4 held in India-Hong Kong trade-based money laundering case

New Delhi, Dec 29: The Indian Customs and Hong Kong Customs have unearthed a major case of Trade-Based Money Laundering (TBML) involving Hong Kong-based exporters and Indian importers located in the Special Economic Zone (SEZ).

Four individuals in India were arrested under the provisions of Section 104 of the Customs Act, of 1962. The Indian Customs issued Show Cause Notices for seized goods, including notices to Hong Kong-based entities, who, however, declined to respond or present themselves before Indian Customs.

In a parallel development, last week, Hong Kong Customs initiated an enforcement operation, dismantling a large-scale transnational money laundering syndicate that had laundered approximately $65 million through the diamond trade.

The operation included raids on eight premises across various areas in Hong Kong, leading to the arrest of four individuals connected to the case. Hong Kong Customs has taken steps to freeze the $1 million in assets held by the arrestees. This enforcement action was prompted by the earlier actions taken by Indian Customs in India.

The money laundering case comes close on the heels of the recently concluded Global Conference of Cooperation in Enforcement Matters (GCCEM) organised by Indian Customs and Directorate of Revenue Intelligence (DRI), with the theme of ‘It takes a network to fight a network’.

The DRI had previously exposed a TBML case from an SEZ, wherein inexpensive synthetic diamonds were clandestinely imported into India under the guise of natural diamonds, facilitating the illicit remittance of foreign currency out of the country.

Investigations brought to light that these synthetic diamonds were falsely declared as natural and overvalued by more than 100 times. They were being imported from Hong Kong-based firms into SEZs in India.

The investigations also revealed instances where genuine diamonds were imported but later substituted with synthetic diamonds and smuggled outside the SEZ. The importing entity was found to be exporting diamond-studded jewellery at significantly inflated values to Hong Kong and other countries.

A substantial portion of the artificially inflated import value was remitted through banking channels, the remittances received for the exports were only marginal, around 0.2%. This raised suspicions that the entire trade operation served as a cover for laundering money abroad.

The investigation further unveiled that money flowed into the importing entity's bank account through transactions involving various dummy firms in India. Subsequently, the funds were laundered from this single bank account to overseas suppliers in Hong Kong, for the import of 'diamonds.'

The evidence gathered also pointed to the mastermind of this trade-based money laundering residing in Hong Kong.