Misuse of Export Facilitation Scheme and Alleged Money Laundering in Scrap Import Sector

Overview

Recent revelations indicate significant misuse of the Export Facilitation Scheme (EFS) and possible involvement in money laundering by scrap importers, particularly those dealing with compressor and motor scrap. The Brass Manufacturing Association (BMA) has raised concerns and proposed the cancellation of the scheme due to these abuses.

Key Allegations

• Misuse of Scheme: Importers of compressor and motor scrap are allegedly exploiting the EFS. Instead of using the scrap to produce copper ingots and copper products for export, these importers are purportedly selling the imported scrap locally.
• Impact on Exporters: This practice undermines genuine copper exporters who rely on copper scrap for manufacturing. It also disrupts the scheme’s intended support for export-oriented industries.
• Money Laundering Concerns: The BMA’s letter suggests that scrap importers are manipulating the scheme to sell imported scrap domestically and then purchase copper ingots at inflated prices for export, potentially engaging in money laundering activities.

FBR’s Response and Actions

• Draft Rules: The Federal Board of Revenue (FBR) has circulated a draft of proposed rules for stakeholder feedback, but no official notification has been issued yet.
• Investigation: The FBR has approached the Secretary General of the BMA to investigate the misuse allegations. If the claims are substantiated, the FBR may suspend the scheme and take action against involved parties.
• Scheme’s Purpose: The EFS is designed to facilitate re-export of goods made from imported raw materials. However, the BMA’s document highlights that only 10% of the copper from compressor and motor scrap is used in value-added exports, while 90% is sold locally, contradicting the scheme’s objectives.

BMA’s Position

• Letter to FBR: The BMA has formally written to the FBR, emphasizing that the scheme’s misuse by scrap importers is detrimental to the industry. The BMA argues that these practices discourage genuine copper exporters and hinder job creation and manufacturing growth.
• Proposed Cancellation: The BMA suggests that the EFS be cancelled to prevent further exploitation and support genuine exporters and manufacturers.

Next Steps

The FBR is expected to finalize its investigation and decide on appropriate actions, including potential suspension of the EFS. The investigation will assess whether the allegations of scheme misuse and money laundering are valid and determine necessary reforms or enforcement actions.