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 Post subject: Rs.357 million VAT fraud at the Inland Revenue Department
 Post Posted: Tue Mar 21, 2006 3:23 am 
Rs.357 million VAT fraud at the Inland Revenue Department

Sarath Malalasekera
@ CDN / 21MAR2006

COLOMBO: The passports of a former senior officer attached to the Inland Revenue Department and a leading businessman were suspended yesterday by the Acting Colombo Fort Magistrate on an application by the Criminal Investigation Department officials probing a multi million rupee Value Added Tax (VAT) fraud at the Inland Revenue Department.

The Magistrate directed the CID to inform of the Court order suspending the passports of the two wanted suspects to the Controller of the Immigration and Emigration Department.

The CID commenced investigations on a complaint by the Inland Revenue Department based on a report submitted to the Inland Revenue Department by the Auditor-General in connection with a criminal misappropriation of Rs.357 million accruing from VAT.

The investigations also revealed that the senior officer of the Inland Revenue Department had authorised this amount to be released to the businessman without perusing the relevant documents.

The money had been obtained from the Inland Revenue Department on several forged National Identity Cards.

Twenty National Identity cards have been submitted to the Inland Revenue Department but 19 of them are forged, the investigators said.

The Magistrate also directed the CID to submit a further report on their investigations to court on April 5.

 Post subject: Top tax officer remanded on charges of criminal fraud
 Post Posted: Thu Mar 23, 2006 3:03 am 
Top tax officer remanded on charges of criminal fraud

By Leary Beekmeyer
@ DM / 23MAR2006

A former senior officer of the Inland Revenue Department Gunasiri Jayatilleke was remanded till April 5 by the Colombo Fort magistrate.

He was produced in courts by the CID in connection with criminal misappropriation of Rs. 357 million accruing from VAT.

The police detectives said their investigations revealed that the senior officer had allegedly authorized this amount to be released to a businessman without checking the relevant documents and the funds were later released using several forged identity cards.

They said 20 national identity cards had been submitted to the Inland Revenue Department and of them 19 were forged.

On an earlier occasion the Magistrate had ordered that the passports of the inland revenue officer and the businessman be suspended.

 Post subject: Inside story of the Rs. 3.5 billion VAT scam
 Post Posted: Tue Mar 28, 2006 7:16 pm 
Inside story of the Rs. 3.5 billion VAT scam

By Sonali Samarasinghe
@ Sunday Leader / 26MAR2006

Last week the nation was in shock as news of the multi-billion rupee tax scam involving a senior official of the Inland Revenue Department (IRD) and a powerful businessman hit the local news stands. Inspector General of Police Chandra Fernando described it as the biggest ever tax fraud exposed by the police.

Fresh evidence has led the CID to suspect that it may in fact be this businessman with his political and financial tentacles reaching far and wide who masterminded the scam that has investigators reeling in dismay. This businessman whose feet are firmly planted on both sides of the political divide is also in the directorate of an insurance company belonging to a powerful political family in this country.

According to CID sources this businessman is none other than Kamil Kuthubdeen, chairman of K Port Pvt (Ltd) who is already embroiled in a controversy involving the establishment of a dry port in Orugodawatte.

The matter was so serious President Mahinda Rajapakse took it up at the cabinet meeting on Wednesday (22). Rajapakse was to tell his cabinet 'there is this huge racket going on involving a former deputy commissioner. He is alleged to have travelled 18 times to Australia last year. The investigation was kept under wraps so as not to tip him off. What a terrible situation when this happens in the IRD."

Indeed. How often have you rattled along the pock marked road and wondered where your taxes were going. Or smiled derisively at those hideously mocking signs that read 'Your tax rupees at work' stuck at pointless intervals along the motorway?

According to evidence still being unearthed by the Criminal Investigations Department (CID) in an extensive investigation, most of it may be being plowed back into the pockets of certain fraudulent Inland Revenue Department officials in association with unscrupulous businessmen who thrive on political patronage.

Last Wednesday, investigations by two CID teams resulted in the arrest of former Deputy Commissioner of the Inland Revenue Department (IRD) Agampodi Gnanasiri De Zoysa Jayatilleke in the massive VAT scam.

Jayatilleke the main accused in the case filed before the Colombo Fort Magistrate by the CID is suspected of being the pivot around which the VAT scam involving a sum of Rs. 3.57 billion was woven. He is alleged to have prepared false documents including forged ID cards involving 20 companies some of them fictitious, allegedly with the aid of some powerful businessmen including Kamil Kuthubdeen of Horton Place, his partner Ashroff Hajjiar of Flower Terrace, Colombo 3 and one S.Subramanium of Bullers Avenue, Colombo 7.

Jayatilleke had allegedly authorised this amount to be released to the businessmen either without checking the relevant documents or knowingly ignoring their falsity. 235 cheques to the tune of Rs. 3.57 billion were released using several forged identity cards.

Jayatilleke who returned from Australia only in early March was arrested by the CID on March 21 and was produced in court the next day. It transpired in court that he had gone overseas 14 times in the past two months and the police had also taken into custody three passports in his possession. The three businessmen named are so far absconding arrest. In fact the CID went to Kuthubdeen's house also on Tuesday but he was not anywhere to be found.

Sources told The Sunday Leader Kuthubdeen's Horton Place residence was on Thursday (23) surrounded by CID officers in a bid to apprehend the suspect but they had failed to do so.

Jayatilleke meanwhile has been remanded till April 5 and the magistrate ordered the CID to file a further investigations report including details of banks from which these cheques have been encashed.

CID sources told The Sunday Leader that two investigation teams have been deployed to unearth further details and that many more arrests will be made in the coming weeks.

Full investigation

The CID commenced a full investigation on the Rs. 3.57 billion fraud in the Inland Revenue Department following an Auditor General's report forwarded to the Department by Treasury Secretary P.B.Jayasundera. The CID recorded the Auditor General's statement as part of the investigations as well.

The investigation pertains to VAT refund claims during the period November 15, 2002 and August 25, 2004 concerning 20 companies for which 235 cheques amounting to the colossal sum of Rs 3,573,372,886 was fraudulently paid out by the Inland Revenue Department.

