Money transfer scam

MASERU  —  CGM Industrial (Pty) Ltd (CGM Industrial), a garment factory that received a M30 million bail-out from the government of Lesotho, is allegedly siphoning money from Lesotho through a briefcase company it allegedly controls.
CGM Industrial, which employs 1 930 people, makes products for iconic brands like Pepe Jeans, Jones Jeanswear (Gloria Vanderbilt), Paco Sports and Golden Power.
The externalisation of funds from Lesotho is allegedly being done through a company called Bloomson Company Limited (Bloomson) which is said to be registered in Hong Kong but has neither an official business address nor a business registration number and its telephones never ring.
The Lesotho National Development Corporation (LNDC), through which the government advanced the M30 million interest-free loan to CGM Industrial after it nearly collapsed in 2008, this week said it knew nothing about the alleged externalisation of funds.
Confidential documents at hand show that instead of dealing directly with reputable suppliers in China, Pakistan and India CGM Industrial appoints Bloomson to be its middleman.
CGM Industrial is allegedly instructing Bloomson to get quotations from suppliers and place orders.
It is alleged that Bloomson then inflates figures and invoice CGM industrial.
CGM Industrial will then allegedly pay Bloomson at highly inflated prices.
When the money reaches Bloomson, it is alleged, it then pockets its mark-up and pays suppliers their invoiced amounts.
Because CGM Industrial’s directors or shareholders control Bloomson that means the difference is kept in Hong Kong.
That way money would have left Lesotho through a method that CGM Industrial can easily justify but is unethical and flouts the country’s financial regulations.
Sources say CGM Industrial has been allegedly externalising money from Lesotho in this way for the past “seven years or so”.
When audits are done CGM Industrial allegedly presents the inflated invoices from Bloomson to give the impression that it is not making profit.
Its operating costs will be high while profit margins are very slim because raw materials would have been made to look larger than they actually are.
That way it pays less tax to the government.
The shareholders will still get their money from Bloomson’s profits which would have been made by making CGM Industrial pay more for raw materials it could have bought directly from suppliers at significantly low prices.
CGM Industrial is part of the CGM Group (Pty) Ltd which also owns Presitex Enterprises, an active garment manufacturer, and United, which has been dormant since 2008. Presitex Enterprises is the manufacturer for Levi Strauss, Enzo Jeans, Mr Price and Edgars.
Solandra Incorporated, a company registered in British Virgin Islands, owns 99 percent of the CGM Group while Adrian Chan controls the remaining one percent.
Chan is also the chief executive of CGM Industrial.
However, that shareholding structure is likely to change drastically when the government of Lesotho, through the LNDC, converts its M30 million loan into equity.
The Lesotho Times has seen a confidential evaluation report on CGM Industrial, Presitex and United done by PricewaterhouseCoopers on behalf of the LNDC with a view to convert the loan into shareholding.
Solandra and Chan claim that they have not received dividends from the group in many years but sources point out that this does not mean they have not been enjoying their profits.
Bloomson, several sources said, is the goose that’s laying the golden eggs for them.  Confidential documents show that for the past seven years Bloomson has been pocketing a handsome commission by inflating the cost of CGM Industrial’s raw materials from suppliers.
Questions are being asked why CGM Industrial, which claims to be the biggest denim manufacturer in southern Africa, would need a middleman to buy raw materials.
Although Bloomson might be registered in Hong Kong there is doubt that its operations there are genuine.
This paper was told that the “office” that the company claims to occupy — Flat/RM A, Hilton Tower, 96 Granville Rd, TST, Hong Kong — is actually the home of a one Tong, a Taiwanese who once worked for CGM Industrial.
In some documents Bloomson’s address changes to “Flat A 13/F, Hilton Tower, 96 Granville Rd, Tsimshatsui East, Kowloon, Hong Kong”.
It’s not clear whether that slight difference is due to an error or a deliberate omission.
The phone number that Bloomson lists on its invoices to CGM Industrial never rings. This paper tried several times to get through without success.
