Smuggling Luxury Watches and Illegally Claiming VAT Leads to Jail and Fines in Bahrain

The First High Criminal Court of Appeal upheld the ruling of the court of first instance convicting two appellants, aged 35 and 40, sentencing them to three years’ imprisonment for tax evasion, and fining the first defendant BHD 102,711, in addition to obliging him to repay the evaded tax in the same amount, while fining the second defendant BHD 207,044 and ordering him to repay an identical amount representing the evaded tax.

The court also sentenced both defendants to three months’ imprisonment for violating the cash disclosure system at customs outlets, ordered their permanent deportation from the Kingdom of Bahrain after serving their sentences, and the confiscation of the seized items. The charges stemmed from their attempt to smuggle four luxury watches concealed in a highly sophisticated manner to avoid detection, with the intent to sell them later.

Investigations revealed that the defendants had carried out 182 value-added tax (VAT) refund transactions amounting to a total of BHD 309,755, which were unlawfully obtained.

The Tax Evasion Crimes Unit at the Financial Crimes and Money Laundering Prosecution received a report from the National Financial Intelligence Centre, based on a notification from Customs Affairs, regarding the defendants’ attempt to remove luxury watches from customs without declaration, after concealing them in a technical manner to evade inspection.

The incident dates back to customs officers’ suspicion of the defendants while they were at Bahrain International Airport. When asked whether they possessed any funds or items requiring declaration, they denied having any. However, upon searching them, officers seized four luxury watches hidden in a sophisticated way to avoid detection. The unit then initiated its procedures by questioning the arresting customs officers and the investigators, as well as interrogating the defendants, who stated that they were engaged in an economic activity involving the purchase of luxury watches in Bahrain and reselling them in other countries. 

The unit contacted the National Bureau for Revenue to determine whether the defendants had conducted any VAT refund operations. It was found that they had carried out 182 VAT refund transactions amounting to BHD 309,755, all of which were unlawfully obtained, as the defendants were engaged in commercial activity, placing them outside the scope of eligibility for the tourist VAT refund scheme provided by law. Accordingly, legal action was initiated against them.

Documents submitted by the National Bureau for Revenue confirmed that the first defendant had obtained 57 VAT refunds amounting to BHD 102,000, while the second defendant had carried out 125 refund transactions totaling BHD 207,000. The records also included photographs of the items for which VAT had been refunded and copies of the relevant receipts. 

According to the statements of the second defendant, he resides in a Gulf country and, due to financial difficulties, sought individuals wishing to sell luxury watches while also looking for buyers, receiving a commission ranging between AED 1,000 and 2,000 per transaction. He added that he met the first defendant and agreed with him on purchasing the goods, with one of them wearing a watch and placing another in his pocket without declaration by using long clothing to conceal them. The first defendant admitted having agreed with the second defendant on this arrangement.

The Public Prosecution charged the two Asian defendants with tax evasion for unlawfully reclaiming the full amount of VAT with full knowledge that they were not entitled to it. They had submitted claims at the VAT refund counter at Bahrain International Airport seeking full refunds on movable property and luxury watches purchased inside Bahrain, falsely claiming that the items were for personal use rather than for commercial purposes, while exploiting their entry into the country on tourist visas.

The first defendant unlawfully obtained BHD 102,711.822 through 57 VAT refund transactions, while the second defendant obtained BHD 207,044.066 through 125 similar transactions, despite knowing that they were not entitled to such refunds. Moreover, they failed to declare the funds in their possession upon leaving the Kingdom and refrained from disclosing the luxury watches they carried to the customs officer despite being requested to do so, in violation of the regulations governing the disclosure of funds at customs outlets.