SA: Tom Moyane: Address by SARS Commissioner, to the Crime Stoppers International Conference
16 October 2014
Posted by: Author: SARS
Ms Wendy Tlou, Chief Marketing Officer, Brand South Africa
Mr Panyaza Lesufi, Gauteng MEC for Education
Ms Magdalene Sotyu, Deputy Minister of Police
Mr Yusuf Abramjee, head of Crime Line in SA, the chairperson and convenor of this Crime Stopper International Conference
Ladies and gentlemen
I am honoured to have been invited to address this Closing Plenary Session of the 35th Annual Crime Stoppers International Conference in the beautiful city of Cape Town, especially as it is the first time that our vibrant continent has hosted this important event.
I am sure that your talks and discussions, as you have compared notes and shared experiences over the past few days, you have all gained new and valuable insights that you can take back to your countries and use in the ongoing fight against crime.It is only by sharing information and knowledge, pooling resources, strengthening cooperation and mobilising all our citizens that we will win this fight.
This is also the approach we at the South African Revenue Service take. It is not South African Revenue Services (SARS’s) primary mandate to fight crime. By law, SARS is a Tax and Customs administration. While it is the task of our law enforcement agencies to fight crime, in the course of our work on both the Tax and Customs front, it is unavoidable that we come across individuals and entities involved in criminal activities.
Our Customs officers are one of our country’s first lines of defence when it comes to preventing the smuggling of illegal, illicit and harmful goods across our borders. Also, in tackling tax evasion SARS often comes across other criminal activities such as fraud, money laundering and racketeering. Indeed, we often find that syndicates active in smuggling are also involved in other illegal and illicit activities.
Yesterday, while we were presenting the SARS Annual Report for the 2013/14 financial year to Parliament, reports came through that the SARS Customs Team at the cargo section at OR Tambo International Airport stopped two suspicious consignments from Benin. As the Customs team began examining the consignments, their narcotics detector dogs positively identified narcotic substances. Upon further investigation, a total of 200 kg of Crystal Meth or "Tik” was found hidden in prop shafts vehicle components. Valued at R59 million, this was the biggest ever seizure of Crystal Meth by SARS Customs at OR Tambo International. Narcotic seizures of this nature, have become so regular at our biggest ports of entry, they hardly make the news headlines anymore. The regularity of such seizures is a clear indication that criminal syndicates will stop at nothing to promote their nefarious activities, to the detriment of society.
The question is what do we do when we come across criminal activity? SARS’s primary mandate is to collect all revenue due to the fiscus and to facilitate legitimate trade by ensuring compliance with Tax and Customs laws. This does not mean, however, we turn a blind eye to the criminal activities we come across.
We are passionate about fighting this scourge and working with our law enforcement partners in bringing criminals to book. But we are also very clear that we must do so within the parameters set out by the law.
The role of SARS in combating crime is delimited in law to enforcement actions that are aimed at fostering or promoting compliance with tax and customs law.
This makes SARS different from law enforcement agencies such as the police or the prosecuting authority. SARS fulfils the role of administrator, regulator and law enforcement agency. This dynamic brings into being considerations not typically associated with law enforcement agencies.
The relationship between SARS and citizens - as taxpayers, traders and licensees - is ongoing. This imposes obligations on all parties to be compliant with their statutory obligations.
Punitive measures that follow non-compliance with tax and customs law are not limited to instituting criminal proceedings. The law gives SARS the powers of investigation with a view to applying the most appropriate punitive measures ranging from civil restitution (including fines, penalties, compound interest and forfeitures to sometimes instituting criminal proceedings against offenders) to criminal investigation.
Law enforcement agencies on the other hand mainly deal with individual citizens on a short-term, once-off basis as complainants, witnesses or suspects, or when they are charged with criminal offences.
Actions undertaken by SARS are subject to different rules relating to the promotion of fair administrative action.
