The Supreme Court affirmed that corporate officers can be held criminally liable for customs fraud when they knowingly participate in or fail to prevent unlawful acts by the corporation. This decision underscores that individuals cannot hide behind the corporate structure to evade responsibility for fraudulent activities, especially when those actions aim to defraud the government of rightful duties and taxes. The ruling reinforces the principle that corporate officers have a duty to ensure compliance with the law and cannot claim ignorance or good faith when evidence suggests otherwise.
Kingson’s Steel Import: When Corporate Veils Can’t Hide Customs Fraud
This case revolves around Kingson Trading International Corporation (Kingson) and its officers, who were found guilty of violating Section 3602 of the Tariff and Customs Code of the Philippines (TCCP). The central issue was whether Alicia O. Fernandez, Anthony Joey S. Tan, Reynaldo V. Cesa, and Edgardo V. Martinez (collectively, petitioners), as corporate officers, could be held liable for misdeclaration, misclassification, and undervaluation of imported steel products, intended to evade payment of correct customs duties and taxes.
The factual backdrop involves a shipment of 2,406 bundles of steel products imported by Kingson. The Bureau of Customs (BOC) suspected discrepancies between the declared value and the actual value of the shipment. The Customs Intelligence and Investigation Service (CIIS) found that the shipment was declared as round bars with a 1% tax rate, but it consisted of rebars, which are subject to a 7% rate. Furthermore, the declared value was significantly lower than the actual value, raising suspicions of fraud.
The CIIS recommended the issuance of a Warrant of Seizure and Detention (WSD) against the entire shipment for alleged violation of Section 2503, in relation to Section 2530, of the TCCP. During the legal proceedings, it was revealed that the documents filed by Kingson contained false information regarding the consignee, description, and value of the imported goods. These discrepancies, coupled with an undervaluation of over 30%, constituted prima facie evidence of fraud under Section 3602, in relation to Section 2503, of the TCCP. This shifted the burden to Kingson to provide a plausible explanation, which they failed to do.
The Court of Tax Appeals (CTA) First Division and En Banc found the petitioners guilty, emphasizing that they, as responsible corporate officers, should have ensured compliance with customs regulations. The CTA highlighted that the discrepancies were too significant for the officers to be unaware of, especially given the substantial value of the transaction. The officers’ failure to provide a credible explanation for the discrepancies and the falsified documents led to their conviction.
At the heart of the matter is Section 3602 of the TCCP, which penalizes various fraudulent practices against customs revenue. This section is crucial for preventing the evasion of customs duties and taxes through false declarations, undervaluation, and other deceptive practices. It states:
Sec. 3602. Various Fraudulent Practices Against Customs Revenue. — Any person who makes or attempts to make any entry of imported or exported article by means of any false or fraudulent invoice, declaration, affidavit, letter, paper or by any means of any false statement, written or verbal, or by any means of any false or fraudulent practice whatsoever, or knowingly effects any entry of goods, wares or merchandise, at less than the true weight or measures thereof or upon a false classification as to quality or value, or by the payment of less than the amount legally due, or knowingly and willfully files any false or fraudulent entry or claim for the payment of drawback or refund of duties upon the exportation of merchandise, or makes or files any affidavit, abstract, record, certificate or other document, with a view to securing the payment to himself or others of any drawback, allowance or refund of duties on the exportation of merchandise, greater than that legally due thereon, or who shall be guilty of any willful act or omission shall, for each offense, be punished in accordance with the penalties prescribed in the preceding section.
The Supreme Court, in upholding the conviction, reinforced the principle that corporate officers cannot hide behind the corporate veil to escape liability for crimes committed by the corporation. The court emphasized that a corporation acts through its officers, and those officers can be held personally liable if they participate in or have the power to prevent the wrongful act. This doctrine is crucial in ensuring that corporate entities and their officers are held accountable for their actions, especially when those actions involve fraud and evasion of legal obligations.
The Court also considered Section 2503 of the TCCP, which provides that an undervaluation, misdeclaration in weight, measurement, or quantity of more than 30% constitutes prima facie evidence of fraud. This provision is designed to deter importers from deliberately underreporting the value of their goods to reduce the amount of duties and taxes paid. This section states:
SEC. 2503. Undervaluation, Misclassification and Misdeclaration in Entry. — When the dutiable value of the imported articles shall be so declared and entered that the duties, based on the declaration of the importer on the face of the entry would be less by ten percent (10%) than importer’s description on the face of the entry would less by ten percent (10%) than should be legally collected based on the tariff classification of when (the dutiable weight, measurement or quantity of imported articles is found upon examination to exceed by ten percent (10%) or more than the entered weight, measurement or quantity, a surcharge shall be collected from the importer in an amount of not less than the difference between the full duty and the estimated duty based upon the declaration of the importer, nor more than twice of such difference: Provided, That an undervaluation, misdeclaration in weight, measurement or quantity of more than thirty percent (30%) between the value, weight, measurement or quantity declared in the entry, and the actual value, weight, quantity or measurement shall constitute a prima facie evidence of fraud penalized under Section 2530 of this Code: Provided, further, That any misdeclaration or undeclared imported article/items found upon examination shall ipso facto be forfeited in favor of the Government to be disposed of pursuant to the provisions of this Code.