Many of these companies were in fact not registered according to investigations conducted at the Registrar of Companies and the identity cards used to obtain the cheques were forgeries.

Most of the cheques had been signed by Assessor and Deputy Inland Revenue Commissioner A. G. De Z. Jayatilleke.

On March 17, 2006 the CID conducted investigations at the Registrar of Persons and discovered that of the 20 ID cards used to obtain the cheques19 were forgeries.

Of the 20 companies four companies were found not to be registered under the Registrar of Companies Act. Furthermore of these 20 companies preliminary investigations revealed that Lotus Apparel Pvt Ltd, Lotus Garments Pvt Ltd and Lanka Universal Garments Export were companies belonging to S. Subramaniam of 46 Bullers Avenue Colombo 7.

The B report dated 18.03.2006 filed in Colombo Magistrate's Court by the CID states that according to investigations these are all offences punishable under the Penal Code of Sri Lanka.

Furthermore according to the CID statement of S.A. Sisira Kumara Perera company inspector, the following companies involved in the fraud were already registered. They are as follows: Minipe Garments Pvt Ltd, Lotus Garments, Lotus Apollo Pvt Ltd, Kanbro International Pvt Ltd, Lord and Taylor Pvt Ltd, Euro Lanka Company Private Ltd, Sapun Garment Industries Pvt Ltd, Word Net Siyuro Apparels Pvt Ltd, Euro World Gate Euro Apparels Pvt Ltd, Intag Kandy Pvt Ltd.

However the following companies had not been registered under the companies Act. They are (1) Proratation No 7 Subodharama Rd, Dehiwela (2) Vishesan Apparels No 204/C/1 Sedawatte, Wellamapitiya (3) Lanka Universal Garment Exporters Pvt Ltd 2nd floor, No 50, K. Cyril C.Perera Mw, Colombo 13 (4) Lotus Garments (Subramaniam S.) No 568/18 A Sri Sangarajah Mw, Colombo 12 (5) Uni line Apparels No 5/2 Subodharama Road, Dehiwela (6) Sock Apparels No 57 Vistein Mw, Colombo 15, (7) Abdul Kareem SL (Polytechs apparel) No 90/4 Chaitya Road, Pelewatte, Wattala (8) Krefeta Apparels No 56/3 Sama Mw, Dehiwela Road, Boralesgamuwa.

Therefore while some are still operational some according to the addresses given were either never operational or ceased operations some time ago.

According to the CID investigations the names of the persons who collected the cheques are fictitious ones based on forged identity cards. While 20 ID cards were used for the fraud 19 were found to be forged. The person with the genuine ID card could not be found as the person had gone abroad.

The CID last week asked court to issue a directive in order that they may investigate and scrutinise the telephone records of the persons involved in the case to ascertain links and moved court to issue a directive to grant permission for the CID to be given access to several of the bank statements and details pertaining to this case from the following banks.

Hatton National Bank (HNB)Narahenpita, HNB Piliyandala, Pan Asia Bank City Branch, Pan Asia Bank Nugegoda, Pan Asia Bank Fort, Nations Trust Bank Colpetty, and Bank of Ceylon City Branch.

Sources said that on the available information so far many of the Inland Revenue cheques were first deposited into businessman and proprietor Lotus Garments S.Subramanium's account at the Hatton National Bank Narahenpita Branch.

Thus Subramanium was the initial collector of the money in the elaborate scam. Thereafter it was allegedly Kuthubdeen and his partner Ashraff who were issued with personal cheques by Subramanium and were in effect the distributors of the money. Sources told The Sunday Leader that even though the cheques were first deposited to Subramanium's account, 85 % of the stash had to be re written by him to the other persons involved in the fraud while he received 15 percent of the money.

According to CID sources accomplices had introduced two fictitious persons to the Nations Trust Bank , the Bank of Ceylon and Pan Asia Bank to open accounts for the purpose of depositing the monies.

However, sources close to Subramanium told The Sunday Leader that he had never met former Deputy Inland Revenue commissioner A. G. De Z. Jayatilleke and does not even know what he looks like.

Kuthubdeen factor

According to CID sources fresh investigations are moving towards Kamil Kuthubdeen who may have actually masterminded the entire scam. Kuthubdeen is a savvy businessmen with his political tentacles reaching far and wide.

In 1989 he was to help UNP MP Imtiaz Bakeer Markar in his election campaign. It was on the campaign trail that Kuthubdeen made firm friends with Gnanasiri Jayatilleke who was also helping Bakeer Markar with election work. Jayatilleke and Bakeer Markar had been batchmates at Kelaniya University.

Later Kuthubdeen was to sell his house at 16/3 Pedris Road, Colombo 3 to Jayatilleke. Sources allege the house was bought by Jayatilleke in the name of his mother-in-law, one Mrs. Abeyratne to avoid detection. Sources also say that Kuthubdeen had given another Rs. 2.5 million to Jayatilleke to proceed with renovations to this house. Jayatilleke is also alleged to have two vehicles which are still registered under the name of Kuthubdeen.

Several attempts to reach Kuthubdeen to verify these reports failed.

K Port deal

In October 2001, the Ceylon Chamber of Commerce had discussed the establishment of a dry port as soon as possible with then Ports and Shipping Minister Mahinda Rajapakse.

In January 2002 K Port made an unsolicited application to the Board of Investment for the setting up of a dry port

The Sri Lanka Ports Authority decided to go ahead with K Port despite contravening financial regulations which prohibited the government from going ahead with unsolicited proposals sans proper tender procedures through public advertisement.

However the project was held in abeyance in the run up to the presidential election last year when trade unions threatened to cripple the port alleging the deal would lead to considerable retrenchment and would cause a 15 percent drop in SLPA revenue.

However it soon became clear that Ports Minister Mangala Samaraweera's ally, Chairman Dileeepa Jayasundera was keen to go ahead with the deal. On January 15 this year distressed workers sent a letter of protest to the Minister and on receiving no reply the Ports Workers Union was to send another letter on March 1 to President Mahinda Rajapakse.