All taxpayers and customs traders have equal rights from a SARS perspective. SARS cannot favour one taxpayer or trader above another. The same applies in respect of industry engagement – SARS cannot afford one representative body a bigger audience than another;
SARS is bound by the provisions in tax and customs law to safeguard the confidentiality of taxpayer information. This severely proscribes whether information can be shared with other state institutions and in what form and manner.
Several court judgments too have confirmed that SARS’ powers may only be applied for the purpose of fulfilling SARS’s statutory mandate. They cannot be used for any other purposes. The above considerations have a practical effect on the extent and manner in which SARS collaborates with other state institutions.
SARS has always sought to collaborate with other state institutions without infringing on the rights of taxpayer or eroding the legal framework that governs our work. We have put in place a range of operational arrangements and standard operating procedures that define how we cooperate and collaborate with the law enforcement agencies that we work with.
A senior SARS official, working together with a committee of legal and functional experts, has been designated to review and decide on all instances where disclosure of SARS information to law enforcement agencies may be needed, to ensure that we do not breach any taxpayer confidentiality provisions.
The measures are there to ensure that all our interactions stand up to scrutiny and are legal, and that they cannot be challenged in a court of law, thereby jeopardising cases and allowing criminals to escape justice.
Distinguished guests, ladies and gentlemen, let us be very clear: tax evasion is a crime. The victims are all honest citizens– those who pay their taxes and shoulder their fair share of the burden which provides infrastructure and services for all. Its victims are the poor and needy who are reliant on the state to meet even their most basic needs.
It is part of SARS’ core mandate to combat tax related crimes. The Tax Administration Act, which came into operation on 1 October 2012, consolidated all administrative provisions in tax laws into a single law. It lists and describes all the offences related to tax. These can range from not registering for tax when liable to do so, committing tax fraud by submitting incorrect data, to the use of sophisticated financial structures to evade tax.
SARS’s approach is to inculcate a culture of voluntary tax compliance in society. This is informed by the compliance model that SARS subscribes to. The model is premised on three elements: Education, service and enforcement.
SARS encourages compliance with the law by ensuring that all citizens are aware of their legal obligations; we ensure that it is reasonably easy for citizens to meet these obligations by ensuring that our services are accessible and user-friendly. And for those who seek to avoid their obligations we must have a credible deterrent through enforcement action.
One key factor in deterrence is the great likelihood that you will be caught out. SARS therefore seeks to create an environment where all taxpayers are equally likely to be selected for audit and that we have the capability for in-depth audits and investigations where we deem this to be necessary.
We have also made great progress in signing double taxation and exchange of information agreements with other tax and customs administrations throughout the world. This allows us to better monitor and police non-compliance among corporates and high net-worth individuals. These initiatives have been given added impetus thanks to the strong global focus on the base erosion and profit shifting practices of some multinationals.
When criminal behaviour is found, action must be taken against the offenders. The nature of the enforcement action taken by SARS will be proportional to the level of non-compliant behaviour it uncovers. In other words, if you are a first time offender who has failed to submit your return, you will most likely receive a penalty and will have to pay interest; on the other hand if you have committed serious tax fraud you will be prosecuted to the full extent of the law. This is where direct collaboration with other law enforcement agencies, like the National Prosecuting Authority and the South African Police Service (SAPS), becomes crucial.
In addition, where we detect widespread non-compliance in particular forms of economic activity or industry sectors we, demarcate these as priorities for enforcement campaigns. To this end in 2012 SARS launched a compliance programme which identifies seven priority areas on which to focus our attention.
One of these is the tobacco industry. This is a good example of how SARS’s core mandate to collect revenue and combat tax evasion intersects with Customs’ primary mandate to promote economic development through the facilitation of legitimate trade and to protect society and the economy from the harmful trade in illegal and illicit goods.
