Trader Gunvor Pursued by China for Allegedly Evading Tariffs

(Bloomberg) -- Gunvor Group Ltd., one of the world’s largest energy traders, was ordered to pay the Chinese government $54 million for import tariffs it allegedly evaded by smuggling oil into the country.

Illegal income of 378 million yuan ($54 million) must be confiscated from Gunvor’s Singapore unit and transferred to the Chinese treasury, according to a Guangzhou court ruling dated Sept. 26 and seen by Bloomberg News. That ruling came at the end of a case against Dikun Yin, a former Singapore-based managing director at Gunvor, who was sentenced to 12 years in prison for his role in allegedly evading Chinese tariffs on oil imports.

Gunvor said the company wasn’t a party to the court proceedings against Yin and was unable to defend itself.

“Gunvor contests the conclusion in the judgment and the basis on which it was reached,” a spokesman for the Geneva-based energy trader said in an emailed statement.

The case concerns oil-product shipments into China from the Philippines, which benefit from preferential tax treatment under a treaty with Southeast Asian nations. From August 2014 to May 2016, Gunvor smuggled about 1.3 million tons of light cycle oil in 36 shipments into China by falsely reporting that it originated in the Philippines, the court said. It said Gunvor transported gasoil and light cycle oil from other countries to Subic Bay in the Philippines, before changing certificates, such as the bills of lading, to show the products were originally produced in that country.

Employee Jailed

Under the treaty, blended oil products can only be labeled as originating in a Southeast Asian nation if they contain at least 40 percent of locally produced fuel, with legitimate certificates of origin. Shipments falling below that threshold would be subject to Chinese tariffs.

Gunvor said it wasn’t the importer of the shipments into China, meaning it had no liability to pay taxes or duties. Still, the court ruling has put the company in a difficult position as it has no way of appealing the verdict because it wasn’t named in legal proceedings, a person familiar with the case said.

The former Gunvor MD Yin was arrested and detained by Chinese authorities in 2016. He has appealed.

Calls and emails seeking comment from Yin’s lawyers at DeHeng Law Offices in Beijing weren’t returned.

Not Charged

While Gunvor has been notified of the situation regarding its ex-employee, the company has not been charged, the company spokesman said.

“Gunvor violated customs laws and regulations, evaded customs supervision, adopted illegally obtained origin, and smuggled goods by means of false reporting of origin,” the Guangzhou Intermediate People’s Court said in a verdict that outlined the case and the sentence imposed against Yin. “The circumstances were particularly serious,” according to the court, which also sentenced Yin.

Trader Gunvor Pursued by China for Allegedly Evading Tariffs

China’s imports of light cycle oil, used as a blend stock for diesel, have surged in recent years on rising demand in the world’s top energy consuming nation. Supplies of LCO from the Philippines grew rapidly in 2015 and peaked in December of that year, according to Chinese customs authority data. Shipments evaporated abruptly after China detained Gunvor’s Yin -- a Singaporean citizen -- in May 2016. China has imported almost no LCO cargoes from the Philippines over the past two years.

According to the Chinese court ruling, Gunvor purchased the LCO and gasoil through third parties from places including South Korea and Taiwan -- which fall outside the treaty with Southeast Asian nations -- in addition to Malaysia and Singapore. Tankers chartered through Gunvor’s shipping division, Clearlake Singapore Pte Ltd., traveled to Subic Bay, where 50 tons of marine gasoil were added to each shipment, the court said.

Customs Compliant

That marine gasoil loaded in the Philippines accounted for less than 0.5 percent of the cargo volumes and sometimes wasn’t blended into the LCO, the court said, citing investigations by the prosecutor. Despite falling short of the 40 percent threshold to qualify for preferential tax treatment, Gunvor required shippers to sign bills of lading to show the products were produced in the Philippines, and also obtained certificates of origin from the nation’s customs authority, it said.

The company denies any wrongdoing.

Philippines authorities “have confirmed that the relevant customs documentation was issued in full compliance with applicable customs rules and regulations,” Gunvor said. “This is a matter to be resolved between the relevant customs authorities of China and the Philippines.”

An official who answered the call to the general office of Guangzhou Intermediate People’s Court declined to comment on the case. The official said the court wasn’t going to publicize its ruling, and declined to provide their name, citing internal regulations.

©2018 Bloomberg L.P.