Focus on tax fraud

With a new specialized national team Dutch Customs intensifies the fight against the evasion of excise duty and anti-dumping duties.

Recently Dutch Customs formed a new national team that cooperates nationally and internationally to tackle fraud. And not a moment too soon, according to team members Gerard Jensen and Wendy Dielen. Because, despite the various successes, the fight against the evasion of excise duty and anti-dumping duties is far from over.

“The promotion of compliance and trade facilitation is becoming increasingly important for our organisation”, says Jensen. “But at the same time, we do not want to neglect our enforcement role. With the merger of our fraud team at Schiphol airport with the anti-excise duty fraud team in Rotterdam and two clusters of the Customs Information Centre we kill two birds with one stone. We are bundling all fraud-related expertise and are fulfilling a hard EU requirement at the same time: we now have a so-called AFCOS – an Anti-Fraud Coordination Service. Our national team of experts is the Dutch point of contact for OLAF, the European Anti-Fraud Office. We report any irregularities we find to OLAF, since this can be very useful for them. After all, what happens here could happen anywhere in Europe.” 

Well below the global market price
A small part of the new National Fraud Team checks for fraud regarding EU expenditure, such as EU subsidies for medical research and infrastructure projects. The majority is all about the tackling fraud regarding import duties, anti-dumping duties and excise duty (see also the article ‘Visiting liquor stores and tobacconists’ elsewhere in this issue). Anti-dumping measures are often focused on China. Dielen: “It is the origin of huge amounts of cheap, often government-subsidised, stuff: bicycles, solar panels, hand pallet trucks, ceramics, pipe fittings … pretty much anything. It is how exporters try to conquer a new market or get rid of surplus stocks. Because they offer their products at well below the global market price, the products are subject to anti-dumping duties when they are imported. And sometimes this can be up to 80 percent of the value. So there is a lot of money to be made, and that always draws parties that find creative ways to get out of paying this tax.”

Cat-and-mouse game
“A common method is diversion of origin”, says Jensen. “So an importer may pretend that he is buying Chinese bicycles from Thailand. He ships them to that country, they sit around on the quay for a few days, and then they continue towards the EU. When we discover something like this, the importer switches to a more sophisticated method. The bikes are repacked or unpacked, followed by a small procedure, like briefly dusting them off. Then, when we let them know that this is not enough to state Thailand as country of origin, the manufacturer will build a cheap factory. This little factory is supposed to produce a million bicycles. It really is a cat-and-mouse game. To address this type of dumping practices we try to cooperate with foreign customs services and with OLAF. OLAF can start an investigation on location, possibly with specialists from the relevant Member States and the local authorities: does that factory really exist? And if so, is it able to manufacture that many bicycles?”

Cheating with customs value
Another illegal method involves knowingly shipping goods with the wrong code. “It sometimes comes down to small technicalities”, Dielen explains. “For example whether pipe fittings thicker than 8 mm have a screw thread or not, which could make a small but significant difference. You can obviously discover something like this during a physical check, but it really helps if you get targeted help from the country of origin.”

“And there are plenty of other tricks”, Dielen continues. “For example, if the anti-dumping duty of a shipment is 30 percent, you just tell Customs that the value is 30 percent lower. If a corresponding invoice is submitted it is up to us to prove that this is not true. And that is not always easy. We do have this problem covered in the Netherlands where textiles and shoes are concerned, however. We select all shipments that deviate from an average value provided by OLAF. We are so consistent in this, that we tend to get very few declarations with lower values nowadays. That was quite different some years ago. Other countries are still having to deal with this, though, since it is just like a waterbed: when you push somewhere, it pops up elsewhere in the EU.”

Feelers throughout the organisation
Through additional assurance, Dutch Customs tries to prevent irrecoverable (because the fraudulent company has vanished, for example) retrospective corrections. Jensen: “For example, for a number of named exporters, Customs will only release bicycles from Taiwan when the declarant deposits a guarantee equal to the amount of the projected anti-dumping duty.”

The success of this approach relies on having the right information, says Jensen. “This is why we collect as much intelligence as possible and make sure that everyone knows how to contact our agency. We do have a lot of internal knowledge, but our colleagues are not always able to assess whether it is valuable.” Dielen: “A while ago an informal hint from an observant customs officer lead to a major investigation and a mission on the ground. During a business visit he found out that solar panels that came from Malaysia on paper actually came from China originally. Thanks to the creation of the National Fraud Team, we now have feelers throughout the organisation and are less dependent on accidental discoveries.”

Special mailbox
“We don’t just need internal indicators, however”, Jensen continues. “Many of the anti-dumping duties only concern a handful of companies. The number of businesses that trades in pipe fittings is very limited, for instance. You only need one who circumvents the system for the rest to suffer. Experience has taught us that the others usually know who the culprits are, but often have no idea who to go to with that information. This is one of the reasons why we have created a special mailbox for such reports.”*

Promising criminal proceedings
“As you can guess from our name, we are especially interested in those cases in which we can demonstrate fraud”, Jensen states. “That is, when it is very clear that someone is deliberately cheating the system. Parties like that need to be dealt with firmly. Cooperation is essential in this respect, with various partners inside and outside our agency, such as the Fiscal Intelligence and Investigation Service and the public prosecutor. By consulting in advance, you avoid poorly organised investigations or a lack of financial interest.”

And cooperation is becoming increasingly important due to relatively new challenges such as the growing trade over the internet. Dielen: “One-man businesses buy all sorts of goods from Asia in front of their computer and have it delivered directly to their customer’s door. There is no distribution centre, so we have nowhere to check. And Customs can hardly open all those packages arriving in the mail. To address fraudulent practices a more thorough risk analysis is required, and better contact with the countries of origin. That is what we are working on.”


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