Transfer pricing in log exports is a good example of why forensic audits in the natural resources sector are urgently needed

Dear Editor,

In response to the letter ‘Where is the fraud?’ (Stabroek News, 26 June 2015), the following notes might help readers.  Customs fraud has nothing to do with the ton-miles costs of moving forest products by road in Guyana or by Panamax ocean container ships.  Customs fraud is when and where there is non-compliance with the Customs Act (cap. 82:01, especially sections 157, 158 and 216 (d) and (e)) and associated GRA procedures.  The requirements are summarised in the Guyana Revenue Authority’s webpages commercial/general-items – ‘Commercial Exports – General Items – OUTGOING CARGO’.  Note that the webpage which the GRA provides for ‘Forestry products’ is blank.  The GRA states that ‘Exporters must submit documents requesting examination of outgoing cargo along with Forms C 43, C 12 (a Form C 12 is only used when cargo is loaded on or off a sufferance wharf) and a letter requesting examination where applicable’.  Note that GRA Form C 43 is also not available from the Forms section of the GRA website.  The letter is presumably the unnumbered form ‘Notification for exports’, which requires the shipping agent or broker or owner to declare that ‘to the best of my knowledge the information on this form is true and correct’.

According to the same GRA webpage, ‘An examination of the cargo is then conducted by the Customs & Trade Administration (C&TA); after the examination is conducted, it is recorded on the Form C 72. Approval is then given for the goods to be loaded on the vessel in the presence of the Customs personnel and officials from the respective agencies; … The Contents slip, Shipping bill (this must be certified shipped before files are sent to Quality Review) and other documents relating to the cargo are compiled into a file and entered into an outgoing register and given a rotation number’.

Form C 72, the main Customs declaration form for import or export, likewise requires the shipping agent or broker or owner to ‘declare that the information and particulars mentioned herein are true and complete …’

Thus exporters must provide truthful information as to –

►who is the real owner of the products being exported?

►what are the real weights or volumes by category of product (such as logs of wamara timber)?

►what are the real FOB  values of the products (Free-on-board = all taxes and charges have been paid, including ship loading costs)?  Since 2010, FOB for containerised goods (such as Bai Shan Lin’s wamara logs exported to China) is more properly referenced as FCA (Free Carrier Incoterms).

Ownership – pretending that some small loggers’ association is exporting wamara logs to a named furniture factory or other buyer in China is probably a fraud, because the log trader has purchased the logs for cash at the roadside or in Georgetown before containerisation and the log trader is the real owner at the time of ship loading.

Volume – it is a fraud to pretend that the volumes of logs with 2 cm or more subtracted from their diameters and 20 cm or more subtracted from their lengths (a common practice of log traders) are correctly measured.

According to the GFC’s subsidiary Forest Products Development and Marketing Council’s market/export report for April 2015, the declared FOB/FCA values for purpleheart logs were in the range US$ 220-330/m3 and wamara logs were in the range 130-220/m3.  According to the ITTO Tropical Timber Market report 19 (11) 1-15 June 2015 page 15, the CIF prices in the Guangzhou Yuzhu international timber market for purpleheart were US$ 500-530/m3 and for wamara US$ 760-900/m3.

The purpleheart and wamara logs had travelled in the same kinds of containers in the same ships from the same export port to the same import port.  How were their CIF (cost, insurance and ocean freight) values so very different in China from those declared in Georgetown?  China Customs are famous for being tough on accuracy of import documents and for the quality of their statistics.  The Shipping Association of Guyana can confirm that insurance and ocean freight and unloading costs for Guyana-to-Guangzhou ocean shipping are nowhere near US$ 500/m3 (or US$ 10,000 per 40’ shipping container with 20 m3 of wamara logs).

The circumstantial evidence points directly towards fraud in Guyana, with the false information passed through the Guyana Forestry Commission and Guyana Revenue Authority approval processes.

The US-based Global Financial Integrity estimated Customs fraud for Guyana at US$84 million in 2003, rising almost continuously to US$440 million in 2012. Around half of the illicit flows (US$1,464 million for 2003-2012) were attributed to export under-invoicing (Global Financial Integrity 2014). The transfer pricing in purpleheart, wamara and other log exports is a very good example of why forensic audits in the natural resources sector are urgently needed.  It is time for the forensic auditors to air out the pumpkin suits for the whole pack of thieves, the log traders, the brokers, and the GFC and GRA staff who are countersigning and approving these falsely declared shipments.

Yours faithfully,
Janette Bulkan


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