Ex-Banker Hunts Smugglers to Clean Up Philippine Customs

May 27, 2014 5:56 am ET

(Updates revenue increase in third paragraph.)

May 27 (Bloomberg) -- Jamail Marohomsalic, a Customs official in the southern Philippine city of Davao, shuffles his feet and bows his head as his boss tells him he’s being investigated as part of an anti-corruption drive.

“That’s your signature, right?” demands Commissioner Sunny Sevilla, pointing to a form that allowed the release of 20,000 tons of imported plastic resin at 29 percent less than the government’s benchmark price. Marohomsalic, who denies he did anything wrong, is surrounded by his local colleagues as Sevilla continues: “This is not just against you, I’ve initiated an investigation into every employee who’s violated our rules.”

Sevilla, 45, is President Benigno Aquino’s latest crusader in his battle against graft. The former Goldman Sachs Group Inc. trader in Hong Kong is turning his analytical skills to spotting anomalies in trade accounts and chasing smugglers who Aquino says cost the government more than 200 billion pesos ($4.6 billion) a year -- enough to eradicate hunger in the Southeast Asian nation. Since Sevilla took office in December, the bureau’s revenue rose 20 percent from a year earlier.

“People weren’t even analyzing data six months ago,” Sevilla said in an interview last month. “It’s fascinating from a management point of view: How do you attack 100,000 transactions a month, each of which has 50 different parts which could affect your ultimate tax payment? And you’re not even sure of the quality of your data.”

With two years to go in his presidency, Aquino is counting on appointees like Sevilla in key government departments to break the grip of corruption that has shackled the Southeast Asian nation’s development for four decades. Success would mean a legacy of more than $14 billion a year in extra revenue to fund roads, schools and houses in a nation where almost 10 million people live below the official poverty line.

‘Bureau of Corruption’

It won’t be easy. Sevilla, who also worked for Standard and Poor’s as a sovereign analyst, was brought in by Aquino after the president’s previous appointee, Rufino Biazon, stepped down amid an investigation over the misuse of funds. The Bureau of Customs has been dubbed the Bureau of Corruption in some local media and ranked as the nation’s most corrupt by Social Weather Stations, a research group in Manila.

“I was talking to Sunny Sevilla the other day and the phrase that struck me was this is the first time he’s ever been in such a toxic environment where people keep on putting everybody down,” said Aquino in an interview at the presidential palace on May 22. “The focus is getting everybody back on the mission, which is to collect the right duties and taxes. The problem is very deep-rooted.”

Coast Guard

Even without the need to clean his own house, Sevilla will be responsible for policing the world’s fifth-longest coastline. The archipelago of more than 7,000 islands makes it easy to land cargoes of contraband, or bribe local port officials to undervalue goods and avoid duties.

“The Customs Bureau is like a bag of water with a hundred holes in it and water is gushing out of that bag in places we don’t even see,” Sevilla said in an April 29 meeting with brokers, importers and business groups including the American and European Chambers of Commerce in Manila.

With illegal cargoes slipping into the country, import data may have been understated since 2007, undermining the strength of the current-account surplus and the peso, Deutsche Bank AG and Credit Suisse Group AG said in recent reports. There’s a sizable gap between what the Philippines says it imports and what trading partners like Japan, South Korea and Taiwan say they ship, Credit Suisse said.

Illegal Rice

Sevilla has tried to tackle the problem by suspending trade permits of some companies and brokers, clamping down on the release of illegal rice shipments and setting up a public price database of frequently imported goods to make it easier to spot irregularities. He’s also investigating his staff.

Marohomsalic, acting assessment chief in the bureau’s Davao office, denied he broke the rules. He said the shipments Sevilla questioned had been cleared by the bureau’s internal assessment service, which had verified the valuation of $1,070 per metric ton, lower than the benchmark price of $1,500 set by Customs.

“All the documents were in order,” Marohomsalic said in a phone interview on May 16. “I guess the commissioner thought they hadn’t been cleared, but they were.”

Marohomsalic is being investigated for negligence of duty, said Charo Logarta, the bureau’s chief public information officer. The agency is probing more than 80 employees and is keeping a close eye on rice, resin, steel and cars. More than 800 second-hand vehicles including Hummer trucks have been seized since December, she said.

Action Guy

“Fixing the Customs seems like an impossible task, but when you’ve got an action guy who won’t tolerate corruption, maybe it can happen,” said Astro del Castillo, Manila-based managing director at asset management firm First Grade Holdings Inc., who said his subsidiaries and affiliates have been asked to pay bribes in the past. “Sevilla may be just the man for this job.”

In his annual State-of-the-Nation address last year, Aquino criticized the Customs Bureau for having long been “the face of corruption in the government,” with its officials “heedlessly permitting” smuggling. Contraband cost the Philippines at least $19.3 billion in tax revenue since 1990, according to Washington-based Global Financial Integrity, which tracks illegal flows of money from developing nations.

So far, Aquino’s efforts to clean up government seem to be paying off. By raising tariffs on cigarettes and liquor, pursuing tax evaders and targeting corrupt officials, he’s boosted government revenue by about 40 percent since he was elected. Last year, gross domestic product growth was faster than any other major Asian economy apart from China.

Farmers’ Support

Customs revenue, which accounted for 18 percent of government revenue last year, rose 13 percent in April from a year earlier to 30.76 billion pesos, missing a target of 35.79 billion pesos, the bureau said yesterday.

“I love the reforms,” said Ernesto Ordonez, chairman of Alyansa Agrikultura, the largest national coalition of farmers and fishermen, who have been hurt by cheaper smuggled goods. “Commissioner Sevilla is doing the right thing.”

Sevilla, who plays the saxophone to relax, majored in economics and government at Cornell University in Ithaca, New York, and got his master’s in public affairs from Princeton University in Princeton, New Jersey. He did a three-year stint in the Finance Ministry before taking on the Customs job.

“I’m not a sentimental ’I-love-the-Philippines’ kind of person,” Sevilla said to the Davao staff over steak and San Miguel beer after a tour of the port. “If you don’t know the right choice, choose the harder one because that is more likely to be the right one.”