Corruption: An investigation by the Anti-Corruption Commission (ACC) has revealed how fronting in Phuentsholing thrived at the backdrop of the severe Indian Rupee (INR) shortage since 2011.
The money earned illegally by foreign nationals through businesses conducted in Phuentsholing in the name of Bhutanese license holders ultimately went across the border as payment for bogus imports.
The ACC’s analysis of bank transactions of those involved in the fraudulent practices indicated huge volumes of INR outflow. But the balances in bank accounts were always a few thousands only, indicating that the money did not belong to the account holders.
The investigation report, which is highlighted in the ACC annual report 2015, was conducted last year.
According to the report, fronting added further fuel to the already burning INR problem, when some people who ran businesses on Bhutanese licenses remitted INR fraudulently. Fake bills to avail Indian Rupees contributed to a sharp increase in import figures.
And to maximize their profits through such fraudulent means, import of zero tax commodities were targeted.
The worst of all the cases was the import of sugar, which increased drastically by 4,812 percent, from just 3.15 metric tonnes (MT) in 2011 to a whopping 154.74MT in 2012. Within the four years from 2011 to 2015, the import increased by 13,768 percent.
Last year, the import of sugar amounted to 436.86MT.
In monetary terms, the import of sugar increased from Nu 0.18M in 2011 to 5.35M in 2012. The figure amounted to Nu 13.82M last year.
“While a part of this increase in imports of the commodities may be attributed to the hydropower construction projects, it does not fully explain the sudden upsurge, which is still on the higher side,” states the ACC report.
Also, the import of rice increased unreasonably by 33.7 percent from 2011 to 2012, from 54,052MT to 72,290MT. Last year, the import figure amounted to 83,642MT.
In monetary terms, the import of rice jumped from Nu 853.45M in 2011 to over Nu 1.253 billion (B) in 2012.
And the figure increased even last year, indicating that the fraudulent practices were on going. The cost though decreased slightly to Nu 1.667B last year from Nu 1.781B in 2014.
Further, the quantity of maida or flour imported from India almost doubled from about 3,821MT in 2011 to more than 7,400MT in 2012. As a result, the cost of the import of maida shot up from Nu 58.35M in 2011 to Nu 130M in 2012.
The trend strongly indicates that the zero-tax commodities were used as the means to obtain INR through fake imports by the businesses engaged in fronting. INR acquired through such fraud were then re-circulated in the black market at a commission of 7 to 10 percent and this has become a booming business in itself.
The license holders in Phuentsholing, Gelephu, Samdrup Jongkhar and Samtse towns were required to sign an undertaking that they will not engage in fronting.
However, the ACC report states that after signing the undertaking, neither did many license holders abide by the rule, nor did the authority concerned adequately monitor its implementation as many licenses were found to have been leased to non-Bhutanese for a monthly commission.
The Sales Tax, Customs and Excise Act of the Kingdom of Bhutan requires businesses to maintain books of accounts and documents for tax computation purposes for five years. But the findings of the investigations indicate that the implementation and enforcement of laws, rules and regulations was weak.
“In many cases, the individuals responsible for the enforcement of the laws were indirect beneficiaries of fraudulent practices,” the ACC report states.
The ACC reports that fronting engendered a breeding ground for many fraudulent and corrupt activities. The common ones are commercial bribery, bribery, deflection of goods across the border, forgery of invoices and Customs Declaration Forms and trade–based money laundering.
In order to tackle these businesses that were fronting, the ACC investigated the cases and charge sheeted the culprits under relevant legal provisions.
From April to December 2015, the ACC completed investigation of 30 cases in Phuentsholing, which have been sent to the OAG for prosecution and included 27 cases of fronting involving 36 licenses. The ACC has sought restitution of Nu 594.79M from these cases for the State.
“Phuentsholing as a commercial hub of the Kingdom and an important port through which 80 percent to 90 percent of imports enter Bhutan must be sanitised as the country cannot afford to risk the financial, social and political ramifications it entails,” states the report.
The ACC also reports that it is becoming increasingly challenging due to lack of adequate storage facilities for seized goods.
The ACC has been requesting agencies with storage facilities to accommodate the seized properties. However, such temporary arrangements are neither tenable nor desirable.
The ACC also reports that as the OAG is overwhelmed by cases referred for prosecution by different agencies. This issue, the ACC states deserves urgent interventions in terms of building adequate capacity in the OAG, both quantitatively and qualitatively if the criminal justice system is to be effective and bring accountability issues to a logical conclusion at the earliest.
Owing to the complexity of corruption cases and the fact that all criminal cases are registered and prosecuted in the same court along with civil suits, judgment on corruption cases prosecuted are taking longer. If there were separate courts or benches specialised in corruption matters, the ACC says prosecution would not take as long as it does today.
Judgment implementation is another challenge. Long after the judgments of the courts have been handed down, restitution or recovery of proceeds of crime or administrative action still remains unexecuted.
For instance, restitution of Nu 90M from the Samtse mining case is still pending although the final adjudication order by the Supreme Court was given more than four years ago. Similarly, restitution of procurement funds embezzled by health ministry officials is yet to be made even after the final judgment was pronounced almost three years ago.