) To gain from a reduced rate of duty or other taxes

(2) To evade prohibitions, restrictions or import quotas
(3) To avoid exchange control regulations
(4) To evade the imposition of anti-dumping/countervailing duties or regulatory taxes
(5) To evade internal taxes
(6) To gain unfair market advantage
(7) To regain a high amount of duty compensation from the exportation of locally produced goods
which are entitled by law to such compensation.
13
2.1.4. False Declaration of Quality and Quantity Fraud
False declaration may occur when any information to Customs authorities concerning physical
attributes, nature, volume, quantity and or measure of goods declared is untrue.
This false declaration is made with the intention of deriving undue advantage or pecuniary benefits
or to avoid existing restrictions and prohibitions.
False declaration of quantity and quality is reported to obtain advantage of a lower or nil rate of
duty and/or evasion of legislation imposing quantity/quality controls:
e.g. - Goods imported in larger quantities than quantities declared

- Hazardous goods
- Mis - labeled goods
2.1.4.1. Reasons to Perpetrate False Declaration of Quantity and Quality at the Time of
Importation
 To gain unfair market advantage.

 To gain from reduced rate of duty or other taxes.
 To evade the imposition of anti-dumping/countervailing duties or regulatory taxes.
 To evade trade descriptions and consumer protection laws.
 To gain unfair advantage of certain laws and regulations that may exist in certain importing
countries designed to accord preferential treatment to goods of certain category or type or
those which fulfills other requirements e.g. hand loom products.
 To bypass laws relating to patents and copyrights.
2.1.4.2. Reasons to Perpetrate False Declaration of Quantity and Quality at the Time of
Exportation
 To over-claim import duty refund on raw material used in the manufacture of exported
goods.
 To over-claim excise duty/VAT refund on material used in the manufacture of goods.
 To avoid internal taxes.
14
 To take advantage of quota allowance.

 To avoid the imposition of certain preventive and protective measures or restrictions adopted
to conserve the environment or to ensure the availability of certain category of goods within
the country.
 To bypass laws relating to patents and copyrights. Interested
2.1.4.3. Forms of False Declarations at Importation
 Under declaration of quantity of goods to avoid import levies

 Mis-description of type of goods to avoid import levies and duties
 Use of false certificates of origin to enter goods at a lower rate of duty than is applicable
 Use of false licenses to evade quota restrictions
2.1.4.4. Forms of False Declarations at Exportation
 Over declaration of quantity of goods to over-claim export refunds and duty compensation.
 Mis-description of type of goods to over-claim export refunds and duty compensation.
 Mis-declaration of destination to claim a higher rate of refund than is applicable.
 A claim for an export refund for goods that, in fact, do not exist (as Customs cannot
examine every consignment).
 Several claims for export refunds could be made for the same goods (Goods are not
exported as declared but returned to the country of departure and another claim for export
refunds are made on them).
2.1.5. Valuation Fraud
This section deals particularly with commercial fraud involving valuation.
Customs Value Definitions
“It is the value to be determined for the purposes of applying ad valorem import duties. In other
words, it constitutes the taxable basis for customs duties”. (“Customs valuation considerations”,
WCO).
15
Valuation fraud is fraud related to the value declared to Customs for goods imported or exported.
It can relate to any statement, document or declaration presented to Customs for valuation
purposes.
2.1.5.1. Categories of Valuation Fraud
1. Under valuation
2. Over valuation
3. Mis-description /misclassification
4. Related party transaction (it is a transfer of resources, services or obligations between a
reporting entity and a related party, regardless of whether a price is charged).
A related party is a person or an entity that is related to the reporting entity:
 A person or a close member of that person’s family is related to a reporting entity if that
person has control, joint control, or significant influence over the entity or is a member of
its key management personnel.
 An entity is related to a reporting entity if, among other circumstances, it is a parent,
subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is
controlled, jointly controlled, or significantly influenced or managed by a person who is a
related party.
5. Money Laundry Scheme (it is the practice of engaging in specific financial transactions
in order to conceal the identity, course, and/or the destination of money).
6. Other categories of valuation fraud (fraud related to the elements of Article 8, discounts,
freight/insurance, origin/preference)
1. Undervaluation
Making a false declaration indicating a lower value than the actual transaction value.
Transaction value can be understated for the following reasons, among others:
▪ Attract lower duty liability

▪ Evade import restrictions.
16
2. Overvaluation
Making a false declaration indicating a higher value than the actual transaction value.
Transaction value can be overstated for the following reasons, among others:
 Obtain higher export refunds and higher duty compensation;

 Evade internal taxes;
 Gain lower rate of duty from incorrect classification;
 Avoid
▪ Exchange control regulations;
▪ Anti-dumping duty; and
 Money laundering schemes
2.1.5.2. Under/overvaluation Fraud Methods
▪ False invoice prepared by supplier

▪ False invoice prepared by importer
▪ Double invoicing
▪ False packing list
▪ Pro-forma invoice
▪ Invoice excluded assists
▪ Proceeds of subsequent resale
▪ Failure to account for selling commissions or mis-describing it as buying commissions
▪ Invoice excludes some dutiable charges
▪ Non-declaration of royalties or licence fees
▪ Non-standard packaging
▪ Mis-description of the product
▪ Mis-description of origin
▪ False declared weights or quantities
▪ False transport or insurance cost
▪ False official seals or stamps
▪ Currency manipulation
17
▪ Exchange rate manipulation

▪ Overvaluation just in excess of minimum import prices (anti-dumping duty thresholds)
2.1.6. Origin/Preference Fraud
Origin: Origin status of the goods either wholly obtained/produced in one country or in other
countries, In accordance with rules which govern the use of imported materials.
Preference: There are several kinds of preference regimes, e.g. GSP and EC preference. It means
granting of zero or reduced rates of import duty subject to the satisfaction of certain criteria
regarding the goods and their origin.
Origin/Preference Fraud: Any attempt knowingly to violate or abuse rules of origin and/or
Customs documentary requirements as laid down by bilateral or multilateral agreements in force
in the country concerned.
2.1.6.1. Reasons to Perpetrate Origin/Preference Fraud
 To secure illicit access to preferential rates of duty by mis-describing the country of origin
of imported goods
 To effect the importation of goods subject to prohibitions or restrictions in the country of
importation
 To illegally satisfy the documents requirements laid down by the importing country
 To illegally penetrate the market of a country and gain commercial advantage
 To circumvent trade sanctions or embargoes
 To evade quota restrictions and countervailing or anti-dumping duties
This section deals with commercial fraud involving origin/preference fraud, primarily (though not
exclusively) in order to secure illegal access to preference regimes.
For the purposes of this module “preference” shall mean granting of zero or reduced rates of import
duty subject to certain criteria regarding the goods and their origin being met.
18
For the purposes of this manual “origin” shall refer to the origin status of the goods either wholly
obtained/produced in one country or in other countries in accordance with rules which govern the
use of imported materials.
There are several kinds of preference regimes e.g. GSP, EC preference. As an example, the GSP
rules of origin consist of three main elements, namely, origin criteria, documentary evidence and
the direct consignment rules.
For the purposes of this module, origin/preference fraud shall mean any attempt to knowingly
violate or abuse rules of origin and/or Customs documentary requirements as laid down by bilateral
or multilateral agreements in force in the country concerned.
This fraud may involve:

(a) False statement of country of origin.
(b) Mis-description on documents and other items related to Customs formalities.
(c) Incorrect tariff codes.
2.1.6.2. Measures to Combat Origin/Preference Fraud
Objective
Administrations suffering from incidences of origin/preference fraud should identify the

mechanisms most often used by those seeking to commit this kind of fraud and monitor trends
going on around the world. The relevant Customs administration should take the necessary steps
to combat the above-mentioned fraud in order to ensure fair market competition.
In order to combat origin/preference fraud it is necessary to identify the methods used to commit
such fraud such as:
 Concealing the true origin of goods by transshipping them through a third country. Back-to-
back bills of lading and other documents may be prepared at this stage to give the
impression that the goods originate from the third country.
 Commingling goods of one country with those of another to conceal the true country of
origin.
19
 Physically changing the presentation of the goods during (trans) shipment, for example:
▪ Re-boxing
▪ Re-packaging
▪ Re-labeling
2.1.7. Inward/Outward Processing Relief Fraud
Relief from Import Duties and Taxes
The term relief from Customs duties and taxes means clearance of goods free of import or export
duties and taxes irrespective of their normal tariff or normal liability provided that they are
imported or exported in specified circumstances and for specified purposes as described in the
input/output processing regimes.
Relief, either full or partial, may be granted for various economic considerations. Other reasons
considered for the granting of relief are for administrative or political convenience. In most cases
goods granted relief from Customs duties and taxes are not placed under normal Customs control,
although relief is granted subject to certain conditions.
Inward/outward processing relief fraud is happen when forged/false declaration is prepared

concerning with the intention of:
 Failing to re-export/reimport goods

 Substituting the goods
This part deal with commercial fraud carried out to gain advantage of relief remission regimes in
respect of inward/outward processing. It normally involves evasion of Customs duties and taxes
on goods that have been imported or exported using inward/outward processing regimes. The
fraudulent activity is aimed at circumventing the various conditions in national legislation. These
conditions are designed to extend relief, exemption or remission of duties and taxes on goods
imported or exported under these procedures.
20
2.1.7.1. Phases in Inward Processing
 Pre-Entry
 Import
 Manufacture/Processing
 Export
2.1.7.2. Phases in Inward Processing
 Approval
 Exportation
 Re-importation.
Note that in any of these phases fraud can occur. Obviously, there is a processing phase but as
this is taking place outside of the country Customs is unable to exercise control of this processing
phase. That is why Customs has to be extra vigilant at the time of re-importation.
2.1.7.3. Reasons to Perpetrate Inward/Outward Processing Relief Fraud
 To evade the payment of import duties and taxes

 By substituting with locally produced goods for the goods that were imported; with the
imported goods being diverted to the home market
 To pay a lower amount of duty
 To gain an unfair market advantage
 To gain from a reduced rate of duty
 To avoid quotas
 To avoid bureaucratic control and processing
2.1.8. Temporary Admission Fraud
“Temporary admission – means the Customs procedure under which certain goods can be brought
into a Customs territory conditionally relieved totally or partially from payment of import duties
and taxes; such goods must be imported for a specific purpose and must be intended for re-
21
exportation within a specified period and without having undergone any change except normal
depreciation due to the use made of them.”(Specific Annex G to the Revised Kyoto Convention)
2.1.8.1. Reasons to Grant Duty/Tax Exemption
 Exemption from Customs duties may be granted for various reasons:

▪ Social/economic
▪ Administrative/political
▪ Scientific/cultural
Forged/false declaration with the intention of abusing temporary importation/admission

legislation:
 Failure to re-export/re-import goods

 Substitution of goods
This part deals with commercial fraud carried out to gain undue advantage of relief regimes
involved in respect of temporary admission. It normally involves evasion of Customs duties and
taxes on goods that have been imported or exported under such a regime. The fraudulent activity
is aimed at circumventing the various conditions in national legislation. These conditions are
designed to extend relief, exemption or remission of duties and taxes on goods imported or
exported under these procedures.
2.1.8.2. Phases in Temporary Admission
 Pre-entry
 Import
 Temporary stay in the country
 Re-exportation in the same state
Note that in any of the four phases fraud can occur.
22
2.1.8.3. Reasons to Perpetrate Temporary Admission Fraud
 To evade the payment of import duties and taxes (which would have been payable if the
goods were imported for home use)
 To substitute for locally produced goods by the goods that were imported; with the imported
goods being diverted to the home market
 To divert the temporarily imported goods for sale on the home market and substitute these
goods with local inferior goods for re-export
 To gain an unfair market advantage
 To avoid quotas
 To avoid the rigor of tighter controls
 To evade health or phyto sanitary restrictions
 To evade origin restrictions
2.1.9. Duty Drawback Fraud
Duty drawback - means a relief which provides for the repayment of Customs/excise duties paid
on goods that have not been and will not be consumed in the national Customs territory (i.e. the
goods have been exported or have entered a Customs bonded warehouse).
National legislation will determine under what circumstances reimbursement of duty on drawback
can be claimed.
Drawback fraud could be attempted in several ways, such as substitution of commodity; incorrect
quantity or fictitious export. Substitution can occur in two ways.
Firstly, a legitimate product that is not the product on which drawback has been claimed may be
exported, e.g. shirts may be exported instead of suits.
Secondly, an item of little or no commercial value may be exported in place of the product on
which drawback has been claimed, e.g. scraps/rags are exported instead of suits.
23
2.1.9.1. Common Types of Duty Drawback
Some common types of drawback are the following:
 On goods that have been imported into the Customs national territory where duty has been
paid and the goods have then been exported or destroyed under Customs supervision.
 On goods that have been produced on the home market on which duties have been paid and
the goods have subsequently been exported.
Drawback in respect of Customs duties may apply to any commodity. Drawback in respect of
excise duty will generally apply to those goods produced domestically on which excise duties have
been levied, such as, alcoholic beverages, tobacco products and petroleum products.
2.1.9.2. Types of Duty Drawback Fraud
Goods consumed in the home market but claimed to have been exported:
 Substitution of commodity :
Where goods have been substituted for those goods on which drawback has been claimed.
Substitution can occur in two ways. In the first instance, a legitimate product is exported which is
not the product on which drawback has been claimed, e.g. exporting shirts instead of suits.
Secondly, an item of little or no commercial value is exported in place of the product on which
drawback has been claimed, e.g. exporting scraps/rags, instead of suits.
A claim for drawback is generally presented to Customs after the goods have been exported. As a
result, most administrations will require that the exporter notify Customs in advance of any
exportation on which drawback will be claimed. This allows Customs the opportunity to examine
the shipment prior to export.
Customs clearing agents should be aware that in some instances, great care can be taken by the
exporter to disguise the fact that a substitution has taken place (i.e. water substituted for vodka in
vodka bottles).
24
 Incorrect quantities :
Where the quantity of goods actually exported is lower than the quantity claimed.
 Fictitious exportations :
Where no goods have been exported;
▪ Claims for drawback made when duties have already been repaid under another
procedure, or
▪ Claiming drawback on goods on which import duties have not been paid.
 Goods originally smuggled into the national territory.
 Goods originally classified under a duty relief scheme.
2.1.9.3. Reasons to Perpetrate Duty Drawback Fraud
 to evade payment of duties
 to gain unfair market advantage
 to evade internal taxes (e.g. VAT)
 to “justify” manipulating foreign currency exchange control regulations and export incentive
schemes
2.2. Types of Commercial/Customs Fraud-Part II
2.2.1. Import / Export Licensing Fraud
Import or export licenses are sometimes required due to conditions or restrictions imposed on the
import or export of certain goods. These conditions may apply to a destination, quality, quantity
or end-use.
Import/export licensing fraud is occurring when forged/false declaration is prepared with the
intention of abusing licensing requirements:
25
e.g. - Import prohibitions/restrictions, Export prohibitions/restrictions
Import or export licenses are sometimes required due to certain conditions or restrictions on the
importation or exportation of goods. These conditions or restrictions may apply to a variety of
factors, such as, the type of commodity, destination/origin, quantity or end-use of the goods
involved in the transaction.
Some of these licensing requirements may be imposed by other government authorities, such as,
Agriculture, Defense and/or Trade. It is the responsibility of the importer/exporter to obtain and
present any required license to Customs.
2.2.1.1. Goods Subjected To Import/Export Licencing
 sensitive strategic commodities (e.g. weapons, nuclear substances, chemical and biological
precursors)
 agricultural products (e.g. meat, dairy products, grains)
 textiles (those subject to quota, visa)
 art, antiquities, and cultural properties
 CITES (is an international agreement between governments. Its aim is to ensure that
international trade in specimens of wild animals and plants does not threaten their survival).
 other industrial products
2.2.1.2. Reasons to perpetrate import/export licensing fraud
Import/export licensing fraud is perpetrated for the following reasons but not limited to:
 to evade prohibitions, restrictions or import quotas