Bloomson’s credibility has also been questioned by some of CGM Industrial’s suppliers in private e-mails leaked to this paper.
In an e-mail dated March 30, 2011 to CGM’s management, Charles So, a credit manager for Yokohama Labels and Printing which is also based in Hong Kong, queries why CGM Industrial wanted them to deal with Bloomson.
This was after CGM Industrial had indicated that they could only buy from Yokohama Labels and Printing if the order goes through Bloomson.
Charles So questioned CGM Industrial why they wanted Yokohama Labels and Printing to deal with them through Bloomson which does not have a business registration number or a business address.
He said when Yokohama Labels and Printing’s officials visited Bloomson they found that the address it gave was for a residential property.
Charles So said creditworthiness could only be evaluated based on business entity.
“If this is only a registered address for making transfer in order to save bank charges, it is unnecessary to give credit,” said Charles So in his e-mail to CGM Industrial’s management.
“(If) Bloomson is a window company to make payment in Hong Kong to reduce bank charges, then CGM should have no hesitation to guarantee payment for Bloomson.”
He then demanded that CGM provides a guarantee so that Yokohama Labels and Printing can offer credit to Bloomson.
Flora Chang, who is deputy chief executive of CGM Industrial, did not take kindly to Charles So’s questioning of Bloomson’s integrity.
“Please understand the reason we have Bloomson is practical need for our business operation (sic),” Chang said.
“And each office structure and size/ location of office will be based on different business functions in different areas, we are the same.”
She then warned Charles So against questioning Bloomson’s veracity.
“Let’s respect each company’s business nature,” she said.
The matter was only resolved after CGM Industrial agreed to issue a letter of guarantee before Yokohama Labels and Printing could supply goods to Bloomson.
A senior manager at CGM Industrial this week said he knew that Bloomson’s invoices to CGM Industrial were actually being made by a senior officer in CGM Industrial accounting department.
“There is no one at Bloomson’s so-called offices in Hong-Kong. Those invoices are being done at CGM’s offices here in Thetsane,” he said.
“Money is being transferred to Bloomson through a fraudulent scheme because Bloomson is very closely related to CGM.”
This paper has seen some of Bloomson’s invoices to CGM Industrial and none of them show Bloomson’s banking details or business registration number.
The invoices are also very thin on detail in that they do not show the size of the shipment that CGM Industrial is receiving from Bloomson.
Unlike normal invoices from international companies Bloomson’s invoices don’t show the date of delivery of the consignment, the mode of payment, the weight of the goods, the insurance certificate, packaging list and the certificate of origin.
In fact Bloomson’s invoices look like those made on templates downloaded from the internet.
The other issue is that in some invoices from suppliers Bloomson is cited as the buyer while in others they are cited as the consignee.
For instance, in an invoice that CGM Industrial received from Bhaskar Industries, an India-based supplier of denim dyed fabric, on March 23 Bloomson appears as the consignee but the goods are coming to Maseru.
In another invoice from Mafatlal Denim Ltd, another Indian denim maker, on February 12 Bloomson appears as the buyer and CGM Industrial as the consignee.
The Lesotho Times this week called one supplier who said they too had “serious doubts” about Bloomson’s business operations.
“You want to know if Bloomson is a real company or not?  Well, we have our doubts but we are just dealing with them because CGM has insisted that we deal with them,” said a senior manager with one of CGM’s suppliers.
Investigations have also revealed that apart from making money through huge mark-ups, Bloomson is also used to illegally transfer money from Lesotho by paying what appear to be bogus workers.
Either that or CGM Industrial is helping some foreign workers dodge tax by transferring their salaries directly into their bank accounts back home.
This is illegal according to the country’s tax laws.
Madhav Dalvi, who is the chief executive of Presitex but also speaks on CGM Industrial’s behalf, vehemently denied allegations that the company is externalising funds.
Bloomson, Dalvi said, was a company that CGM Industrial uses as a consolidator.
Dalvi said Bloomson buys raw materials from suppliers on behalf of CGM Industrial and then charges commission.
