Imitation Jewellery Imports Raise Money Laundering Concerns

The declared import price of imitation jewellery is $2 to $3 per kilogram on paper. However, customs assesses the same products at $5 per kilogram. For gold-plated imitation jewellery, the minimum customs-assessed value is $8 per kilogram. The significant gap between the importers’ declared prices, customs valuations and market prices has raised concerns over possible duty evasion and money laundering through trade.

Imitation jewellery is regularly imported from India through Benapole Customs. Pro forma and commercial invoices submitted against letters of credit opened by various banks show declared prices of $2 to $3 per kilogram. However, data from ASYCUDA World shows that similar non-gold-plated products are assessed at $5 per kilogram at Benapole and other customs houses.

If the declared price is $2 per kilogram, the customs-assessed value is 2.5 times higher. Even when the declared price is $3, the assessed value is about 67 percent higher. The large gap has raised questions about whether the prices shown on importers’ invoices reflect the actual purchase prices. According to customs data, imitation jewellery is subject to customs duty, supplementary duty, VAT and other taxes. The combined tax burden is currently 96.1 percent. Therefore, understating the assessable value directly affects government revenue.

Risk of trade-based money laundering

Apart from duty and tax evasion, under-invoicing can also facilitate trade-based money laundering. The Bangladesh Financial Intelligence Unit (BFIU), in its 2023-24 annual report, included a case study on under-invoicing. It noted the risk of avoiding duties by importing goods at unusually low prices compared with their market value.

Money laundering through trade generally takes four forms: over-invoicing, under-invoicing, multiple invoicing and false declarations in imports. A recent study also identified these methods as important channels for money laundering within the country’s trade system. For example, if the actual value of a product is $100, an importer may declare it as $50 through under-invoicing. This allows a smaller amount to be sent abroad through the banking channel, while the remaining amount may be settled through other channels.

Guidelines on trade-based money laundering have identified this as a potential risk. Under-invoicing can also reduce customs duties and taxes. In other words, the same practice can potentially provide two benefits: reducing tax liabilities and concealing the actual flow of money.

Customs faces valuation challenges

In a letter sent to the National Board of Revenue (NBR), Benapole Customs House Commissioner Mohammad Faizur Rahman said the risk is more complicated in the case of imitation jewellery. Determining the actual value of these products can be difficult. Prices may vary depending on the design, metal, coating, packaging and quality of the same type of product. As a result, determining the actual value solely on the basis of invoices is difficult.

The commissioner said valuation should therefore be conducted by following the sequential methods prescribed under the customs valuation rules. Sources said importers are not providing sufficient supporting documents and manufacturers’ invoices. As a result, customs cannot always accept the declared transaction value. In the absence of reliable prices for identical products, subsequent valuation methods also cannot always be applied. Customs ultimately has to assess the goods based on the transaction value of similar products.

Questions over gold-plated declarations

Customs officials said importers declare almost every shipment of imitation jewellery as non-gold-plated. However, the minimum customs-assessed value of gold-plated products is $8 per kilogram. To determine whether the products are actually gold-plated, customs regularly conducts chemical tests. However, none of the laboratory reports issued over the past six months found any imitation jewellery to be gold-plated.

In his letter, the Benapole commissioner said regular chemical testing is costing the government both money and time. It is also delaying the release of imported goods while customs waits for laboratory reports. As no gold-plated products have been found in any shipment for six consecutive months, questions have arisen over whether the current risk-based testing system can be made more effective.

Customs sources said they had received information through various channels suggesting that the actual market price of imitation jewellery was not being properly reflected at the time of import and that some goods were being assessed at prices below their actual value. They therefore believe a standard valuation may be necessary for imitation jewellery, regardless of whether the products are gold-plated or non-gold-plated.

However, industry stakeholders say setting a uniform value alone will not solve the problem. They say customs should simultaneously monitor invoice values, LC values, foreign-currency payments through banks, bills of entry, ASYCUDA valuations, previous shipments from the same supplier, market prices and the importer’s subsequent selling prices.

They say authorities need to determine whether the declared low import price actually reflects the international market price or whether the value has been deliberately reduced on paper to lower duties and taxes. At the same time, if the actual import price is significantly higher than the declared value, authorities should investigate where the difference in money is going.