 to gain from a reduced rate of duty or other taxes
 to gain unfair market advantage
 to evade internal taxes
 to manipulate the quota system
2.2.1.3. Types of Import/Export License Fraud
 Counterfeit licenses
26
A license which has been forged in its entirety and not obtained from the relevant authority. This
license may also contain false stamps.
 Genuine licenses that have been altered
The correct license was obtained from the relevant authority. This license has then been altered to
change any of the material facts of the license.
 False statements made to obtain a license
Where an application for a license has been submitted containing false information.
 Failure to present a license
This could involve mis-describing the facts concerning either an importation or exportation to
avoid any licensing requirement.
Simple failure to provide a required license upon the importation or exportation of correctly
described goods.
2.2.2. End-Use Fraud
National legislation may offer a zero or lower rate of duty on certain goods when imported for a
specified end-use. End-use provisions may be contained within the tariff schedule. End-use
certificates may be required by the national customs authority to support the declared end-use.
There may be no duty or lower rate of duty on goods imported for a specific end use. End use
certificates may be required by customs to support the declared end-use.
Examples of end-use provisions:
 Agricultural
 Diplomatic
 Governmental
 Medical/scientific
 Specific economic promotion regimes
27
End-use fraud is an abuse of end-use regimes by diversion of duty or tax relieved goods to non-
authorized use. It is a failure to use goods for the purpose originally declared.
End-use fraud is involving the diversion of imported goods from a specified end-use in order to
gain from a zero or lower rate of duty.
Abuse of end-use regimes occurs when there is a failure to use goods for the purpose originally
declared.
2.2.2.1. Types of end-use fraud
 Diversion upon importation
Where goods are imported with intent to divert the goods to a non-authorized end-use. This would
be considered a more serious violation of the end-use regime as a statement or classification
indicating an end-use provision would constitute a false statement at the time of importation (e.g.
project goods).
 Diversion following importation
Where goods are imported for a qualified end-use but are subsequently diverted to a non-
authorized end-use
In this case, the intention may have been to import the goods for the stated end-use, therefore, there
is no false statement at the time of importation. However, a subsequent decision was made to divert
the goods to a non-qualifying end-use, thereby rendering the goods as ineligible for end-use
provisions (e.g. diplomatic goods, project goods, other duty-free goods).
2.2.2.2. Reasons for End-Use Fraud
End-use fraud is usually perpetrated to gain from a reduced rate of duty or other taxes from an
unfair market advantage
2.2.3. Trade Description and Consumer Protection Fraud
This part deals with commercial fraud involving both trade description and consumer protection.
28
Trade Description: Technical requirements/specifications applied to goods by national

legislation to ensure minimal quality standards of goods usually applied by internal government
departments/agencies, national legislation, and notified to Customs for implementation at national
borders e.g., computer equipment, electrical equipment, foodstuffs, automobile parts and other
items.
Consumer Protection: Requirements/specifications applied by national legislation to ensure

minimal safety standards of goods usually applied by internal government departments/agencies,
national legislation, and notified to Customs for implementation at national borders.
These goods may include items such as foodstuff, medicines, chemicals, toys for babies, cosmetics
and other items, which could pose health and safety concerns. There are a number of commodities
which could pose health and safety concerns but not subject to said consumer protection
requirements.
Trade description and consumer protection fraud is made by presenting false/misleading

declaration on/about the goods to evade the important requirements of Trade Description
Acts/Laws or Consumer Protection Acts/Regulations.
2.2.3.1. Reasons for Fraud in Trade Description and Consumer Protection
Trade description/consumer protection frauds are perpetrated for the following reasons:
(1) To facilitate the importation of inferior goods to give an unfair advantage on the domestic
market when competing - often against home produced goods;
(2) To effect the importation of merchandise otherwise subject to prohibitions or restrictions in

the country of destination;
(3) To facilitate advantageous duty preference quotas by manufacturing in developing countries

using very inexpensive labour, poor manufacturing processes, less or no safety standards,
resulting in lack of quality control, inexpensive and inferior goods.
(4) To obtain maximum fiscal advantage in manufacturing cost by production in countries with
no quality control or regard for safety or consumer protection standards.
29
(5) To obtain advantageous duty preference quotas by mis-describing the country of origin.
This fraud may also involve:
(a) Mis-description
(b) Avoidance of quotas
(c) Incorrect tariff codes
(d) False country of origin.
2.2.4. Counterfeit/Pirated Goods Fraud
This part deals with commercial fraud involving counterfeit/pirated goods.
Counterfeit (trademark) goods are defined as:
1. any goods, including packaging, bearing without authorization a trademark which is identical
to the trademark validly registered in respect of such goods, or which cannot be distinguished in
its essential aspects from such a trademark, and which thereby infringes the rights of the owner of
the trademark in question under law of the country of importation;
2. any trademark designed without authorization to be applied to goods, whether presented

separately or not, in the same circumstances as the goods referred to at 1 above; or
3. any goods bearing marks which are identical to, or substantially indistinguishable from,
protected trademarks, when used on goods or services differing from those for which a trademark
is registered, causing confusion as to source of origin
30
Pirated (copyright) goods defined as:
Any goods which are copies made without the consent of the right holder or person duly authorized
by the right holder in the country of production and which are made directly or indirectly from an
article where the making of that copy would have constituted an infringement of a copyright [or
related right under the law of the country of importation
Due to the background of the people concerned in this trade which is usually operated by persons
known to the Customs/law enforcement agencies of the country concerned, any opportunity to
avoid payment of Customs duties/tax is exploited. The fraudulent activity is aimed at
circumventing the various conditions in national legislation.
Counterfeit/pirated goods are sold in the country of destination usually on a cash transaction basis.
These goods are sold in retail businesses or outlets (sometime without the trader being aware of
their nature) factories, markets and by street vendors. Due to the nature of the illegality of the
goods, not only in Customs terms, but also under national legislation, these transactions are
conducted off-record and create a shadow economy damaging not only the reputation and sales of
the legitimate manufacturer but also undermining the fiscal base in that country.
2.2.4.1. Reasons to Perpetrate Counterfeit/Pirated Goods fraud
 To gain an unfair market advantage.

