IN local scenario, ghost suppliers' invoices may be found by examination of traders records' on verification visits to registered traders. Invoices of a ghost company may indicate that it is a registered limited company when it is not. Even if it is registered, it may still be a ghost business. A value added tax (VAT)/tax inspector visiting registered traders may notice that purchase invoices are not folded as one would expect of invoices sent by post. On such a visit traders may be unable to contact ghost businesses from whom they have supposedly purchased the goods. In addition, the address shown on the invoice may not exist, be it an accommodation address or a multi-occupied house or office. The VAT registration number on the invoice will always be false, belonging to another company or to a deregistered or missing company. Invoices from ghost companies will often have a type face that is similar to other known ghost companies.
Examination of an application by a ghost business for VAT registration will often reveal weaknesses. The application will not have details of bank accounts. There will be no telephone number and the address shown will always be a rented accommodation. A check at the address will reveal it is not consistent with the business declared. The address will be such from where mail can easily be collected by some one other than the occupant, i. e. a multi-occupied building. In addition, the name of the applicant will be usually wrongly spelt and the signature on the application form will differ from that on later correspondence. Attempts to contact the applicant will always be unsuccessful.
It is a matter of record that fraudsters always attempt to register many ghost companies simultaneously in different VAT offices. In order that he himself does not become confused, the owner will give common or similar names for his many ghost companies. At one office the name of the company declared may be Akhtar Khan Ltd, while in another it will be Khan Akhtar Ltd. A centralised registration system or scrutiny of applications will reveal this kind of multi-cell-based fraud.
Once registered without being detected, the ghost company will always submit VAT/tax returns claiming repayment of tax. Attempts to verify the VAT/tax return before or after payment will always be frustrated and may lead to the disappearance of the ghost company. If contact is made with someone representing the business and a visit, arranged, then the nominated premise will be a rented one, especially for the visit. The VAT/tax inspector will be presented with a false set of books and records on such a visit.
Having discovered a suspect ghost business, it is important to establish who is really behind it. In case of ghost importer, enquiries may be made through the clearing agent of the importer, if considered trustworthy. The agent will insist on being paid before the goods are released and thereby establish some contact with the importer. In addition, correspondence with, and telephone calls to, the agent may give some clue to the importer's true identity. If an approach to the importer's agent is considered inadvisable, then surveillance on the imported consignment may be necessary.
If it is possible under law, the imported goods should be seized and dummy goods may be substituted in original packaging. Technical devices such as radar beacon, movement and light sensitive devises may be packed to assist the surveillance team. The surveillance team should be prepared to make arrests when the importer is identified or the packaging is opened. The transportation is often controlled by or instructed by the importer or his clearing agent. Enquiries with the transporter may reveal the identity of the importer or the destination of the goods.
If a false or ghost import invoice is suspected, then the imported goods should be seized. The importer should be visited, preferably with a search warrant, to find the true documentation in relation to the goods. The Customs authority for the country to which the consignor's invoice relates may be requested to verify the invoices and find whether the consignor exists.
When a registered company is suspected of being a ghost company, all information given on the application needs to be checked (like accommodation address, telephone address, bank statement etc.) to find links to the person behind it. If the enquiry is successful, then observation and surveillance will be necessary to identify the suspect and to establish his actual home address or other business addresses. If these enquiries are not successful, then a decision needs to be made whether to pay a repayment claim. A refusal to pay safeguards the revenue but identifying who is behind the ghost company may not be possible then. The fraudster will realise that he has failed and will disappear, fearing arrest.
If the claim is paid, surveillance needs to be maintained on the cheque, once it has been delivered. The fraudster behind the ghost company may not collect it for days or weeks, and may send a messenger to collect it. The final chance to identify the fraudster is through the bank at which the cheque is presented. Enquiries will reveal an account and account holder. Once funds have been paid in and the account is identified, it may be possible to freeze the account through a court order before the money is withdrawn. Through such means like surveillance and co-operation of the bank, the VAT/tax officials will be successful in identifying the suspect and put him on trial.
In case of supplier's invoices supplied locally, genuineness can only be identified through verification visits to registered traders by VAT/tax inspectors. The suspect invoices should be checked through the traders' books and methods and details of payment investigated. The trader should be asked for contact details of the goods or services supplied. If the invoice is from a ghost business, the trader will be unable to give satisfactory explanation and the inspector should report the matter for further investigation. Once investigation detects false invoices, the investigation procedure and results should be circulated to other VAT/tax offices, so that other officials are informed and are in a position to look out for similar false invoices.
When investigating a fraud committed by a ghost company, the investigating officer must have appropriate knowledge of existing laws and procedures. To deal with fraud he must be aware of his scope and limitations which are determined by national laws and laid-out procedures. On the other hand, in the area of ghost business fraud, the national legislation of the country should have broad provisions and enough scope for investigation and penalisation. The national legislation should include serious penalty for making false declaration to Customs and tax authorities, for obtaining property by deception, for false accounting and for forgery and theft. In investigations relating to fraudulent activities, restraints placed on use of surveillance and technical aids to surveillance should be withdrawn. There should also be transparent legislation on obtaining information from bank. Furthermore, there is need for legislation concerning freezing bank accounts and Customs procedures for import of goods and administration of VAT.
If the national legislation has the right rules and regulations to combat fraudulent activities of ghost companies and if the officers are properly trained in fraud investigation and if the guidelines for investigation are result-oriented, ghost companies and their activities will cease to exist for sure.
The writer is Permanent Representative of Bangladesh to the World Customs Organisation, Brussels, Belgium