While the KPort issue was hotting up on the one side the CID was continuing its investigations on the huge Inland Revenue scam on the other, and making extensive inquiries.

Whether it was his inability to handle the controversies into which he had now been plunged or otherwise on March 17, 2006 Kuthubdeen was to write to the chairman and board of directors of the Sri Lanka Ports Authority and withdraw his request for a joint venture for the operation and Management of the dry port.

Be that as it may on Tuesday (21) last week his friend Jayatilleke was arrested on the VAT fraud. Kuthubdeen who was to go out of the country to Dubai on Wednesday panicked. He also got to know through his sources that the CID had informed Interpol about the matter. In a frenzy Kuthubdeen was to meet one Ruwan Sugathadasa who was a former coordinating secretary to Deputy Minister Sripathi Sooriyarachchi. Sugathadasa had also done some work for Ports Minister Mangala Samaraweera.

Kuthubdeen who had met Samaraweera on many occasions on the K Port deal was desparate to meet him again for help on this new controversy. Ruwan Sugathadasa however instead of taking him to Samaraweera put him in touch with what he may have thought was a bigger fish in terms of influence. This was none other than the wife of a former banker and a well known political busybody living down Ward Place who they thought would be able to use her good offices to influence both the Inspector General of Police Chandra Fernando and President Mahinda Rajapakse.

On Thursday (23) night Kuthub-deen visited his lawyers in the evening and then decided to meet Ruwan later that night. Possibly to get his mind off his troubles the duo proceeded to a casino for a spot of relaxation where they were to lose Rs. 50,000 in the process.

On Friday (24) morning Kuthubdeen rushed over to Ward Place to meet the wife of the banker with the hope of getting her to speak with President Rajapakse and the IGP to quell the investigation. She made little progress.

But the President had already directed the CID they should go flat out and bring the culprits to book.

That President Rajapakse has learnt the hard way it was obvious. If there was one political leader who was cautious about meeting businessmen it was Rajapakse himself.

Some three weeks earlier Rajapakse was to receive a dinner invitation from the young and dashing Mayantha Dissanayake. In passing the young politician mentioned that some businessmen may be attending as well. Rajapakse's antenna immediately tingled. He instructed his office to find out exactly who was attending the dinner. It transpired that Kamil Kuthubdeen would be one of the guests. Rajapakse was livid and reprimanded his officials for the oversight. Needless to say the President was not present at the dinner.Kuthubdeen is a director of an insurance company in which Mayantha is the key player.

However Mayantha Dissanayake denied any such dinner having taken place or that he had arranged a dinner for Kuthubdeen and Rajapakse to meet.

While news of a massive VAT scam surfaced in July last year, the fraud had obviously been going on since 2002 according to evidence now in our possession.

The law

Firstly a refund of Value Added Tax is given on application for exports under various circumstances specified in the Value Added Tax Act No 14 of 2002 which tax came into force with effect from August 01, 2002. Accordingly the IRD is given a period of one month in which to refund the VAT from the date of application. The new budget of November 2005 which came into effect in 2006 reduced this period from one month to two weeks on production of a bank guarantee. Thus with effect from 1/1/2006 the period specified for the issue of refunds to exporters, has been reduced from 30 days to 15 days, if a bank guarantee or insurance bond, is submitted. In the case of the other exporters, the existing 30 day period has been extended to 45 days. If the IRD defaults payment 2 percent interest accrues to the original VAT amount each month.

Newly appointed Acting Inland Revenue Commissioner General Wijepala told The Sunday Leader that the time specified was hardly enough to go through and verify all the documentation received with each VAT refund claim. There are about 1600 cases to deal with all the time he said. "And not only are we pressed for time because of the interest issue but we are pressured from other quarters too like the Chamber of Commerce. Earlier the delay used to be at customs where manual checking was done and it would take about three weeks. Thus the IRD had only one week with which to finalise and check the claim which was hardly enough. Now both areas are computerised so the delays are less," he explained.

The story unfolds

For convenience and clarity let us take the case of one company the Butani Group which alleges that they have been one of the victims of this fraud.

The Butani Group claims that their three BOI companies, Butani Exports Ltd, PMK Garments Pvt Ltd and Inatub Pvt Ltd are involved in 100% exports.

As per regulations the group lodged several applications with the IRD for VAT refunds. However well past the 30 day deadline the company had still not received many of its VAT refund payments since May 2002.

For example PMK Garments Pvt Ltd VAT No. 114055840 7000 was due a VAT refund of Rs. 226.282.00 for October 2002.

Inatub Garments Pvt Ltd Vat No. 114052566 7000 was due Rs. 63,912.00 for the period October 2002

According to Butani Exports Ltd sources these and many other VAT refunds were not being paid despite letters sent to the VAT Department of Inland Revenue on November 10, 2002, February 15, 2003, May 08, 2003, and even as recently as June 08, 2005, July 01, 2005 and July 04, 2005.

On August 23, 2004 at 11.45 am Senior Assessor of the VAT Department of IRD Mrs. S.N.P. Abrew and Assessor W.S.Thilakaratne visited Butani Exports Ltd factory at Obeysekera Crescent Rajagiriya on an authorisation dated August 17, 2004 purportedly by Agampodi Gnanasiri De Zoysa Jayatilleke Deputy Commissioner of Inland Revenue. Jayatilleke of course is the man now in CID custody.

According to sources the tax officers allegedly stormed into the factory premises and lifted many original files and threatened to close down the factory if the files were not handed over. They took away many files including VAT files for certain months in 2002 and 2003 VAT invoice files for many months in 2003 and 2004, bank statements and shipping documents.

On August 30, 2004 the accounts department of the company was asked to submit annual audited accounts and bank statements and the staff was heavily questioned by the IRD officials.

Company sources allege that about two months later in October 2004, VAT Commissioner A.A. Wijepala now risen to be commissioner general had called the company and threatened its managing director that if the company does not come to a settlement he would close down the factory.

The contention of the IRD was that the company had claimed VAT refunds on imports and had sold fabric and garments in the local market prohibited under BOI regulations.