 To bypass laws relating to patents and copyright.
 To avoid internal taxes.
 To evade trade prohibitions and restrictions.
 As a money laundering scheme.
It may also involve:
(a) Mis-description.
(b) Evasion of quotas.
(c) Incorrect tariff codes.
(d) Falsification of country of origin.
31
2.2.5. Off-record Transaction Fraud
An off-record transaction for the purposes of this module may be defined as a commercial
transaction, subject to a tax or duty that must by law be accounted for to a tax or Customs authority,
which is not so accounted for.
Non-declaration of goods subject to a Customs duty is smuggling, which is dealt with in this
Handbook. This part, therefore, cover off-record transactions in internal taxes and duties, such as
sales tax, value added tax and excise duties. It is worth noting, however, that smuggled goods are
likely to be subject to an off-record transaction when sold after being smuggled.
This part does not specifically cover every tax and duty, which will vary from country to country,
but the principles are the same for all such taxes and duties, i.e. that a person or business renders
a false return to his tax authority by under-declaring the amount of tax or duty due. For
convenience, this part uses Value Added Tax to illustrate the points covered.
Excise duties where this may apply are:
 Hydrocarbon oils
 Tobacco
 Alcoholic beverages
 Betting and gaming
 Purchase of licenses for gaming machines, Playing cards, matches, lighters.
2.2.5.1. Value Added Tax
Value Added Tax (VAT) is a tax on sales of goods and services. It might be described in various
other ways, such as goods and services tax or sales tax. Traders must register with their tax
authorities if their turnover exceeds a certain threshold. They must then charge customers a
percentage of their sales as VAT. The same trader will himself pay VAT on goods and services he
purchases for resale, manufacture or use within his business.
Traders must periodically submit a VAT return to their VAT authority. On this return, they must
declare the amount of VAT they have received, and the amount they have paid. They deduct the
32
amount of VAT they have paid from the amount they gave collected and send the difference to
their VAT authority. If they have paid more VAT than they collected, then they become entitled
to claim such an amount back from their VAT authority (a repayment claim).
Note that sales taxes work in a similar way to VAT.
2.2.5.2. Methods of VAT Fraud
 To declare that less VAT has been collected than is true (suppression of output tax).
 To declare that more VAT has been paid more VAT than is true (inflation of input tax).
 A combination of the two.
Additionally, traders may:
 not register when required to do so;

 charge VAT when not registered (and have not pay it to the VAT authority);
 register for VAT when not trading at all and submit wholly false repayment claims
 advertise heavily yet do not declare a higher turnover than competitors who do not
 declare a high volume of false exports (which are subject to a zero rate of VAT) whilst
selling the goods in their own country (which are, therefore, subject to the normal rate of
VAT)
2.2.6. “Ghost” Business Fraud
Definition
"Ghost" businesses are basically companies that do not exist (are not registered), exist on paper
only, are used solely for fraudulent purposes and are registered under false names and addresses.
They may or may not be incorporated or registered as a company with national authorities. If they
are registered as a company, false names and addresses may be used. "Ghost" companies are used
solely for fraudulent purposes, including tax fraud. They may take various forms depending on the
type of fraud being perpetrated.
33
A common feature of "ghost" businesses is that the business does not trade at all or the actual
parties who are behind business are concealed. It merely provides paper to create the impression
that a transaction has taken place. Examples to which "ghost" businesses can be put are:
(a) "Ghost" importer: An importer importing goods fraudulently or in contravention of a

prohibition may submit import papers in the name of a "ghost" business. If the goods are examined,
the importer cannot then be traced. Ghost importers will give Customs agents instructions that will
not enable them to be contacted.
(b) "Ghost" consignor: An importer may submit Customs documentation for imported goods
with an invoice in the name of a "ghost" business. The invoice will indicate a value lower than that
on the true invoice to defraud Customs of duty.
(c) "Ghost" business registered for sales tax/value added tax
A company may be registered "off the shelf" with false names and addresses shown for directors.
The company may then be registered for sales tax or value added tax and, perhaps, open a bank
account with a false name and address. The "ghost" company may then submit returns claiming
refunds of tax (by claiming to be an exporter, or to supply zero-rated goods). If the tax authority
tries to verify the claim, the "ghost" company cannot be traced.
(d) "Ghost" supplier invoices
A trading company may be registered for sales tax, or value added tax, and submit tax returns.
This company may purchase, or manufacture, invoices from other "ghost" businesses in order to
support claims of non-existent purchases subject to tax. This lessens the trading companies liability
to tax, as tax paid on purchases is deducted from tax collected on sales.
(e) Other functions of "ghost" companies
A "ghost" company may be used for reasons other than cheating duties or taxes. Invoices of "ghost"
companies may be used to launder stolen tax money, or other proceeds of crime. They may be
used to indicate a false origin of goods.
34
2.2.6.1. Reasons to perpetrate “Ghost” Business Fraud
 To cheat duties or taxes

 Illegal repayment claim
 Money laundering
 Unfair competition.
2.2.6.2. Practice of “Ghost” Business Fraud
 Conceal actual parties of commercial transaction

