IBI Builds Capacity to Combat Fraud in Timor-Leste
How one episode of undervaluation fraud represents the larger impact of the USAID/Timor-Leste Customs Reform Project
The USAID/Timor-Leste Customs Reform Project (CRP) works to strengthen the Customs Authority (CA) and support the Government of Timor-Leste by increasing government revenue through improved systems, procedures, and personnel.
The new improvements were on full display when an importation of 96,040 kg of new equipment used for construction and road building was imported from China to Dili. CA officials correctly recognized the containers, specifically the ‘stone crushers’, as suspicious because their overall value of $0.56 per kg seemed low. Customs Revenue and Entry Processing (CREP) officers researched several items and found that compared to identical goods from China these goods were undervalued. For example: the three identical ‘Stone Crusher’ machines from the same manufacturer normally sold for $90,000 – the Importer had declared them at $18,000.
After CREP officers questioned the values, the importer produced a new invoice increasing the purchase value to $45,000 for the three ‘Stone Crushers’. Due to suspicions of further undervaluation the CREP officers re-routed the Declaracao Aduaneira Unica (DAU), the consignment, to the Red Lane for a physical inspection.
Previously, close to 50% of goods were routed to the Red Lane, which is a labor and time intensive process. That began to shift as IBI staff provided technical assistance on risk management techniques that help CA officials identify consignments that can be processed without inefficient and ineffective regulatory controls, meaning goods can be cleared much more quickly. Now, only DAUs that match specific criteria are routed for physical inspections; about 10% of goods.
After all goods in this DAU were checked, a valuation assessment was made by comparing identical goods. An estimated undervaluation of $135,174.95 was recorded and added to an ‘offence’ report. The CA sanctioned a $4,000 administrative penalty and collection of $2,550 in additional revenue paid by the importer. $4,000 is the largest single penalty Customs has issued in relation to undervaluation fraud.
Since this episode, the same importer has made three subsequent importations. All the values were declared correctly. The IBI implemented USAID/Timor-Leste Customs Reform Project’s lasting impact on the behavior of importers is already being felt. Over the past four years, IBI’s support has also dramatically increased Customs efficiency, saving the CA 9,000 working hours annually, decreased the average clearance time from 9 to 2.7 days, and reduced error rates in declarations by over 80%.