SARS Electronics Industry Project 2000 onwards

1. SARS Electronics Industry Project 2000 onwards

2. Background • During 2000 SARS was approached by local suppliers of international brands. • High prevalence of non-compliance within this sector. • Indicated that they were considering withdrawing from SA due to unfair competition; • SARS launched a project.

3. Basic approach • 2 Part Process: • 1) Review of Cases • - Centralize existing cases • - Review all existing cases in progress • - Understand dynamics of non-compliance • 2) Approaching the Role-players • Identify role-players • Engage role-players at various levels simultaneously • Use one party against next party

4. How we understood scheme to function • Importers • Conspire with supplier offshore • Double-invoice • Present lower value invoice on importation - Lower import duty - Lower VAT - Therefore lower “landed cost” • Uses “front company” to engage retailer • Retailers • Purchases from “front company” • Sometimes pre-determines price to pay for goods • Sells on to the public • Within this a lawyer would be used to facilitate transactions from importers and a money launderer used by the importers to deal with their profits.

5. Approach • Identify retailers • Identify facilitators – Lawyers, clearing agents, money launderers • Identify importers/ suppliers • UPWARD PRESSURES • Financial investigations, Criminal investigations, Civil remedies • Objectives: • High visibility • Coverage • Disrupt • Create panic • Roll over, identify and testify against others • DOWNWARD PRESSURE • Collective invite and meeting with Commissioner • Objectives: • Place obligation on retailers • Leverage corporate responsibility • Drive a wedge between non-compliant suppliers and buyers • This resulted in an agreement on “Self audits”

6. Targeting • Importers / facilitators • Existing cases • Centralised all cases • Link analysis • Engaged subjects • Search & seizures • Informants • Notifications of investigations • Plea bargains & payment agreements • Identify co-conspirators • New cases • Used witnesses from existing cases in new cases • Engaged subjects • Search & seizures • Informants • Notifications of investigations • Plea bargains & payment agreements • Identify co-conspirators

7. Targeting Cont. • Corporate retailers • Identified primary subject • Commenced engaging by way of investigations/notifications • Identified secondary subjects • Meeting with Commissioner • Agreed they would do “self audits” • Agreed they would “vet” suppliers • Leverage through media

8. Outcomes – importers/Facilitators • Importer X and related entities – Plead guilty to and convicted of customs fraud and repaid loss to SARS. Provided testimony against lawyer. • Lawyer Y– Plead guilty to and convicted of tax evasion and repaid loss to SARS. Provided testimony against clients who were importers. • Importer Z and related entities - Plead guilty to and convicted of tax evasion and customs fraud. Repaid some amounts to SARS. Re-arrested for failure to repay full amount to SARS. Court rejected attempt to incarcerate him on this basis. Sequestrated; • Importer and “Money-Launderer” A and related entities - Plead guilty to and convicted of tax evasion and customs fraud. Repaid loss to SARS; • “Money-launderer” B and related entities – plead guilty and convicted of money-laundering. Sequestrated and partial loss to SARS collected. • Importer and “money-launderer” C and related entities - Plead guilty to and convicted of Customs fraud. Repaid some amount to SARS but was subsequently sequestrated. • Importer D and related entities - Plead guilty to and convicted of tax evasion and Customs fraud. Repaid some amounts to SARS. Residing in USA. Collections actions ongoing;

9. Outcomes – importers/Facilitators Importers and “dummy companies” • E • Fled South Africa and was last confirmed to be residing in India. • An assessment for R 190 million has been raised. • A criminal case has been registered for tax evasion. NPA warrant of arrest and explore extradition. • F • Fled South Africa and was last confirmed to be residing in USA. • A criminal case has been registered for tax evasion. NPA warrant of arrest and explore extradition. Importers • G • An assessment of R13 million has been raised. • He has been sequestrated. • A criminal case of tax evasion has been registered and the investigation finalised and handed over to the NPA. • H • An assessment of R1.5 million has been raised. • He has been sequestrated. • A criminal case of tax evasion has been registered and the investigation finalised and handed over to the NPA.

10. Outcomes – importers/Facilitators Importers and “dummy companies” Cont. • I • Assessment of R 10 million. • Business has been liquidated. • J & K • Assessments of R 54 million were raised. • A criminal case of tax evasion has been registered. Importers • L • An assessment of R1.5 million has been raised. • He has been sequestrated. • A criminal case of tax evasion has been registered and the investigation finalised and handed over to the NPA

11. Outcomes – Retailers • Primary recipients of goods from importers • Listed company A • R 25 million settlement • Listed company B • R 60 million settlement • 2 directors held liable. The subsequently emigrated from SA • Other retailers • 12 “self audits” conducted • Convicted persons and entities listed so as not to trade with them • Public statements in support of SARS • International retailer • Acknowledged 10% increase in profits in year attributable to SARS project

12. Outcomes - Other • SARS was able to explain schemes and identify suspects in similar Australian leg of operations to the Australian Tax Authority under Mutual Assistance Agreement. Business enterprise in Australia subsequently closed down. • Media coverage and emphasis on tax enforcement. • Highlighted risk to corporate shareholdings and reputation if involved in purchases from dubious suppliers. • “Campaign-style” methodology developed in SARS which was applied in other areas of focus: • Music artists • Sport events

13. Challenges • “Whole of government” alignment between prosecuting authority, police, SARS was difficult to attain within the project: • Lack of common understanding of approach • Internal perceptions within SARS between “older” staff who were used to a case by case approach found the approach difficult to digest; • The “self audits” designed by SARS for retailers were not properly conceived and missed aspects of tax that did not form part of the schemes; • Sifting though fact and fiction as it was presented by the subjects took time and effort; • SARS systems at the time were not designed to accommodate the transactions necessary to move with speed.