 Dissemble the amount of a transaction
 Simulate a transaction (create the impression that a real transaction has taken place)
2.2.7. Contrived Liquidations Fraud (“Phoenix Syndrome”)
Definition
Contrived liquidations fraud is the continued trading of a business under a series of different legal
entities, by liquidating the companies in succession, none of the companies having any distrainable
assets. The tax authorities are the sole or main creditors.
Contrived liquidations occur when a company deliberately and needlessly puts itself into
liquidation. Acting as such, leaves behind debts, usually to the taxation authorities. It, or a related
company, will continue to trade as before under a new name. This is known as the “Phoenix
Syndrome.”
This practice is fraudulent when the companies are put into liquidation to willfully avoid tax
liabilities.
The problem of contrived liquidations is of concern to Customs authorities where duties may be
paid in arrears under duty deferment schemes, for imported goods, warehoused goods and for
excise duties.
35
3. Operation Sheet
Purpose:
This part of the training material enables the trainees to grasp and apply the necessary measures
that need to be followed not to involve in commercial fraud attitudes and practices.
These are screening measures that need to follow for suspicion and getting rid of commercial
fraud scam:
Documents that are likely to be falsified that need to be checked are:
• invoices (pro-forma and original)
• manifests and bills of lading
• in transit documents
• origin certificates
• certificates of authenticity
• air waybills
• letters of credit
• import and export permits
• packing lists
The following are the necessary follow-up measures to identify likely risks of commercial
fraud:
 Assess incomplete documentary information
 Ensure the description of goods is specific and clear, not general
 Consider if the importer is first time importer
36
 Learn inconsistency with the declarant's business
 Give attention if there is change of name or trading style
 Check whether any of the parties in the transaction are related
 Be caution of high-duty/high-risk goods
 Examine if there is unlikely market destination
 look at goods imported under part shipment
 Look for known source countries, goods not normally produced in stated country of origin,
disguise of known source countries, etc.
 ensure the appropriateness of the value of the goods to the goods described, shipping cost,
insurance cost, method of shipment
 Look for high value goods shipped without insurance or high insurance for low value goods
 Check whether the importer changes the port of clearance (port shopping)
 Examine changes in the marks and numbers on the packaging
 Give emphasis for Statistical units (e.g. Rolls of steel declared as bales)
 Focus on dates (e.g. invoiced on dates where the supplier is likely closed such as religious
holidays)
 Check for possible counterfeit, forged or altered stamps
 Emphasis for mistakes on known logos
 Look for missing end-use certificate, authenticity certificate, origin certificate, etc
 Focus on the container whether it is too heavy or light for the goods described
Illustrations:
37
Illustration 1
Type of Fraud: CITES – Smuggling of goods - declared wooden furniture
Japanese Customs seized 27 pieces of Ivory tusks weighing 32 kg from South Africa on 28
February 2016. The consignment was declared to Kobe Customs by a Non-Japanese resident as
Korean-made wooden furniture with its place of shipment as “Cape Town (South Africa)”. As a
result of a detailed examination, the Ivory tusks were found concealed behind a false wall
fabricated at the rear of a container loaded with 14 pieces of furniture.
Illustration 2
Type of Fraud: Mis-description and undervaluation
In 2016 an Ethiopian resident Chines company which is established to assemble and sell
cellphones in the Ethiopian market imported parts of cellphones from China at Bole International
Airport to assemble in Ethiopia. The Customs intelligence officers suspected and ceased a sample
of unassembled parts and inserted the SIM card into the cellphones. When they make the cellphone
switched on the cellphone started to work like other working cellphones. The necessary
enforcement measures were taken for this company. The aim was to benefit from the second
schedule benefit scheme by mis-describing the finished cellphones.
Illustration 3
Type of Fraud: Transit fraud
This case relates to the diversion of export consignments of high-quality coffee intended for Japan
which ended up being sold on the Ethiopia market. The fraud was done by substituting low-quality
coffee with that of high-quality standard export coffees at Wollenchitee near Adama, Ethiopia.
The intention was to benefit from the high price from the local market. The scam was reached
court by Customs officials investigating the offense.
Illustration 4
38
Types of Fraud: Counterfeit goods fraud
On 2 March 1992, Hong Kong Customs seized 19,200 pairs of jeans that bore a British trademark.
The counterfeit goods were intended for re-export to Central America. The value of the goods was
estimated at about HK$ 7.5 million (US$1 million).
Acting on the complaint of the trademark owner, Hong Kong Customs identified a 40'' container
which was shipped to Hong Kong by a vessel from China on 29 February 1992. The movement of
the container was closely monitored by Customs, and on 2 March 1992, the container was opened
for examination in a warehouse in the presence of the trademark representatives and found to
contain a total of 19,200 pairs of jeans bearing the forged trademark.
In the immediate follow-up action, Customs searched four commercial premises. A further seizure
of 12 pairs of counterfeit jeans, which were believed to be samples of the seized consignment, was
made inside an import and export firm. The proprietor of the firm was arrested.
Illustration 5
Types of Fraud: Export licensing fraud
On April 21, 2017, acting on information, officers of Pusan Customs arrested a representative of
a shoe exporting company on charges of export regulation violations. The company submitted to
the Customs a false documentation when they declared 10,800 pairs of sneakers as exporting
goods. They forged an export license as though they had obtained necessary certificates for the
goods, which are subject to quality inspection prior to their exportation.
Illustration 6
Type of Fraud: Trade description and consumer protection fraud
As a result of the examination of two consignments of empty toner cartridge cartons imported from
China with a “Made in Japan” marking on the carton, Ethiopian Customs Intelligence officers at
A.A Kality Customs Branch Office found that the toner cartridge cartons were intended for
packaging homemade toner cartridges that will be supplied to the market as if it was originated
from Japan. The officers seized the consignments with a value of ETB 1,125,000.
39
Illustration 7
Type of Fraud: End-use fraud
Used vehicles were imported for the declared purpose of “investment goods” which exempts them
from ETB 5,224,000 duty. After entrance to Ethiopia by legal means, for a long time vehicles were
rented to one non-governmental organization for use to his work. When Customs learned the
situation Customs lifted the duty-free exemption and taken the necessary administrative measures.
40
4. Job Sheet/LAP Test (Learning Activity Performance)
1. Discussion Points
• Define and explain at most three types of commercial fraud you have learnt in this module
• List the major categories of goods smuggled and examples of the types of goods that fall
into those categories?
• Mention at least 10 types of commercial fraud?
• Choose three types of commercial fraud you want and discuss the reasons to perpetrate
such fraudulent activity?
• Discuss the necessary follow-up measures to identify the likely risks of commercial fraud?
• Imagine a hypothetical and/ an actual commercial fraud scam and prepare a short (5-10
line) narration about the scam? (If your case is actual, it must be a dead case).
2. Use the following (Ahmad and Tiru Company’s) commercial information (suppose the
case is given with actual information needed to process customs formalities).
Assume on Nov 12, 2021, your customer contacted you and provide you a list of commercial
documents to process and clear the customs formalities on behalf of him. You received all the
documents from him, and you started customs formality on behalf of him at A.A Kality Customs
Branch Office. From the documents, you understood that the goods to be imported were 12,980
children’s pairs of jeans clothes that were shipped from China.
In the meantime, you learned from the phone call of the importer that those cloths are in fact French
origin. And you also knew that the company in China had agreed with the Ethiopian resident
company- Ahmad and Tiru Company- to deduct part of the selling price of $98,000 for these pairs
of jeans as part of their secret agreement. Thus, the amount of $34,500 will be compensated in
kind for the exporter company. So as to their agreement, the exporter put only the selling price of
$63,500 in the invoice sent to Ahmad and Tiru Company. The certificate of origin shows the origin
of the goods is Chinese. When the physical examination carried out, your staff informed you that
the number of cartoons and the quantity of a majority of pairs in the cartoons are outstripped.
41
Furthermore, in the examination, the clothes found to be an adult’s (mens’) jeans pairs but in the
invoice, the description was children’s pairs of jeans clothes. The customs goods examining
officer informed you that he wants to quit the case if you were able to manage it with bribery.
From your understanding of the above case answer the following questions:
1. Which documents do you check for your suspicion of commercial fraud?

2. What types of fraud did you realize and what was the intention? List them?
3. On which documents this commercial fraud committed?
4. How much duty/tax does customs to lose on this probe? A rough estimation is enough.
5. What is your role in getting rid of such fraudulent activities? Please discuss your role.
Assessment Criteria
Commercial fraud types recognized, reasons to commit different types of commercial fraud
identified, methods on which each type of commercial fraud perpetrated are recognized. Roles to
which each trainee expected to manifest in his/her actual duty familiarized.
Assessment Methods:
• Discussion
• Case Analysis
Resources:
Stationaries, marker, pin board, flip chart, gamming stickers
References:
• WCO (n.d.). Commercial Fraud Manual. http://www.wcoomd.org/en/topics/enforcement-
and-compliance/instruments-and-tools/commercial-fraud.aspx
• Indian Customs Commission (n.d.). Commercial Fraud Manual.
• United Nations Commission on International Trade Law (2013). Recognizing and
Preventing Commercial Fraud: Indicators of Commercial Fraud. United Nations, New
York. https://www.uncitral.org/pdf/english/texts/fraud/Recognizing-and-preventing-
commercial-fraud-e.pdf
• Ethiopian Revenues and Customs Authority (2017). Ethiopian Customs Guide.
http://admin.theiguides.org/Media/Documents/Ethiopia_Customs_Guide.pdf
42
Annexes
Annex 1. Goods Smuggling Methods
Traditionally smuggling methods are described by either the type of person doing the smuggling
or the method used to transport the goods. Listed below are the most common smuggling methods:
Method Concealment
Crew of commercial ships hidden on board and then walked ashore by themselves or a shore
and aircraft side accomplice
Commercial cargo extra cargo not declared, or in false compartments or hidden inside
including articles of mail legitimate cargo
International air, road, rail hidden in either their baggage or on or in their body
or sea passengers
Bus or truck drivers hidden in the vehicle and retrieved after passing through the border
Owners/operators of small hidden on board then either walked off, or off loaded in a remote
craft and light aircraft location where they are met by shore side contacts or hidden for
later retrieval
Annex 2. Likely Risk Indicators of Transit Fraud
1. Pre-entry and entry phases
Indicators of fraud in this area are:

 seals and locks meant to secure transit goods found tampered with,
 too generalized a description of the goods,
 high duty or high risk goods,
 applicant not listed in the trade registry,
 general reputation of the Customs agent handling the consignment,
 first time applicant,
43
 nature of the goods not suitable for transit e.g., perishable goods, high quality electronic
gadgets, spares or equipment,
 high value consignments, high technology consignments being cleared by a new Customs
agent,
 low value of goods, inconsistent with the description,
 inconsistency in weight and quantity of the goods,
 inconsistent or incomplete documentation,
 selection of an unlikely or unusual transit route,
 undue delay made between the arrival of the goods and the request to grant transit facilities,
 weight of the container and goods being far in excess of the indicated weight capacity of the
container,
2. Transit phase
It is difficult to have an extensive list of indicators for this phase as the goods would be in the
process of continuous movement from one Customs office to another. However, during such transit
through the country the following activities can take place which, on monitoring by Customs, can
indicate commission of fraud:
 undue delay in the movement of the conveyance from one point to another,
 seals and locks found tampered with,
 unusual breakdown and malfunction of the conveyance,
 unscheduled change-over of goods from one conveyance to another during transit,
 report of an accident or incident indicating damage or loss caused to goods without
substantial evidence,
 tampering and substitution of documents,
 unscheduled change of routing without sufficient cause,
 unexplained discrepancy or tampering with marks and numbers,
 non-compliance of any standing general instructions or any particular instructions given by
Customs for movement of transit consignment,
 tampering with stamps used to secure authenticity of documents,
44
3. Export phase/termination of transit phase
 seals, lock fastenings found to have been tampered with,

 documents found to have been substituted and tampered,
 discrepancy or tampering with marks and numbers,
 undue delay in the movement of conveyance from the office of entry to the office of
destination,
 non-compliance of any standing general instructions or any particular instructions given by
Customs for movement of the transit consignment,
 unscheduled change-over of goods from one conveyance to another during transit,
 unusual breakdown and malfunction of the conveyance,
 report of an accident or incident indicating damage or loss without substantial evidence,
 unscheduled change of routing without sufficient cause,
 inconsistency and incompleteness in the documents furnished at the office of destination,
 possible inconsistency in the weight, quantity, package, container and receptacles,
Annex 3. Likely Risk Indicators of Mis-description Fraud
(1) A generalized description of the goods on the invoice

