Of Corruption and Smuggling Cartels

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Eromosele Abiodun writes on the impact of smuggling on the Nigerian economy, saying the malaise will not be possible without the active connivance of some officials of the Nigeria Customs Service

Smuggling harms the economy of a country in several ways. It undermines the local industry, discourages legal imports and reduces the volume of revenues collected from duties and levies by the state. Unfortunately, a parallel underground economy, through smuggling, has taken roots in Nigeria.

A major proportion of the revenue to be collected by the federal government is being lost, over and above the adverse impact that the smuggled items cause to local industry. Obviously this cannot be done without connivance of corrupt officials including those in the law enforcement agencies and everyone is aware of it but no action is being taken.

Markets and shops across the country are flooded with smuggled goods of various kinds and all descriptions. Smuggled items through the Seme, Idiroko, Katsina, and Yobe borders form a major part of the informal economy volume of which ranges between 50 to 60 per cent of the formal economy. Smuggling has assumed an alarming proportion and turned out to be a parallel economy, which is depriving the country of its rightful levies including excise and customs duty worth hundreds of billions of naira.

As a result of the activities of smugglers, thousands of industrial units have been rendered sick due to the availability of smuggled goods in open markets. Smuggling has now become a routine part of all economic activities in Nigeria and hardly raises any fear of the law. Nigeria is facing the challenge of measuring and countering enormous revenue leakages and black money — its size estimated to be three time the regular economy.

Illegal Importation of Goods
Meanwhile, a report by the World Bank on the level of illegal importation of goods into Nigeria from neighbouring Benin Republic and other West African countries showed the alarming rate of smuggling and the impact on the nation’s economy.

Experts believe this should be a major concern to the federal government and the agencies responsible for the management of the nation’s economy. According to the World Bank, an astonishing $5 billion (N1.45 trillion) worth of assorted goods are smuggled into Nigeria through Benin Republic alone every year.

This amount represents about 15 per cent of total smuggled goods through that border. The World Bank report also claims it has enough evidence that over $400 million (N116 billion) representing about 25 per cent of the total current annual revenue collected by the Customs Service is lost through nefarious smuggling across the sub-regional borders.

The report, which was prepared by two of the World Bank’s leading experts on the African Transport Unit, also noted that smuggling into Nigeria will further hamper the operational efficiency of the Customs Service and cause more revenue losses if urgent steps are not taken by government to tackle it. It advised a liberalisation of trade policies which encourage smuggling across the borders.

Experts told THISDAY that the report is troubling but not surprising, considering the increasing rate of smuggling across our borders, especially along the Benin Republic axis.

“A combination of factors accounts for this unhealthy trend. One of them is the high cost of clearing goods in our ports and the laxity of enforcement of anti-smuggling laws by those charged with responsibility in the country. It is not unkind to say that the integrity of some of the customs and immigration officials statutorily charged with policing our borders is suspect.
Many compromise their positions. Bad eggs among them are more concerned with lining their own pockets than checking smuggling activities, thereby denying government much-needed revenue.

“Therefore, the World Bank report should not be ignored. It should be treated as a wake-up call to address systemic difficulties in checking smuggling through the Benin Republic borders, and others in the region. In this regard, information exchange is vital. This has become crucial because available statistics reveal that 13 per cent of traffic of goods from the port in Cotonou, the capital of Benin Republic, is destined for Nigeria, while about 75 percent of the containers that land at the Cotonou Port are headed for our country.

“We also believe that the current rate of smuggling through the West African sub-region is encouraged by tariff differentials. This has made it more economically viable for importers to patronise other ports in the sub-region rather than Nigerian ports. Government should seriously look into the problem with a view to formulating better policies to redress the situation,” said a top player in the maritime sector who do not want his name in print.

He added, “Also, government should take a hard look at some of the treaties of the Economic Community of West African States (ECOWAS). Some of these treaties encourage free movement of people without addressing its harmful effects. Often, this freedom of movement undermines the economy of other countries through unbridled smuggling of goods.

