INVESTIGATION: How offshore companies defrauded Nigeria of over N25bn

BY ICIR AND ORDER PAPER

Four companies, two with foreign ownership, that deal in importation of electronic and household appliances have exploited a defective import tariff waiver policy of Nigerian government and special forex allocation to manufacturers by Central Bank of Nigeria (CBN) to make billions of naira through fraudulent claims.

One of the companies, Somotex Nigeria Limited, is a shadow business of an offshore company registered in British Virgin Islands, a well-known tax heaven. The other three companies are Sims Nigeria Limited, Fouani Nigeria Limited and Dee Kay Nigeria limited. These companies have exclusive dealership into the importation of global brands, such as LG and Samsung electronics.

A joint investigation by OrderPaperNG and The ICIR shows that while these companies enjoy the status and privilege accorded to manufacturers that import raw materials, they are mere traders. Nevertheless, they are given forex concessions at CBN rate for manufacturers. They also get duty waivers, normally given to manufacturers that import raw materials.

The import duty waivers involve Completely Knocked Down (CKD) and Semi Knocked Down (SKD) goods, a controversial policy that gives tax concessions to importers who are willing to import products in parts to be assembled locally in Nigeria. By this policy, government aims to create jobs through manufacturing as well as accelerate transfer of technologies. An initial investigation by OrderPaperNG published in July 2018 had exposed this import waiver fraud involving same companies which have continued according to impeccable sources, to engage in the scheme.

Those who import goods in CKD/SKD obtain tax waivers from the ministry of finance and pay lesser import tariff. Instead of the usual 20-35 per cent duty on such products, they pay just 5 per cent with the belief that the importers have assembling plants where they couple the items, and employ Nigerians and create opportunity for transfer of technology.

The federal government justifies these waivers based on the provisions of the Customs and Excise Tariff Act and the Finance Miscellaneous Act 39 of 1990, among other legal and administrative instruments. Import waivers are issued by the Ministry of Finance and implemented by the Customs Service.

But investigations show that the four companies import fully built products and still claim duty waivers as if they brought in CKD/SKD. Customs documents obtained by OrderPaperNg and also analysed with The ICIR revealed that the four electronic dealers defrauded Nigeria of over N25 billion in CKD/SKD waiver claims between 2010 and 2018.

THE PANAMA PAPERS LINK

Curiously, Somotex Nigeria Limited is owned by an offshore company, Conifer Holdings Limited, a company registered in British Virgin Islands with Mossack Fonseca as the agent.

A trove of papers leak from Mossack Fonseca, a Panama-based law firm, revealed astonishing web of individuals and businesses that hide their wealth in tax haven through shell companies. The gigantic leak obtained by the International Consortium of Investigative Journalists, ICIJ, became known as Panama Papers.

Conifer Holdings Limited was registered in British Virgin Islands in 1995. Two years later, the company incorporated Somotex in Nigeria with 99.9 per cent shares belonging to the offshore company. The individuals behind the offshore company – Ram Udharam Mohiani, Ramchand Mohinani Ashok, and Anil Ramchand Mohinani – are also three of the four directors of Somotex Nigeria Limited.

The fourth director, Nkiru Nzegwu-Danjuma, not associated with the offshore company, was not a shareholder in Somotex. Findings showed that Nkiru was the wife of Musa Danjuma, younger brother to Theophilus Danguma, former Nigerian Army chief of staff and Minister of Defense. Nkiru, a lawyer, died in 2016 at the age of 57 after protracted illness.

Last year, when OrderPaperNG contacted Somotex to respond to the official documents that revealed how the company’s false declaration of its imported products deprived Nigeria of hundreds of millions in revenue, the company threatened that it would take retaliatory action if the story was published.

But further digging into the company by The ICIR uncovered a mischief in its incorporation in Nigeria. While it appeared that Somotex had not broken Nigerian laws by being incorporated by an offshore company, the owners used the discredited Mossack Fonseca to register the parent company in British Virgin Islands, two years before incorporating Somotex in Nigeria.

Such obscure parent company in a tax heaven is usually used to engage in money laundering. However, Peter Ubani, a lawyer, said Somotex has to still operate under the Nigeria’s financial regulations despite being owned by an offshore company.

“Irrespective of the status of one of the offshore companies, the one in Nigeria is subject to the laws of the country. It is subject to the company income tax law, even if the majority ownership belongs to the offshore company. As long as it does business here, it will pay tax. It has to pay company income tax,” he explained.

But the problem, Ubani said, is that such offshore company can be used to hide the real owners of the company in Nigeria and launder money. “They shield their owners, and they can repatriate the profit offshore. The profit will not be subject to Nigeria laws. Sometimes they use it for slush fund, such as laundering.”

