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Exposing scams and bad choices in Papua New Guinea. The Arua Report can't be bought.
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29/07/2020

MONEY LAUNDERING PNG STYLE: PAYPAL

We all know PayPal. It’s the international partner of choice for SMEs in e-commerce. But did you know that using PayPal as a PNG business is probably breaking the law? The Arua Report investigates.

PayPal is a great service and in PNG we can use it to buy goods and services internationally. It connects to our PNG bank accounts and takes money out, sending it around the world. That’s all legitimate.

But PayPal does NOT allow a PNG based company to use its service to receive funds into a PNG bank account. There are a few reasons for this, but the main one cited by PayPal is that PNG’s anti-money laundering laws are not secure enough for PayPal to operate. So it happily takes money from a PNG bank account, but will not deposit money INTO a PNG bank account.

Why does this matter? Glad you asked.

Let’s say there is a PNG registered business, let’s call it Go Funding Me, and let’s say it is a local company owned by an Australian expatriate and a PNG national. A local company is required by Bank of Papua New Guinea to transact all business through a kina-denominated account in a PNG domiciled bank. Offshore accounts must be approved, are only allowed for certain industries, and all transactions must be documented and approved by Bank of Papua New Guinea.

But say the Australia expatriate has an Australian bank account. They could connect this account to Go Funding Me’s PayPal account and use it to receive funds paid by Papua New Guinean donors. So Go Funding Me could take Papua New Guinean’s money, which these Papua New Guinean’s wish to donate to a cause in Papua New Guinea, but the money would be deposited via PayPal to the account in Australia.

And this would bypass the Bank of Papua New Guinea’s controls over foreign exchange transactions, because none of these people will be filling in the forms required to track these transactions for currency management and anti-money laundering purposes.

Let’s say Meri wishes to fund a food distribution charity, called Feed Me Now, and wants to contribute K20. She would use her PayPal account to send the money to Feed Me Now through Go Funding Me, probably thinking the money would stay in PNG. But this money would instead go to its PayPal account in Australia.

What happens when Feed Me Now wants the money that has been donated?

Easy. And this is where the fun begins.

Transferring the money from the bank account in Australia, where the funds are being collected, would require paperwork if the amount is over $10,000 – Australia’s anti-money laundering limit. It would also incur transaction fees and exchange rate charges, which means Feed Me Now is likely to get funded quite a bit less than if the money had been collected in PNG.

But wait – there’s a simple, if not exactly legal, solution.

Instead of transferring the money back to PNG, Go Funding Me could instead use money the expatriate already had “trapped” in PNG to pay Feed Me Now. The expatriate could pay Feed Me Now with the money in their personal PNG bank account, which had been earned through other business enterprises, and leave the money in the Australian bank account. That way Feed Me Now gets all the money it should, there are no transaction fees, and everything is great. Right?

Wrong. Technically we have just laundered money between PNG and Australia using PayPal as the interchange.

The expatriate is able to access the money in Australia in Australian dollars, and without paying any of the fees or charges they would have paid to send it offshore from PNG. And there is no record of the kina leaving the country as none of the Meri’s contributing to the fund have filled in any of the required paperwork. The Australian account is not registered with Bank of Papua New Guinea, so it can’t be monitored, and none of the money can be traced. Plus, the expatriate just managed to transfer a whole wad of cash to Australia while incurring no personal transaction fees or charges, also beating Bank of Papua New Guinea’s transfer limit of only K5000 per week.

Brilliant.

This is not a one-off situation. There are now three PNG-approved payment gateways that could be used, offered by BSP, Kina and Westpac, but people are still using PayPal and offshore accounts to do business in PNG.

Arua Report has seen bilum sellers, media companies and other SMEs doing the same thing.

Most probably don’t realise what they are doing breaches PNG’s anti-money laundering rules, or that they put PNG at risk of being grey listed in its international review next year. And grey listing is a very bad thing, that stops legitimate PNG companies doing business internationally.

But ignorance is not an excuse under the law, and we suspect most of these people realise they’re not quite doing the right thing.

Next time someone asks you to use PayPal to buy goods or services in PNG – as opposed to offshore, which is perfectly legitimate – have another think about what you are doing. It might be charity but that doesn’t make money laundering OK.

The Arua Report cannot be bought (or intimidated).

15/07/2020

HAS A FOREIGN (INDIAN) COMPANY SCAMMED PLANNING?

I am sure you are as shocked as the Arua Report is about the awarding of an almost K300,000 IT contract to a foreign firm. But is there more to the story? We investigate.

