The Black Economies of Asia are thriving, involving corruption, fraud, money laundering, people trafficking, smuggling, counterfeiting and tax evasion, all of which cause a substantial loss of revenue to legitimate companies and to governments through lost taxation.
The ‘Black Economy’ was defined by the Australian Government in an incisive review by the late Michael Andrew, who chaired the ‘Black Economy Task Force’ from 2016-17. The black economy refers to people who operate entirely outside the tax and regulatory system, encompassing a wide range of practices that often involve complex interactions with illegal activities, including money laundering.
Michael Andrew and his task force pointed out that participation in the black economy penalises honest taxpayers, undermines the integrity of the tax and welfare systems and creates an uneven playing field for the majority of small businesses doing the right thing, which if left unchecked can foster a culture which legitimises this participation, spurring its further growth, decreasing legal tax revenues, and higher tax burdens for those who operate legally.
As we consider corruption, fraud, people trafficking, money laundering, smuggling, counterfeiting and other organised crime across Asia, we need to be aware of the nature of this Black Economy and how it impacts legal taxation. The losses from transnational crime are wider than we often consider.
China
Bao Fan, the billionaire founder and chairman of private investment bank China Renaissance Holdings Ltd., has been missing for days, Caixin reported on 16 February. Mr Bao is a leading deal broker in China who began his career at Morgan Stanley, founded China Renaissance in 2005, and went on to oversee mergers of ride-hailing companies Didi and Kuaidi as well as food delivery platforms Meituan and Dianping. On 26 February, China Renaissance Holdings reported that Bao was cooperating with Chinese authorities conducting an investigation.
In late 2020, Alibaba founder Jack Ma disappeared for three months. In 2017, Xiao Jianhua, founder of the Tomorrow Group, was abducted from the Four Seasons Hotel in Hong Kong and later emerged in Mainland China to face corruption charges for which he was convicted and imprisoned.
The harsh approach to anti-corruption in the financial sector in China is likely to continue, and Caixin reported the Central Commission for Discipline Inspection (CCDI) statement committing to strengthen efforts to combat industrywide and systematic corruption, focusing on areas where power, funds and resources are highly concentrated, such as finance, state-owned enterprises and the grain trade. The CCDI statement said that corrupt practices such as shadow shareholders, the public-private revolving door and resignations will be investigated, and it urged the industry to correct the mindset of worshiping financial elites.
India
Indian customs officials arrested a man from Saudi Arabia who smuggled 1,800 grams of gold worth $100,000 in his underwear. In November 2022, Indian customs officials seized almost 7 kilograms of gold worth hundreds of thousands of dollars from three passengers traveling into Delhi from Sharjah, in the UAE. In July last year, officials seized almost 1,000 grams of gold concealed in the piping of a seat from an aircraft which had flown into Delhi from Abu Dhabi.
In the same week, Customs officials at Chennai Airport arrested a ground staffer of the Airports Authority of India for smuggling 2.6 kilograms of gold worth approximately that the accused was carrying the gold in paste form in eight packets. Several days earlier, authorities detained two Indian nationals who had just arrived from Bangkok and found 610 grams of gold hidden in their hand luggage, and in a separate case detained two Sri Lankan citizens who were carrying 820 grams of gold.
There is a huge black economy in India that the ‘Committee Against Smuggling and Counterfeiting Activities Destroying Economy’ reported has increased by 163% in the past ten years to reach around $65 billion in the five key sectors of mobile phones, household and personal goods, packaged goods, tobacco products, and alcoholic beverages. This illegal activity involves counterfeiting, smuggling, and tax evasion which is related to organised crime. The Committee reported that the magnitude of smuggling and the consequent loss to the country’s economy might become a roadblock to the development of India’s economy.
Indonesia
Indonesian palm oil tycoon Surya Darmadi was sentenced to 15 years imprisonment for corruption and ordered to repay the state equivalent of $2.6 billion relating to a corruption scheme that cleared protected forests in Sumatra. Darmadi was charged with bribing several Indonesian officials in Riau Province, a major centre for palm oil production, to allow him to convert more than 36,420 hectares of forest into oil palm estates under subsidiaries of his company, PT Duta Palma. The company allegedly earned around $40 million per month from the estates, and Darmadi was accused of money laundering and tax evasion from 2002 onwards. The case is relevant not only because of the scale of corruption involved. Indonesia is the third largest area of tropical forests in the world, and palm oil plantations have been the main cause of deforestation in the past two decades.
Japan
The ‘Luffy’ violent robberies and the repatriation of the gang members from the Philippines has raised attention in Japan to the ‘dark jobs’ in the black economy that has grown to facilitate such crimes. Reporters from Mainichi, one of the oldest daily newspapers in Japan, recently contacted people advertising ‘dark jobs’ via Twitter, with responses via the Telegram app offering work mostly engaged in phone scams some of which were claiming to be based overseas with a monthly salary of up to $22,300 and all expenses paid. The ‘dark jobs’ organisers told Mainichi that they hire around 30 people per day as callers, most of them young people in their 20s and 30s trying to repay debts. The Mainichi reporting illustrates that most of the ‘dark jobs’ in the Black Economy in Japan are related to the growing fraud epidemic in Asia.
Meanwhile, in the ‘Luffy’ case the National Police Agency have reported that more than 50 cases in 14 prefectures since the summer of 2021 are suspected to be related. The cases all involved multiple culprits breaking into shops and homes. The police have so far arrested more than 60 suspects but have been unable to identify any mastermind, which suggests that ‘Luffy’ deported from the Philippines may not be the most senior member of the gang.
Malaysia
Twelve people were arrested in Malaysia, suspected of being involved in fraud syndicate targeting Singaporeans, whilst another 14 people in Singapore were either arrested or are being investigated by police for aiding the syndicate by laundering criminal proceeds. The Royal Malaysian Police made the arrests in Johor, reporting that the syndicate was involved in a ‘fake friend’ call scam targeting Singaporeans that started its operations in December last year and used Singapore prepaid SIM cards to make calls to victims in Singapore. Since January, more than 490 victims have fallen prey to the fake friend call scam, with total losses amounting to at least SG$1.7 million ($12.5 million).
Myanmar
Nine Indian nationals tricked into accepting fake job offers from transnational crime syndicates in Myanmar have been repatriated. The Indian Embassy in Yangon reported that around 300 Indian nationals have been rescued from criminal groups in Myanmar. The victims were reportedly taken across the border into Myanmar illegally and held captive whilst working in harsh conditions.
Singapore
Two men, both aged 23, were arrested and 1,600 cartons of duty-unpaid cigarettes seized by Singapore Customs. The total duty evaded was over SG$216,000 (S160,000), while the goods and services tax (GST) evaded was more than SG$18,600 ($13,778) according to Singapore Customs.
Thailand
The Thai police last week arrested a major drug trafficker who has ‘become Korean’ with plastic surgery in an effort to evade the arrest. The Police arrested 25 year old “Jimin Cheong,” formerly known as Sarahat Sawangjaeng, at a condominium in the Bang Na district of Bangkok. He admitted to importing large amounts of MDMA from Europe into Thailand by ordering the drugs via the dark web and paying with Bitcoin before selling it to customers in Bangkok and surrounding areas. A shipment of 2,575 grams of MDMA and 290 ecstasy pills inside a jigsaw puzzle box inside an incoming package was intercepted in November 2022, leading the police to Sarahat. The drug trafficker continually underwent plastic surgery over the years to avoid identification by the police.