(2) Incomplete documentary information
(3) Incorrect origin of the goods
(4) Revenue history of the importer
(5) Goods imported under part shipments
(6) High-duty/high-risk goods
(7) Under or overvaluation of goods
(8) Unlikely market destination
(9) Inconsistency with the declarant's business
(10) Use of vague mail addresses or post office boxes
(11) First time importer
(12) Sudden changes in the trader's business practices
(13) Change of name or trading style
(14) Whether any of the parties in the transaction are related
45
(15) Changing the port of clearance (port shopping)

(16) Declarant or agent pressing for release of the goods
(17) Changes in the marks and numbers on the packaging
(18) Information received (e.g. anonymous letter)
(19) Famous brand goods not matching classification
(20) Credibility of the declared weight of the goods
(21) Terms of payment
(22) Disproportionate transportation costs
(23) Nature of packing
(24) Statistical units (e.g. Rolls of steel declared as bales).
Annex 4. Likely Risk Indicators of False Declaration of Quality and Quantity Fraud
 discrepancies noted on physical examination of goods,

 a generalized description of the goods on invoice,
 incomplete documentary information,
 incorrect description of the goods,
 frequent amendments of supporting documents such as letters of credit, proforma invoices,
packing lists, etc.,
 unlikely market destination,
 sudden change in the business practices of the traders,
 goods carrying famous brand names presented in a manner inconsistent with their normal
presentation,
 inconsistency with the declarant's business,
 incorrect origin, their nature of packing, faulty statistical units,
 change in marks and numbers,
 inconsistencies in weights,
 examination whether false stamps or false certifications have been affixed on any document,
 inconsistencies in the nature of packings,
 disproportionate transportation costs,
 disproportionate import of raw materials to manufacturing capacity,
46
 import of high quality materials to manufacture low quality goods,

 undue demonstration of haste,
 unusually high volume of importation of high quality goods,
Annex 5. Likely Risk Indicators of Valuation Fraud
(1) Incomplete documentary information

(2) House bills of lading or air waybills
(3) Exceptionally high or low prices
(4) High insurance costs
(5) Disproportionate transportation costs
(6) Incorrect origin of the goods
(7) High risk/high duty goods
(8) Quality of the goods
(9) Misclassification
(10) First time importer
(11) History of importer
(12) Sudden changes in importer's business practices
(13) Change of name or trading style
(14) Use of vague mail addresses or post office boxes
(15) Whether any of the parties in the transaction are related
(16) Changing the port of importation (port shopping)
(17) Unusual methods of payment
(18) Bulk payments
(19) Barter transactions
(20) Declarant, importer or agent pressing for release of the goods
(21) Register capital incompatible with import or export value.
Annex 6. Likely Risk Indicators of Origin/Preference Fraud
 Merchandise that carries no country of origin markings requirements.

 Merchandise bearing an appellation of origin imported from a country where the region
identified by the appellation is not located. Consignments declared as originating from
47
countries which are not known for production of the types of goods in question should be
targeted for further documentary and /or physical examination.
 Merchandise with poorly translated titles, instructions or labels.
 Merchandise, packing, labels, boxes, or tags printed with misspellings.
 Incomplete and/or incorrect documentary information.
 Changes in the marks and numbers on the packaging and/or labelling.
 Nature of packing (e.g. false packing list).
 Information received (e.g. anonymous letter).
 Exporter and Carrier Profiles (based on past record).
 Miscalculating and/or giving incorrect information on the local content of the goods.
 Related company transactions.
Annex 7. Likely Risk Indicators of Inward/Outward Processing Relief Fraud
Likely Indicators of Fraud for Inward Processing
1. Pre-entry stage:
 Too generalized a description of the goods,
 A profile or revenue profile of the importer,
 High duty or high risk goods,
 Location of the applicant (applicant’s address),
 First time applicants, no listing in the trade registry,
 New entrant as clearing and forwarding agent,
2. Import phase:
Fraud at the import phase can be indicated by the following indicators:
 First time importer,

 Unrealistic time taken for the completion of the formalities,
 Inconsistency with the declarant's business practices,
 Inconsistent use of points of clearance/routing,
48
 Generalized description of goods,

 Incomplete/inconsistent documentation,
 Mode of transport inconsistent with the goods (air freight for low cost goods),
 Packing as indicated with the packing list, etc. inconsistent with the goods,
 Indication that there are related parties in the transaction,
 Any previous fraud history,
 Inconsistencies in the weights,
 Quality of the imported goods inconsistent with the goods to be produced,
 Checking of reimported goods that were sent out for outward processing.
3. Manufacture/processing phase:
 Nature of the manufacturing process,

 Excessive amount of wastage exceeding the limits allowed,
 The delay between the importation of the goods and the processing/manufacture of the
goods,
 Failure to comply with prescribed time-limits,
 Disproportionate import of raw materials to manufacturing capacity,
 Importing high quality inputs to manufacture low quality goods,
 Due to the highly complex nature of the inputs/goods and manufacturing process there is
need for subsequent investigation,
 Susceptibility to interchange and substitution of inputs, parts, etc.,
 Change of name or trading style.
4. Export phase:
 Quality and quantity of exported goods does not match imported material,
 Weight of the container is too light or heavy,
 Nature of the exported goods,
 Value of goods exported is too low (outside set limits),
 Any discrepancy between imports and exports,
 Mis-description of the goods,
49
 Incorrect classification,
 Unlikely market destination,
 Unusual quick time between import/export/manufacture,
 Difference b/n the commercial documents and the export documentation in respect of value,
 Too many amendments of documents,
 Abnormally long delay between the import and export process.
Likely indicators of fraud for outward processing
1. Pre-exportation phase:
 Same as Pre-entry under inward processing.
2. Exportation phase:
 Substitution of equipment of sophisticated technology with inferior technology,

 Substitution of original manufacturing number with a false identification number,
 Also, refer to the importation phase under inward processing.
3. Re-importation phase :
 Incorrect or false declaration concerning the goods exported originally,

