(MY) timber trade

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RM32 mil kickbacks - tip of the iceberg - Malaysiakini

Tony Thien

Apr 10, 07 12:54pm

 

The RM32 million payment made by Japanese shipping companies to a Hong

Kong agent allegedly linked to Sarawak Chief Minister Abdul Taib

Mahmud and his family is only the 'tip of the iceberg', according to

those involved in the lucrative timber trade.

 

" In reality, Sarawak logs are exported not only to Japan but also to

Korea, Taiwan and several other countries.

 

" There are other off-shore companies besides (Hong Kong-based agent)

Regent Star, to which shipping lines have been paying kickbacks or

'rebates' since 1981, " a director of a Sarawak-based shipping line

told malaysiakini today.

 

He was referring to last Thursday's report in Japan Times about nine

shipping companies being accused by the Japanese government of tax

evasion for failing to report income of 1.1 billion yen (RM32

million), which was alleged to have been paid as kickbacks to Taib and

his family.

 

The payments were made to Regent Star in Hong Kong, believed to be

connected to Taib, over a period of seven years up to March last year.

 

According to the report, the companies - which included top shipping

companies Mitsui OSK. Kinkai Ltd and NYK-Hinode Line Ltd - have all

denied any wrongdoing.

 

The companies argued that the expenses were legitimate following an

agreement between the shipping cartel transporting Sarawak logs to

Japan and a Sarawak government-affiliated concern Dewaniaga in 1981.

 

The shipping firms are suspected of having made payments to the Hong

Kong agent for 26 years, meaning the total income concealed is several

times the figure cited by sources.

 

Before Sarawak decided to impose a log export quota, the state was

exporting as much as 1.5 million cubic metres of logs a month - or

about 18 million cubic metres annually - putting it among the world's

biggest timber exporters.

 

Required to pay commissions

 

According to information from industry sources, owners of log carriers

must first register with Dewaniaga Sarawak - which has an office in

state agency Sarawak Economic Development Corporation.

 

On registration, the shippers are required to pay commissions of

between US$2.50 and US$3 (RM8.60 and RM10) per cubic metre of timber -

depending on the species of the logs - to nominated off-shore

companies allegedly linked to Sarawak officials.

 

In addition, the owner of a log carrier seeking to transport timber

exports is required to appoint Taib family-linked shipping agency

Archipelago Shipping as the sole agent for shippers to pick up logs

from three key Sarawak ports - Tanjung Manis, Bintulu and Miri.

 

This directive to use Archipelago Shipping as the exclusive agent has

affected many other local shipping companies.

 

According to former managing director of a shipping agency, who asked

not to be identified, his company at the time was acting only as agent

in handling foreign vessels calling at Sarawak ports and did not own

any log carrier so his company could not act as a handling agent for

log carriers.

 

Archipelago Shipping has since changed its name to CMS Transportation Sdn Bhd.

 

Based on the log transportation 'commissions' of an average US$3 per

cubic metric, the total 'rebates' paid out by the cartel were

estimated to amount to as much RM189 million annually at the height of

the logging trade in the go-go years of the 80s and 90s.

 

The ex-shipping agency boss added that owners of log carriers had no

alternative but to pass on the additional cost of the commissions to

the buyers.

 

" What do you call income not going into the government coffers? This

is a clear case of corruption! " he said.

 

Tax evasion

 

It is also an open secret that in the Southeast Asian timber trade,

especially Malaysia and Indonesia, exporters retain a portion of their

profits offshore through 'transfer pricing' to avoid paying income

taxes.

 

In Indonesia, the government had introduced a 'check-price' on log

exports to try to stop the tax evaders, but this has very little

effect due to the lack of enforcement.

 

Transfer pricing is a system devised within the timber trade,

especially by log exporters, where overseas buyers pay the full price

for the timber through a third country and a portion of the profits

are retained and paid into offshore accounts of certain companies or

individuals.

 

These additional profits are not reported to the tax authorities.

 

Sources said that the countries exporting logs have lost " hundreds of

billions of ringgits through such tax avoidance " over the past three

decades.

 

An accountant with wide experience in auditing, when contacted by

malaysiakini, asked a pertinent question.

 

" Why didn't our tax authorities follow the Japanese example and come

down hard enough on our log producers and exporters? "

 

When asked about the scandal yesterday, Prime Minister Abdullah Ahmad

Badawi said that he was not aware of it. Meanwhile, Taib has yet to

comment on the matter.

 

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Timber kickbacks - it all began in Sabah

 

Tony Thien

Apr 10, 07 12:58pm

 

The scheme to milk illicit funds from the lucrative timber trade in

East Malaysia had its roots in Sabah, according to sources in the

shipping industry.

 

The practice of shipping companies paying commissions to officials

began in Sabah in the mid-70s when Harris Salleh was the chief

minister.

 

A business body called Dewaniaga Sabah was set up supposedly as a

joint venture between the Chinese and Malay chambers of commerce in

the state, which then entered an agreement with a Japanese shipping

cartel carrying Sabah logs to overseas markets, including Japan.

 

Commissions, or 'rebates', of between US$1 to US$2 per cubic metre

were allegedly paid into the accounts of offshore companies acting as

agents in several countries, including Hong Kong.

 

It is believed these agents were linked to Dewaniaga Sabah, whose

directors were mostly close associates of Harris Salleh.

 

Attempt to break cartel

 

This practise continued until the opposition Parti Bersatu Sabah (PBS)

toppled the ruling Berjaya state government in 1985.

 

When PBS came to power, the then Chief Minister Joseph Pairin

Kitingan's brother Dr Jeffrey Kitingan, who headed Yayasan Sabah - a

foundation set up using the state's timber wealth - tried to break the

cartel.

 

Sabah was then exporting as much as nine million cubic metres of logs

overseas and the commissions worked out to as much as RM100 million

annually, sources told malaysiakini.

 

The arrangement with the shipping cartel continues to this day,

although export of logs has reduced significantly and replaced by

processed timber.