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Analysis: HS Codes Manipulation in 189 trillion Gold Import Case

The case of suspicious transactions involving the import of gold bars is now the top priority of the Prevention and Eradication of Money Laundering Task Force (TPPU).

Tenggara Strategics (The Jakarta Post)
Jakarta
Wed, May 17, 2023

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Analysis: HS Codes Manipulation in 189 trillion Gold Import Case An employee shows gold at the Pegadaian Office, Jalan Bendungan Hilir Raya, Jakarta, Monday (17/02). PT Pegadaian (Persero) in 2013 Pegadaian gold sales reached around Rp 1.3 trillion. This amount increased compared to 2012 which was around Rp 1.05 trillion. And in 2014 targeting gold sales to Rp 2.5 trillion. (JP/Nurhayati)

T

he case of suspicious transactions involving the import of gold bars is now the top priority of the Prevention and Eradication of Money Laundering Task Force (TPPU). The task force, led by Coordinating Political, Legal and Security Affairs Minister Mahfud MD, suspects the existence of a modus operandi of falsifying the Harmonized System (HS) code in the case of import duty and export tax evasion related to gold imports and exports, which caused a loss to the state of more than Rp 189 trillion (US$12.85 billion).

The Financial Transaction Reports and Analysis Centre (PPATK) reported the alleged HS manipulation mode in gold import activities worth Rp 47.1 trillion for possible money laundering to the Finance Ministry back in 2017. However, the report only received a response from Finance Minister Sri Mulyani during her meeting with PPATK on March 14. The alleged use of HS code falsification in the gold import case further strengthens previous suspicions of the involvement of individuals in the Customs and Excise Directorate General in a money laundering case.

The modus operandi of falsifying HS codes is intended to avoid paying taxes and duties on gold imports, which fall under the supervision of the Finance Ministry’s Customs and Excise Directorate General. Under the customs and excise provisions, there are four classifications of gold import duty rates:

  • HS 7108.12.10: gold bars are to be reprocessed as lumps, ingots or casting rods, not subject to import duty.
  • HS 7108.12.90: gold bars other than in the form of lumps, ingots or ingots is subject to a 5 percent import duty.
  • HS 7108.13.00: other semifinished forms of imported gold are subject to a 5 percent import duty.
  • HS 7115.90.10: gold bars that are immediately ready to be sold are subject to a 5 percent import duty.

According to an investigation by Tempo, the modus operandi for evading gold import duties involved falsifying the HS code for imported gold. It was done in a way that resulted in discrepancies between the data in the declaration notes of the commodity's country of origin and that of the importing country. For instance, when an Indonesian importer imported gold, the HS code on import and custom clearance documents in Singapore was recorded as HS 7108.13.00 or "half-finished gold," which required a 5 percent import duty. However, upon arrival at Indonesia’s customs, the HS code on the document was altered to HS 7108.12.10 or "gold bars to be reprocessed" to avoid paying import duties, resulting in a duty rate of 0 percent.

During a hearing between House Commission III and the National Coordinating Committee for the Prevention and Eradication of Money Laundering last month, National Mandate Party (PAN) legislator Sarifuddin Suding said he suspected most of the gold import-export cases involving nine companies were related to illegal mining, and asked the National Police and the Attorney General’s Office (AGO) to investigate the potential illegal mining link to the Rp 189 trillion in suspicious transactions.

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The customs office’s international and inter-institutional customs director Syarif Hidayat shifted the blame for HS manipulation to the importers. He argued that the customs office’s duty was only to verify whether the importer's report aligned with the import documents. Worse, according to Trade Ministry’s trade security director Pradnyawati, there were no regulations specifically governing sanctions for importers’ transferring HS codes, which is part of circumvention actions in international trade activities.

No wonder the Finance Ministry lost its court case against the HS code transfer for the export of 218 kilograms of gold bars worth $6.8 million in 2016. In the related customs declaration, the exporter stated that the shipment contained jewelry and was therefore, not subject to excise tax. However, a customs inspection discovered that the shipment contained gold bars. The Finance Ministry took the case to court for customs violations but lost at the Supreme Court.

Unfortunately, this is not the first case to occur. Falsifying HS codes in commodity imports and exports has long been a common practice to avoid import duties or export taxes. In addition to gold imports, Indonesia also faced similar patterns in the case of steel imports in 2018 to prevent the imposition of antidumping import duties, which resulted in some local steel producers losing in a competition.

What we’ve heard

A number of sources said Mahfud MD already had some data regarding the gold import scandal through the manipulation of HS code long before he formed the TPPU Task Force. He obtained the data several days before the hearing with the House of Representatives in mid-April.

That is why, in the first meeting with the TPPU Task Force team, Mahfud MD asked for the gold import scandal to be one of the priorities to be brought to the court in the TPPU case.

Moreover, the HS code manipulation scandal so that import activities are not subject to taxes and import duties is allegedly still ongoing today.

The modus operandi is the same: changing the HS code attached to the import document and declaration sheet when the gold commodity arrives at Soekarno-Hatta Airport so that it is not subject to import duties.

A source said that the HS code change would not have been possible without the involvement of people from the Directorate General of Customs and Excise (DGCE), especially since in the country of origin, the commodity is written as semi-finished gold, which should be subject to import duties.

Although the issue has surfaced since 2016, it seems that the DGCE allows the case to continue until now. The majority of the scandalous gold comes from Singapore. The top five importers are the same group of people.

A source at the Finance Ministry said that the alleged money laundering case at the DGCE related to the gold import activity never reached Finance Minister Sri Mulyani's desk.

The information that reached Sri Mulyani regarding the handling of a case by the DGCE against a gold company was different from what was conveyed by the PPATK head Ivan Yustiavanda and Mahfud MD to the public.

In the case, the Finance Ministry argued that the Supreme Court had granted the judicial review filed by a gold jewelry manufacturer. The Supreme Court stated that there was no criminal element.

However, the case presented by Sri Mulyani to the public was a gold export activity, not allegations of laundering related to gold import activity.

Disclaimer

This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access the latest edition of Tenggara Backgrounder to read the articles listed below:

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