The company, PureMath Solutions (formerly Push Above), was originally listed on the IPA website (https://www.ipa.gov.pg/pngcompanies/viewInstance/view.html?id=8e37697076d866e369c81687e8d987e57136482b78c7d3a0&_timestamp=6791370772763986) as a local company with one director and one shareholder, both Ms Prabhu Prasanna Koti. A week ago, Ms Koti was listed as Papua New Guinean on the website. She suddenly became Indian around 14 July, after Arua Report contributors started commenting on posts (and in future we’ll take screen shots to prove these things – be warned). However, despite the owner now being recognized as an Indian national, the company remains listed as a local company (see photo).

How? The company was originally registered as Push Above Ltd in 2016. This entire time the company has been listed as a local company rather than a foreign one. But it is in fact a foreign company, having only one director/shareholder who is a foreign national.

Our first question is: why did the IPA, which is one of the best functioning agencies of our government, allow this company to be registered as a local company – and Ms Koti as a citizen? Is this how she filled in the forms, or was it an error at IPA? If she intentionally misrepresented herself and her company, this is a serious concern.

Why does local or foreign company status matter? Glad you asked. Foreign companies have more onerous reporting requirements. Also, foreign nationals are taxed at a higher rate than PNG nationals. It is in your interest to have your company listed as a local one, rather than a foreign one, and yourself as a local not a foreigner. It makes life cheaper and easier.

But most importantly, if you want to do business for government and you are an SME, you need to be a local company. The Procurement Act 2018 requires all contracts below K10m to be awarded to national companies. A foreign company should not be able to bid for a contract below K10m. In fact, under National Reservations and Restrictions (p20) it says “A procurement with a value estimated by the Commission of up to K10m shall have a technical evaluation requirement that it is open to public tender only by national companies and citizens with the capacity to undertake or provide the goods, works or services.”

Now, there is also allowance for a small value tender to be undertaken within the Department’s own guidelines – allowing Department of National Planning to avoid the centralized procurement process. But the spirit of the Act should still be followed, and that is clearly to ensure small value tenders go to national companies.

So was Ms Koti representing her company as a national company to secure government tenders? And has PureMath/Push Above breached these guidelines in other contracts? Or was Department of National Planning and Monitoring, a major expenditure agency, not aware of its own government rules and intentions? If so, how many more foreign companies have won small value tenders awarded by this Department?

Now, let’s take a look at the financial reports listed in the IPA database online. Firstly, Ms Koti is not an employee of the company, nor has the company paid dividends or directors fees.

There is no financial return for 2019 or 2018 – which surely makes them ineligible to be listed and awarded Government contracts? But in 2017, the company reported a K57,662 loss. Revenue of K712,842 was reported, and expenditure of K770,504, suggesting Ms Koti isn’t much of a businesswoman. Surprisingly, the company paid no GST. The company paid only K377 in salaries and wages tax. That was it. No other tax paid.

It had one full-time and one part-time employee in 2017 (both PNGians) but together they cost only K8,754 – less than two haus meris for 12 months. The company spent nearly twice as much on phone calls (K17,000) than staff. And for an unknown company it spent an astounding K38,000 on advertising. We’re wondering where that billboard is (prime location billboards costing less than half that for 12 months, in our experience).

And no other payments for directors or shareholders. So we ask – how is Ms Koti surviving? She made no income from the company. She received no dividends. What is she living on? Perhaps we need to start a GoFundMe page.

But most interesting – the biggest expense for PureMath (formerly Push Above) was consultancy fees. We don’t know who they paid – that isn’t listed. But of their K712,842 revenue, K504,870 was paid in consultancy fees. To whom? Where did that money go?

So – the Department of National Planning and Monitoring has awarded a contract to a company that is erroneously listed as a local company when it is not, run by a foreign national, that should have been awarded to a local company under the Procurement Act, and which is operating at a loss and, one might think, is potentially insolvent. And the foreign national has no income, so we wonder how she continues to live in PNG under these circumstances? In fact, the company owes her money through a loan, according to the filing. Maybe she has riches we are not aware of. Plus, we need to ensure her (skilled IT?) workers are being paid at least the minimum wage because it looks like someone is getting ripped off.

Department of Labour needs to investigate both her work permit and her workers conditions.

And we have to ask – what on earth was Secretary Samuel thinking?? We have it on reputable authority known to the Arua Report that Ms Koti and Secretary Samuel were seen dining together at a Port Moresby hotel – at breakfast. Perhaps they both like an early start?

UPDATE: after browsing the (pretty darn terrible) PureMath website we discovered that "PureMath Solutions is a PNG based
company having its backend operations
in Chennai, India." - so, it's basically a shell to transfer funds offshore for software developed by Indians. Talk about taking back PNG.

The Arua Report will continue to expose bad choices without fear or favour. The Arua Report can’t be bought.

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