Fictitious firms, fake papers used in smuggling

Second of four parts

WHEN NEW Customs Commissioner George Jereos appeared before a Senate committee hearing on smuggling last September, he made no mention of technical smuggling, which the agricultural and industry sectors say is fast killing them. Instead, Jereos talked about traditional or pure smuggling, in which imported goods do not pass through the Bureau of Customs and enter the country illegally via private ports.

Jereos said Customs did not have the necessary manpower or “even… a motorized banca to run after the smugglers in the open seas or the sea around the Philippines.” He added, “Without stressing the obvious, of course, we all know that the coastline of the Philippines is longer than that of the United States. So that is really our problem area.”

Jereos is a veteran at Customs. But representatives of several industry organizations, brokers, and Customs insiders alike say his assessment of the country’s smuggling problem was inaccurate. Technical smuggling, or the use of fraud to bring in goods through legitimate ports, has always existed side by side with pure or outright smuggling, they point out.

But in recent years, this has intensified due to a combination of persistent laxity and corruption in state agencies and the growing inventiveness of wily businessmen who come up with newer ways to hoodwink the government. For Jereos not to mention technical smuggling at the Senate hearing was therefore a gross oversight — and that is putting it kindly, they say.

Customs insiders and industry organizations say catching some technical smugglers is actually easy since all one has to do is to check official records to see if they are registered importers or not. Routine checks are also all that are needed to ascertain if all the information on submitted documents — such as names and addresses — are real. The evidence shows that many fictitious firms without proper import papers are able to ship in goods without much trouble.

Indeed, Jereos himself was, wittingly or unwittingly, a tool in the perpetuation of technical smuggling by a company found by the Association of Petrochemical Manufacturers of the Philippines (APMP) to have been illegally importing resins, the ingredient for making plastics.

On January 30, 2003, the Customs Bonded Warehouse Committee, then headed by Jereos, approved the application of Travel Master for renewal of a license to operate Customs Bonded Warehouse no. 1656. The approval was given even if Securities and Exchange Commission records showed that Travel Master had been dissolved six months before, on July 15, 2002.

The APMP, which had already been monitoring the firm, says that even after it had informed Customs of the violation on February 9, 2004, Travel Master continued to be allowed to import goods. The bureau itself had given the APMP a list of Customs-certified importers that did not include Travel Master, but the company was apparently still importing resin and using its customs-bonded warehouse between March and April 2004, based on import entries obtained by the APMP.

Armed with these data, the APMP on April 2, 2004 wrote a letter to then Customs Commissioner Antonio Bernardo, pleading action on the matter. “This continued operation of this dissolved company is contrary to law, is against the interest of the Bureau, and is injurious to domestic producers of the commodities being imported,” said Jess Aranza in the letter in his capacity as president of the Federation of Philippine Industries (FPI), of which the APMP is a member.

Today, Travel Master has ceased importing, but not without defrauding the government of its lawful revenue and causing undue damage to the local resin industry. The petrochemical industry reports that some P1.6 billion in duties and taxes for imported resins could be lost to technical smuggling every year.

That a company could pull off such a scheme is not unusual in Customs. Furious over the proliferation of cheap imported tiles in the market, the Ceramic Tile Manufacturers Association (CTMA) has been doing its own spadework in tracking down importers who do not have the proper papers or may have used fraudulent means to bring in tiles from abroad.

The ceramic tile industry says some P446 million in potential taxes was lost to smuggling last year. It arrived at this figure by using an estimated 4.33 million square meters of ceramic tiles that were supposed to have been shipped to the Philippines from other countries, but mostly from China, according to the July 4, 2004 issue of the Asian Ceramics Trade Magazine. Of this reported volume, only 397,345 square meters were accounted for by the Bureau of Customs.

“Where did the 90 percent of Chinese tiles go?” asked the CTMA in its presentation in one of the sessions of the Cabinet Oversight Committee for Anti-Smuggling that was under the now defunct National Anti-Smuggling Task Force (Nastaf). That, however, was a rhetorical question, since the CTMA believes it knows where many of the tiles from China eventually landed: in Floor Center stores, which usually have banners proclaiming, “No one can beat our price!”

Floor Center has branches all over the country and is acknowledged by industry insiders as having retail prices that are lower by P2 to P3 per tile compared to the locally manufactured ones. “These guys are moving 400 containers a month!” says a ceramic industry insider.

The CTMA says that the Floor Center was not a registered importer until the association pointed that out to the stores’ lawyer. Its mother company registered it the next day, says CTMA. Before that happened, the association had requested Customs to conduct inventories of some Floor Center stores.

Not one of the five stores visited by Customs in Metro Manila and Cavite last June could show proof of payment of duties and taxes when asked to do so in the presence of a CTMA representative. Instead, they all claimed that they were sourcing from local suppliers, even if many of the tiles were marked with names like Valentino and Karen, known Chinese tile brands. The stores also failed to show any documentary proof that they had local sources.

Floor Center counsel Lito Mondragon denies that his client is involved in smuggling. He says the only reason his client was included in the list of ceramic-tile importers investigated by Customs was because it was importing from China and carrying the same Chinese brands the other companies are selling. Anyone can import from China, says Mondragon. He adds that the complaint against Floor Center came from Mariwasa, a local manufacturer whose tiles are priced higher than those sold by his client’s stores.

