The Sunday Times FT - Customs inquiry tomorrow on alcohol scam

The Customs Department is officially beginning tomorrow the probe into alleged under-invoicing scam by a subsidiary of Distilleries Company of Sri Lanka (DCSL) which has cost the government millions of rupees in duties.

The department also plans to obtain Interpol help in the investigation of foreign nationals working at the subsidiary and will ask the British and French government to intervene. It is possible for these foreign nationals to be repatriated back to Sri Lanka to face charges if need be, one official said.

The Sunday Times reported the scam some weeks back after Customs officials stumbled on false documentation in the import of spirits, and then visited offices of Periceyl (Pvt) Ltd, the DCSL subsidiary and removed several documents. It was uncovered weeks ago that the company has imported 135,000 litres of alcohol, those being brandy, gin and whiskey, which was undervalued at a lower rate of duty. Last year alone, it is estimated that the company has not paid Rs.150 million in duty. A DSCL store was also checked amidst allegations that some Excise officials were involved in a cover-up.

"We are getting ready to launch an inquiry. We have good proof even though we have been looking for documentation on our own because the company has not given us certain documents which we have requested," said a Customs official.

The company has said the documents have been displaced but Customs officials reject this explanation saying documentation has to be kept for a period of three and a half years. The official added that withholding documents, as the company is doing, carries with it a Rs.500,000 fine and six months imprisonment.

"We have proof although Mr. Harry Jayawardena (chairman of DCSL) says otherwise. If they have nothing to hide, they should hand over all the documents," said the official. "This is a straightforward case. We are going to investigate this and if they're not willing to cooperate, there are legal options for people who are hiding evidence."

The Sunday Times FT is in possession of several documents such as Sri Lanka Customs’ declaration forms, order forms and inter office memos pertaining to the import of liquor by DCSL. Periceyl, a jointly controlled entity of DCSL was established under the Companies Act No. 17 of 1982 on 16 September 1996. On the application, there are four directors of the company. Two, Albert Elgrissy and Thierry Jacquillat are citizens of France, Aziz Jetha is a British citizen and lastly, Sri Lankan citizen Harry Jayawardene. Under the residential addresses they were required to provide on the application, the two French citizens have incorrectly provided 110, Norris Canal Road, Colombo 10. This is the address of DCSL. Company Secretary, VJ Senaratne is currently out of the country and could not be reached for comment to clarify how such an ‘error’ could have been made.

Senaka Amaratunga, General Manager of Periceyl said that no new developments have transpired since The Sunday Times broke the story on the scam and refused any further comment.

The Customs official further added that three foreigners, employed by a French company called Pernod Ricard, are being investigated for their role in the case. Aziz Jetha was managing director of the company from 1994 to 2002 when the importation scandal first began.

The Customs Department has sent summons for a chemist and storekeeper from the DCSL Seeduwa distilleries stories to appear on Monday to give in evidence. Customs has also collected sets of import documents from Hatton National Bank this past week. Officials said the company has not only avoided paying custom duty but have also undervalued the actual VAT duty and have claimed around Rs.12 million in VAT refund from the Inland Revenue (IR). Tax Commissioner General A.A. Wijepala was not available for comment.

Customs officials accused Periceyl of importing the liquor and drawing up the fraudulent documents. DCSL is accountable for obtaining the excise permits and import licences while it is the responsibility of Stassens to clear the entire operation, they said.

On December 23, 2005, a vessel called Hanjin Gothenburg from France arrived in Sri Lanka with three 20 foot containers of 240 barrels of spirits totalling 52,800 litres. On Sri Lanka Customs Goods Declaration form No. 168417, the total invoice price listed by Periceyl is 55,695.00 Euro or US $74,457.52. This liquor was imported under customs HS Code 2207 as ethyl alcohol over 81%. The company ended up paying Rs.15,326,425 to the Sri Lankan government by declaring the wrong code, paying a lower rate of customs duty, VAT, surcharge and excise duty.

The actual customs HS Code for spirits is 2208 and the actual duty payable to the government far exceeds the payment Periceyl made. On this shipment alone, the company underpaid the government a staggering Rs.51,948,819. Documents show that three to four shipments had been imported in 2005. The total under payment to the government by way of declaring a low rate of duty and VAT amounts to more than Rs.350 million just for 2005.

In 2006, Periceyl imported only two consignments with the third and fourth having been stopped from delivery. They are still in France. It is estimated that over the past ten years, the company has cheated the government out of an astounding Rs.3 billion in duty payments, documents show.

Inter office memos from Aziz Jetha to an individual named Emmanuelle Gerardi in France, written in July of 1998, shows that the company used secret reference numbers for different types of alcohol although they claim to import ethyl alcohol. In a memo dated 13 July 1998, its secret references are clearly outlined. For example, whisky is referred to as CCA, brandy as B1, rum extract as D3, rum dark as J5 and Vodka as 15487. The memo calls for 4,000 litres of whisky and brandy, 100 litres of rum extract and 20 litres of vodka flavour. In a subsequent memo dated 17 July 1998 from Jetha to Gerardi, he clearly states that "We will buy 200 litres of Brandy from you in addition to the 2000 litres of Brandy B1."

A letter dated January 8, 2003 was written by a Senior Executive at Periceyl to the Director General of Customs, requesting that a container be directly delivered to a Stassen company warehouse located at 833, Sirimavo Bandaranayake Mawtha, Colombo 14.

Usually, it is customary for such goods to be delivered directly to the stores. However in this case, officials told The Sunday Times FT that the goods were delivered to the warehouse where identifying labels have been stripped to hide the fact that the shipment contained liquor.

This newspaper is also in possession of permits for import of rectified spirits given by the Excise Department to Periceyl. In the statement of indent, ethyl alcohol is incorrectly listed in the full description of goods. The Supplies Manager from DCSL, S. Rajanathan, who signed the excise permit, couldn’t be reached for comment despite numerous attempts as to why he signed the permits without verifying the information.