GST Missing Trader Fraud Involving Precious Metals

16 OCT 2023

Dear Registered Dealer,

IRAS observed Missing Trader Fraud (“MTF”) arrangements involving Investment Precious Metals gold bars (“IPM”) and scrap gold bars, whereby crime syndicates use a fraud scheme to defraud tax authorities of GST (or equivalent taxes). Under an MTF scheme, IPM gold bars (exempt from GST) are transformed into scrap gold (standard rated supply) by melting, cutting, or defacing them for onward sale by the Missing Trader to businesses along the supply chain. A supplier fails to account for or pay the GST charged on his sales (this supplier is referred to as the “Missing Trader”), while businesses along the supply chain continue to claim credit of input tax or refund of GST on their purchases.

To protect your business from any involvement or association with such MTF arrangements, please note the following non exhaustive warning signs and due diligence checks:

Warning Signs (non exhaustive)	Due diligence checks (non exhaustive)
• High-value deals offered by newly established supplier, with minimal experience in the industry. • Very quick turnaround of high-volume transactions, making the business appear unrealistically lucrative. • Back-to-back purchase to sale arrangement with a fixed gold price between the supplier and customers, making the business practically risk free with little or no exposure to price volatility. • Out of the norm credit terms. For example, supplier delivers the gold to you first, and only requires you to make payment after you receive the payment from the customer. • Too good to be true deals recommended by unfamiliar introducer. • Scrap gold bars in condition or volume that is not ordinarily traded in the market. For example, buying or selling cut or defaced IPM gold bars or cast scrap gold bars in large quantity. • Supplier/ introducer is evasive when being asked about the source of its gold supply. • Material changes in the transactions with existing suppliers or customers. For example, significant increase in transaction volume or transaction value, or changes in the nature of goods trade.	• Is your immediate supplier and customer legitimate? Obtain business incorporation details, perform credit checks, request for trade references and verify whether they are credible, and visit their business premises. • Is the business arrangement valid? Understand whether there are valid business reasons for IPM gold bars to be defaced or cut and sold as scrap gold bars, whether there are reasonable explanations for the high volume and/or low price of the scrap gold bars relative to the market price and demand, whether the absence of price volatility risk is in line with commercial practice, and whether there is any value for you to be part of the back-to-back purchase to sales arrangement when the customer could have purchased the goods directly from the supplier. • Is the payment arrangement highly favourable? Is there commercial justification for the payment to be made to the supplier only after payment is received from the customer. • Are the scrap gold bars authentic? Question the source of the scrap gold bars and whether there is a reasonable explanation for them to be defaced IPM gold bars. • Is the introducer legitimate and credible? Obtain more information on the introducer. For example, his/her experience in the trade, and the reason for him/her to offer you the deals instead of carrying out the deals himself/herself. • Is there a valid reason for material changes in the transactions? Be alert to unusual changes when transacting with existing suppliers and customers. For example, question whether there is any reasonable explanation for the significant increase in the transaction volume and value.

Warning Signs (non exhaustive)

Due diligence checks (non exhaustive)

• High-value deals offered by newly established supplier, with minimal experience in the industry.

• Very quick turnaround of high-volume transactions, making the business appear unrealistically lucrative.

• Back-to-back purchase to sale arrangement with a fixed gold price between the supplier and customers, making the business practically risk free with little or no exposure to price volatility.

• Out of the norm credit terms. For example, supplier delivers the gold to you first, and only requires you to make payment after you receive the payment from the customer.

• Too good to be true deals recommended by unfamiliar introducer.

• Scrap gold bars in condition or volume that is not ordinarily traded in the market. For example, buying or selling cut or defaced IPM gold bars or cast scrap gold bars in large quantity.

• Supplier/ introducer is evasive when being asked about the source of its gold supply.

• Material changes in the transactions with existing suppliers or customers. For example, significant increase in transaction volume or transaction value, or changes in the nature of goods trade.

• Is your immediate supplier and customer legitimate? Obtain business incorporation details, perform credit checks, request for trade references and verify whether they are credible, and visit their business premises.

• Is the business arrangement valid? Understand whether there are valid business reasons for IPM gold bars to be defaced or cut and sold as scrap gold bars, whether there are reasonable explanations for the high volume and/or low price of the scrap gold bars relative to the market price and demand, whether the absence of price volatility risk is in line with commercial practice, and whether there is any value for you to be part of the back-to-back purchase to sales arrangement when the customer could have purchased the goods directly from the supplier.

• Is the payment arrangement highly favourable? Is there commercial justification for the payment to be made to the supplier only after payment is received from the customer.

• Are the scrap gold bars authentic? Question the source of the scrap gold bars and whether there is a reasonable explanation for them to be defaced IPM gold bars.

• Is the introducer legitimate and credible? Obtain more information on the introducer. For example, his/her experience in the trade, and the reason for him/her to offer you the deals instead of carrying out the deals himself/herself.

• Is there a valid reason for material changes in the transactions? Be alert to unusual changes when transacting with existing suppliers and customers. For example, question whether there is any reasonable explanation for the significant increase in the transaction volume and value.

Where you are aware or have reasonable grounds to suspect that the supplier, customer, property or transaction is linked to criminal conduct, you should consider filing an STR.

You may refer to this link for IRAS’ taxBytes and the IRAS’ Guide on Due Diligence Checks to Avoid Being involved in Missing Trader Fraud for more information. Thank you.