More than 19 years ago, the assistant director of Hong Kong’s Independent Commission Against Corruption (ICAC) was shocked to hear that his star prosecution witness was brutally murdered, his bloated body found floating in Singapore Harbor.
Tommy Chui, a former director of a Hong Kong cigarette distribution company, was set to testify against his former colleagues and implicate members of the infamous criminal group, the Triad, along with corrupt Customs officials.
That company, Giant Island Ltd. (GIL), was a major distributor of the British American Tobacco (BAT) in China and Taiwan, and was believed to have organized a smuggling network for BAT cigarettes. GIL was reported to have transported cigarettes from Singapore and Subic Bay in the Philippines from freighters to fishing boats in the South China Sea.
Documented by the International Consortium of Investigative Journalists (ICIJ), the case “reveals the dark underbelly of a billion-dollar business fed by international corporations and operated by organized crime,” its report published in 2001 says.
Links to Manila
Though based in Hong Kong, the operations had links to Manila through a GIL official named Hung Wing-wah, the company’s founder and majority owner, whom Chui had a disagreement with.
After GIL was raided, Hung fled Hong Kong and emigrated to Canada. According to the ICIJ report, Hung is believed to be living both in Canada and the Philippines. He and his partners set up a warehousing operation in Subic, stored British American Tobacco cigarettes there, and had them smuggled into China and elsewhere.
Hung, alias Fei Lo Hung or Fat Hung, is wanted on “suspicion of having conspired with others to offer bribes to senior executive officers of British-American Tobacco Co. (Hong Kong) Ltd. (BAT),” the case brief of the ICAC says.
Between 1988 and 1993, according to the brief, he offered “corrupt payments to a total amount of HK$100 million to ensure continuous supplies of cigarettes to Hung by BAT. The value of the cigarettes amounted to HK$8.5 billion, which were smuggled to the Mainland and Taiwan.”
As of September last year, Hung, now 60, remained on the “Wanted List” of the ICAC and has not been traced here. He remains at large and is proof of how stiff competition and the desire to make huge profits can push cigarette manufacturers to collude with smuggling rings that operate globally.
BAT, however, is not the only cigarette manufacturer to be linked with smuggling syndicates. An ICIJ report late last year says that since 2004, even Philip Morris International and Japan Tobacco International (JTI), two major cigarette companies, “have agreed to pay a combined $1.65 billion to the European Community and 10 member-states to settle litigation that would have further exposed their involvement in cigarette smuggling.”
The 2001 ICIJ report says that even governors of Colombia filed a civil racketeering lawsuit in 2000 accusing BAT and Philip Morris executives of involvement in drug-money laundering through a “black market peso exchange.” This complex system involves the laundering of drug money through “the purchase and importation of such goods as cigarettes and alcohol.”
PMPMI managing director Chris Nelson denies any involvement of his company in such activities, saying that they have been working closely with Subic and the Bureau of Customs (BOC). Manufacturers here, according to BOC insiders, even give out rewards to agents able to apprehend illegal shipments.
An industry insider says that the major cigarette companies know what is going on. They supply the smuggling rings “because of volume and sales.” For manufacturers, there are no real risks involved. For the smugglers, “it’s worth the risks.”
The insider adds, “If your competitor allows this guy to buy from them and sneak into Cambodia or sneak into China, wouldn’t you want to do the same? But recently, it has been controlled.”
Philip Morris, according to the source (who is not from the same company), is now preventing its products from being smuggled out by limiting selling quantities to its outlets. If there are sudden spikes in orders of some outlets, these are not accommodated by Philip Morris because they could become avenues for smuggling. “That’s how controlled it is now,” the insider says.
The partnership between manufacturers and law enforcers has yielded results. After the BOC intercepted last January half-a-million locally manufactured Marlboro cigarettes that were about to be smuggled out, another seizure was made in March, also of Marlboro brands imported from Singapore.
The importation of cigarettes requires a permit, without which it is illegal because the Philippines already manufactures its own cigarettes.
The seized imported cigarettes were again mis-declared as personal effects and were found in a 20-footer container van filled with 7,500 reams of Marlboros worth about P5.4 million. This time the interception was made in the Port of Cebu.
Subic Officials’ Nod
No direct collusion between cigarette manufacturers here and criminal syndicates—as seen in Hong Kong—has been established by authorities. The other big players like JTI (brands include Winston, cigarette-store.biz/online/camel, Mild Seven) and BAT (dunhill cigarette, Kent, Lucky Strike and Pall Mall), both itching to enter the domestic market, have not been linked to smuggling groups here.
