HONG KONG 2004 - Public Order

The Customs and Excise Department is primarily responsible for the collection of revenue on dutiable goods and the prevention of its evasion, the suppression of narcotics trafficking and abuse of narcotic drugs, the prevention and detection of smuggling, and the protection of intellectual property rights. It has an establishment of 4 947. The department also enforces legislation to protect consumer interests, safeguard and facilitate legitimate trade and industry, uphold Hong Kong's trading integrity and fulfil the relevant international obligations (See also Chapter 5).

The department is responsible for the collection of excise duties derived from dutiable commodities stipulated in the Dutiable Commodities Ordinance. These are liquors, tobacco, hydrocarbon oil and methyl alcohol. During the year, the excise duties collected amounted to $6.54 billion, of which 52.6 per cent came from hydrocarbon oil, 35.0 per cent from tobacco, 12.4 per cent from liquors and 0.1 per cent from other alcohol products, representing an increase of 0.9 per cent over 2003.

The department also assesses the taxable values of motor vehicles under the Motor Vehicles (First Registration Tax) Ordinance for the purpose of levying first registration tax. In 2004, the department registered 60 motor traders and assessed the provisional taxable value on 43 768 vehicles.

Dutiable commodities in Hong Kong are stored in warehouses licensed by the department (bonded warehouses) after import or local manufacture. Removal of dutiable commodities is subject to a permit being issued by the department, and the commodities can only be released for local consumption upon payment of duty.

Before April 1, 2003, the bonded warehouses for dutiable liquor and tobacco operated under the physical supervision of the department while the oil companies' and breweries' warehouses adopted the open system whereby no physical supervision by the department was necessary. In February 2003, the Legislative Council passed legislative amendments proposed by the Government to phase out the physical supervision requirement with an open system, based on risk management strategies including stricter licensing criteria, random checking, documentary verification and post-transaction auditing. The open bond system was implemented with respect to all liquor and tobacco bonded warehouses from April 1, 2003, and extended to the distilleries bonded warehouses in January 2004, achieving full implementation by this later date. The department has conducted post-implementation reviews on the open bond system and concluded that sufficient measures are in place to manage the risks of revenue fraud. The open bond system has been running smoothly.

To strengthen its work in revenue protection, the department has installed workstations linked to the Immigration Department's computer system at control points since February 2003. The system has proved to be an effective tool in verifying whether incoming passengers travelling on Hong Kong Identity Cards were eligible for duty-free concessions. As provided for by amendments under a Dutiable Commodities (Exempted Quantities) Notice in July 2002 (Dutiable Commodities Ordinance, 109G), an incoming passenger aged 18 or above who travels on a Hong Kong Identity Card and has spent 24 hours or longer outside Hong Kong is eligible for the concession. The computer system enabled officers of the department to detect a total of 7 850 cases of abuse of the duty-free concessions, involving a total of 1.7 million cigarettes, in 2004. The number of cases and the cigarettes seized were 74 per cent and 58 per cent higher than those in 2003 respectively.

In 2004, 56 132 incoming passengers declared possession of excessive duty-free goods and 2 767 passengers were arrested for undeclared excessive duty-free goods, representing increases of 5.5 per cent and 78.9 per cent over 2003.

To further strengthen enforcement against transnational smuggling of cigarettes, the department hosted the First Meeting of the World Customs Organisation Contact Points for Anti-Cigarette-Smuggling Operations in the Asia Pacific Region in June. The meeting aimed at mapping out a long-term joint strategy to crack down on transnational cigarette smuggling activities, which operated mainly in a 'merry-go-round' mode (i.e. by means of roundabout paths). The meeting drew up an action plan entitled 'Project Crocodile', which was put into operation on August 1, 2004. Under the action plan, participating customs administrations joined hands and stepped up the monitoring and tracking of suspicious cigarette shipments within the region. Member administrations have, through an established communication channel, enhanced intelligence exchange and conducted joint investigations. The plan has proved to be very effective. The transnational smuggling cases intercepted under the action plan included a major case in August 2004 in which Hong Kong Customs notified the Philippines Customs of the movement of a suspicious shipment of 28 containers of cigarettes.

The department continued its vigorous enforcement action against illicit cigarettes. During the year, 5 406 offenders were arrested and 167.6 million sticks were seized, an increase of 19 per cent and 10 per cent respectively over 2003.

Illicit fuel including marked oil (commonly known as 'red oil'), detreated oil and illicit motor spirit continued to be used illegally as fuel for vehicles. To tackle the problem, in addition to enforcement action taken at sea and land boundaries, sustained operations were mounted to eliminate filling stations, marked oil detreating plants, synthetic petrol plants and storage places for such fuel. Surprise checks were also conducted to detect the use of illicit fuel in road vehicles.

