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Posted on Tuesday, January 06, 2004 - THE MANILA TIMES

At Customs, corruption is
institutionalized and systematic

By Annie Ruth C. Sabangan, Senior Reporter

HE likened the bureau to an institution for the deaf and the blind. It’s actually selective sensory impairment—only when the situation calls for it, said “Mario,” a former official of the Bureau of Customs.

During what he calls “the swing operation,” no one sees and hears the traffic of containers from the bureau’s import warehouse. After the first release of a container of imported goods worth millions of pesos, the same container is again loaded with goods using the same gate pass that covered only the imports earlier released.

“Sometimes, the same container is swung up to five times, without the permits, and with the import fees going not to the government but to someone else’s pocket.”

At another bureau division the name of the game is “pagpag.” Individuals or companies that either complete the requirements for importation or follow up the release of their goods must be apt at knowing how to get things done fast.

“Pag pinagpag ang mga papeles mo at sinabi sayo na kulang at dapat kumpletuhin mo, dapat alam mo ang gagawin mo, says Mario. [If they wag your papers and tell you that you lack other requirements and that you should complete them, you should know what to do.]”

More often than not, the papers are complete. Lacking only is the paper money—which Mario says must be clipped, usually on the second page of the document (and later slid through an open drawer) if one doesn’t want to hear innuendoes like “kasi hindi susulat ang bolpen pag walang tinta [because the ball pen won’t write if it doesn’t have ink].”

Others accustomed to the “Customs’ way” already know what to do: don’t forget Friday, known in the bureau as “Envelope Day.”

“Para hindi maipit ang papel mo at mailabas mo agad ang kargamento, dapat ipitan mo, Mario says. [So that the processing of your documents won’t get slowed down and your cargoes to be released early, you have to tuck money in your papers.]”

Grease money ranges from P300 to P1,000 for each importation document. Mario says that up to 1,000 documents are processed monthly, thus grease money could be between P300,000 and P1 million. The collection, or what Customs people call “dividends,” is divided among the official and his staff  (usually composed of 12 people) in charge of processing import permits either daily or weekly. Mario calculates: “On a daily basis, may siguradong P1,000 ka sa bulsa; pag weekly mga P5,000 o P6,000.”

Even Mario himself, an engineering graduate, admits he got his job through patronage, another form of corruption. Because of his connection with an influential national politician, he was given a good position in what he calls the “scalawags division” of the bureau. “It’s so called because many positions there are created for political accommodation,” he says.  

As in other government agencies, corruption at Customs has become a malady without the cure. It has become a way of life for many officials and employees of the bureau—systematic and institutionalized. 

In fact, no major recent studies on corruption in the government—whether through perception or factual investigation—have excluded the bureau from the list of the most corrupt agencies of the government. In the survey done last year by the Social Weather Stations, the bureau, with the Bureau of Internal Revenue, topped the list. A study by the Asian Development Bank also last year noted that close to 50 percent of the country’s firms regarded the bureau as a moderate to major hindrance to improving the investment climate.

From the Quirino to the Estrada administration, at least 12 presidential antigraft and investigation agencies were established, coupled with various laws to fight corruption.

But the situation proved to be a Catch-22. Corruption became even more ingrained. Every administration’s effort to cure the disease appeared to be just a part of a vicious circle. Worse, the public perception lingers that the ones offering solutions are in fact part of the corruption problem.   

In 2000 the World Bank estimated that in the last 25 years, a total of P1 trillion was lost to corruption. In 2003 Chair Karina David of the Civil Service Commission said the government lost $48 billion, or P2.6 trillion, in the last 20 years due to corrupt practices. At Customs it was alleged that P604 billion from the Aquino to the Ramos administration ended up in private pockets. Former senator Francisco Tatad alleged that in 2003 bonding companies defrauded the government, through Customs, of up to P100 billion in unliquidated export and re-export bonds.

In December the Arroyo administration added another layer to the government’s anticorruption mechanisms. Called the Revenue Integrity Protection Service, the body, which is under the Department of Finance, will guard the integrity of revenue collection at the Bureau of Customs and of Internal Revenue. The Department of Finance estimated that P240 billion in potential revenues is lost yearly to corruption at the two bureaus. 

The ‘deep blue sea’

Activists have bewailed the deluge of imported goods. They rail at the trade imbalance favoring imports, which kills local jobs and industries. But in some ways, the increase in importation enhances the government’s revenue collection.  