However, their products can be found in niche markets such as convenience stores, gas stations, and other cigarette outlets without the prerequisite Bureau of Internal Revenue (BIR) tax stamps.
In February, the Presidential Anti-Smuggling Group seized 130 boxes of imported cigarettes smuggled out of Subic. Also worth P5.4 million, the confiscation made by operatives in Morong, Bataan, yielded boxes of Black Devils (manufactured in The Netherlands by Heupink & Bloemen Tabak B.V.), Kents, and Mild Seven Lights.
Smuggled imported cigarettes available in the local market are easy to spot because besides the missing tax stamps, they do not bear regulatory health warnings or labels such as “for export to the Philippines.”
Loaded in three passenger vans, the imported cigarettes spirited out of Subic evidently indicated collusion between smugglers and Subic Freeport officials. Besides them, according to a member of Congress supportive of higher taxes on cigarettes, collusion exists, too, between marketers and merchandisers.
Smuggling here, says the cigarette industry insider, is not done by the players themselves but by wealthy entrepreneurs who have the means to pay off government officials who are supposed to act as gate-keepers. They are also the ones who can afford to keep their cigarettes in warehouses where they await distribution either to the domestic market or beyond.
Smuggling these days can be done more blatantly, with contraband getting past regular channels if the price is right.
The industry source says that years back, for the price of P120,000 to P150,000, container vans got past inspectors without declarations, documentation, and examination. Changes in administration shored up the cost of this privilege from P200,000 to as much as P250,000, the insider alleges.
Because of the sheer volume of container vans that pass through the ports and the need to balance inspections with the need to facilitate trade, the BOC—following a selectivity system—categorizes shipments into either the green, yellow or red lane.
The green lane system was put in place to cover all goods originating from member-countries of the Association of Southeast Asian Nations (Asean) to facilitate intra-Asean trade. Customs clearance under this system is more expeditious compared to other products. Shipments that pass through the yellow lane undergo documentary examination.
Former President Joseph Estrada issued Executive Order 230 in 2000, establishing a “super green lane” which allows for “advance processing and clearance of the shipments of the country’s topmost qualified importers without the benefit of prior physical examination and documentary check on their shipments upon compliance with customs laws, rules and regulations.” The system requires accreditation by the BOC and the creation of a trust fund sourced from service fees charged per shipment.
BOC officials say that most of those in the super green lane category are multinational companies or companies that belong to the Top 100 corporations of the country with outstanding records. They say that random checks are still made on these shipments if intelligence information directs them to do so.
Customs officials, however, say that because cigarettes are classified as “high risk commodities,” these are always channeled to the red lane, where inspections are mandatory. Likewise, whenever shipments come in from countries on the BOC watch list—China, Hong Kong, and Vietnam, among others—they are automatically assigned to the red lane.
Smugglers know this and find means of circumventing customs checks. They either take pains to hide cigarettes in their 20- or 40-footer container vans that may not be as thoroughly checked by customs inspectors or, as previously mentioned, resort to circumlocutory routes so that goods come from countries not on the BOC watch list. They also alter the documentation of their shipments while in transit, or they simply mis-declare contraband cigarettes or bribe customs officials.
If the goods are mis-declared, the BOC’s X-ray Inspection Unit should be able to spot and detect cigarettes that are being smuggled in. Yet shipments that have been confiscated or apprehended thus far were made not because of X-ray results but because of shared intelligence information. The X-ray unit has merely validated intelligence information that led to the apprehension of illegal cigarette shipments.
Political pressure also pushes some officials to corruption, as commissioners are given quotas or targets they should reach in terms of collections. The collections—according to the industry insider who has friends who also deal directly with some BOC officials—do not necessarily go to government coffers but to the pockets of personalities in power.
Some manufacturers say that they feel the crunch every time new tax measures are poised in Congress. They point out that Republic Act 9334 on excise taxes provides for increases every two years starting 2005. The law is supposed to hold and remain in place until 2011.
Nelson of Philip Morris says that, “If government is sensible, it won’t touch anything on taxes.” Congress has refused to take up new tax proposals on the tobacco industry despite explanations by the finance department that these new taxes can help trim the government’s budget deficit.
An administration out to increase its tax revenues will expectedly train its eyes on the tobacco industry which continues to rake in profits in this part of the world. If the performance of multinational Philip Morris for the first quarter of this year is any indication, good times may still lie ahead. Its market share even expanded in the Philippines despite restrictions on tobacco sale.