Frank TieTie, another lawyer, activist and executive director of Citizens Advocacy for Social and Economic Rights (CASER), said even the repatriation of profit by foreign company must be within the Nigerian regulations. “Section 54 of the company allied matters act makes it mandatory for any company, whether it’s a Nigeria company or not, to be registered in Nigeria before it commences business in Nigeria,” TieTie said, adding: “Repatriation of profit is subject to Nigeria law. Such law as Foreign Exchange Monitoring Act, and other financial laws are applicable to foreign ownership and other repatriation of legitimate proceeds.”

TieTie added that “cash inflow and outflow, must be monitored by the institutions such as EFCC, which oversees the Money Laundering Act. At that point, the concern to anyone who is worried about tax evasion should be in regard to illicit financial flow.”

TOP SECRETS ON ASSEMBLY PLANTS 

On March 15, 2018, the chairman of the senate committee on customs and excise, Hope Uzodima, accused the importers of defrauding the government billions of naira through false declarations on CKD/SKD, adding that the companies had no assembling plants, a major criterion to qualify for the import duty waivers.

Uzodima said that during oversight visit to the supposed assembling plant of Somotex, his committee discovered that the so-called plant was just a warehouse.

When a reporter was first sent to the head office of Somotex in Lagos last October, he could not immediately ascertain whether the company had an assembling plant or warehouse as claimed by the senator. While there appeared to be lots of activities around the complex, the organisation refused to allow him entrance into the premises.

The receptionist claimed that everyone in the department that ought to give approval to receive a visitor into the purported assembling plant were on leave. After lengthy persuasion, a call was placed to the head of the legal team, Erhuanga Odion Erabai, who said that the company was not given enough notice before visiting. He said that the company could only welcome the visit the following week.

“This is not how things are done,” Erbai said. “You cannot just come in to our organization without informing us and be demanding for answers. This is a private firm. You have to give us enough advance notice and we will decide if we want to give you information or not.”

Yet on follow up visit to the company, the reporter was again denied access into the premises. Somotex imports brands such as Midea home appliances, Havells electricals, Bruhm home appliances, and Su Kam inverters and batteries.

The brands declined to respond to inquiries on whether their products are exported to Nigeria on CKD/SKD.

Although two staff of Somotex who spoke to the reporter said the company assembled television and other electronics. But there was no evidence of such activities during the two-time visit to the company.

Official documents show that Somotex had been importing fully built products and still claimed CKD. On January 6, 2014, the company imported twelve 40 feet containers of fully built television sets as CKD with Customs Reference C674 through the Apapa Port. It paid 5 per cent import tax of N17, 757,486.00, instead of 20 per cent for the consignment valued at N146.12 million. By claiming CKD on fully built television sets, Somotex made N24.6 million on that particular transaction.

Again on September 9, 2013, Somotex imported fully built television sets as CKD and paid 5 per cent import tariff, instead of 20 per cent, depriving Nigeria of N3, 614,809.27 in revenue.

The fraud of underpaying import duty for fully built products under the guise of CKD/SKD is dubbed “wrong classification” within Customs. Wrong or false classification occurs when the nature of the goods indicated in the manifest before shipment is different from what arrives in the country.

BILLIONS IN WAIVERS TO GENERATE N15,200-A-MONTH MENIAL JOBS

Along the untarred road leading to Irede community in Amuwo Odo, lies the LG assembling plant managed by Fouani Nigeria limited. Fouani is a major beneficiary of CKD/SKD duty waivers and the teenagers assemble electronic parts imported by the company. Most of the workers in the plant are secondary school leavers without requite knowledge to acquire technology transfer through the process of assembling as envisaged in the import tariff waiver policy.

They work from 7:30am to 5pm Monday to Saturday on monthly salary of N15, 200 for new entrants and N17, 500 for line supervisor. They do not have any insurance and they do not run shifts.

LG and Hisence are the two major brands that are purportedly being assembled at the plant. Products such as television, refrigerator, gas cooker and washing machine are the major products that were claimed to be assembled at the plant.

Fouani workers said the core staff are foreigners (Lebanese), with few Nigerians to complement their work. Munirat, a former worker in Fouani said, “in terms of pay, it’s not that great. If you resume by 7:40am, you are late, and you close by 5pm, Monday to Friday. I cannot really tell on the number of persons working in the plant, but maybe like 300 or so.”

The reporter was prevented from entering the premises, but from outside, some of the workers could be seen playing during the lunch period. A Fouani staff took extra measures in checking the credential of the journalist. His picture and ID card were taken and sent to an unknown person for verification, and he was asked to wait. After two hours, the Lebanese man in-charge came out to ask the journalist to leave.

