Sri Lanka Customs

It’s true. Despite Sri Lanka’s Police force being crowned as the most corrupt government institution in the latest survey done by Transparency International, a visit to the country’s import and export hub in Colombo port could definitely cast a cloud over that conclusion.

In the wake of the reforms being introduced to both the country’s port and Customs, including the advent of the Electronic Data Interchange (EDI), we felt the need to assess the present realities on ground, and judge for ourselves as to the extent which the proposed reforms would help curb the current cargo delays.
Just a short walk from the main entrance to the port is a building, almost 100 years old, belonging to the Sri Lanka Ports Authority, but shared with the Sri Lanka Customs. On the first floor of this crumbling building is the Customs Import Documentation Centre, which is popularly known as the “Long Room’, partly because of the never ending queue of clearing agents and partly because of the enormous delays that the Customs takes in processing Custom Declaration forms. (Cusdec)
The ‘Long Room’ is the first point of contact for a clearing agent. The room has to be the most depressing site that one could set eyes on. The area is relatively dark and gloomy and swamped with hundreds of clearing agents, some scrambling to get their documents processed before the scheduled close at 4.30pm, and others just slovenly seated on chairs, waiting patiently for their documents to be processed.
As I watched the proceedings, my attention was immediately diverted by the outstretched hand of a Customs officer at the counter, who casually took a one hundred rupee note from a clearing agent, before attending to his Customs Declaration. My eyes lit up. I was not too sure whether my eyes were playing tricks on me. As I coolly watched the proceedings at the counter, every single clearing agent was oiling the palm of the Customs officer with a hundred rupee note, which was carefully put away in the officer’s drawer before he paid any attention to the job at hand. I found it hard to believe that such practices were the norm at the Customs. The clearing agents in the queue had fistfuls of 100 rupee notes.