Wijepala who was on March 6 this year appointed Acting Commissioner General Inland Revenue when contacted by The Sunday Leader denied he had made any such call to the managing director and said that as the VAT Commissioner at the time he was only in charge of administration and did not get involved in field work and calling company personnel. Wijepala will be made permenent tomorrow (27).

Be that as it may even as recently as March 4, 2005 a team of assessors visited the Butani factories to check VAT files of Butani Exports' sister companies PMK Garments and Inatub Garments and took away original files. This time the authorisation to do so was signed by A.A. Amararatne Deputy Commissioner of Inland Revenue.

Later the company was asked to report to the IRD and to check the files in the presence of tax officers at which point they complained that many original documents were missing.

On May 19, 2005 managing director of the companies wrote to the VAT Commissioner stating certain documents were missing from files taken on August 23, 2004 and March 04,2005 and listed the missing documents.

Many letters were sent on various dates with regard to VAT refunds pertaining to 2002 and with regard to missing documents.

On July 6, 2005 PMK Garments Manging Director, Kishin Butani wrote to the Commissioner General another letter reminding them they had not received the VAT refund cheque for December 2004, February 2005 and March 2005.

By this time the Butani owners were getting more and more suspicious.

Audit query

In the meantime and Audit query was conducted at the Inland Revenue Department on June 03, 2005 by the Auditor General's Department

The query was regarding an individual who had collected a sum of Rs. 3.57 billion on 13 forged ID cards during the period November 15, 2002 to August 25, 2004. The fraudulent transaction involved 20 companies and the monies were issued on 235 VAT refund cheques.

It also transpired in the audit query that all the 235 cheques amounting to the above amount were picked up by one person on the very same day or a day very close to the day these cheques were written and signed and before these cheques could be posted.

It was suspicious that cheques worth large sums of money pertaining to different companies were so easily being written on one day or days close to each other. For example 26 cheques were written on February 23,24,25,26 and 27, 2004 amounting to Rs. 459,081,571. Eight cheques were written on May 11,12,13, 2004 amounting to Rs.205,692,256. Nine cheques dated August 11 and 12, 2004 were written for the sum of Rs. 224,247,814. (See box for details)

Furthermore the query revealed that according to documents pertaining to the 20 companies submitted to the department the break down of local purchases, imports, exports, local sales during the above mentioned period were Rs. 23,061,115,074, Rs. 164,846,003, Rs.26,072,412,498 and Rs.1,900,802,986 respectively.

However the query revealed that even though 16 of the 20 companies mentioned had stated that their exports were Rs. 20,457,900.942, according to the information linked to the Inland Revenue Department from the Customs Department no such exports had taken place during this time period.

Of the remaining four companies though they claim the exports to be to the value of Rs. 5,614,511,556 according to the Customs Department link the exports are only Rs. 340,354,277.

The total exports of the 20 companies is claimed as Rs. 26,072,412,498 of which claims amounting to Rs.25,732,058,221 are false. Therefore 98.69% of the export figures were false.

In the reports of the 20 companies, of their local purchases, imports and local sales amounting to Rs.23,061,115,074, Rs 164,846,003 and Rs.1,900,802,986 respectively also 98.69 % are false.

The audit report goes on to say that section 25.5 and 16.1 of the tax instructions book clearly spells out the strict procedure to be followed by the tax officials with regard to checking documents. However these instructions have not been duly followed, instead the VAT refunds have been done in a hurried manner.

After the audit query Jayatilleke went on overseas leave to Australia and later retired while overseas.

Meanwhile Butani Exports still unaware of any wrong doing but getting more suspicious all the time made a few inquiries of their own and found to their dismay that some of their VAT refund payments had already been claimed on forged letterheads and by also forging the signature of their Managing Director Kishin Butani.

They immediately decided to lodge a complaint with the Deputy Inspector General of Police of the Criminal Investigations Department.

In the complaint they stated that letters dated June 29, 2005 and July 7, 2005 by the Inland Revenue Department to PMK Garments stated that there were discrepancies in the GST and VAT claims. They stated that since the amounts in the letter date June 29, 2005 varied greatly their suspicions were aroused that their returns may have been altered. They also stated they had not received certain VAT refunds in 2002 and 2004 but had received subsequent payments and this too aroused their suspicions.

They stated they had documentary evidence to prove that their VAT claims had also been taken fraudulently and that was why they had not received payments in 2002 and 2004.

The Butani Group on August 3, 2005 lodged a writ application regarding these matters in the Court of Appeal.

Meanwhile by Friday (24) the CID armed with a list of six names including that of Subramanium moved to make arrests but the suspects had gone into hiding. It is however a matter of time before the net closes in on the sharks and it is bound to open a can of worms when the suspects start spilling the beans.

Kuthubdeen refuses

The Sunday Leader attempted to contact Kamil Kuthubdeen on several occasions but was told that he was to go abroad and was not available for comment. The Sunday Leader left several messages with his office and with his friends in order to give him the opportunity of reply but Kuthubdeen did not avail himself of the opportunity.

 Post subject: Vat scam: Kingpins flee
 Post Posted: Sun Apr 09, 2006 12:49 am 
Vat scam: Kingpins flee

By Kurulu Kariyakarawana
@ DM / 06APR2006

Latest CID investigations have revealed that four main suspects wanted in connection with the massive VAT scam involving billions of rupees have reportedly fled the country.

The suspects identified as Bakeer Mohamed Riyaz, Rasheed Murshid and Awam have reportedly fled to Singapore and Thailand while another suspect Mohamed Hussein had fled to Japan.

An investigator told the Daily Mirror the suspects had left the country from Bandaranaike International Airport between March 23 to 25 producing fake passports.

Rasheed Murshid a leading textile businessman and one of the two top players in the VAT scam is also known to have escaped abroad while the CID is on the look out for the other key player Kamil Kuthubdeen the shipping magnate.

According to the CID no trace of Kamil Kuthubdeen has been found yet nor is he known to have fled the country.

