Inside the billion franc alcohol smuggling ring, over 30 arrested

Several arrests have been made
The ring targets some of the most expensive liquor and wine brands from which they get a big margin through evading import tax by smuggling. In addition, the culprits pay just a fraction of VAT because of underdeclaration. / Net photo

Ordinarily, sales and consumption of expensive imported liquor and wine is supposed to translate into revenue proceeds for Rwanda Revenue Authority (RRA).

However, in the past few months (and probably years) this has not been the case; a cartel has been stealing millions, and probably billions of monies, from the taxman.

This is a story of the cartel’s operations and the numbering of their days.

Over the past few months, the revenue body in partnership with allied and partner agencies including security organisations, set out to investigate the fraud and smuggling operations that were draining tax receipts.

The investigations revealed the existence of a cartel smuggling expensive liquor into the Rwandan market, distributing it across the country through a well-planned and orchestrated network.

The New Times understands that up to 34 players in the cartel have since been apprehended with investigations going on with most recent arrests done on the last weekend of June. (About two weeks ago).

The cartel’s operations involved a hierarchical structure that authorities say it had some four masterminds, below which there were wholesalers, transporters and brokers (who are known as commissionaires in their circles).

Their operations which have deprived the Rwanda Revenue Authority tax receipts and destabilised the liquor market in the country involved smuggling liquor on demand from neighbouring countries and distributing it into the local market with unsuspecting consumers unaware of its source.

How they did it

Ordinarily, legitimate importers of liquor and other products declare goods through customs upon which, tax stamps are stuck on each bottle immediately after paying a tax of 20 per cent of the value of the contents in the bottle.

For liquor and wines, products, there are three kinds of tax stamps; locally produced liquor, imported liquor in less than 500ml bottle and imported liquor in over 500ml bottles.

The three categories have distinguishing tax stamps which are often stuck around the cap or neck of the bottle.

Locally produced liquor has a pink tax stamp, while imported liquor below 500ml has a greenish tax stamp.

Blue is meant for bottles of over 500ml. the tax stamp is issued upon clearance with the tax authorities on entry and certification of the goods or production for local liquor.

This was one of the major aspects of the cartel’s operation, tax stamps. To start with, the cartel had a preference for expensive fast moving liquor brands.

The group would smuggle alcoholic liquor and other products such as beauty products and spices from neighbouring countries in vehicles crossing the border.

A source with insights to the operations told The New Times that ‘logistics officers’ involved in the operations had come up with clever ways to guise their merchandise to avoid suspicion by customs and other officials through modified cars with false bottoms and compartments to hide the products.

On entry into the country, the liquor, much of it expensive, would be taken to warehouses for ‘preparation’ before distribution into the market.

The preparation would involve sticking tax stamps on the bottles to guise as compliant bottles.

However, the scam was that, as opposed to paying the correct tax amounts to acquire legit tax stamps, the cartel had ways to acquire tax stamps meant locally produced liquor (pink ones) whose tax rate is significantly less.

In other instances, they would use counterfeit tax stamps before releasing the bottles into the market through a well-coordinated value chain.

With that, the sales and consumption of expensive liquor in the local market would not translate to the tax revenue receipts as they would only be reflected as taxes of locally produced liquor, which of much less value.

This would not only deprive the country of taxes through evasion of import duty (about 20 per cent of the value) but also fleece the taxman in way of Value Added Tax, because what they tax after sale are contents of much less value.

Considering that the products were smuggled and not tax compliant, they were considerably cheaper in the local market they would outcompete legally imported liquors.

Consequently, as the ring grew and spread wider, more retailers found it more enticing to buy these liquors and related product, either unconsciously or even consciously.

This alcohol found itself on the shelves of many liquor stores, supermarkets, shops, bars and restaurants including high end establishments.

Rwanda Revenue Authority officials explained that the cartels operations had spread out across the country with major hubs being Kigali, Rubavu and Musanze.

How they were caught

Richard Dada, the Deputy Commissioner for revenue investigation and enforcement at RRA said that given the expansiveness of the network’s operation as well seeming organised approach, they set up a joint operation with partner agencies including the Rwanda National Police and Rwanda Investigation Bureau.

Richard Dada, the Deputy Commissioner for revenue investigation and enforcement at RRA. / File

This time, their investigation and approach was patient and keen on understanding the entire value chain of the operations as opposed to previous instances where they only pursued a consignment or an individual.

This would see them bring down the entire value chain and multiple players as opposed to one or two players.

For instance, in 2017, RRA had had success in intercepting about 600 boxes of wines and spirits evading tax of an estimated Rwf70 million with local businessman Godfrey Nkusi allegedly behind the operations.

However, despite the success of the operation, there was no effort to understand establish the entire value chain on the operations and those behind it like the recent operation.

These were some of the lessons the revenue body and partners took into account during the operation as well as improved capacity among staff at the agency.

“This time there was strategic planning and coordination among different agencies to get to the bottom of the issue,” he told The New Times.

After establishing confidence that they well understood the nature, extent and players, they apprehended those behind the operations including masterminds, wholesalers, transporters and agents.

The revenue authorities has also been conducting inspections across the country in wines and spirits vending outlets ranging from supermarkets, liquor stores, bars and restaurants in pursuit of the smuggled alcohol upon which they have been confiscating products.

The exercise is further revealing the extent of the network’s operations as a majority of outlets were found to have some of the smuggled products.

Insiders say that in places such as Gisenyi and Musanze, the penetration rate of the smuggled products was significantly higher. Some brands were without a single tax complaint product in some locations.

The Commissioner-General of RRA, Pascal Bizimana Ruganintwali said that the operations which are continuing will culminate in the auction of the seized products while those that will be found to be sub-standard will be destroyed.

Destabilising the liquor market

The New Times further established that the nature of operations had among other things seen legally compliant importers suffer huge losses as a result.

Patrick Gakwandi who is involved in a family business which imports and wholesales wines and spirits told The New Times that over for over one year, business has been on the decline down.

Due to the cheaper non-compliant products, a majority of retailers they were working with had turned away from them in preference of the cartels products as they were considerably cheaper.

He said that the smuggled products would have price differences of up to Rwf7000 in some brands which would see majority of their clients turn away.

“This has really spoilt the market for quite some time. We were not sure how some people would have way cheaper products. At some point I imagined we were getting from the wrong suppliers. If one is not paying tax, you can not compete with them,” he said.

Way forward

Dada said that they are just getting started, investigations will continue as so will inspections.

He said that the efforts will bring on board other partners including tax complaint operators as they seek to rid the market of such products and ensure that there is no chance for re-occurrence.

RRA will also be stepping up existing cooperation with neighbouring countries, set up cargo control monitoring systems as well as raise awareness among the public to ensure that they can pick out smuggled items among retailer outlets.

In the meantime, RRA is still compiling figure to determine the extent of the cartel’s operations and how much they had since ‘eaten’ of the proceeds meant for the authority.