After the initial processing is done, clearing agents begin to form another queue, inside the Customs office, where certification and signatures need to be obtained, from the relevant Customs officers. Of course, the same procedure of corruption continues, with senior Customs officers demanding a slightly higher rate than the officers at the counter.
To enter the interior of the Customs office, each authorised agent is given a special ID, without which entry is strictly prohibited. I understand that such measures have been taken to prevent visitors to the port from entering the Customs office and exposing the realities of its activities to the media. I didn’t have an ID, but I relied on the saying that fortune favours the brave.
I, an undercover reporter, managed to pose off as a clearing agent, and walked straight through with no questions asked by the three security men posted at the entrance. Each Customs officer, be it senior or junior, had their drawers opened, almost overflowing with 100 rupee notes.
The office was terribly noisy with several clearing agents bargaining with the Customs officer to reduce their fees. A senior Customs officer, upon seeing my unfamiliar face, shut his over flowing drawer in embarrassment. Believe it or not, I can safely vouch that except for one or two persons, every other officer including the highest ranking officer in the ‘Long Room’ is corrupt.
As I climb down the stairs of the ‘Long Room’ in disbelief, my eyes are immediately drawn towards a Customs yard in which seized vehicles have been parked. I was told that these brand new vehicles are seized, when the Customs has evidence that the goods were under valued or were not imported with the correct documents.
The vehicles ranged from brand new Suzuki Vitaras to 40 KIA Sephia’s and a whole host of Japanese cars and vans. Some of the vehicles were showing signs of rust due to the close proximity to the sea. I learned that the Customs was not paying the SLPA any rent on acquiring land for such purposes, and usually hold such vehicles for a maximum of three years, after which they are sold through a public auction. Once a vehicle is seized, the owner would usually abandon it due to the decaying condition of the vehicle and the heavy Customs duty and port charges which are payable on retrieval.
Inspection and samples
Once the initial documentation is completed, each consignment must be inspected by the Customs to ascertain whether the goods match the items that have been listed in the relevant documents. During this process, Customs officials who inspect the goods usually demand a sample of every consignment that is imported, which customarily ends up being a gift. Having arrived at one of the warehouses at around 4pm, in which LCL (Less than Container load)cargo was being inspected, I was able to catch a glimpse in to the office premises of some of these Customs officials, which were stacked high with all types of goods including electrical appliances such as hair dryers and mixers, which is taken for domestic use by these officials.
In fact, when I visited Grayline, where the Customs inspects all FCLs (Full Container Load) containers, I happened to overhear a telephone conversation in where a high ranking Customs official was making arrangements with a friend to hire a van to transport a Chinese vase, which he had taken as a sample. He went on to explain to his friend, that usually he managed to put all these samples in his car, but the vase was unfortunately too large. Clearing agents told me that a sample, once given to the Customs can never be retrieved, unless an importer demands that it be given back, which then means that the clearing agent has to once again allow money to do the talking.
The Red Channel
With the new WTO Customs valuation scheduled to be implemented by Sri Lanka Customs in January 2003, in which, arbitrary and fictitious customs values are to be outlawed, conforming to commercial realities, visiting the red channel was an opportunity that would sadly be missed by many. Currently, Customs can withhold any goods on any suspicion, causing severe trade losses to the importer.
The goods that end up going through the red channel extend from food items to poly-seeds, and is proof of the amount of power that the Customs wields. On the day I visited the port, a container of poly-seeds, which is used to manufacture plastic chairs, was withheld by the Customs on ‘suspicion’. However, the clearing agent was given an option to pay Rs.4000 if he wanted the goods released immediately, or face the wrath of the Customs.
Having realised the amount of mental anguish the Customs officers could cause, the clearing agent had addressed the issue to the company concerned, asking them to pay the relevant amount. However, the company informed the agent that it would not pay the additional amount, and would take up the matter with the Ceylon Chamber of Commerce. The cargo still remains in the custody of the Customs, and it appears that even the high profile chamber officials will not be able to change an ancient culture. However, the WTO agreement is expected to gradually abolish the process of detaining goods for examination to determine values, allowing goods to be moved out on a bank or corporate guarantee.
Leaving the port at 4.30pm was the most difficult part of my visit. The line of container lorries leaving the port stretched to almost a kilometre. The Customs levies an additional sum of Rs. 1,200 as overtime on all containers that leave the port or its examination points after 4.30pm. I’m told that 95 percent of all containers leave the port or Customs examination points after 4.30pm, and therefore are forced to make this additional payment. At the final point of departure, each container is halted for approximately eight minutes, at which point Customs verify the delivery document for the umpteenth time, as to whether the container is carrying the correct consignment. Given the impracticality and the absurdity of the endless questioning, the clearing agent has to bribe the officer, and the eight minutes is spent on negotiating the amount the officer should receive.
The corruption at the Customs is somewhat mind boggling in this day and age where traditional forms of generating efficiency have been replaced by the use of technology. The fact is that these bribes have a direct effect the prices of imports. Consider the amount of bribes that are paid to each institution. It is also puzzling as to how the efficiency of the Customs has not increased despite the volume of bribes that is paid on a daily basis. A rough estimate done by an industrialist states that Sri Lanka Customs earns Rs.900,000 in total overtime, and “speed money” amounts to another Rs 1,100,000 a day alone, which roughly amounts to five billion rupees a year. Sri Lanka is a nation that is heavily dependent on imports, be it food and clothing or industrial raw materials. This means that every single citizen in this country is paying a price for corruption!

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Sunday Times

Director General Sri Lanka Customs

The letter to Director General customs from Amanda Food Lanka

By Frederica Jansz

A senior customs superintendent has accused fellow customs officers of insisting on a Rs. 10 million bribe in order to release seven containers of prawns imported from Vietnam to Sri Lanka

Superintendent, Customs Post Clearance Audit Branch, Saman De Silva, in a letter to Director Customs Valuation, Dr. Neville Gunewardena, has insinuated that the Bonding and Investigative Unit under Director P. D. K. Fernando had requested the importer, Amanda Foods Lanka (Pvt) Limited to pay a penalty of Rs. 5 million which was to be the official payment plus an additional unofficial payment of Rs. 10 million.

De Silva has charged in his letter that the Rs. 5 million penalty was a grossly inadequate forfeiture, when compared to the gravity of the fraud and earnings made by the company. He has stated that this Rs. 5 million penalty was so small that "someone somewhere was making a lot of money and the state was losing its revenue."

P. D. K. Fernando when contacted and asked if his department had sought a Rs. 10 million bribe from Amanda Foods Lanka said, "I did come to know about this from some other officers because they were also discussing and making accusations against each other." (See box for further comments)

Saman De Silva spearheaded an investigation begun by Fernando's Bonding and Investigation Unit (BIU) and subsequently fined Amanda Foods Rs. 30 million to settle all shortcomings relating to a total of 10 containers detained by customs.