The illicit economy, especially illicit cigarettes and tobacco, continues to pose a serious threat to South Africa’s economic growth, legitimate formal businesses, financial activity and the potential growth of the tax base from which SARS collects revenue. Please consider the following statistics, based on research from the tobacco industry in South Africa:
- 1 in every 4 cigarettes smoked in this country are illegal products – this is more than 29% of the total market share
- An estimated 15 million cigarettes – the equivalent of 750 000 packets of 20s – are sold illegally in the country every day
- The loss of Revenue to Government could be more than R3 billion per year in excise taxes and VAT
- The revenue losses to legitimate operators in the tobacco industry is estimated at more than R2 billion per annum. This is a direct threat to job creation.
- A smuggled 40 foot container with 1 100 master cases of cigarettes constitutes a loss of approximately R7.2 million to the fiscus.
The following schemes have been identified as the most prevalent in this sector
Under-valuation of tobacco-related products imported into South Africa in order to pay lower excise duty and VAT.
Mis-declaration of tobacco-related products imported into South Africa by the following means:
- Declaring the products to SARS as something other than what they are and thereby paying a different tariff and duty.
- Declaring the products to be destined for bond or in transit, supposedly for later export. Instead all or some of the products are diverted into the local market.
- "Round-tripping” and "ghost exports.” In these activities, often state officials are coerced and corrupted to participate and facilitate the passing of fraudulent documentation.
- Permutations of the above fraudulent declarations, such as mixing goods that fall under different tariff headings thereby making it difficult for customs officials to inspect and sort between the goods or mixing products intended for local and foreign markets, the so-called "stock- or mixing-game”.
- There are various methods of straight forward smuggling. Good are imported without making any declaration to SARS whatsoever. For example, couriers from neighbouring countries are used to smuggle products into South Africa. Small "bakkies”, truck loads, and even individuals using public transport are used to bring relatively low volumes of products into the country. Their smuggled goods are then purchased at particular points where they gather to sell them.
- Larger scale smuggling operations resort to the use of trucks across non- designated ports; they avoid the ports of entry entirely by crossing into the country via illegal pathways; and via private and commercial cargo on aircraft.
On the manufacturing side within the country, similar scams exist, including mixing, under-valuation and mis-declaration. As manufacturers operate under licence, which entails more onerous compliance obligations, particular risks have been identified in respect of:
- Tax and customs when dealing with wastage and losses during the manufacturing process.
- Tampering with machinery.
- Unrecorded manufacturing.
- Stock control and accounting, and
- Mixing of stock.
In response, SARS will focus its enforcement efforts on the entire supply chain of illicit cigarette and tobacco trade, through better control of our warehouses, through the modernisation of our systems to improve risk detection, and by increasing our collaborations with key stakeholders.
In the 2013/14 financial year we carried out over 3 500 seizures of tobacco and cigarettes, amounting in value to over R70 million.
The music industry in South Africa is another area where the illicit trade in counterfeit music has caused artists to suffer huge losses. Counterfeit CDs and the proliferation in sales of these products into informal markets leave music artists destitute due to the loss of income and equally leads to losses in revenue for SARS.
A fundamental tenet of Crime Stoppers is the role that civilians must play in combating crime. It is therefore of a real concern to us that at a retail and wholesale level some businesses and individuals appear quite comfortable to purchase products that are obviously below market prices and therefore should indicate risk. Of equal concern is that manufacturers and suppliers, ostensibly compliant from a SARS perspective, are quite happy to continue trading with these entities.
It is up to every citizen to make a conscious decision not to buy illicit, smuggled or counterfeit goods, even if they are supposedly cheaper. They may be cheaper on the pocket, but the price is being paid socially and economically: in lost jobs, in factories closing down and in poorer health outcomes.
What has encouraged the growth in illicit trade in South Africa? It is important to understand that illegal traders in South Africa specialise in trade routes rather than commodities. A route can host a wide range of commodities over time, and several commodities at the same time. For instance, routes between South Africa and China include illicit trade in abalone, clothes, electronics, drugs, firearms, human beings and diamonds, in addition to cigarettes.
