Anti-corruption body asks Duterte to probe Duty Free 'smuggling' scheme
MANILA, Philippines – The Presidential Anti-Corruption Commission (PACC) recommended to Malacañang an investigation into contracts entered into by Duty Free Philippines Corporation (DFPC) which appear to allow private companies to benefit from the tax-free privileges of the government corporation.
A letter dated March 13 from PACC Chairman Dante Jimenez asks President Rodrigo Duterte to "abolish all existing Supply and Delivery Agreements (SDA)" and "conduct a full investigation" into all the officials and employees involved in the implementation of the contracts.
It also recommended the filing of "appropriate criminal, administrative and civil actions against the erring DFPC employees, other public employees and private individuals" involved.
The document, obtained by Rappler on Friday, March 22, was received by the Office of the President (OP) on March 19, according to a label with the OP seal on the upper right of the document.
PACC Commissioner Manuelito Luna confirmed to Rappler that the commission sent Malacañang such a document.
PACC Commissioner and Spokesman Greco Belgica, asked about the document, said the report is "confidential."
The PACC recommendation is based on an investigation by Belgica. His findings are detailed in a separate document, dated November 6, 2018, that accompanied Jimenez's letter to Duterte.
Belgica's main finding was that Duty Free has allowed private firms to piggyback on its exclusive right to import goods without paying any import fee, putting the government at a disadvantage and technically allowing such firms to "smuggle" in high-end items.
"Some DFPC officials, employees and private persons are conniving to smuggle foreign goods and products into the Philippines in the guise of a legitimate contract called 'Supply and Delivery Agreement,'" says Belgica in the document.
Through the SDAs, the private firms – now called "concessionaires" – act as "third-party facilitators" in importing luxury items from the actual suppliers. Their arrangement with Duty Free lets them import goods without having to pay any import fees.
Because the goods arrive with documents saying they are consigned to Duty Free, Bureau of Customs officials allow the goods to be let through without any import fee payment. But the goods are picked up by the concessionaires, not Duty Free, through a document called Authority to Pick-up and Release Imported Goods (APRIG), which is issued by Duty Free.
It's also the concessionaires that have full control of ordering, payment, and importation of the items, with Duty Free mostly blind throughout the entire process.
Belgica said this allows the concessionaires to order whatever they want and let their orders get through tax-free with or without the knowledge of Duty Free.
"At this stage, concessionaires have all the power to divert the merchandise to their own warehouses and not with DFPC warehouses. Due to this, DFPC is rendered inutile when it comes to inventory monitoring, making concessionaires the king of their world to the disadvantage of DFPC and the government as a whole," he said.
Making the SDAs even more suspicious is the "very rampant" practice of concessionaires asking that their items be returned to them, supposedly due to defects or other problems.
Called Return to Vendor, the imported items are taken out of Duty Free premises and supposedly returned to the concessionaires. But because Duty Free isn't able to monitor where the items go, there's no stopping concessionaires from selling these items locally.
"DFPC has no mechanism to monitor these pullouts and the concessionaires who also have local stores can easily sell these items for a domestic price with much bigger profit," said Belgica.
The entire scheme means private firms get to bring in luxury goods into the country tax-free, via a privilege that is supposedly exclusive to the government, and then sell the items locally, thus raking in big profits.
Rappler's independent digging showed that the SDA scheme continues to be in operation during the Duterte administration, as proven by copies of purchase orders and release orders dated January 2018 and March 2018.
Duty Free is currently led by its chief operating officer Vicente Angala, a Duterte appointee.
Former Duty Free officials involved
The items involved in these SDAs include luxury jewelry, bags, watches, chocolates, and alcoholic beverages – goods normally sold at Duty Free shops.
The PACC letters don't mention the private firms that have SDAs with Duty Free, but contracts seen by Rappler show the following are the firms:
- ETC Holdings (HK) LTD
- Yearsley (FE) Limited
- Landmark (Management) P & C LTD
- Home & Office Limited
- Sportmart LTD
- Colombo Management (HK) LTD
Interestingly, the executives of some of these firms were Duty Free officials themselves in the past. Jose Esteban III, a former Duty Free general manager, is the managing director of Landmark Management Services.
"It must be reiterated that SDA contracts are awarded to concessionaires who are chosen by reason of sheer favor considering that they were former officers of DFPC," said Belgica.
It's not the first time the SDAs made headlines. Back in March 2018, congressmen wanted to probe the SDAs, describing them as "midnight deals" since the concessionaires were chosen without public bidding.
The SDA scheme has been in place since 1999. The SDAs currently being implemented had been renewed under the administration of Benigno Aquino III and will be valid until 2023. – Rappler.com