Meanwhile detectives said other suspects identified as Mohamed Cassim Shaffik, M. Subayara, S. L. Abdul Kareem, Meera Sahib Liyakath Ali and A.K. Karunaratne are yet to be arrested.

 Post subject: VAT scam money - Illegally transferred out of the country
 Post Posted: Sun Apr 09, 2006 3:54 pm 
World business empires of VAT mafia
VAT scam money - Illegally transferred out of the country

@ ST /09APR2006

With more shocking details of the notorious VAT scam being now exposed, the international police – Interpol stepped in this week to assist in probing how billions of rupees had been invested in foreign countries.

Central Bank officials confirm that the monies derived from the scam have been illegally transferred out of the country and invested in Dubai. CID’s Financial Crimes Unit backed by Interpol is conducting a detailed checking of the bank accounts held by the suspects already arrested or wanted in connection with the VAT scam where more than 3.57 billion rupees had been frauduently paid out as VAT refunds.

The Detectives said that CID had evidence to show that shipping tycoon Kamil Kuthubdeen and his accomplices Rashid Murshid, M. Ashroff and Hamza Kathubdeen -- some of the suspects involved in the scam had invested huge sums of money in several businesses not only locally but also internationally -- in countries such as Dubai, Singapore, Malaysia and Australia.

The CID detectives are finding it difficult to trace most of the foreign transactions by the VAT mafia, as by now these funds may have gone through money laundering and also as the money must have been spirited abroad illegally the Central Bank too is unable to pin point exact amounts or provide details of such transactions.

This was one of the main reasons to ask Interpol for help.
One of the known facts though is that Kuthubdeen and Murshid had invested in a 200-room three- star Dubai hotel called K Porte Inn.
The hotel is equipped with a health club, gymnasium, sauna, jacuzzi, swimming pool, five restaurants and night clubs with attached pubs. It is now known to have been visited by several of Sri Lanka’s politicians as well.

Kuthubdeen and Murshid are also known to have made a Rs. 750 million investment on four Gantry Cranes from Singapore for Kuthubdeen’s shipping company called K Port Shipping (PVT) Ltd which is involved in cargo and logistics. This too is not recorded in the Central Bank reports.
The Sunday Times learns that the purchase price for the four cranes was paid in cash which could well have been with the funds smuggled out of the country.

Kuthubdeen and Murshid had started K Port by initially dumping one billion rupees as capital and by building its warehouse at Orugodawatte. By managing to register K Port as a Board of Investment project with the approval of Ports Minister Mangala Samaraweera in 2004, the suspects had for all appearances shown their business to be above board.

K Port is located in close proximity to the Colombo Port on a land ten acres in extent. The Sunday Times learns that K Port was used as a cover up for Kuthubdeen and the VAT mafia to smuggle textiles into the countrywhich in turn gave them the opportunity to get exorbitant VAT refunds when the imported textiles were later re exported.

Detectives also believe that some of the suspects wanted in connection with the VAT scam have fled the country with Kuthubdeen’s brother Hamza known to be hiding in Kuthubdeen’s Dubai hotel while Murshid is hiding in his house in Malaysia. This is not the first time that the two VAT scam masterminds had come to the attention of the authorities. Kuthubdeen was earlier wanted for smuggling imported cigarettes into the country while Murshid had been wanted for a credit card fraud in Singapore.

Following the arrest of former Inland Revenue Department VAT section Deputy Commissioner Gnanasiri Z. Jayathilake, the CID also arrested Assistant Commissioner A.W. Ambeypitiya and an auditor M.H.M. Rizwan. Textile tycoon S. Subramanian surrendered to the CID through his lawyers and M. Ashroff was arrested when he was about the flee the country.

The other suspects wanted by the police are, M.K.M. Shaffik of 133/1, Purwarama Road, Colombo 5, M.S. Fawzul Awam of 17/4 St. Joseph Lane, Colombo 4, M.H.M. Mirzan of E2/2 Kamkarupura, Orugodawatte, Bakir M. Riyaz of 53, Awwal Zawiya road, Colombo 14, S.L Abdul Kareem of 103/11, Amunuhena Road, Wattala, Mira Sahib Liyakath Ali of 204/C 1, Wennawatte, Weligampitiya and A. K. Kularatna.

The CID investigation has given rise to more questions than answers as the number of cheques that had been traced so far has risen to 142 with the possibility of pushing the earlier figure of Rs. 3.57 billion nearer the ten billion mark once all 235 cheques are found.

According to the CID report 20 fake identity cards were used in the illegal transactions which began from November 15, 2002 to August 25, 2004.
The numbers of some of the fake ID cards are, 834813321V, 832893405V, 832944504V, 835422504V, 834529304V, 836421052V, 834240204V, 836502254V, 832925443V, 832954504V, 835290246V, 823509442V and 832950484V.

The mafia style scam that had been going on for about of two years went undetected by the CID and the Bribery Commission officials who earlier probed the discrepancies in the VAT refund account Not only businessmen and public officers but also politicians are known to have been involved in the scam.

Bribery Commission Director Neville Guruge confirmed to The Sunday Times that the Bribery Commission was involved in the investigations by way of looking into allegations of corruption.

The names of several politicians in the government and the opposition were mentioned when the CID questioned the suspects about their political affiliations.

The Sunday Times learns that Kuthubdeen and his brother Hamza had been supporters of the UNP for some time with Kuthubdeen serving as an an executive committee member of the UNP.

The Sunday Times learnt that Kuthubdeen and Hamza had associated themselves with UNP politics in 1994 when Hamza was co opted into the UNP media unit at a time when the party was looking for a person who could converse in Tamil.

Years later when the UNP was collecting funds to launch its first official Tamil paper one of the first persons to make a donation was Kamil Kuthubdeen.

The Sunday Times has learnt that UNP MP Abdul Cader had requested a land that belonged to the National Housing and Development Authority in Kirimandale Mawatha, Narehenpita to be given to Kuthubdeen and his partner Murshid for a project with plans to set up a medical school to award offshore degrees.

The two partners had made arrangements with the University of Manipal in Nepal. The idea was shelved when they did not receive a positive response from the the Sri Lanka Medical College which they hoped to tie up with.

