Role of Valuation Companies in helping the HK Customs & Excise Department

Introduction

Hong Kong’s status as a global trade and financial hub makes it a prime target for tax evasion, money laundering, and illicit financial flows. The Hong Kong Customs and Excise Department (C&ED) plays a vital role in enforcing trade compliance, combating smuggling, and ensuring proper valuation of goods for customs duties.

However, assessing the true value of imported/exported goods requires specialized expertise. This is where professional valuation companies become indispensable.

As a Appraiser with extensive experience in cross-border trade, tax compliance, and financial forensics, I’ll explain how valuation firms support C&ED in detecting fraud, ensuring fair duties and penalties and upholding trade integrity.

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1. Customs Valuation: Ensuring Accurate Duty Assessments

The Challenge

• Importers may under-declare goods’ value to reduce tariffs.

• Complex transactions (e.g., related-party transfers) can obscure true market value.

How Valuation Firms Help

✔ Apply WTO Customs Valuation Rules – Determining transaction value or using alternative methods (e.g., Comparable sales, Cost Approach value, etc.).

✔ Pricing Analysis – Assessing whether the transaction value of the goods on hand follow arm’s length valuation principles.

✔ Dispute Resolution – Providing independent and defensible valuations in negotiations and court proceedings.

Case Example:

A Hong Kong importer declared luxury watches at 50% below market value. A valuation firm uncovered the discrepancy using comparable export data, leading to back duties and penalties.

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2. Combating smuggling

The Challenge

Since Hong Kong is a trade free port, criminals favor to smuggle goods into and out of Hong Kong as it provides a convenient drop off/on point for contraband and high dutiable goods to the Mainland and other Counties. Therefore the HK C&ED confiscates many items which are deemed smuggled goods set for criminal prosecution and emendatory duties and penalties.  

How Valuation Firms Help

✔ Assist in independently quantifying a value for the smuggled goods - so that it can be used as a financial basis for criminal prosecution and the calculation of emendatory duties and penalties.

✔ Expert Testimony – Supporting C&ED in criminal prosecutions with expert knowledge, extensive experience supported with people that have an appropriate educational background and technical body membership. This provides defensible testimony when up against defendants that query the expertise of an Appraiser.

Case Example:

An Appraiser provided a valuation report to the C&ED to value some miscellaneous goods smuggled into Hong Kong. The value of the goods provided a financial basis which was used to match up and compare to similar common and local law case rulings so a comparable penalty can be issued and straight forward emendatory duty and penalty can be calculated.  

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3. Providing inspection services for overseeing C&ED examination of suspected illegal activity in export / import of goods  

The Challenge

It is a common task for the C&ED to sample check cargo coming in and out of container ports to ensure that Contraband and high dutiable goods are not smuggled into and out of Hong Kong. The cargo owners can later raise a legal claim to blame the C&ED for damage of cargo.

How Valuation Firms Help

✔ independently observe an inspection – to provide independent documentary evidence to ensure the cargo is properly dealt with by Customs Officials.

Case Example:

The C&ED inspected a container that housed a power generator. As the generator contained many electronic parts, experts were used to take apart the generator to inspect if any of the parts contained any hidden illegal substances. Some illegal drugs were found hidden inside the battery. Fortunately, an Inspector was observing the inspection from start to finish and provided an inspection report to testify that the drugs were found inside the power generator.      

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4. Combating Trade-Based Money Laundering (TBML)

The Challenge

Criminals manipulate trade invoices to move illicit funds across borders (e.g., overvaluing exports to justify fund transfers).

How Valuation Firms Help

✔ Forensic Valuation – Identifying red flags (e.g., inconsistent pricing for identical goods).

✔ Benford’s Law Analysis – Detecting anomalies in invoice patterns. Invoices usually follow a specific pattern, the leading digit in a number is more likely to be a small number like 1, 2, or 3 than a large number like 7, 8, or 9. This is Benford’s Law and it is one way forensic specialists use to analyze and filter anomalies.

✔ Expert Testimony – Supporting C&ED in prosecutions with expert knowledge, extensive experience supported with people that have an appropriate educational background and technical body membership. This provides defensible testimony when up against defendants that query the expertise of an Appraiser.

Real-World Impact:

A valuation firm helped the C&ED put a price on disputed goods that were smuggled into Hong Kong. This was disputed by the defendants in Court. Due to the ability of the appraiser to capably explain all questions asked and supported with appropriate professional and educational background and technical body membership, the Judge sided with the Prosecutor (C&ED) in agreeing that the Appraiser was an expert Appraiser in the field. This was one of the factors that helped the C&ED win the case.

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5. Fraud Detection in Misclassification & Undervaluation

The Challenge

Fraudsters may:

• Misclassify goods under lower-duty tariff codes.

• Use shell companies to disguise true transaction values.

How Valuation Firms Help

✔ Tariff Code Verification – Cross-checking HS codes against product specs.✔ Market Price Benchmarking – Using internal databases and open source databases like “price.com.hk”.

Recent Case:

A valuation firm identified evaded duties by exposing fake "recycled plastic" declarations for high-value electronics.

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6. Supporting Prosecutions & Asset Recovery

The Challenge

Proving intent to defraud requires court-admissible evidence.

How Valuation Firms Help

✔ Damage Quantification – Calculating lost tax revenue.✔ Asset Tracing – Valuing seized goods (e.g., counterfeit luxury items).✔ Expert Witness Testimony – Explaining methodologies to judges.

Impact:

In a high-profile smuggling case, a valuation firm’s testimony secured millions in Hong Kong dollars’ worth of confiscations.

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7. Training & Capacity Building for C&ED Officers

The Need

Customs officers must stay updated on:

• Valuation techniques (e.g., e-commerce, cryptocurrencies).

• OECD/BEPS compliance standards.

How Valuation Firms Help

✔ Workshops on Advanced Valuation Methods (e.g., discount cash flow for intangibles).

✔ Case Study Simulations – Detecting red flags in real-time.

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Conclusion: Why Hong Kong Relies on Valuation Experts

Professional valuation companies are force multipliers for C&ED, providing:

✅ Compliance to regulations, professional body requirements and generally accepted valuation rules. 

✅ Technical expertise in providing a fair valuation at arm’s length.

✅  Legal defensibility in Court on disputes or disagreement from Defendants.

For C&ED: Partnering with accredited valuation firms enhances enforcement efficiency and recovery rates.

Need a Customs Valuation Expert?Brooks Matheson Hong Kong personnel specializes in independent and fair valuations and litigation support for all Hong Kong Government agencies. They are one of the only few Hong Kong companies with an appraiser that has full accreditation from the American Society of Appraisers and other appropriate bodies. Contact us for a confidential consultation.

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About the Author(s):

Mark Yu is a seasoned valuation expert with over 15 years of experience in corporate valuations, Plant, Equipment and general stock appraisal, specializing in Corporate, Plant, Machinery and Generally Traded Merchandise Valuations. Mark has helped clients navigate complex valuations for transactions, regulatory reporting, litigation, Corporations and strategic planning and has appeared as a veteran "expert witness in valuations" within various Hong Kong courts.

Billy Leung is an Accredited Senior Valuation expert with over 20 years of experience in Plant, Equipment and general stock appraisal. He is an Accredited Senior Appraiser of ASA, (USA) with Specialties in Machinery & Technical for Plant, Machinery and Generally Traded Merchandise. Billy has performed many complex valuations involving hundreds of plant equipment in a single factory. He also helps clients navigate extensive valuations for regulatory reporting, litigation and strategic planning and has appeared as a veteran "expert witness in valuations" within various Hong Kong courts.