In June 2018, Fouani, the sole distributor of LG products in Nigeria imported goods worth billions of naira, including refrigerators, air conditioners, LCD TVs and washing machines. These goods which normally should attract import tariff of between 20-35 per cent, the company paid just 5 per cent tariff on the fully built products through false classification.

With its Form M application MF20180041207 to import air conditions worth $2,204,132 (N674,464,392), Fouani’s goods with Container Tracking Number MAEU576853985 were conveyed through MAERSK COPENHAGEN shipping line and cleared at the Apapa Seaport. While the air conditioning machines were fully built units, the company got import duty waivers for CKD.

Fouani also imported $1,512,000 worth of fully built LCD television sets from China with Form M number MF2018004142 and falsely classified them as CKD. Instead of paying 20 per cent import duty, the company paid just five per cent.

On the same Vessel Maersk Copenhagen Voyage 1805, Fouani claimed CKD for importing 910 fully built sets of refrigerators with tracking number MAEU964879324 and Form M number MF20180041306. The company also claimed CKD for another 3870 sets of fully built refrigerators with Form M number MF20180041299. The products had combined value of $891,750 (N272, 875,500).

Under the same shady importations were 324 sets of refrigerators, 1150 sets of fully built refrigerators and 1100 sets of washing machines at the value of $229,680, $227,090 and $65,850 respectively that the company claimed CKD.

DELIBERATE WRONG CLASSIFICATION

Sims Nigeria Limited, on May 5, 2018, got forest under the CBN rate to import air conditioning machines valued at $308,471 and paid through Fidelity Bank with Form M number MF20180030886.

According to Costco Shipping Lines’ manifest, the cargo arrived Tin Can Island Port from China filled with air-conditioning machines. Sims claimed that the goods were CKD, but the merchandise was fully built products. Nevertheless, Sims paid 5 per cent import tariff instead of 35 per cent for the refrigerators.

With its head office in Victoria Island, Lagos, Sims declined to respond to email inquiries. On the day that the reporter visited the company, the person in charge of public relations who might have been receiving previous emails from the reporter was said to have been sacked a week earlier. The person that spoke to the reporter claimed that no one else was in charge of public relations at the company.

The reporter was later introduced to a man, who said he was responsible for logistics at Sims. He claimed that the company has an assembling plant.

“For me in my own capacity, I only liaise with agents who deliver products. But if you want to see our factory, we have a big factory at Amuwo Odofin industrial estate. That is where they manufacture all these items you are seeing,” he said.

He insisted that Sims has an assembling plant. “Customs should know the people they are referring to. Most of the times, they make those wild allegations. They should improve. We have our factory at Amuwo Odofin. You can go there; we couple TV there. We do refrigerators, and ACs. You people should work from there and see who are those who have factories, and those who do not.”

When the reporter asked to see the factory, the man said: “they just want me to find out what you want.”

Another staff of Sims who works at the human resource department of the company and who introduced himself as Chuka declined to answer questions. “You cannot just come and tell us something and expect us to act on it, even if you are journalist,” he said. “You cannot just bring your ID card, and expect us to just give information. Bring valid paper work.”

SECRETIVE ASSEMBLING PLANTS

Posing as a prospective customer could not get the reporter into the purported assembling plant of Dee Kay Nigeria Limited. All conversations around having access to the building was quickly turned down.

A marketing representative of Dee Kay told the reporter that the company’s assembling plant is located within the premises, but there was little or no significant activities to suggest that the work of such magnitude was going on.

With head office in Ikeja, Lagos, Dee Kay described itself as a “leading importer of all types of finished goods into Nigeria”. Yet, the company made over 153 importations under wrong classification between 2015 and 2018. By importing fully-built fridges, freezers and other electronic products, the company claimed CKD for these importations and shortchanged Nigeria of over N800 million in revenue.

In 2010, Customs issued a circular that ordered all units at the ports to charge full tariff for any import that fails to meet the CKD/SKD standard, regardless of import tariff waivers from the Ministry of Finance. Despite the directive, the importers have continued to underpay import tax on fully built products under the pretense of CKD/SKD.

Terminal operators at the Lagos port said that the importers could only have succeeded in defrauding Nigeria with the connivance of Customs officials. A terminal operator who preferred anonymity pointed out that certificate of waiver is not a ground for false declaration, adding that it is impossible to get away with false declaration if there are no connivance with Customs.

“Look, the Customs is under the Ministry of finance, so the chances of collusion on waiver certificate and under declaration is very slim,” he said. “If there are any form of under declaration going on, it’s either they have collected bribe or some powerful people are involved.”

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*This report first appeared on OrderPaperNG and The ICIR.