They came up with the idea for a private medical college because of the number of private hospitals in and around Kirimandale Mawatha.
However when their original plan had failed they decided on establishing a pharmaceutical company called K- Pharma.

Following reports that former UNP parliamentarian Imtiaz Bakeer Markar was being implicated in the fraud, he told The Sunday Times that it was for political reasons that he was being implicated in a certain forum but he insisted that he was in no way involved in the scam or with the suspects.
“It is true that I am related to Kuthubdeen and they worked for me but that does not mean I am involved in this scam. Hamza worked as my secretary when I was Minister for Mass Communication.

“Even before he became my secretary he was in the UNP media unit. The Kuthubdeens knew several other politicians as well. I don’t know why my name has been implicated”, Mr. Bakeer Markar said.

“Those who implicated me said that I had got them a telephone dealership in Mobitel which I totally deny. The Ministry has nothing to do with the giving of dealerships to private people. It is to do with the management of the company”, he said.

“The Commissioner Jayathilake and I were in University together. Because I know them it is unfair for people to paint me with the same brush. It was also wrong for certain media institutions to carry my photo and project me as being involved in the scam. This is defamatory to my character”, he said.

When the five suspects who are in CID custody where produced before the Fort Additional Magistrate N. Balalle on Wednesday, he ordered the CID to hand over to the police all documents and items including compact disks, floppy disks and computers where VAT refund data has been entered. The magistrate also ordered that the bank accounts of the suspects to be frozen.

The counsel for the fourth suspect S. Subramaniam had requested the magistrate to give permission for Mr. Subramaniam to have access to his bank account as he has 1000 employees working in the five factories he owns and has to pay their wages. However this request was turned down by the Magistrate.

Subramanian who lives in Colombo 7 is the owner of five garment factories in India and two in Vietnam. He owns Lotus Apparel (PVT) Ltd, Lotus Garments (PVT) Ltd and Lanka Universal Exports (PVT) Ltd.

Subramanian had received VAT refunds amounting to Rs. 98 million for Lotus Apparel (PVT) Ltd, Rs. 127 million for Lotus garments (PVT) Ltd. and Rs. 139 million for Lanka Universal Exports (PVT) Ltd. He had also deposited Rs. 540 million in the Indian bank, Colombo and HNB, Narehenpita.

The Sunday Times learnt that Subramaniam had recently purchased a bunglow in Trichy, India valued at one hundred million Indian rupees Subramaniam who had also owned several factories in Uganda had raised concerns amongst the Ugandan government as to where his money camefrom.

Due to questions arising over Subramaniam’s businesses in Uganda the Ugandan government deployed a fact finding committee to probe the source of Subramaniam’s wealth in Sri Lanka.

However it was later revealed that the matter had eventually died down.
The Sunday Times also learnt that Mr. Kuthubdeen who lives in Colombo 7 and Mr. Murshid had bought several textile companies including Minipe Garments (PVT) Ltd, Inimag Kandy (Pvt) Ltd, Inimag Dambulla (Pvt) Ltd, World Gate Apparel (Pvt) Ltd and World Gate Euro (Pvt) Ltd.

Most of them were on the brink of bankruptcy and some were not even registered. He allegedly began to register all his factories in the name of one company known as MASS World Garments (Pvt) Ltd in order to cover his tracks and transferred most of his assets to his family members and relatives.

The Sunday Times also learnt that Pro-Rotation - No. 7, Subhodarama Road, Dehiwala, Krishesan Apparel- No. 204/c/1 Sedawatta, Wellampitiya, Susiline Apparel- No. 5/2, Subhodarama Road, Dehiwala, Poke Apparel – No. 57, Wystvyke Mawatha, Colombo-15, Abdul Kareem S.L (Politex Apparel) - No. 90/4, Chaithiya Road, Pellawatte, Krishet Apperal- No.56/3, Sama Mawatha, Dehiwala road, Boralasgamuwa are companies that are not registered.

The case is to be taken up again on April 19 after the magistrate ordered the CID to carry out a full probe into the bank accounts.

VAT scam tentacles go far and wide

As more shocking exposures in the VAT scam showed worldwide business empires being run by the main suspects, CID detectives were closely checking the mobile phone calls of the alleged racketeers to track down more suspects in one of Sri Lanka’s biggest frauds.

Detectives said they had got a court order to check details of calls from more than 40 mobile phones while 140 of some 235 fraudulent cheques amounting to billions of rupees have been traced.

The CID has also obtained court orders to check the bank accounts of the suspects and most of the accounts had been frozen.

Five suspects were produced in court on Wednesday and further remanded while the probe continues to reveal tentacles of the VAT scam far and wide with the racketeers investing hundreds of millions of rupees in huge business in different countries including a luxury hotel in Dubai.

Scam, only the tip of the iceberg: AG

By Chandani Kirinde / ST 09APR2006

The Rs. 3.5 billion VAT scam at the Inland Revenue Department that came to light in recent weeks may be the just the tip of the iceberg when considering the high incidence of misappropriation of funds in state institutions in the country, Auditor General S.C. Mayadunne said.

“Larger fraudulent transactions in government institutions cannot be ruled out,” Mr. Mayadunne said adding that such exposures only underline the case for strengthening the AG’s powers.

It was in June last year that the AG’s department first detected the massive fraud and queried from the Department how one person using 13 forged ID cards was authorised a VAT refund to the tune of Rs 3.57 billion.
However, it took nearly ten more months before the inquiries began in earnest with the CID called in.

The Auditor General said due to lack of professional competency and technical training for audit officers as well as lack of resources, the AG’s Department was finding it difficult to act as efficiently as it should be doing in an era when criminals were far ahead of law enforcement agencies’ ability to track down perpetrators of fraud or the commission of any other crime.

Referring to the VAT case, he said the fraud was detected mainly because of the commitment and dedication of the audit officers who examined the Inland Revenue Department audit reports.

“The most important thing is that the state audit should contribute to the betterment of the country by blowing the whistle in time and not after the damage is done”, Mr. Mayadunne said. He said a draft National Audit Act was prepared in 2004 but was yet to be presented in Parliament.

