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TitleFTO Report Container Scam
File Size623.2 KB
Total Pages91
Table of Contents
                            List of Acronyms
List of Tables

Executive Summary
	Methodology of Investigation
	Input Evaluation
Table of Contents
Chapter 1
	Scope of Investigation
	Purpose of Investigation
	Implications of Investigation
		Examination of documents
			Case files
			Case studies and reports
			Personal interviews
			Data analysis
			Inference methodology
Chapter 2
	Transit Trade
	UN Convention on Transit Trade: Key Principles
	UN Convention on Transit Trade: Salient Features
		Freedom of transit
		Customs duties and special transit dues
		Means of transport and tariffs
		Methods and documentation in regard to customs, transport, etc
		Exceptions to Convention on grounds of public health, security, and protection of intellectual property
		Pak-Afghan Transit Trade Agreement, 1965
		Protocol Annexed to ATTA
		Customs Act, 1969: Provisions Relevant to Transit Trade
		Smuggling through official channels
		Smuggling as defined under the Customs Act, 1969
	Smuggling and Transit
	Smuggling from Afghanistan to Pakistan
	Smuggling from Pakistan to Afghanistan
	Smuggling across borders with other neighbours
	Smuggling across the coastline
	Reasons of Smuggling
	A Summing Up
Chapter 3
	Two Types of Transit
	Regulatory Framework
	Volume of Transit Cargo
	Handling of Transit Consignments by Customs
	Two Customs Systems
		One-Customs Manual System
	Process Flow of Afghan Transit Cargo
		PaCCS (US Military Cargo)
		One-Customs System (ISAF/NATO Cargo)
		One-Customs System (Commercial ATT Cargo)3
		Comparison of Process Flows of Two Customs Systems
	Transportation of Transit Cargo
	De-sealing of Containers at Customs Stations of Exit
		Commercial Cargo
		Non-Commercial Cargo
	Completion of Customs Procedure
	Vulnerabilities of the Procedural Framework
		Disconnect with Countries of Export
		Defective Description of Goods
		Discriminatory Mechanism of CBCs
		Lack of Coordination with ISAF-HQ, Kabul
		Mismanagement of Transport
Chapter 4
	The Louis Berger Scam
	The 165 Containers Scam
	The Manifest Container Scam
	The ISAF Container Scam
	A Summing Up
Chapter 5
	PRAL Data
	NLC Data
	Data from Terminal Operators
	Analysis of Terminal Data
		Table 11
Chapter 6
	Diagnosis before Cure
	Understanding the Disease
		Side by side with the One-Customs manual system is the fully automated PaCCS. The existence of two parallel systems has created avoidable debilitation within the Customs Department. At least when PaCCS started in 2005, it had to face a lot of resistance from within. It is time that an independent system audit is conducted of the One-Customs system and, after taking into account independent reviews / audits of PaCCS, instead of two rival systems, only one standard system dealing with all Customs operations across Pakistan is finally established.
	Legal and Environmental Issues
		As evasion of duties and taxes is more serious a crime than theft - whereas theft causes major harm to individuals, tax evasion is a crime against the whole nation and the State - the statutory definition of theft is incomplete and should include ‘tax theft’ as well. In this section an attempt is made to examine the extent to which Customs law, its administration and the various appellate procedures have succeeded in influencing an individual tax evader’s calculus of duty evasion. Does the ‘fight’ against duty evasion rank high enough in terms of national, even organisational practices? Is FBR capable of deterring tax evaders? What are the possible lines of future reform?
		Although crime in general does not appear to be very susceptible to deterrence, it looks prima facie as if tax evasion, being deliberately planned, might react favourably to a higher evasion control profile. The conventional theory on the economics of crime finds it convenient to disaggregate deterrence into two constituent elements: (1) the probability of detection, and (2) the severity of punishment meted out in detected cases. With regard to tax evasion, the general thrust of argument seems to be that raising either the detection probability or the penalty regime will reduce evasion. While bringing about substantial improvement in the quality, integrity and professionalism of Customs officials, for enhanced detections, may not be easy, particularly in the short term, raising the fine (which is virtually the only, though infrequently, awarded ‘punishment’ as far as the offence of tax evasion in Pakistan is concerned) appears relatively costless. The two parameters, however, are required to be set with great care lest one ends up suggesting some pretty strange results, e.g. a policy of ‘hang tax evaders with detection probability zero’. Conversely - even though it is not so much the severity of punishment as an improvement in detection probability which appears to have a greater deterring influence – a high probability of detection per se will not be able to deliver the goods if the penalties levied are only nominal in terms of the values of those sought to be deterred. Before examining the issue any further, an overview of the existing penalty structure, in theory as well as in practice, seems appropriate.
		The penalty structure: theory and practice: The penalty provisions under the Customs Act, 1969, are covered in chapter XVII: Offences and Punishments. Offences pertaining to omissions and commissions are handled - administratively - by Customs authorities, whereas the offence of smuggling carries imprisonment ranging from 5-14 years after trial by a special judge.  (Smuggling of narcotics carries life imprisonment, even death penalty in specified cases.)
		Whereas in theory the relevant penal provisions in Pakistan’s Customs code seem to be quite stringent, the whole exercise of having such stiff penalties on the statute book looks like a charade, the moment one examines closely – both qualitatively and quantitatively – the ‘punishments’ which are actually handed out. Not only is the extent to which Customs authorities are able to achieve what we might term prima facie detection of tax evaders or their abettors abysmally poor, the real rate of detection is much less when one looks at a very large proportion of cases which are labelled as ‘mis-declaration cases’ but are not so held as they pass through the appeal stages. Given the perceived insignificantly low rate of detection, the ubiquity of tax evasion seems hardly surprising. When it comes to penalties, the picture is not any different. Indeed, if one of the purposes of penalty provisions is to deter tax evaders, both individually (in the sense that those found guilty should find it distasteful to do the act again) as well as generally (the punishment is perceived so awful that others feel compelled not to do such an act), the extent to which this purpose can be achieved in practice depends largely on the number of tax evaders known to have been punished actually. The larger the dark figure of tax evaders, the lower the deterrence effect of penalties, however, severe.
	Containing the Disease
		Structural Issues
		Administrative Issues
	A Summing Up
Chapter 7
		Short Term Measures
			Administrative Measures:
			Technological Measures
		Midterm Measures
		Long Term Measures
Chapter 8

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