Intelligence agencies closely examine trade with UAE on fears of rising black money, money laundering

The surge in bilateral trade with the United Arab Emirates in the past few years is being closely examined by intelligence agencies over concerns that some of it could be due to money laundering and the movement of black money through trade mispricing.

Select items are under watch to check whether the participants were engaged in genuine trading operations.

The intelligence agencies are especially keen on sniffing out the inflating or undervaluing of exports and imports. Sudden surges or unnatural trade patterns are being closely watched by these agencies. Customs authorities are being given special intelligence briefings so that they can crack down on wrongdoing without affecting lawabiding traders.

UAE rose to become India’s biggest trading partner in 2012-13 from the ninth spot in 2000-01, though it has slipped to the third position in 2014-15 so far, just behind China and the US. The increase is almost entirely due to the emergence of Dubai as a preferred global hub thanks to its free-trade zones.

Besides the round-tripping of cash and money laundering, the suspicion is that drug and crime earnings are also being routed back into India under the guise of trade, an official said.

A favoured source for gold imports at a point in time, Dubai is now being used for diversified items ranging from commodities to machinery. Trade experts pointed out that the port city is a gateway to the entire region.

“It’s essentially a hub for trade with Africa,” said Ajai Sahai, director-general of the Federation of Indian Export Organisations (FIEO), a lobby group. Nevertheless, there needs to be some tightening of processes, he said. “Trade from free ports faces a 50% examination norm,” he said. “Risk-based detection systems need to be strengthened to weed out the black sheep while facilitating genuine trade.”

Several investigations are already underway, lending strength to suspicions that not all of the trade may be above board.

The Department of Revenue Intelligence is probing several instances of capital goods imports from other countries that were routed through Dubai. These include one in which there was a mismatch in the price paid to the original supplier and that paid by the Indian importer to the UAE entity.

More recently, DRI uncovered a consignment valued at more than Rs 2,000 crore headed to Dubai that was actually worth a lot less, besides containing something completely different from what had been declared.

In last week’s Budget, Finance Minister Arun Jaitley brought mis-declarations such as over- or under-invoicing of goods being traded under the money laundering law, which provides for as much as seven years of imprisonment as opposed to up to two years under the Customs Act. Monetary penalties are also higher.

The Justice MB Shah-led special investigation team on black money is also examining the routing of capital goods trade by businesses using ports in the Middle East.

The trend change in India’s trade with the UAE came in 2008-09, when imports rose 76% to $23.8 billion while exports climbed 56% to $24.4 billion. UAE’s share in overall exports rose to 13.2% that year from 9.6% the year before, while that in imports it rose to 7.8% from 5.36%. India’s imports of pearls and precious and semi-precious stones from UAE shot up to $11.3 billion from $3.69 billion.

Source – Economic Times

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