Customs revenue, which primarily comes from import tax and duty, represents some 20 percent of the government’s annual total revenue. For the last five years, Customs’ revenue collection averaged P95.8 billion yearly—enough to feed in a year 1.65 million poor families of five members or build 532,000 low-cost houses. 

But the economic benefits could be much greater than that. Some believe that by just lowering the incidence of corruption at Customs alone, not even eradicating it, additional revenue would be enough to answer for a big portion of the entire national budget or drastically reduce the country’s external debt.

“The bureau is like the deep blue sea: it never runs out of water. There is always money, lots of it. Revenue could be doubled or even tripled only if selfishness is not at its extreme,” says an insider who is privy to the bureau’s operations and finances.

Late last year, this insider made a study on Customs records of shipments at the port of Manila in April that were declared abandoned in May. Under the law, abandoned containers are placed in Customs custody, and must be sold at a public auction and become part of government revenue.

Wading through the thick records of abandoned shipments, the insider found out that 99.5 percent of the 2,577 abandoned containers were nowhere at the port. “They just disappeared. No location report was submitted. Only 13 containers were found. If these were auctioned, the proceeds should have been included on the revenue records. But nothing in the records could prove that. Proceeds from the supposed auction were a nonfactor in the revenue collection report of the Customs bureau,” the source said.

If the average cost of every container is P1 million, the insider estimates that the government could have lost P2.6 billion of potential revenues only at the port of Manila in just one month. “Imagine how much we have lost if we go over the yearly records of abandoned records of our 15 ports nationwide. Definitely that would run into tens of billions of pesos,” he says.

The insider concludes that the abandoned containers that disappeared and were auctioned in Customs custody “are meant to be stolen and not to be sold.”

The source said that for lack of quantified records of abandoned, forfeited or overstaying articles in Customs custody, a minimum estimate of 3.5 percent of in-bound shipments worth P54.38 billion becomes Customs property. At 3.5 percent of in-bound shipments, proceeds and thus revenue, based on the source’s calculation, could not be less than P20 billion—enough for the Department of Agrarian Reform to acquire and distribute 80,000 hectares of sugar or coconut lands for farmer beneficiaries or feed an additional 344,708 poor families in a year.

Unfortunately, he says, Customs records will show that annual proceeds from auction sales “are less than P300 million.”

Leaks in revenue collection

The insider explains that leaks in import revenue collection at Customs can generally be found in consumption entries, warehousing entries and the disposition of property in Customs custody discussed earlier.

Common fraudulent practices found in the consumption of import entries are misdeclaration, undervaluation and misclassification.

“Misdeclaration happens, for instance, when imported rice is declared a raw material for rice cake or rice wine, which makes it nondutiable—when in truth it is a finished product that would be sold in the local market and thus should have import duties,” the source said.

Other examples of dutiable products that are declared nondutiable are cellular phones already assembled for sale but declared semiconductor parts, ready-to-wear clothes declared cloth for manufacturing/repair or used clothing for donation that can often be found in the thriving ukay-ukay business.  

Undervaluation happens when the true value of imported rice is $185 for every metric tons but is declared $52 per metric ton. Automatically, owing to undervaluation, import duty would decrease. If the rate of duty for every mt is 0.13 percent, total duties at $185 for every mt should have been $24.05. But the importer would only pay $6.76 worth of duties, or 72 percent lower at $52 for every mt.

Misclassification happens when expensive blankets are declared cheaper handkerchiefs or towels, apples become garlic, shoes become slippers or when completely built cars are declared complete knockdowns.

In the warehousing entries, the insider says, diversion or illegal withdrawal of imported goods usually happens. Imported goods meant for warehousing do not reach the Customs bonded warehouse, because the articles are illegally released and sold in the market. In July 2003, 210 containers of imported rice equivalent to 5,250 mt entered the Philippines. The insider said that the Bureau of Customs reported that the rice was transferred to its two bonded warehouses. In September the National Bureau of Investigation found the rice illegally stocked in a private warehouse in Antipolo City.

The source also observed that for the last 20 years, Customs recorded a 70-to-30 ratio between consumption and warehousing entries. But from January to June of 2003, the ratio had become 58 percent to 42 percent. A 12-percent rise in the warehousing entries indicates that “Customs bonded warehouses are now used as conduits for smuggling,” the insider said.