When the undervaluation, misdescription, misclassification or misdeclaration in the import entry is intentional, the importer shall be subject to penal provision under Section 3602 of this Code.
Building on this principle, the Supreme Court highlighted that the officers failed to rebut the presumption of fraud, and their reliance on documents provided by the foreign shipper was insufficient to absolve them of responsibility. The Court emphasized that responsible corporate officers have a duty to ensure the accuracy of information submitted to government agencies, and they cannot simply rely on external sources without verifying the accuracy of the data.
This decision has significant implications for corporate governance and customs compliance. It underscores the importance of due diligence and oversight by corporate officers in ensuring that import and export activities comply with legal requirements. Companies and their officers must implement robust internal controls to prevent fraudulent practices and ensure accurate reporting to customs authorities. Failure to do so can result in severe penalties, including imprisonment and substantial fines.
Moreover, the Supreme Court’s decision aligns with international efforts to combat customs fraud and promote fair trade practices. By holding corporate officers accountable for their actions, the Court sends a strong message that the Philippines will not tolerate fraudulent activities aimed at evading customs duties and taxes. This reinforces the integrity of the customs system and helps to level the playing field for legitimate businesses.
The ruling also highlights the critical role of the BOC in detecting and prosecuting customs fraud. The BOC’s ability to gather evidence, conduct investigations, and work with foreign governments to verify information is essential in uncovering fraudulent schemes and holding perpetrators accountable. Continued investment in the BOC’s capabilities is crucial to protect government revenues and ensure compliance with customs regulations. The coordination with international bodies and foreign governments in verifying documents, as demonstrated by the Philippine Embassy in Beijing’s assistance in obtaining certified export documents, is a vital component in combating fraud.
FAQs
| What was the key issue in this case? | The key issue was whether corporate officers could be held criminally liable for customs fraud committed by their corporation. The court found that they could be held liable if they knowingly participated in or failed to prevent the fraudulent acts. |
| What is Section 3602 of the TCCP? | Section 3602 of the Tariff and Customs Code of the Philippines (TCCP) penalizes various fraudulent practices against customs revenue. This includes making false declarations, undervaluation of goods, and other deceptive practices intended to evade customs duties and taxes. |
| What constitutes prima facie evidence of fraud under Section 2503 of the TCCP? | Under Section 2503 of the TCCP, an undervaluation, misdeclaration in weight, measurement, or quantity of more than 30% between the declared value and the actual value constitutes prima facie evidence of fraud. This shifts the burden to the importer to provide a plausible explanation. |
| Can corporate officers be held liable for the acts of their corporation? | Yes, corporate officers can be held liable for the acts of their corporation if they actively participated in or had the power to prevent the wrongful act. The corporate veil can be pierced to hold individuals accountable for their actions. |
| What is the significance of the undervaluation in this case? | The undervaluation of the imported steel products by more than 30% triggered the presumption of fraud under Section 2503 of the TCCP. This required the petitioners to provide a credible explanation, which they failed to do. |
| What documents were found to be falsified in this case? | The documents found to be falsified included the Import Entry and Internal Revenue Declaration (IEIRD), commercial invoices, packing lists, and sales contracts. These documents contained discrepancies regarding the consignee, description, and value of the imported goods. |
| What was the role of the Philippine Embassy in Beijing in this case? | The Philippine Embassy in Beijing assisted in obtaining certified true copies of export documents from the General Administration of Customs – People’s Republic of China (GAC-PRC). These documents revealed discrepancies in the information provided by Kingson. |
| What is the impact of this ruling on corporate governance? | This ruling underscores the importance of due diligence and oversight by corporate officers in ensuring compliance with customs regulations. It emphasizes that corporate officers must actively ensure the accuracy of information submitted to government agencies. |
| What penalties did the petitioners face in this case? | The petitioners were sentenced to an indeterminate penalty of imprisonment of eight (8) years and one (1) day, as minimum, to twelve (12) years, as maximum, and were ordered to each pay a fine of Eight Thousand Pesos (P8,000.00). |
In conclusion, the Supreme Court’s decision in this case serves as a clear warning to corporate officers involved in import and export activities. They cannot hide behind the corporate structure to evade responsibility for fraudulent practices. The ruling reinforces the need for due diligence, oversight, and compliance with customs regulations to avoid severe penalties.
For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ALICIA O. FERNANDEZ vs. PEOPLE, G.R. No. 249606, July 06, 2022