UNPRECEDENTED CUSTOMS RAID HAS SMUGGLERS SCRAMBLING

UNCLAS SECTION 01 OF 02 MANILA 001367 SIPDIS SENSITIVE STATE FOR EAP/MTS STATE PASS TO USTR FOR BWEISEL AND DKATZ BANGKOK FOR DOJ CHRIS SONDERBY USDOC FOR 4430/ITA/MAC/DBISBEE AND SBERLINGUETTE USDOC PASS TO USPTO FOR PETER FOWLER E.O. 12958: N/A TAGS: ETRD ECON KIPR EINV RP SUBJECT: UNPRECEDENTED CUSTOMS RAID HAS SMUGGLERS SCRAMBLING REF: MANILA 1223 SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION - PROTECT ACCORDINGLY -------------- SUMMARY -------------- ¶1. (SBU) Customs Commissioner Napoleon Morales launched an unprecedented, 500-agent raid on March 16 against a Manila mall notorious for hosting hundreds of sellers of pirated and counterfeit goods. Closely guarded plans and a professional approach caught stall owners by surprise. Rather than pursuing arrests under Intellectual Property (IP) law, Customs acted under the Tariffs and Customs Code, which allows agents to demand proof of payment of customs duties and taxes, without warrants. Agents investigated 700- 800 stores and seized goods worth over 700 million pesos ($1.4 million dollars). President Arroyo, at the Asia Pacific Council of American Chambers (APCAC) on March 16, mentioned the raid in public remarks as part of her tough campaign against corruption and smuggling. Arrests appear unlikely, but this large-scale Customs action sends an increasingly strong message to IPR pirates that they can no longer operate with impunity. End Summary. -------------- BIGGEST RAID IN HISTORY -------------- ¶2. (SBU) In a March 17 meeting with ICE Attache, Commissioner Morales detailed the raid's implementation. The raid had been planned for several weeks but only a handful of key officials knew the specifics. On the day of the raid, Morales called in 500 Customs agents and informed them of what was going to happen. All logistical arrangements had already been made and vehicles were waiting to take them to Divisoria Mall number 168, a place known for its sale of smuggled and counterfeit goods. Following the briefing, the agents moved on the mall and sealed the premises, which included two buildings, with two floors each, and between 700 and 800 retail stalls. In her APCAC address, President Arroyo described the operation as the biggest raid against smugglers in the history of the Philippines. ¶3. (SBU) Attorney Willie Sarmiento, the new Chief of the Customs IP Unit, told Econoff in a follow-on conversation, that agents had seized over 700 million pesos ($1.4 million dollars) worth of goods. There were at least five stores with pirated compact discs, but they were closed when Customs agents arrived. Most seized goods were primarily trademark infringing such as counterfeit garments, shoes, and accessories. Inventory is expected to be completed by the end of this week. -------------- GET THEM FOR TAX EVASION -------------- ¶4. (SBU) Sarmiento said that Commissioner Morales acted under Section 2536 of the Tariffs and Customs Code, which allows Customs to demand evidence of payment of customs duties, without benefit of a warrant. In a separate conversation, Attorney Jun Rodriguez, a local IP lawyer and member of the Philippines Intellectual Property Coalition, clarified that this is a kind of "visitorial power." The IP Coalition has long been advocating the use of this power by Customs, and Rodriguez is glad to finally see it in action, especially on such a large-scale. Rodriguez added that under this Section of the law, Customs cannot make any arrests since non-payment of customs duties is not criminalized in the Philippines. However, IP rights holders could file individual cases against smugglers. The legal result is likely to be forfeiture of all goods, which will be turned over to Customs. Rodriguez cautioned however, that IP rights holders would need to be particularly vigilant since Customs is entitled to auction off any forfeited goods, in order to generate revenue. Commissioner Morales told ICE Attache that the goods are contraband and cannot be auctioned, which means that Customs will have to deal with the troublesome issue of destroying the counterfeited goods. -------------- RAID HAS SMUGGLERS RUNNING FOR COVER -------------- ¶5. (SBU) Sarmiento said that surrounding malls in Divisoria actually closed on March 17 because they "were afraid of possible raids" against them. Rodriguez of the IP Coalition said that he very much welcomed this major raid by Customs. "The more this is done, the more people will believe that there is some law and order being followed." He said that sustained raids such as this one will hopefully result in much needed changes of attitudes. ¶6. (SBU) According to Sarmiento, the raid was prompted by numerous complaints from legitimate businesses and rights holders as well as pressure for action from President Arroyo. Sarmiento said that the raid was completely Commissioner Morales' initiative. In a separate conversation, Rodriguez echoed Sarmiento's claim of complaints from businesses, but also said that he thought the raid was partially motivated by USG pressure to improve intellectual property protection. -------------- COMMENT -------------- ¶7. (SBU) The raid was one of the most well-coordinated, well-planned, successful operations we have seen from the Bureau of Customs. Previously, Customs IP enforcement has been limited to small searches and seizures at points of entry, which are conducted by a handful of officers. Using the Tariffs and Customs Code for such a large-scale operation shows creativity and stepped-up attention to IP. The recent decision to move the Philippines from USTR's Special 301 Priority Watch List to the Watch List has generated much high-level attention to the issue. President Arroyo has vowed to improve the Philippines' intellectual property protection regime and has directed senior level officials to take action. While the raid is unlikely to result in any arrests or high-profile cases, it does hurt smugglers and vendors of IP infringing goods. If this is an isolated raid, the net benefit will be negligible. However, if Customs can effectively carry out regular raids, regardless of whether they result in arrests or not, they could serve as a significant deterrent to smugglers. KENNEY