Gold smuggling becomes riskier with jump in seizures, fall in profit

Gold smuggling into the country is becoming more risky for couriers following a surge in seizures and less profitable for the gangs behind the practice.

After being caught off guard by a jump in smuggling on the back of a hike in import duty in 2013, government agencies have stepped up seizures to the extent that couriers are demanding more money to carry in gold, according to customs intelligence officials and an industry analyst.

"The risk of seizures has risen. Carriers are now demanding Rs 287 ($4.70) per 10 gram compared to Rs 150 last year," said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS. Based on the estimate, a courier bringing in 1 kg of gold currently worth around US $40,000 at world prices could earn US $470 if not caught.

At the same time, a drop in the gap between local and global prices also means there is less profit to be made by smuggling in gold, giving banks more business and higher revenue for a government struggling to rein in a fiscal deficit.

"Gold smuggling was highly profitable... But now with the drop in premiums and tight security, legal imports are increasing," said Milind Lanjewar, additional commissioner of customs intelligence at Mumbai international airport.

Seizures at the airport, one of the country's biggest hubs, jumped almost nine fold to 604 kg in the period running from April to September 2014 against 70 kg in the same period a year ago.

Customs and police have also got wise to some of the tricks used to bring in gold, such as adopting the methods used by drug smugglers by getting human mules to swallow nuggets or in one case hiding gold bars in dead cows.

A customs official, who declined to be named, said smugglers risked a jail term of up to seven years, though he said such a penalty was rare and the main deterrent was confiscating gold.

CRASHING PREMIUMS

Premiums have crashed to around US $12 an ounce over London prices, compared to a record of US $160 in 2013 after the imposition of a record high 10 per cent import duty.

"Smuggled gold is still landing in the country, but the pace has been moderating due to lower premiums," said Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion.

On other hand, the country's legal gold imports surged 450 per cent in September from a year ago to US $3.75 billion.

"It is difficult to quantify, but certainly smuggling has gone down," said a leading gold dealer based in Dubai, one of the main sources of gold for smugglers to India.

The World Gold Council has estimated about 200 tonnes will be smuggled into the domestic market in 2014, versus the 2013 figure of 150-200 tonnes.

According to the industry body, the country's gold demand was 974.8 tonnes in the previous year, second only to China.

However, a bank dealer based in Mumbai said with little prospect of premiums rebounding smuggling in the December quarter could be half of 2013's level based on the legal imports coming in for a period when demand rises due to festivals like Diwali.

OVERSHADOWING NARCOTICS TRADE

Customs officials appear to have got more on top of gold smuggling.

"Until 2012, intelligence agencies were focused on the narcotics trade as gold smuggling was negligible," said a government official who did not want to be named. "As smuggling rose, agencies gradually built a network of informers."

Whistleblowers who help bust illegal gold shipments can get a bigger reward in the country than those who help catch cocaine and heroin smugglers.

A Kochi-based jeweller said that with gold smuggling already falling, any move to cut import duty even just by 2-3 percentage points would make the practice barely worth while.

Some in the gold industry expect that the duty could be cut after the peak demand season ends in December, while others argue a reduction is unlikely before March 2015.

(Reuters)