New investigation

However, even after the company paid the forfeiture a new investigation was started at the behest of Director General Customs, Sarath Jayatilleke, who handpicked five officers from the Customs Investigation Bureau to re-open the probe continuing to detain seven containers of seafood. These seven containers were billed to be exported to Singapore to Amanda Lanka's mother firm.

We reliably learn that Saman De Silva has also charged that he overheard a telephone conversation between General Manager, Amanda Foods Lanka, Sumith Senatilleke, and a company director based in Singapore whereby the latter had asked Senatilleke "are they still troubling us because we did not pay the Rs. 10 million?"

Sumith Senatilleke in his letter to Finance Minister Dr. Sarath Amunugama charges that in the company's opinion it is grossly unfair for the customs investigation bureau to attempt to launch a fresh investigation despite the company having paid Rs. 30 million to the government in full settlement of all matters raised by customs.

Senatilleke has also written to Jayatilleke drawing attention to the fact that once a penalty or forfeiture has been imposed no other person should be allowed to open up another investigation for the same matter.

As a result, he asserts the company cannot carry on its business and 350 employees are out of work since operations came to a halt following the customs probe.

Offices raided

The issue began in September this year when customs officers raided Amanda Foods factory premises at Mundel and its shipping agents' offices at Peliyagoda. All files were removed and during the ensuing months statements were recorded from the senior management and shipping agent.

During this period all exports and imports by the company were prohibited. Consequently the factory ceased production and the workforce was laid off.

The initial investigation was carried out under P. D. K. Fernando and lawyers appearing on behalf of the company attempted to work out a settlement. However this for some reason did not happen.

Subsequently on October 15, on the instructions of Saman De Silva who had taken over the investigation the company agreed to pay a settlement of Rs. 30 million to the government as well as abide by instructions given by the enquiring officer thereafter with regard to all imports and exports.

Senatilleke maintains that the company was thereafter assured by customs that there would be no further problems provided the company did not violate customs requirements.

Senatilleke however claims that thereafter he was greatly "harassed" by certain customs officers some of whom even arrived at his residence and recorded a statement by showing him a blank warrant.

Customs initially detained the prawn consignments after finding that two government departments, both Commerce and Fisheries, were guilty of issuing fraudulent certificates to Amanda Foods stating Sri Lanka to be the country of harvest for the prawns.

Imported prawns

The prawns in effect are imported from Vietnam, cooked in Sri Lanka and exported to the USA and Europe. Due to anti-dumping laws imposed by the USA against the export of prawns from Vietnam, the company could not export directly from Vietnam.

Amanda Foods Lanka is a BOI approved company. The company was allowed tax free status in Sri Lanka by the Board of Investment in May this year. In July, Director Investments, BOI, H. B. Koralegedera, wrote to the Director at Amanda Foods informing him that the Board had granted approval to the company to import 500,000 Kg. of frozen shrimp for re-export, subject to a minimum value addition of 25 percent in the process.

In its agreement the BOI states the company shall be liable to pay the customs duty and other levies as determined by Sri Lanka Customs, on the items imported on duty free basis including finished and semi-finished goods produced or processed by the company for the said business.

Amanda Foods applied for BOI status in February this year. The company is situated at Kirankalliya, Madunrankuliya, Mundel.

Despite repeated attempts by The Sunday Leader, DG Customs, Sarath Jayatilleke could not be contacted for comment.

Director Customs admits that discussions were held on accepting a bribe

Director Bonding Investigation Unit, P. D. K. Fernando, when quizzed if his department had indeed solicited a Rs. 10 million bribe said, "I also heard about this. Some of my officers were discussing and accusing each other."

He went onto say, "this type of allegation maybe there but I don't know whether it is true or not." Asked if he intended to investigate the matter since it involved his department, he replied, "No that is a matter for the Director General of Customs to decide."

Elaborating further Fernando said, that "this type of thing happens in some cases when the affected party tries to reach an early settlement. They then agree on a price with a view to concluding the investigation or inquiry within a limited timeframe. They sometimes prefer to resort to that type of arrangement."

Pressed further for details he said, "I think an attempt would have been made to agree on a certain figure for them to get their items released."

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Sunday Leader