The Uganda Revenue Authority and several banks lost $4 million in a sophisticated Customs fraud that dates back to 2013.

An investigation by URA following complaints from business people about suspicious import transactions also revealed that 10 suspects have already been arrested.

Imports of industrial chemicals used in the production of juice, cosmetics, insecticides, distilled alcohol and surgical spirit were particularly affected by this fraud.

The fraudsters exploited loopholes in the banking and revenue collection system to file and secure approval of false Customs entries, forged letters of credit alongside creation of bogus companies that made suspicious import orders, The EastAfrican has learnt. Most of these inputs are sourced from Chinese and Indian manufacturers.

Preliminary findings indicate that about 142 containers carrying different types of industrial chemicals were exposed to this fraud, with 42 of these still held at Mombasa port. About 110 containers are valued at Ush9,501,407,168 ($3,175,604) with accompanying tax liabilities of Ush3,098,267,564 ($1 million), according to investigation reports.

Though industrial inputs are exempt from import duty under existing Customs laws, they are subject to import value added tax of 18 per cent and a withholding tax rate of six per cent. In spite of fairly generous tax rules, rogue importers reportedly connived with clearing agents and grossly undervalued their consignments. 

“We are also investigating cases of collusion between junior employees and senior managers within clearing and forwarding firms. Though taxes worth Ush3,098,267,564 ($1 million) were lost through this fraud, this figure could rise further as investigations continue,” said James Kisaale, URA Assistant Commissioner for Enforcement Operations.

In other cases, fictitious companies with names close to genuine ones were used to deceive foreign suppliers to dispatch goods, URA and banking sources say. For example, a non-existent “Quality Chemical Industries International Ltd” also bore the same address as the officially registered Quality Chemical Industries Ltd.

In addition, fraudsters created false letters of credit while the genuine ones belonging to legitimate businesses were stolen from local courier companies, doctored and used to execute import orders, investigators found. These letters of credit were subsequently approved by accomplices among bank staff.

“The Uganda Bankers Association has raised this issue with the courier operators and three people were arrested,” explained Claver Serumaga, general manager for business development at Bank of Africa Uganda.

To widen the investigation trail, URA officials met with the Uganda Bankers Association two weeks ago to discuss options for tracking down rogue bank staff and their accomplices.

Some banks cite limited regulation in the clearing and forwarding industry as the biggest factor behind the complex fraud but local agents seem to disagree.

“We are still examining the impact of this problem on our business and are yet to identify any suspects within the bank,” noted Patrick Mweheire, managing director at Stanbic Bank Uganda.

DHL Express Uganda has already reported cases of parcel theft to police but investigations have not been concluded, a company source told The EastAfrican.

“I have heard about that racket and I wonder why it has taken URA so long to investigate it. Regulation for clearing and forwarding agents are well captured by the East African Community Customs Management Act but the problem lies in failure to enforce laws effectively,” said Kassim Omar, chairman of the Uganda Clearing and Forwarding Agents Association.