“All in all, the World Bank report should be seen as a roadmap for designing new strategies for our country’s trade policy initiatives with neighbouring countries. This is crucial because inability to adequately check smuggling into Nigeria can undermine both national and economic security of the country, with attendant broad political implications.”

Mis-invoicing of International Trade

It is not just smuggling that is destroying developing economies. Terrorism, human trafficking and drug smuggling have long painted a gritty picture of crime in the developing world. However, new details are coming to light about another much less visible form of crime and its adverse effects on developing countries. Fraudulent financial transactions, in particular the mis-invoicing of international trade transactions, are having a significant impact on most African economies.

According to a report published by Global Financial Integrity (GFI) on mis-invoicing and the Impact of Revenue Loss, the mis-invoicing of international trade transactions has allowed for the fraudulent movement of at least $60.8 billion in and out of the five African countries alone between 2002 and 2011.

Mis-invoicing is a form of trade-based money laundering that includes the over and understatement of import and export values on official forms and records. Firms engaging in international trade in developing countries often conduct these fraudulent transactions in order to evade tariffs and taxes, collect additional export-related tax credits and subsidies, or move large amounts of capital in and out of countries illegally.

Mis-invoicing can typically be as simple as altering the values on the books for a given transaction. For example, a firm may understate the value of an import shipment in invoices and records in order to pay lower tariffs or overstate the value of an export shipment in order to gain more export credits and subsidies than the shipment actually earned.

Experts believe catching those that engage in mis-invoicing is typically difficult for developing countries. “Often times mis-invoicing can be performed effectively by making very small augmentations to the prices of common goods. If a firm augments the value of its goods by only one or two dollars per unit, even the best customs officers would be unlikely to notice it, and the benefits of such an augmentation could still add up significantly in large volumes.

“However, this is only trade mis-invoicing in its mildest form. In many cases, firms engaging in mis-invoicing and other forms of money laundering send their transactions through anonymous shell companies in tax havens and developed countries in order to further disguise their activities, allowing them to augment values much more as the important details of the transactions disappear without a trace behind a shield of secrecy and anonymity, “said National President of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero.

Die-Hard Smugglers
The Nigeria Customs Service has, however, made some effort to tackle smuggling with the effort leading to loss of lives.
Recently, Comptroller General of the NCS, Col Hamid Ali (rtd.) lamented how the Service has lost 70 of its officers in various battles with smugglers along Nigeria’s border with Benin Republic.

He solicited the corporation of Customs in Benin Republic, as well as her stakeholders to partner Nigeria in the fight against smuggling.
Ali gave the charge at a stakeholders’ interactive session that was held in Cotonou at the residence of the Nigerian Ambassador to Republic of Benin.

He said the 70 officers were lost while combating smuggling within Idi Iroko and Seme area, adding that the biggest problem confronting Nigeria Customs Service till date is the lack of compliance on the part of traders, who make dishonest declarations.

Ali, emphasised the fact that borders are imaginary as far as ECOWAS is concerned, stressing that the Benin Republic Customs administrations must work hard to ensure that trade between both countries are without unnecessary hindrances.
He further charged both customs services to cooperate and forge an understanding to move goods and services seamlessly, between countries in West Africa.

The Customs CG also reiterated the need to review existing MoUs and agreements, with a view to bringing them in conformity with internationally accepted standards in trade, between countries.
He emphasised that both countries must address issues of dumping and smuggling across borders.

He also promised to bring up the challenges for discussion, especially that of the commonly traded items like Rice, vehicles, and find solutions to the numerous complaints made to the embassy and also, arising from other stakeholders meetings held earlier.

He advised that everybody involved in the business of trading across West African countries must read the ETLS protocol and understand the laws as it affects their trade, and challenge Customs whenever they feel marginalised.

Also speaking at the interactive session, National President of Association of Nigerian Licensed Customs Agents (ANLCA), Mr. Olayiwola Shittu, who led a delegation of the association to Cotonou, drew the attention of the CGC to the expensive nature of doing business across the Benin-Nigeria border.