 Incorrect or false declaration in regard to the processes completed on goods during the
processing phase abroad,
 Incorrect shipping documentation i.e. wrong country identified in the documentation,
 Incorrect or false identification in respect of the value of the goods.
Annex 8. Likely Risk Indicators of Temporary Admission Fraud
1. Pre-entry phase:
Indicators of fraud for this procedure are:
50
 a too generalized description of the goods,

 profile of the importer and the company,
 high duty or high risk goods,
 applicant not listed in trade registry,
 location of the firm or applicant,
 first time applicants,
 high value consignments, high technology consignments being cleared by a new clearing
and forwarding agent,
 nature of the goods not suitable for temporary admission e.g. perishable goods,
 machinery and equipment having a general use,
2. Import phase:
Fraud at the import phase can be indicated by the following indicators:
 first time importer,

 unrealistic time taken for the completion of the formalities,
 inconsistency with the declarant's business practices,
 inconsistent use of points of clearance/routing,
 a too generalized description of the goods,
 incomplete/inconsistent documentation,
 mode of transport inconsistent with the goods (air freight for low cost goods),
 packing as indicated with the packing list etc. inconsistent with the goods,
 indication that there are related parties in the transaction,
 any previous fraud history,
 inconsistencies in the weights,
 inconsistent value for the goods,
3. Temporary stay:
It is very difficult to have an extensive list of indicators for this phase however the following can
be considered as such:
51
 goods are not found at declared location or premises,

 facilities are not consistent with goods imported,
4. Re-export phase:
 Excessive wear and tear (subject to local conditions),

 Excessive delay in the export of merchandise,
 Quality and quantity of exported goods does not match imported material,
 Weight of the container is too light,
 Nature of the exported goods is inconsistent,
 Any discrepancy between imports and exports,
 Mis-description of the goods, or false declaration,
 Incorrect classification,
 Unlikely country of destination,
 Excessive use of this type of procedure,
 Time between import/export,
 Difference between the commercial documents and the export documentation in respect of
value,
 Too many amendments of documents,
 Abnormally long delay between the import and export process.
 Substitution of original manufacturing number with a false identification number,
 Packaging method is inconsistent with the goods
Annex 9. Likely Risk Indicators of Duty Drawback Fraud
 Late presentation of notification of export

 Any documents containing amendments
 High volume of exports
 Country of destination - not typical for the product
 High duty/high risk goods
 Transport or insurance cost not in accordance with the goods
 First-time exporter
52
 Nature of packing
 Vague description on export sales invoice.
Annex 10. Likely Risk Indicators of Import/Export Licensing Fraud
 late presentation of Customs documentation

 any documents containing amendments
 unusual routing of consignment
 terms of payment
 country of origin - not typical for the product
 unusual destination country for the kind of goods
 high duty/high risk goods
 importer or agent pressing for release of goods
 transport or insurance cost not in accordance with goods
 first time importer/exporter
 nature of packing
 vague description on invoice (e.g. vague importer’s/delivery address),
Annex 11. Likely Risk Indicators of End Use Fraud
 High duty/high risk goods

 End-use certificates containing amendments
 First-time importer
 Consignee or commodity does not correspond to the specified end-use
 Non-production of required end-use certificate
 Terms of payment
 Quantities for which end-use relief claimed appear to be disproportionate for the purpose
specified.
Annex 12. Likely Risk Indicators of Trade Description and Consumer Protection Fraud
(1) Merchandise that carries no country of origin markings, weight designations, ingredient
listings, electrical standards, consumer standards or other national requirements.
53
(2) Merchandise bearing an appellation of origin imported from a country where the region
identified by the appellation is not located. Consignments declared as originating from
countries which are not known for production of the types of goods in question should be
targeted for further documentary and/or physical examination.
(3) Merchandise with inferior packaging such as blurred or distorted printing or poor coloration.
(4) Merchandise with non-standard packaging material such as cellophane, shrink wrap or other
outer wrapping or merchandise in unusual packaging (e.g. watches in plastic bags rather than
boxes and shoes in bags rather than boxes).
(5) Merchandise not accompanied by the usual guarantee or warranty certificate.
(6) Merchandise with poorly translated titles, instructions or labels.
(7) Merchandise missing lot numbers, factory codes, expiration dates, dates of manufacture or
other standard markings.
(8) Merchandise that is substantially undervalued and/or under insured for goods of that type.
(9) Merchandise not accompanied by licenses where regulations specify licensing requirements.
(10) Merchandise which is subject to importation only via officially notified sole agents or
concessionaires, where the importer is not one of these approved licensees.
Annex 13. Likely Risk Indicators of Counterfeit/Pirated Goods Fraud
 Merchandise bearing an appellation of origin imported from a country where the region
identified by the appellation is not located.
 Merchandise in non-standard sized or shaped packaging.
 Merchandise with inferior packaging such as blurred or distorted printing or poor coloration.
54
 Merchandise with non-standard packaging material, such as cellophane, shrink wrap, or

other outer wrapping, or merchandise in unusual packaging (e.g., watches in plastic bags
rather than boxes and shoes in bags rather than boxes).
 Merchandise accompanied by a photocopied instruction manual.
 Merchandise not accompanied by a usual guarantee or warranty certificate.
 Designer or branded merchandise shipped in bulk or in component parts, rather than in

consumer packaging, such as designer perfumes or watches, which are not generally
shipped in bulk or in parts.
 Unusual product combinations, such as collections of computer programs, video games,

sound recordings, or video tapes, when each component is a product of a different
manufacturer, studio or artist.
 Merchandise with poorly translated titles, instructions, or labels.
 Merchandise missing lot numbers, factory codes, expiration dates, dates of manufacture, or
other standard markings.
 Clothing or other merchandise of non-standard sizing or sized according to the standards of

different country.
 Merchandise missing a copyright or trademark notice, especially on a well-known

copyrighted work or on goods bearing a well-known trademark.
 Merchandise imported at a port not usually used by the importer of genuine merchandise or
by an unusual routing.
 Merchandise that is substantially undervalued and/or under-insured for goods of that type.
 Merchandise that fails to conform to country of origin marking requirements, weight

designations, ingredient listings, electrical standards, consumer standards, or other national
requirements.
55
 Merchandise imported from a country not identified by the right holder as a country where
genuine goods are manufactured.
 Merchandise imported from a country lacking intellectual property protection. (Rights

holders that rely on intellectual property rights, such as the recording and motion picture
industries, do not generally manufacture goods in locations without protection).
 Merchandise imported by, or consigned to, someone not on a list of authorized licensees
provided by the right holder.
 Merchandise shipped prepaid in cash or on a cash-on-delivery (c.o.d.) basis, rather than by

letter of credit.
 Merchandise shipped in less than usual quantity.
 Merchandise shipped to a consignee with a post office box or mail drop address.
 Merchandise shipped to a fictitious freight forwarder, individual, or company not listed in a

