On November 26, the South African Revenue Service (Sars) made an announcement about its collaboration with the South African Reserve Bank (SARB) to combat illicit financial flows and customs valuation fraud associated with the misuse of advance foreign exchange payments in respect of goods to be imported.

The collaboration is part of Sars’ Customs Modernisation Programme (CMP) for authorised dealers in foreign exchange.

At this point, the temptation is to continue reading, but let us pause, rewind and contemplate the message in the first paragraph. There are five concepts: illicit financial flows, customs valuation fraud, misuse, advance foreign exchange payments, and authorised dealers in foreign exchange.

Global Financial Integrity (GFI) defines illicit financial flows as the illegal movement of money or capital from one country to another. GFI classifies this movement as an illicit flow when funds are illegally earned, transferred, and/or used across an international border. An example is an importer using trade misinvoicing to evade customs duties, value-added tax or income tax.

Customs valuation is considered a customs procedure applied to determine the customs value of imported goods. According to the European Anti-Fraud Office, one of the four means to commit customs fraud when importing or exporting goods is to declare a lower value on the goods, also known as undervaluing. But overvaluing could also benefit moving foreign exchange from the exporting country. Misuse is, obviously, the wrong or improper way of doing something. As for advance foreign exchange payments, we need to break this into parts. An advance payment is made by an importer to the exporter before shipment. In the Government Gazette of October 14, Sars published draft rules of the Customs and Excise Act for advance foreign exchange payments. As for authorised dealers in foreign exchange, the SARB defines them as persons authorised by the Financial Surveillance Department to deal in gold or to deal in foreign exchange, for transactions relating to gold and foreign exchange respectively.

Meanwhile, the Sars CMP announced on September 1 that it aims to, among other things, support and collaborate with industries, businesses and the whole of government.

In a letter dated November 26 and titled ‘Advance Payment Notification (APN)’, Sars stated that it will be implementing a new functionality on its eFiling platform for importers to notify Sars of their intention to apply to an authorised dealer for an advance foreign exchange payment in respect of goods to be imported. The letter mentions that draft rules relating to advance foreign exchange payments were published on October 15, for public comment and can be accessed on the Sars webpage. It continues that the APN project is aligned with Sars’ strategic objectives relating to making it easy for taxpayers and traders to comply with their obligations, to detect taxpayers and traders who do not comply, and to make noncompliance hard and costly.

According to the letter, on December 3, Sars intended to implement a new functionality on its eFiling platform for importers to notify Sars of their intention to apply to an authorised dealer for an advance foreign exchange payment in respect of goods to be imported. These APNs relate to outward payments of advance foreign exchange payments for imports (not in terms of an import undertaking) that exceed R50 000 for the following import categories: import advance payment (excluding capital goods, gold, platinum, crude oil, refined petroleum products, diamonds, steel, coal, iron-ore and goods imported through the South African Post Office); import advance payment – capital goods; import advance payment – gold; import advance payment – platinum; import advance payment – crude oil; import advance payment – refined petroleum products; import advance payment – diamonds; import advance payment – steel; import advance payment – coal; and import advance payment – iron-ore.