In his words: “Cost of transiting ETLS (ECOWAS Goods) from Ghana to Lagos needs to be checked, to provide room for trade facilitation and trade competitions within the west African sub region. That is, a truck of ETLS cargo from Ghana pays 300,000cfa to exit Ghana into Togo and pays 400,000cfa to exit Togo into Benin Republic. The same truck will be charged 2,800,000cfa to ext Benin Republic into Nigeria, for reasons best known to Benin Republic Customs.”

Shittu said the multiplicity of security agencies are further aggravating the expenses incurred in transiting cargoes across the borders, demanding a review of these agencies downwards.
Shittu pleaded with the CGC to intervene on the exchange rate and the increase in import duty.
He said imports are drying up fast because of the unfriendly policy and it is robbing government of much needed revenue and threatening thousands of jobs.

On the issue of DTI closures, the ANLCA president urged the CGC to hasten the process of allocating passwords to 2016 renewed Customs licenses, as most jobs have been left hanging, with the abrupt shutdown again of commercial DTIs.

He said that the private DTIs will ensure that particular licenses are immediately held responsible, whenever infractions occur.
On his part, Rice Millers Association’s leader, Alhaja Karamatou Ibironke demanded to know the legal conditions for the exportation of rice to Nigeria, so that they can abide by it.

Also speaking at the meeting, Chief Alaba Lawson-Chairperson of NACCIMA, Ogun State branch wondered how rice gets into Nigeria massively through land borders, urging Customs, despite its ban. She said more should be done to curtail the trend or find a way to accommodate it, in order to generate revenue for the government.

Jailing Fraudulent Importers

It is not just at the borders that the Nigeria Customs plans to wage the war of economic sabotage, it is taking the battle to fraudulent importers.
Speaking to newsmen recently, Ali vowed to bring to book importers and freight forwarders who are bent on defrauding the federal government.

Specifically, he said importers who abuse the fast track facility meant to enhance trade facilitation and global best practices will face the full weight of the law.

According to him, “We are out on a mission and we get information on matters such as this, we react. I am glad that the Apapa command was able to nip this in the board. I am here to strengthen the command, commend them for what they are doing and use the opportunity to send a very strong message to our partners who are either importers or freight Forwarding agents.

Anybody got in this crime will be brought to book. Once you falsely declare and we discover it, it is automatic seizure. Whoever is involved will face the law and if there is any officer that connived with the importer he will be prosecuted and the minimum jail term is five years.”

He added, “It is instances like this that has continued to deter us from ascending to global best practices in trade facilitation. We will no longer trust in our stakeholders when we grant certain reprieve to ensure smooth clearing of goods and they turn around and abuse it. We have no option therefore than to subject every container that comes to our ports to 10 per cent inspection. That is going to course delay and increased expenses. At the end of the day, it is the poor consumer that will bear the cost.

“I therefore want to use this opportunity to say that in line with the law, we will fight corruption to its knees. That was the promise we made to this nation when we assumed duty. We are sure that anybody that has gone contrary to the law in the course of doing their job will be brought to book. We will use this as an example.“

According to the Customs Area Controller Apapa, Willy Egbudin, the importer Messrs D.IE HOPES based in Ikeja was the one involved.
He disclosed that his command got a tip off on July 26, 2016 that 16 containers laden with tyres at the port were falsely declared as paper board and industrial machinery and were about to be moved.
He said he immediately ordered that the containers be impounded, adding that on Friday the 29th, the containers were intercepted at the gate of the port.

The clearing agent, he stated, took off when the containers were taken to the customs enforcement unit.
“In pursuant to your zero tolerance for corruption and revenue losses, the command was able to intercept 16 by 40 containers falsely declared as paper board and machinery.

The importer was granted a fast-track facility but declared different items. On examination, these containers were found to contain car tyres and we have kept them waiting for your full examination,” he explained.
Egdudin said that by that false declaration a total amount N116, 284.740.00 duty was lost by the Customs.

The CAC said the agent later came back stressing that when investigation was done by the Customs it was discovered that all the consignments were car tyres.
“The command then profiled the importer and discovered that the total number of the containers was 26, and the company had taken delivery of 10 falsely declared. The agent was thereby detained while efforts are on to track the importer, “he said.