“We instruct Bloomson to buy from suppliers of different accessories like, for example, zips, buttons, labels and others. Bloomson then consolidates them for shipment to Durban where they are transported to Maseru by road,” Dalvi said.
“Bloomson is just a consolidator without which it would not be easy for us to buy from different suppliers in China,” he said.
Dalvi also said it is important for a garment manufacturing company that is importing raw materials from Asia to have a consolidator to avoid the cost of buying from different suppliers.
By appointing Bloomson CGM is making huge savings on costs and time, he explained.
But a source said Bloomson is not CGM’s consolidator.
She said the consolidator was Date (HK) Limited.
This was confirmed by an official from Date (HK) Limited who said “we are the forwarder and consolidator” for CGM.
We asked Dalvi which Bloomson officials CGM Industrial deals with when they make purchases.
“I don’t know. I talk to many people there,” Dalvi said.
When asked who owns Bloomson, Dalvi also said he did not know.
Later he said he knew who Bloomson’s managing director was but refused to reveal the name.
We asked Dalvi to show us the invoices that Bloomson submits to CGM Industrial when it has to be paid its commission and other service charges as a consolidator.
Dalvi said he could not do that because he was already on his way out of the country to Johannesburg, South Africa.
We suggested that if these documents were readily available he can instruct CGM Industrial’s officials to give them to us but he said only he was able to give out the documents.
He said he would show us the documents on Monday.
When asked why Bloomson, which is based in Hong Kong, is required to deal with consignments from Indian companies that normally supply complete containers that don’t need consolidators, Dalvi said it was because Bloomson had the capacity to buy on credit from the suppliers.
But curiously Bloomson is the same company that was being denied credit by other suppliers and needed a guarantee from CGM
Industrial.
It is also not clear how CGM Industrial, a company that is 24 years old, would rely on Bloomson, a company without a business registration number or a proper business address, for a credit facility.
Questions also have to be asked why if Bloomson has that kind of financial muscle it would need a letter of guarantee from CGM Industrial for it to get supplies.
If CGM Industrial is so reputable that it can offer an acceptable letter of guarantee to a third-party like Bloomson then it should be able to negotiate credit with suppliers without a middleman.
Dalvi also denied that CGM Industrial was using Bloomson to pay salaries to some expatriate workers into their foreign accounts.
“There is nothing like that,” he said.
“We are a responsible company and we don’t do things like that.”
The Lesotho Times then read to him a
letter in which Chang was instructing an
official in the accounts department to transfer salaries from Lesotho to Taiwan through Bloomson.
The letter, e-mailed to the official called Shellina on February 23, 2011, instructs that the money should be received in Taiwan on March 9 and on the following day it should be deposited into the staff’s bank accounts.
Chang also gives a clear timetable of when the salary transfers should be made. “Shellina, please try your best to get information from staffs (sic) what date they receive salary in their account,” reads Chang’s letter.
“Hope you can help me to reduce this number of working days by collecting actual salary receiving dates from staffs (sic),” she said.
Chang had copied the letter to another official called Rodney whom she instructed: “Rodney, based on above remittance calendar, please
precheck with Terry if there are any public holidays in Taiwan/HK in any of coming months. If yes, then we have to remit even earlier from Lesotho to ensure salary into staff’s account on time.”
Chang also directed Terry to “follow up with Shellina directly to get new staff name list for coming month remittance in advance to avoid time wasting and delay salary remittance next month.”
Dalvi expressed shock at the contents of the e-mail.
“I am shocked. There is fabrication happening here. Someone is trying to fabricate. We will have to open a criminal case,” he said.
He further alleged that the ‘fabricator’ of the e-mail was “trying to put Flora into a problem”.
“I am going to tell Flora to be careful. Someone wants to put her in danger.”
The textile sector is the second biggest employer in Lesotho after the government.
It employs just over 35 000 people, making it the biggest employer in the private sector. During hard times the government had tried to help the sector remain viable through cheap loans and other incentives.
The government has also helped keep the lid on wages in the sector which is labour intensive and therefore very sensitive to huge increases in salaries.