FIA reports money laundering, tax fraud in clothing stores

Details of this are revealed in a report by the Financial Intelligence Agency (FIA). FIA says it reported financial crimes worth more than P50 million to the Botswana Unified Revenue Services (BURS) in 2020.

With regard to tax fraud, the Agency says it received a number of STRs (suspicious or unusual transaction report) from commercial banks involving individuals depositing business funds into personal accounts. “In some of the cases, the subjects maintained personal and business accounts in different banks, making it difficult for the banks to form a holistic financial profile of the customer because they did not have access to accounts maintained across them.

“This trend has been observed over a number of years, and for the period under consideration, the Agency disseminated financial intelligence involving suspected tax crimes to BURS valued at P50 629 762,” says the FIA report.  Other notable tax crimes observed included failure to declare capital gains for transactions such as sale of properties and shares.

The report accuses some clothing retailers and dealerships of pre-owned car of using their businesses to launder money suspected to have been gained through criminal activities. It says some foreign owned clothing retailers practise what it terms base erosion and profit shifting tax evasion schemes.

“This is common among foreign owned companies, particularly those in the clothing retail sector,” it says. “Activities giving rise to suspicion include among others large cash deposits referenced as sales just prior to externalising the funds. The transfers are usually to the shareholder’s native countries with the narration ‘raw materials’ or ‘stock.’”

On tax evasion by informal grey import car dealers, FIA says this primarily involves some foreign nationals who operate unregistered pre-owned car dealerships. “Such businesses are cash intensive and most transactions involve cash deposited through ATMs,” the report says. “Usually narrations would read as ‘car purchase,’ ‘cars’ or various names of third parties.”

FIA says virtual assets have gained prominence the world over as an alternative to fiat currency. “In Botswana, we are observing a rise in interest and trading in virtual currencies, in particular, bitcoins,” says the report. “At the same time, the FIA has received a number of STRs involving bitcoins business where individuals looking to invest in bitcoins were cheated by wallet operators.” In addition, pyramid and other Internet investments schemes are on the rise. Often the public is swayed by promises of high returns on their investments.

With regard to non-resident accounts, FIA says  a number of cases have been reported where foreigners open bank accounts in Botswana, non-resident accounts, which are then used to receive large cash transfers mainly from abroad. These funds, FIA says, are then wired out to other countries almost immediately. “Such transfers do not make economic sense as there is no value added to the Botswana leg of the transaction,” it notes. “In some cases, the funds are cashed over the counter and exported across the border to neighbouring countries.”

The FIA reports says the strategic analysis based on cross-border cash declarations has revealed a high volume of cash conveyance into the country as opposed to the outward flows of cash. “Cash inflows indicate prevalence of preference to use cash as opposed to banking and other new payment methods,” it says. “As indicated earlier, cash transactions present complexity in tracing its origin or source.”

According to FIA, fraud, money laundering and tax crimes are the major financial crimes underlying its suspicions. This observation is consistent with the risk profile of the country as established by the national risk assessment for money laundering and terrorist financing of 2017. “In addition, credit card fraud, cybercrime and procurement fraud involving public servants were found to be common methods used to defraud the public,” the FIA report says.