The illicit trade in a number of commodities has been able to grow in South Africa as a result of large and highly effective organised crime syndicates.
In addition to the economic incentives, there are a number of other factors that have a significant bearing on the incidence and scale of illicit trade.
Weak border controls
For geographical reasons, the borders are impossible to police comprehensively. Smuggling takes place through known entry and exit points. Inadequate controls and corruption at such points allow smugglers to move products in large volumes.
The sanctions for those caught are insufficient to be a deterrent. The incentive to engage in illicit trade would be reduced if the balance of risk and reward was weighed more against the offenders. Fines do not deter professional smugglers.
Inadequate controls are often exacerbated by, or a consequence of, endemic corruption. Enforcement and controls are undermined - whenever the authorities are prepared to turn a blind eye if the price is right, encouraging the offer of bribes to the local border guards, customs officers and more senior government officials.
In many of the markets where illicit products sold, consumers are aware (from appearance, price and place of sale) that they are purchasing smuggled or counterfeit goods, but they are happy to purchase the product, because of the lower price. Without demand, there would be no supply.
Lack of effective law enforcement
Highly sophisticated and well resources syndicates regularly change their modus operandi to stay ahead of law enforcement agencies. To counter this law enforcement agencies have to grapple with a continuously evolving target. This requires continuous gathering and analysis of information to identify the main role players involved in the illicit market. It requires in depth investigations and audits of high profile identified targets and the conducting of compliance inspections at small and informal distributors, as well as disruptive operations to serve as a deterrent and to create a culture of no tolerance is further required. Many law enforcement agencies just don’t have all the resources required to do the job effectively.
The only way we are going to combat these syndicates is through better cooperation domestically, regionally and internationally and by strengthening our processes to secure the supply chain and detect risk.
I am glad to say that over the past five years SARS has taken significant steps to do just that. We are cooperating with other Customs and tax administrations in sharing information and best practices.
One of our real successes has been the establishment of our Customs detector dog unit which currently has 112 operational detector dogs. These are deployed in nine units at specific airports, harbours and land ports of entry. SARS is in the process of establishing three more units.
Many of our dogs are dual trained, meaning that they can identify more than one substance. Our dogs can sniff out Explosives, Firearms and Ammunition, Narcotics – Cocaine, Mandrax, Heroin, Cannabis, Crystal Meth and Ecstasy; Endangered Species – Rhino Horn, Ivory, Wet and Dry Abalone and Crayfish; Currency; Tobacco products including cigarettes; DVDs, copper wire and Lion Bones.
Since 2012 our Detector Dogs have been responsible for 339 narcotic seizures with an estimated value of R230 million, for 163 seizures of cigarettes and tobacco and for 33 seizures of endangered species products, amongst other products such as currency, copper wire, counterfeit DVDS and more.
The installation of bulk cargo scanners at Durban and Beitbridge, our busiest sea and land ports, and mobile scanners at other ports of entry also increase our capacity to detect and prevent smuggling. Other measures, such as mandatory electronic submission of declarations, advanced cargo reporting, improved seal provisions and the centralising and processing of import and export declarations and reference pricing also play a key role in rooting out non-compliance with Customs laws.
But the best systems and processes in the world in themselves are not what will defeat crime. It’s the vigilance, integrity and commitment of the people using those systems that make the difference. It is people, as citizens, taxpayers, traders and business people, who by saying no to crime, by refusing to turn a blind eye, and who by refusing to participate in the fruits of crime, who will help defeat the criminals in our midst.
Ladies and gentlemen, it is indeed true in today’s globalised world that, crime has no borders. It is therefore imperative that those who are fighting crime also cooperate across national borders to share ideas and best practices and come up with solutions to the problem that all of us are facing.
This article first appeared on polity.org.za.