The Dark Side Of Offshore Banking

In Ghana’s challenging business environment, high port charges and duties create significant hurdles for local businesses. To remain competitive, many businessmen resort to under-invoicing and using black-market forex dealers with offshore accounts. This practice allows them to avoid scrutiny from the Bank of Ghana (BoG) and the Ghana Revenue Authority (GRA), but it also perpetuates corruption and economic instability. The recent removal of discounts on benchmark values has further exacerbated the situation. This policy change has led to increased duties and charges on imported goods, making it even more financially burdensome for businesses to use Ghanaian ports. This article explores the mechanisms behind these practices and their broader implications.

The Hostile Business Environment

High Port Charges and Duties

Ghanaian businesses face substantial port charges and duties, which have become even more burdensome after the removal of discounts on benchmark values. These high costs make it difficult for businesses to compete, leading many to seek alternative methods to reduce their financial burden.

Under-Invoicing: A Common Strategy

To circumvent high port charges, businesses often resort to under-invoicing. This involves declaring a lower value for imported goods than their actual worth, thereby reducing the payable duties and charges. Under-invoicing is facilitated through the use of black-market forex dealers who maintain offshore accounts.

The Role of Black-Market Forex Dealers

Avoiding Official Channels

Instead of transferring funds through banks, which would attract scrutiny from the BoG and GRA, businesses make payments to suppliers through black-market forex dealers. These dealers, often referred to as “Alhaji’s,” help clients avoid the official financial system, making it difficult for authorities to trace these transactions.

Manipulating Commercial Invoices

When using black-market forex dealers, businesses can dictate the values to be recorded in commercial invoices. For instance, if the total payment to a supplier through a black-market offshore source is $200,000, the client might instruct the supplier to reflect only $80,000 on the invoice. This manipulation of invoices significantly reduces the apparent value of the goods being imported.

The Mechanics of Under-Invoicing

Discrepancies in Declared and Actual Values

Upon arrival at the port, the declared value of the goods might be scrutinized by port authorities. For example, if the imported goods are valued at $130,000 after examination, but the commercial invoice states $80,000, the client can argue that they received a substantial discount from the supplier. To avoid further scrutiny, the client might bribe port authorities, further perpetuating corruption.

Financial Savings for Businesses

By under-invoicing, businesses achieve several financial advantages:

Avoiding Troubles from the GRA: The manipulation of invoice values helps businesses evade detection by the GRA, reducing the risk of penalties for tax evasion.
Avoiding Troubles from the BoG: Transactions conducted through black-market forex dealers avoid the scrutiny of the BoG, which monitors large foreign currency transactions.
Saving on Duties and Port Charges: By declaring a lower value for imported goods, businesses can save up to 50% on duties and other port charges, significantly reducing their operational costs.

Broader Implications

Economic Instability

The widespread practice of under-invoicing and the use of black-market forex dealers contribute to economic instability. These activities reduce government revenue from taxes and duties, undermining public services and infrastructure development. The resulting revenue shortfall can lead to increased borrowing and economic vulnerability.

Perpetuating Corruption

Bribing port authorities and manipulating invoices perpetuate a cycle of corruption that is difficult to break. This corruption erodes public trust in government institutions and creates an uneven playing field where only those willing to engage in illegal practices can thrive.

Impact on Legitimate Businesses

Legitimate businesses that adhere to regulations find it challenging to compete with those engaged in under-invoicing. This disparity discourages compliance and fosters a business environment where unethical practices become the norm.

The Way Forward

Strengthening Regulatory Oversight

To combat these practices, Ghana must strengthen its regulatory oversight. This includes enhancing the capabilities of customs authorities to detect and prevent under-invoicing and improving cooperation between the BoG and GRA to monitor large foreign currency transactions.

Reducing Port Charges

To make Ghanaian ports more competitive, the government should consider reducing port charges and reintroducing discounts on benchmark values. Lowering these costs can incentivize importers to use Ghanaian ports, thereby increasing revenue collection and boosting economic activity.

Promoting Transparency

Promoting transparency in financial transactions and port operations is crucial. This can be achieved through the implementation of digital systems that track and verify commercial invoices and payments, reducing opportunities for manipulation and corruption.

Encouraging Compliance

Encouraging businesses to comply with regulations requires a combination of incentives and penalties. Providing tax incentives for compliant businesses and imposing strict penalties for those caught engaging in under-invoicing can help shift the balance towards ethical business practices.

Conclusion

The practice of under-invoicing and the use of black-market forex dealers to avoid high port charges and duties in Ghana is a significant issue that undermines economic stability and perpetuates corruption. Addressing this problem requires a multifaceted approach, including strengthening regulatory oversight, promoting transparency, and encouraging compliance. By tackling these issues, Ghana can create a more equitable and stable business environment that fosters legitimate economic growth.

By Korsi DZOKOTO