CORRUPTION ALLEGATIONS AGAINST NEW CUSTOMS

S E C R E T SECTION 01 OF 02 MANILA 000963

SIPDIS

SIPDIS

STATE FOR EAP/MTS, EB/TPP
STATE PASS TO USTR FOR BWEISEL AND DKATZ
MCC FOR VP BRENT
USDOC FOR SBERLINGUETTE
USDOC PASS TO USPTO FOR PFOWLER

E.O. 12958: DECL: 03/02/2016
TAGS: ECON ETRD KIPR KCOR RP
SUBJECT: CORRUPTION ALLEGATIONS AGAINST NEW CUSTOMS
COMMISSIONER

MANILA 00000963 001.2 OF 002


Classified By: ROBERT LUDAN FOR REASONS 1.4(B) AND (D)

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SUMMARY
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1. (S) Napoleon Morales, who was appointed as the new
Customs Commissioner on January 2, 2006, has two corruption
investigations pending against him according to Attorney Eden
Dandal, the former head of the Customs Intellectual Property
(IP) Unit. Just one day after assuming office, Morales moved
quickly to reassign the two officials who shared
responsibility for internal investigations, including Dandal,
a 20-year veteran of the Bureau of Customs (BOC). Dandal
reported that his unit had been in the process of
investigating two 2005 alleged corruption cases against
Morales when the reassignments were made. Since Morales now
has a close staffer, Willie Sarmiento, heading up the unit,
Dandal indicated that it is likely the investigations will
dead-end. Morales publicly acknowledges the importance of
fighting corruption and is engaged in putting together an
anti-corruption proposal as part of the GRP's Threshold
Proposal for the Millennium Challenge Account.
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NEW COMMISSIONER CORRUPT?
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2. (S) In a February 8 meeting with Econoff, Eden Dandal,
the former head of the IP Unit, said that once he found out
Napoleon Morales had been appointed Customs Commissioner, his
transfer orders came as no great surprise. Dandal commented
on two graft cases filed against Morales in 2005 when he was
the District Collector at the Port of Batangas, which Dandal
was in the process of investigating prior to being relieved
of duty. Both cases involve millions of pesos that
apparently disappeared.


3. (S) The first case was the importation of a bulk
shipment of cornstarch from the United States. The correct
rate of duty for the shipment should have been seven percent,
but the customs declaration listed the duty as three percent,
which resulted in a difference of about 12 million pesos
(approximately USD 230,000). The importer claimed to have
paid the seven percent duty, which tipped off the Chief of
the Anti-Smuggling Task Force and resulted in confiscation of
the shipment.


4. (S) The second case involved a shipment of wheat flour
from Europe, which also should have had a seven percent duty
applied, but was declared at three percent, resulting in a
difference of about 10 million pesos (approximately USD
192,000). Again, the importer claimed that he had actually
paid the seven percent duty, which alerted the inspector and
resulted in confiscation. Since both incidents occurred when
Morales was District Collector, Dandal pointed out that the
shipments could not have been released without Morales'
signature, which implicated him in the alleged crimes.
Dandal added that the proper procedure for such a discrepancy
would have been to require the shipments to be chemically
tested. The three percent duty rate is for food for human
consumption while animal feed is taxed at the seven percent
rate. If the shipments had been tested, it would have been
easy to determine what should have been the correct duty
rate. Dandal shared investigative responsibility with Cezar
Tugday and both of them found themselves reassigned one day
after Morales assumed office as the Customs Commissioner.


5. (S) Dandal said that he had had two other run-ins with
Morales in 2005. Both cases involved questionable shipments
whose values appeared to be under-declared. When Dandal held
up the shipments for further investigation, he was approached
by key staff members of Morales who demanded release of the
shipments. When he did not comply, he was reprimanded by
Morales for not "honoring the requests." The shipments were
later released under orders of his superior.


6. (S) Dandal said that what is surprising is that Morales
was appointed to the top Customs position despite the fact
that he had two open investigations pending against him.
Normally, an appointment would involve a background
investigation and Dandal said that he could not understand
why these cases would not have been considered. He added
that there are rumors circulating that Morales is connected
to several powerful individuals including Congressman

MANILA 00000963 002 OF 002


Prospero Pichay, Senator Ralph Recto, Executive Secretary
Eduardo Ermita, and First Gentleman Mike Arroyo. Dandal
added that money might have exchanged hands to guarantee the
appointment, emphasizing that these are rumors.


7. (S) When asked about the general state of affairs at
Customs, Dandal said that "corruption goes all the way to the
top, but that there are many good people." He said that the
system is the problem and leadership is often disappointing.
Powerful people often intervene and ask for favors; if you do
not comply, you find yourself removed. According to Dandal,
the answer is to destroy the present structure and start
over. "People should be trained to stand and speak for the
truth." Dandal added that he spent some time with his
successor, Attorney Willie Sarmiento, and provided him with
the IP Unit's mandate, with the hope that Sarmiento would "do
the right thing and not succumb to pressure from above."
Dandal said that the history of these cases is merely a track
record and not necessarily an indication of future direction.
"People are dynamic; we will see which way the wind will
blow."


8. (SBU) Attorney Sarmiento who replaced Dandal, worked
directly for Commissioner Morales for nearly two years in
Batangas. Sarmiento said of Morales: "he is a very good
man. He will not allow any violations of any kind.
Violators within Customs will be given a dose of their own
medicine."


9. (U) In the most recent survey of corruption conducted by
the "Social Weather Station," a reputable NGO that receives
support from USAID and the Asia Foundation, the Bureau of
Customs received the lowest score by far out of 26 government
institutions surveyed for anti-corruption efforts. While the
Securities and Exchange Commission and Supreme Court received
scores of 55 and 48, respectively, Customs scored negative
75, just below the Bureau of Internal Revenue at negative 59.
Customs has achieved this distinction for several
consecutive years. Former Ombudsman Simeon Marcelo has
pointed out to us that losses in the Bureau of Customs cost
the government as much as 100 billion pesos annually -- more
than the expected revenues from the new value-added tax.

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COMMENT
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10. (S) The corruption allegations against Morales are
disturbing, but it is unlikely that the cases will be
resolved. The reassignment of the two officials responsible
for internal investigations and therefore the two pending
cases, is a clear warning message. Morales was appointed
just a little over a month ago as Customs Commissioner and it
remains to be seen what he will do with the job. Embassy has
been encouraging Morales to put forth an anti-corruption
proposal as part of the GRP's Millennium Challenge Threshold
Plan. The new MCC Threshold Plan, drawn up the GRP, does
include a section on fighting corruption in the Bureau of
Customs through provision of a database and specialized
training. Despite the corruption allegations against
Morales, we know that it is vital to engage Customs on
anti-corruption if their revenue situation is to improve.
The MCC program will require careful accountability and
performance criteria to help ensure proper management of
resources.
Jones