The CTMA, meanwhile, hints that companies that are not registered importers but are able to do so could only have had help from inside Customs. Most likely, it says, fictitious names were used, including fake consignees and brokers, although some firms have also resorted to illegally using registered names.

The scheme, which some industry organizations and government officials have taken to calling “identity theft,” is not confined to spurious tile imports. For instance, JMD International Trading Corp., a registered importer of computer peripherals, was made to appear as the consignee of 11 x 40 container vans containing tires from China that arrived at the Batangas port on September 13, 2003. Based on its investigation, the Anti-Smuggling, Intelligence, and Investigation Center (ASIIC) – actually the Nastaf secretariat – found that JMD had never imported tires. The company’s counsel also said so in a September 22, 2003 letter to ASIIC, and denied having authorized anyone to import tires on its behalf.

The tire shipment was issued a warrant of seizure and alert order on September 26, 2003, upon the recommendation of ASIIC, effectively preventing the cargo’s release. Hearings were subsequently conducted by Customs on the motion of ASIIC to forfeit the goods in favor of the government.

The case was still unresolved when on June 21, 2004, someone claiming to be JMD president Jovita de Guia wrote to District Collector Napoleon Morales of the Port of Batangas, saying the company was endorsing the cargo to the “ultimate consignee,” New Century City Marketing Corp., whose name did not appear on the import entry filed. The same letter was faxed to ASIIC by Atty. Willy Sarmiento, a Customs employee.

When ASIIC referred the letter to JMD, the company’s counsel denied that de Guia had sent the letter or authorized anyone to do so on her behalf. JMD’s lawyers said they intended to file the appropriate criminal charges against the broker and her “cohorts” – that is, if Customs could help them identify who that was. When ASIIC requested a certified true copy of the letter from Morales’s office, it was told that Customs could not oblige “as the copy given to us was a mere xerox copy.”

But the bureau said the person “who brought the said document promised to bring the original during the scheduled hearing… scheduled (for) 04 August 2004.” But Customs never disclosed who that person was; ASIIC, which is still functioning even if Nastaf has already been dissolved, is still waiting to see whether the BOC will file charges against the importer and broker.

Accredited companies, however, are not the only ones whose identities are used without their knowledge. Licensed broker Ivy Sarad, for example, was surprised to find that she was made to appear as the broker for the illegal shipment-initially declared as “frozen foodstuff” and amended to “general goods”-of Von Way Trading at the Port of Batangas that arrived sometime between December 2003 and January 2004. Sarad says she did not renew her accreditation in that port during that year. (Per BOC rules, brokers are required to renew their accreditation with Customs every year, specifically in every port where they do business.)

A Customs employee says the use of spurious import documents has become all too common since “nobody’s doing the verification.” The bureau “has its own mechanism to check,” says the employee, but it seems it has been lax about this duty.

“They have all the information,” says one observer. “The question is what are they doing about it?”

Customs said that its “first line of defense” in dealing with identity theft and fake importation documents “is the accreditation process conducted by our Accreditation Unit.” It also says the Unit continuously reengineers itself to discern the ever-changing schemes of technical smuggling. Part of its “cleansing process,” says the bureau, is random verification of even accredited importers, of which there are more than 16,000, to determine if these are still in their listed addresses.

Customs may want to check out the work already done by private investigators commissioned by the CTMA. The association had some registered importers it suspected of technical smuggling investigated and found all the addresses to be fictitious.

Columbia Sports was among these companies. Its address, based on records filed with the Securities and Exchange Commission (with registry number 164566) is 5 Miller Street, San Francisco Del Monte, Quezon City. The investigators found that no such street exists in that part of Quezon City. Its accredited address with the customs bureau’s Central Intelligence and Investigation Service, Jenny’s Avenue, Pasig City, bore no postal number.

Flame Inc., meanwhile, listed its address as 65 Marcos Sumulong Highway, Mambugan, Quezon City in its registration papers filed at Customs. But the investigators found no such postal address; no company by that name was also doing business in the area.

Official documents show Mitsuko Phils. Corp.’s address as 304 Santolan Pawnshop Bldg., Manggahan, Pasig City, with telephone numbers 895-1362 and 896-1432. The team that conducted the investigation called this office and was told the numbers were those of Mercedes International Export. Whoever replied refused to talk any further to the team.

Nitoka Industrial Corp. was also nowhere to be found in its listed address at Customs: 29 F. Sumulong Highway, Antipolo. Even the SEC-registered address — 38K A. Florentino St., Sta. Mesa Heights, Quezon City — of one of the incorporators/stockholders/directors, Jimmy Ang, does not exist. “What exists is P. Florentino Street that adjoins Talayan Road, which is being inhabited mostly by squatters,” says the investigation report.

Based on these findings, the hired private investigators concluded that the firms “deliberately were set up to engage in technical smuggling.” They also said that aside from the dubious addresses the firms were using, the capital stock of some of the companies was not commensurate with their volumes of importation while the others were engaged in businesses different from what was declared in their registration papers with the SEC.

Industry groups have identified these companies, based on documented cases, as among the biggest importers of petrochemicals and ceramic tiles using illegal means. They are all reportedly owned by one businessman who has also been said as being behind companies illegally importing textiles.