Loophole opens up gold-based illicit financing opportunity for Indian importers

An apparent loophole in the newly introduced free trade agreement (FTA) between India and South Korea appears to provide an opportunity for a new type of trade-based illicit financing.

Gold imports brought into India duty-free from South Korea as coins are being converted to gold bars, which under the FTA cannot be imported duty-free, immediately providing the importer with a profit equivalent to the duty saved.

Revenue losses

The FTA, which came into force at the beginning of July, stipulates that only finished products for end consumers can be imported duty-free under the agreement. So traders who would normally buy gold bars are instead buying coins.

Analysts reckon that by the end of August, this will have resulted in the Indian government losing revenue of US$105 million.

Financing method

Participants in this type of financing first transfer money via affiliated companies from India to Dubai where gold is converted into coins. The coins are then exported to South Korean affiliated companies.

The South Korean entities then re-export the coins, which are shown as being manufactured by them, to Indian affiliates.



Categories: Trade Based Financial crimes News