The Bill is the culmination of a process that began in 2000 with World Bank assistance and a study by the Netherlands Court of Audit recommending how best to strengthen the AG’s Department in Sri Lanka in keeping with international standards.

Mr. Mayadunne said he needs a core group with a high rate of competency to handle today’s computer assisted transactions involving millions and billions of rupees.

“When you look at the large volumes of international transactions taking place today and the need to quickly analyse, examine and detect fraud in time, the audit staff needs to be well trained and capable enough to come out with meaningful and constructive observations”, he said and added that the state audit should be in a position to look at these wasteful and corrupt practices and alert the general public through parliament as all this means an added cost to the public.

If the proposals for the new Audit Act are approved, the AG will have the power to issue surcharge certificates and get unauthorised spending and other wasteful expenditure reimbursed to the government without much delay.

“That itself will open up the case. Now the situation is such that most of the irregular transactions highlighted by the AG’s Department gets into reports and these are filed somewhere.

These cases need to be addressed then and there. The authority to compel it to be done is bound to alarm the offenders and act as a deterrent,” Mr. Mayadunne said and added that the need for the AG to speak to the media freely was also very important.

“I strongly believe that exposing corruption and malpractice together with the names of those involved will be the best solution in combating this problem. We need a strong framework to safeguard our public property”, he said.

 Post subject: Kuthubdeen turns international fugitive
 Post Posted: Sun Jun 11, 2006 3:32 am 
Kuthubdeen turns international fugitive

By Sonali Samarasinghe
@ SL /11Jun2006

Kuthubdeen, widely regarded as the mastermind behind the fraud, known to wield tremendous influence in political circles. From Dileepa Wijesundera, Sripathi Sooriyaarachchi and Mangala Samaraweera to several UNP stalwarts including his own relative Imthiaz Bakeer Markar, Kuthubdeen is a man with friends in high places. In fact, considering that the likes of Kuthubdeen was too strong for the CID, the talk in legal circles was that the case was destined to die a natural death put the blame squarely on a defective system.

The VAT scam investigation is set to take a dramatic turn with shocking new evidence that inextricably links billionaire businessman Kamil Kuthubdeen and further cements his role in the multi billion rupee fraud.

The Criminal Investigations Department (CID) has now also unearthed 22 more cheques, three more forged National Identity Cards (NICs) and has roped in five more companies connected to the scam, bringing the amount of the fraud to a massive Rs. 4 billion.

With Kuthubdeen known to wield tremendous influence in political circles, the political ramifications become even more complex given the fiasco that took place last week in parliament. (See box)

Absconding arrest

Kuthubdeen, widely regarded as the mastermind behind the fraud, has been absconding arrest ever since the case came up in courts in March this year. The Sunday Leader exclusively reported Kuthubdeen's involvement in the VAT fraud and his political connections when the Auditor General's report blew the lid off the scam.

Widely identified as the kingpin behind the fraud that outraged the nation in March, Kuthubdeen is currently being hunted down by Interpol, with top sleuths set to cast an ever-widening net to draw in the mastermind fraudster.

Solicitor General C.R. De Silva confirmed that Interpol had been informed to locate Kuthubdeen for questioning on the massive multi billion rupee scam.

Now, corroborative statements made to the CID by the senior management of the Pan Asia Banking Corporation Ltd. at their branches in Kotahena and Nugegoda show that it was in fact Kuthubdeen who introduced the several fictitious account holders bearing forged identity card numbers to the Pan Asia Bank.

Fictitious accounts

It was through these fictitious accounts that the fraudulent monies were filtered through to the end beneficiaries, of which Kuthubdeen was one.

Earlier a suspect in the case, Sinnaiah Subramanium also linked Kuthubdeen to the case by stating to the CID that Kuthubdeen met him regarding some payments relating to the fraud together with another suspect, Salaudeen Mohamed Ashroff.

Ashroff and Subramanium are presently in custody.

Be that as it may, Kuthubdeen, as a respected account holder of the Pan Asia Bank, Kotahena more due to the large sums of money deposited by him rather than for any other reason, had by now gained the trust and confidence of the management.

Therefore, according to banking sources, when Kuthubdeen telephoned and introduced a number of account holders, the bank management was not suspicious. Kuthubdeen had introduced large account holders many times before - and with no problems attached.

Interpol notified

Meanwhile, the CID armed with further proof of Kuthubdeen's involvement notified Interpol three weeks ago to locate Kuthubdeen. All European countries, India, Singapore, Bangkok, Australia and Dubai have been placed on alert, while it is believed that the businessman fled Sri Lanka to Europe via India. The CID suspects that Kuthubdeen may have traveled under a false name and this possibility is also being investigated.

Kuthubdeen is certainly a man with friends in high places and wields political clout across the political spectrum. From Dileepa Wijesundera, Sripathi Sooriyaarachchi and Mangala Samaraweera to several UNP stalwarts including his own relative Imthiaz Bakeer Markar, Kuthubdeen is a man who can perhaps call in IOUs at any time.

In fact, the talk in legal circles was that the case was destined to die a natural death given that the Auditor General's final report tabled in parliament last month put the blame squarely on a defective system and considering that the political clout wielded by the likes of Kuthubdeen was too strong for the CID.

However, top sources at the Attorney General's Department and the CID confirmed to The Sunday Leader that the investigation was far from over and with new evidence and new names surfacing, may ironically be just beginning in earnest.

More suspects

CID sources meanwhile said that two to three more names have also surfaced in connection to the case and they are now in possession of even the photographs of these persons. The CID has also traced some Rs. 10 million of the VAT funds to the account of suspect Agampodi Gnanasiri De Soysa Jayatilleke, former VAT deputy commissioner, held at the HSBC and Commercial Bank.

Earlier the Auditor General's report revealed that 20 companies had used 13 forged NICs to fraudulently obtain 235 VAT refund cheques amounting to Rs. 3.52 billion during the period November 15, 2002 to August 25, 2004.