commercial telephone directory.
 Shipments described as "labels", "patches", "tags", "imprinted boxes", or "dies", which may
contain counterfeit trademarks.
 Merchandise bearing current "fad" characters.
 Popular toys or games.
 Unusually vague invoices or invoices lacking model or catalogue numbers.
 International mail shipments (especially of high technology goods), which are often used to
minimize losses in case of seizure.
 Compact disks, audio cassettes, or video cassettes shipped as "blank" or "unfinished".
 For video games, merchandise shipped assembled in cabinets. (Unlike many other genuine
products, genuine video games are usually imported in components for assembly).
56
 Textile products not labelled with fibre content or cleaning instructions.
 Merchandise, packaging, labels, boxes, or tags printed with misspellings.
Annex 14. Likely Risk Indicators of Off-record Transaction Fraud
 The turnover declared by a business is less than one would expect for the type of trade or
area.
 The ratio of purchases to sales differs from what is typical for the type of trade.
 The number of employees is more than one would expect for a declared turnover.
 Owners or directors of a company enjoy a lifestyle inconsistent with sales declared on tax
returns.
 Different series of invoices or receipts are used in the business.
 Invoices used are not pre-numbered by the printer.
 The trader does not use sequential invoice numbers.
 Receipts are not given with goods sold or a trader asks whether a receipt is required.
 The rates of cash declared against cheques or credit card transactions is lower than that
expected for the type of trades.
 Observations of a business (either casually, such as a tax inspector shopping at the weekend,
or formally as part of an investigation) show that the amount of trade is higher than that
declared.
 Noting on VAT inspections that large items, such as cars, are paid for by cash may indicate
the purchaser is involved in VAT or other fraud.
 Use of computerized accounts with software programmed to suppress tax due.
Annex 15. Likely Risk Indicators of “Ghost” Business Fraud
57
(a) "Ghost" importer
 First-time importer.
 High unit value goods subject to a high rate of duty.
 Checks on the names of the company reveal it is not a registered limited company.
 The importer cannot be traced at the address given.
 The Customs agent is unable to contact the importer, but has to wait for the importer to
contact him.
(b) "Ghost" supplier
 The supplier invoice shows an address in a different country from which the goods are
imported.
 The invoice is from a company indicating an address in a known tax haven country.
 The company name on the invoice indicates a trading company rather than a manufacturer.
 Direct attempts to contact the company named in the invoice are unsuccessful.
 The supplier shown on the manifest or air waybill differs from the supplier shown on the
import invoice.
(c) "Ghost" business registered for sales tax/value added tax
Examination of an application for registration from a "ghost" business will often reveal:
 No bank account details shown.
 No telephone number given.
 The address shown is an accommodation address.
 Checks on the address reveal it is not consistent with the business declared.
 The address is where mail can easily be collected by someone other than the occupant, e.g.
a multi-occupied building.
 The name of the applicant may be misspelt.
58
 The signature on the application form differs from that on later correspondence/tax returns.
 Attempts to contact the applicant are unsuccessful.
 Attempts to contact the applicant are sufficient to frighten him off and the "ghost" business
disappears.
 Experience has shown that fraudsters attempt to register many "ghost" businesses
simultaneously in different tax offices/regions. In order that they do not become confused,
many of the names will be common, or similar, e.g. Gordon James Ltd. (at one office) and
James Gordon Ltd. (at another). A centralized registration system, or scrutiny of
applications, may reveal this "multi-cell" type fraud.
 Once registered without being detected, the "ghost" company will always submit tax
returns claiming repayment of tax.
 Attempts to verify the tax return before or after payment will be frustrated, and may lead
to the disappearance of the "ghost" business.
 If contact is made with someone representing the business, and a visit arranged, then the
nominated premises are likely to be rented especially for the visit.
 The tax inspector will be presented with a false set of books and records on such a visit.
Checks with "customers" and "suppliers" will reveal that no transactions took place.
 The exporter will export the goods with a high duty compensation rate.
(d) "Ghost" supplier invoices
 These may be found on verification visits to registered traders, by examination of traders’

records.
 Invoices of "ghost" companies may indicate that it is a registered limited company when it
is not. Even if it is registered, it may still be a "ghost" business.
59
 The address shown on the invoice may not exist, be an accommodation address or a multi-
occupied house or office.
 Any telephone number, fax or telex shown on the invoice is unobtainable, or of an

accommodation address, where a message must be left.
 The sales tax or value added tax registered number on the invoice is false, belongs to
another company or to a deregistered or missing company.
 Invoices of "ghost" companies often have a typeface that is similar to other, known "ghost"
companies.
 Tax inspectors visiting registered traders may notice that purchase invoices are not folded,
as one would expect for invoices sent by post.
 On such a visit, traders may be unable to contact "ghost" businesses from whom they have
supposedly purchased.
Annex 16. Likely Risk Indicators of Contrived Liquidation Fraud ("Phoenix Syndrome")
Companies involved in contrived liquidations often display the following characteristics:
 the business is a limited or corporate company, usually with a low nominal capital;
 there is a lack of tax compliance by the company :
▪ returns are not rendered or rendered late
▪ tax is not paid
▪ the tax debt accumulates
▪ the person running the company does not respond to correspondence or is not
available to take telephone calls;
 the tax authority is the only or main creditor (trade creditors are paid to ensure that the
business is able to continue);
 any assets in the company are either leased, owned by a separate holding company or sold
onto the succeeding company for a low cost at liquidation;
 money is taken out of the company, so that it is unable to pay its tax debts by:
60
▪ directors paying themselves inflated salaries

▪ loans are made to associated companies
▪ business funds are used for private or non-related purposes;
 there is a common link with one or more previous companies which has been liquidated
leaving a tax debt:
▪ in the same trade
▪ using the same premises
▪ employing the same staff
▪ using the same trading name or logo
▪ retaining the same suppliers and customers
▪ with common or related directors, shadow directors or managers;
 a type of business that can easily disappear:

▪ a trading company
▪ a company that has few employees
▪ a company with no substantial plant, machinery or manufacturing capacity;
 linked companies are registered with tax authorities in different tax districts so the link
between them is less likely to be made;
 goods are imported through different ports so that deferred duty limits are exceeded;
 goods for warehousing are diverted to home use and guarantees or securities are exceeded
61

Commercial Fraud 2022

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Commercial Fraud 2022

Uploaded by

Copyright:

Available Formats

Ethiopian Civil Service University Commercial Fraud Manual

Occupational Title: Customs Clearing Agent

Unit of Competency Title (Module Title): Commercial Fraud CCA

Nominal Duration: 8 Hours

Unit Learning Outcomes:-

At the end of this unit, the trainees/you will be able to:

➢ Understand basic concept of commercial fraud

➢ Concept of commercial fraud

Training Delivery Methods:

➢ International trade and Customs procedure Courses

1.2. Commercial Fraud Background

1.3. Definition of Commercial Fraud

1. Evade, or attempt to evade, payment of duties/levies/taxes on movements of commercial

3. Receive, or attempt to receive, any repayments, subsidies or other disbursements to which

1.4. Typologies of Commercial Fraud

➢ Evasion of the duty/tax payment;

1.5. Reasons to Commit Commercial Fraud

➢ Incentives for Financial gains

1.6. Implications of Commercial Fraud

• Loss of revenue to the State

• Customs duty levied at very high rates (100 %);

1.8. Types of Commercial Fraud

 Fraud by Smuggling  False Declaration of Quality & Quantity Fraud

1.9. Assessment Activities

Unit Learning Outcomes:

At the end of this unit, the trainees/you will be able to:

➢ Understand the different types of commercial fraud

➢ Types of commercial fraud

Training Delivery Methods:

2.1. Types of Commercial/Customs Fraud-Part I

2.1.1. Fraud by Smuggling

(a) To evade or attempt to evade any duties and/or taxes levied, or

2.1.1.1. Principal Reasons for Smuggling to Occur

 To evade duties, levies and other taxes

2.1.1.2. Major Categories of Goods Smuggled

 Goods subject to international control e.g. radioactive materials, toxic waste.

2.1.1.3. Reasons smuggling to occur

 An imbalance in the supply and demand for goods

2.1.1.4. Places Where Smuggling Can Occur

2.1.2. Transit Fraud

2.1.2.1. Stages of the Transit Process

 Export of transited goods phase

2.1.2.2. Reasons to Perpetrate Transit Fraud

 To evade the payment of import duties and taxes

2.1.3. Mis-description Fraud

2.1.3.1. Areas of Mis-Description

Mis-description may take place in a number of circumstances including, amongst others:

2.1.3.2. Reasons to Perpetrate Misclassification Fraud

Misclassification fraud may be perpetrated for the following reasons:

(1) To gain from a reduced rate of duty or other taxes

2.1.4. False Declaration of Quality and Quantity Fraud

e.g. - Goods imported in larger quantities than quantities declared

 To gain unfair market advantage.

 To take advantage of quota allowance.

2.1.4.3. Forms of False Declarations at Importation

 Under declaration of quantity of goods to avoid import levies

2.1.4.4. Forms of False Declarations at Exportation

2.1.5. Valuation Fraud

This section deals particularly with commercial fraud involving valuation.

Customs Value Definitions

2.1.5.1. Categories of Valuation Fraud

A related party is a person or an entity that is related to the reporting entity:

▪ Attract lower duty liability

 Obtain higher export refunds and higher duty compensation;