I imagine this is just fraud. The government official's brother buys 10,000 of these for $5 and sells them for $5,000. He and the politician enjoy the spoils. Many autocratic and corrupt nations do this trick. Usually not this painfully obvious, but it just sounds like a typical mark-up scam.

Security forces probably love this thing because it gives them leeway into searching and stopping anyone for any reason.

This device is perfect for corrupt politicians and corrupt cops. From a purely amoral perspective its genius. It gives the politicians what they want (graft) and the police what they want (arbitrary searches).