Trade-Based Money Laundering network busted by Customs and DRI

In an outstanding case of bilateral cooperation and information exchange, the Indian Customs and Hong Kong Customs discovered a big case of Trade-Based Money Laundering (TBML) involving Hong Kong-based exporters and Indian importers operating in Special Economic Zones (SEZ).

This crackdown exemplifies the investigation and enforcement efforts performed by both administrations in accordance with their respective laws in order to uncover an international cartel.

The collaborative bust follows the recently finished Global Conference of Cooperation in Enforcement Matters (GCCEM), which was held by Indian Customs and the Directorate of Revenue Intelligence (DRI) under the theme “It takes a network to fight a network.”

DRI discovered a case of Trade-Based Money Laundering from a SEZ in which inexpensive synthetic diamonds were imported into India disguised as real diamonds in order to send foreign monies out of India. Investigations indicated that cheap synthetic diamonds were being mislabeled as genuine diamonds, were being overvalued more than 100 times, and were being transported from Hong Kong corporations to SEZs in India.

During the examination, it was also discovered that some genuine diamonds were imported but were later swapped with synthetic diamonds and smuggled outside the SEZ. The importing business was also discovered to be exporting diamond-studded jewellery to Hong Kong and a few other nations at exorbitant prices. Surprisingly, while the majority of the claimed inflated value of imports was sent out of the country through banking channels, remittances received for exports were relatively negligible at around 0.2%, showing that this commerce was used to launder money outside the country.

Investigations also indicated that the inflow of money into the importing entity’s bank account took place through bank transactions by various dummy firms in India and then the said money was transferred (laundered) from this single bank account to overseas suppliers in Hong Kong under the pretext of payment towards import of ‘diamonds’.

According to the information gathered, the mastermind of this trade-based money laundering was based in Hong Kong. Further investigations resulted in the arrest of four persons in India under the provisions of the Section 104 of the Customs Act, 1962.

The Indian Customs issued Show Cause Notices (SCN) for seized commodities, and Hong Kong-based firms were also served notices, but they failed to answer or appear in front of Indian Customs.

It is important to remember that practically all TBML offenders operate through front companies in order to avoid prosecution in India.

DRI had earlier contacted Hong Kong Customs to inquire about the presence of the suspected Hong Kong-based enterprises using the existing bilateral international cooperation instruments and network. The communication line was strengthened further in order to locate the kingpins in Hong Kong.

Last week, Hong Kong Customs launched an enforcement investigation that uncovered a large-scale multinational money laundering syndicate that had laundered around $65 million through the diamond trade.

During the operation, Hong Kong Customs raided eight locations in Hong Kong, including four residential properties and four business units. Customs apprehended four people accused of being involved in the crime and has already agreed to freeze a total of $1 million in assets owned by the arrestees. This action was taken in response to a previous enforcement action launched by Indian Customs in India.

This latest case involving arrests made both in Hong Kong and earlier in India, will send a clear message to criminal cartels globally that they cannot escape law, and should act as a strong deterrence.