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Israel Tax Authority Shuts Down 'Bug' Electronics for Fraud

The duty free branch of the electronics chain store, "Bug", has now been closed due to fraud allegations over the last three years.
By Kochava Rozenbaum
First Publish: 8/22/2013, 5:58 PM

Duty Free Shop
Duty Free Shop
Flash 90

The electronics and computer store “Bug” was closed yesterday morning at Ben Gurion Airport by the Israel Tax Authority on suspicion of fraud over the last three years.

The Tax Authority underwent a lengthy investigation on the Bug branch and revealed that the branch allegedly sold products as duty free, despite the fact that the products were not exempt from the required taxes.

The CEO of the brand, Bug Multisystem, and the manager of the store’s branch in the airport were brought in for arrest and bail at Rishon LeTzion Magistrates Court this morning. They were arrested on suspicion of intent to deceive customs.

Deals that involved the combined purchase of a stroller for children and a game console were split into two separate deals, thus, they allegedly misled buyers. The patrons were told that the products do not need to be declared at customs when entering Israel, enabling them to keep the products in the country as part of “exemption and save” a service which allows travelers to leave their products at the Ben Gurion Airport and take them upon returning to Israel. This arrangement increased sales and revenue at the Bug chain store.

It was two months ago when airport customs caught a “Maclaren” baby carriage, brand new and in packaging, passing through the green channel, a line at customs for passengers who have no goods to declare.

After brief examination, the listed price for the stroller was $359, which resulted in a penalty for the passengers since goods above $200 need to be taxed.

However, the passenger pleaded in defense that Bug issued two separate invoices for the purchase of the stroller and its accessories: the price of the stroller was to be $200 and the accessories $159. She claims that Bug told her that her family was entitled to tax exemption for being two passengers.

According to customs procedures, travelers cannot be sold a product with a value over $200 in order to store it in the warehouse until his return in accordance with the “exemption and save” service. This is to prevent naïve buyers from purchasing a product exceeding $200 while believing it will be exempt from import taxes.

Following the allegations of covert activities, customs recorded footage of different sellers in the store encouraging buyers to purchase a single product and giving them the option to split the transaction into two - for example, the stroller in question was sold separately from its accessories. One of the sellers was documented as saying, “we do customs gigs.”

The suspects, who knew customs regulations very well, had reportedly deceived both consumers and customs for over three years. The strollers have been listed in the past ranging from $359-$400; however, since they were unable to be sold under the “exemption and save” service saving the products in the warehouse, they decided to split the sale as two fictitious transactions.

Additionally, a few months ago, Bug allegedly sold a Sony Playstation 3 as a single unit for $319, but split the transaction for buyers by selling it for $200 for the consul and $119 for the accessories. Those items failed to sell in large quantities.

Furthermore, the manager of the branch confessed that these transactions were sold under full knowledge and cooperation of the CEO. He also confessed that customs officials know well of the offenses and activities that took place at the airport. The suspect told investigators that she knows the procedures of the “exemption and save” service and in regards to the baby carriage, it was sold as a single unit with all its components in one transaction. The suspect refused to admit it was fraud.

According to the decision of Judge Sarit Zamir, the suspects were released under restrictions and their passports were deposited at the offices of the investigation unit.