Seven suspects are already in custody including Jayatilleke, another senior assessor, Ananda Wickremasinghe Ambepitiya, and businessmen Hussein Mohomed Mirshan, S. Subramanium, S.M. Ashroff, M. Ismail Mohamed Rizwan and Sahabdeen Abdulla.

It is M.I.M. Rizwan who was identified in the identification parade as the man who impersonated as one Abdul Kareem on a forged ID card and opened a fictitious account in order to siphon out the fraudulent VAT refunds.

Further evidence

Further evidence has also come to light of the involvement of one Tissa Perera. Perera was a private tax advisor and had many dealings with the Tax Department. According to the evidence, Perera together with one Wattaladeniya had been requested by suspect Jayatilleke who was a senior assessor and later the deputy commissioner of the VAT department to collect some VAT cheques from the accounts department. Perera on the instructions of Jayatilleke had obtained the cheques and handed it over to Jayatilleke himself.

Perera also claims that he went along with Jayatilleke to deposit some cheques given to him to the Pan Asia Bank Kotahena branch. These cheques were encashed and Jayatilleke and some others were handed over their monies while Tissa Perera was rewarded with approximately Rs. 9 million for his part in the transaction. Perera says that for instance one cheque encashed was for the colossal sum of Rs. 35 million.

Meanwhile, top sources at the bank told The Sunday Leader that in fact when account payee cheques for such large amounts are submitted for payment, they usually verify the issue. In fact sources revealed that the Pan Asia Bank Nugegoda Branch had on occasion called the VAT Department of the Inland Revenue Department to verify these cheques and had allegedly been 'blasted' by Inland Revenue officials for their impudence in trying to verify these cheques.

Banking sources also told The Sunday Leader that while a part of the money was encashed, most of it was diverted to various accounts at different banks and bank branches such as Hatton National Bank, Nations Trust Bank, and People's Bank. Banking sources charged that one of the accounts to which the monies was diverted was Kuthubdeen's. CID sources confirmed to The Sunday Leader that Kuthubdeen was in fact a beneficiary.

Top 20 shareholder

Not only that, Kuthubdeen was a top 20 shareholder of Pan Asia Bank. In 2004 he was the 18th largest shareholder with 852,057 shares. There was a gradual outflow of his shares in 2005 and 2006. Even as at March 2006 he was a shareholder with a small number of shares.

What is vital to note is that Kuthubdeen was also a powerful shareholder as much as he was an excellent account holder at the Pan Asia Bank during the relevant period between November 15, 2002 and August 25, 2004 when the fraud amounting to Rs. 3.57 billion occurred. Thus he obviously used his considerable influence with the bank to get them to throw caution to the wind as it were when it came to dealing with these fraudulent cheques.

Said one banking source, "He was such a good account we would rather salute him than investigate him at the time. Little did we know what was really going on."

 Post subject: VAT fraud committed with forged documents
 Post Posted: Sat Jan 26, 2008 9:03 am 
Biggest ever VAT fraud committed by producing forged documents

Friday, 25 January 2008

Deputy Solicitor General Buwaneka Aluvihare yesterday submitted before Colombo High Court that the biggest ever VAT fraud of nearly Rs. 4,000 million was committed by 12 businessmen with the support of two officers by producing forged documents to the Inland Revenue Department.

He also submitted that according to the prevailing regulations the exporters are freed from VAT. The 12 businessmen had refunded the money by procuring fake documents.

The Attorney General has filed indictment before the Colombo High Court against two income tax officers and 12 businessmen in respect of the Rs. 3,996 million massive VAT fraud.

The Attorney General filed indictment against retired Deputy Income tax Commissioner Gnanasiri de Soysa Jayatilake, Deputy Commissioner Ananda Wickramasinghe Ambepitiya, Rasheed Mohamed Murshid, Bakeer Mohamed Rias, Mohamed Subeire Fausul Amami, Maujul Ameer Irshad, Nagur Mohamed, Nasmi Mohamed Khamil Kuthubdeen, Abdul Mohamed Saheer, Sinnaiyah Subramanium, Salaudeen Ashroff Mohamed Khasim Safeek, Mohamed Ismail Risvin and Sahabdeen Abdullah.

The case will be heard in absentia of third, fourth, fifth, sixth, seventh, eighth, ninth and 12th as they are absconding Court. The other six were served with indictments and they pleaded not guilty.

According to the charges they have misused the money with the support of Dharmadasa Rajapaksage Nevil Shantha Wattaladeniya between November 15, 2002 and July 15, 2004. Indictments have been filed against the accused separately.

The indictment charged that the accused have misused the money owned by the Government by releasing the funds fraudulently to 25 private companies. According to the indictment, the money has been released to Intag Kandy (Pvt) Ltd, Intag Apparels (Pvt) Ltd, World Gate Apparels, World Gate Euro Apparels, South Lanka Garments Industries, Pro Garments, Ali M.S.L. Creations Apparels, Universal Garments Exports, Uniliver Export Garments, Lotus Apparels (Pvt) Ltd, Upali Garments (Pvt) Ltd, Euro Clonin (Pvt) Ltd, Youthline Apparels (Pvt) Ltd, Cobe Apparels, Load and Tailor (Pvt) Ltd, Canbro International (Pvt) Ltd, Minipe Garments (Pvt) Ltd, Politex Apparels (Pvt) ltd, Creative Apparels (Pvt) Ltd, K.I.L. Apparels (Pvt) Ltd, Fashion Garments (Pvt) Ltd, D.T.N. Apparels (Pvt) Ltd, and to Supreme Garments (Pvt) Ltd.

Retired tax instructor of the Inland Revenue Department Piyadasa Guruge, 61, of Mihindu Mawatha, Malambe giving evidence said the GST Act was passed in 1996 and activated in 1998. Later it was changed as VAT.

He said the VAT tax collected from businessmen registered as exporters were refunded by the GST section of Inland Revenue Department when the documents were procured.

Deputy Solicitor General Buwaneka Aluvihare, Senior State Counsel Gihan Kulathunga, State Counsel Shanil Kularatne, State Counsel Asad Navavi and State Counsel Damith Thotawatta appeared for the prosecution.

The case was put off for January 28.

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