Resulting from the department's vigorous enforcement action, the number of black spots for illicit fuel activities continued to be restricted to around 27. The department closed 997 illicit oil filling stations, nine marked oil detreating plants and four synthetic petrol plants. A total of 976 people were arrested. Altogether, 1.7 million litres of various types of illicit fuel, valued at $13.27 million, were seized, a decrease of 30 per cent and 26 per cent respectively as compared with 2003. The decline in the quantities of illicit fuel seized was attributed to the department's effectiveness in combating illicit fuel activities, causing distributors and peddlers to reduce stock. The duty potential of the seized illicit fuel also dropped by 40 per cent to $5.54 million, as compared with 2003.

The department continued to take vigorous enforcement action to prevent and suppress the unlawful manufacture, distribution and trafficking of dangerous drugs, and to trace, confiscate and recover proceeds accrued in illegal drug activities. It also enforces the Control of Chemicals Ordinance, which aims at preventing the diversion of chemicals for illicit manufacture of dangerous drugs and psychotropic substances.

The Customs Drug Investigation Bureau is the department's major investigative arm in combating illicit drugs. The bureau's main functions are to conduct investigations and surveillance to combat illegal manufacture, trafficking or use of drugs. In addition, the department works closely with the Police Force and various drug enforcement agencies in other jurisdictions in exchanging intelligence and arresting drug criminals.

In 2004, the department dealt with 83 drug trafficking cases, and neutralised one heroin attenuating centre and 19 drug distribution centres. Officers seized 11.8 kilograms of heroin, 111.2 kilograms of cannabis, 13.2 kilograms of cocaine, 11 kilograms of methamphetamine ('ice'), 4.8 kilograms of ketamine, 116 477 tablets of MDMA ('ecstasy') and 26 701 tablets of other psychotropic drugs. A total of 700 people were arrested for drug-related offences. The department actively participated in joint operations with international drug enforcement agencies. As a result, 783.6 kilograms, 65 370 tablets and 17.8 litres of various drugs were seized and 37 traffickers arrested in operations overseas.

In 2004, vehicular traffic movements through the three land boundary control points at Lok Ma Chau, Man Kam To and Sha Tau Kok increased by 9.9 per cent to 14.48 million compared with 2003.

Hong Kong and Mainland Customs authorities jointly designed a paper-based 'unified manifest' for the convenience of the cross-boundary transportation industry to submit to the two Customs administrations. The unified manifest sets out all the information required by the two Customs administrations and hence saves the time and effort of filling out two separate manifest forms. The manifest was put on trial on January 1, 2004 for a period of 12 months and will be formally launched on January 1, 2005.

To avoid duplication of Customs examination so as to facilitate trade and speed up traffic flow at the land boundary, Hong Kong and Mainland Customs agreed to use a green Customs seal to indicate that cargo on board a vehicle has been examined. This measure provides an additional risk assessment indicator to the Customs administration on the other side in dealing with incoming vehicles. Hong Kong Customs began affixing green seals at the three land boundary control points on November 15, 2004.

To cope with increasing cross-boundary vehicular traffic at the Lok Ma Chau Control Point, four additional north-bound kiosks were installed and put into operation on October 12, 2004 for processing private cars. These additional kiosks house both immigration and customs officers and further reduce the time required for clearing north-bound private cars. To bring corresponding improvement to south-bound private cars, four south-bound kiosks will be commissioned by mid-2005.

To facilitate the flow of cross-boundary passenger traffic, the eleventh and twelfth pairs of direct trains between Hung Hom and Guangzhou started operation on April 18, 2004. The operating hours of the Kowloon Railway Unit was revised from 0645-2200 hours to 0645-2345 hours to enhance convenience for cross-boundary passengers.

Since the start of cross-boundary ferry services for transit passengers between Hong Kong International Airport and ports in the Pearl River Delta in September 2003, passenger flow has increased steadily. As at end-2004, the daily average volume of air-to-sea and sea-to-air passengers increased by about 4 and 3.5 times respectively. To meet the increasing demand from passengers and to further expand the transport link between Hong Kong's air services network and the Pearl River Delta region, the ferry service was extended from four to six connecting ports in the Pearl River Delta in December 2004. A new express cargo terminal has been in full operation to handle air land-sea transhipment mail and cargo since June 2004. Clearance procedures have been streamlined to facilitate express cargo flow.

Smuggling between Hong Kong and the Mainland remained a cause for concern. A duty gradient leading to a price difference between the two places and import controls on certain items imposed in the Mainland were the main factors underlying the problem. In 2004, the department detected 351 Hong Kong/Mainland smuggling offences, arrested 442 people and seized contraband worth $221 million. Despite a 25 per cent increase in the number of cases this year, the seizure value decreased by 58 per cent from 2003. Syndicates turned to smuggling less contraband each time to evade Customs examination and to minimise the loss when intercepted.

Goods commonly smuggled to the Mainland included computer parts, electrical and electronic appliances, vehicles and vehicle parts, mobile phones and accessories, marked oil, edible oil, frozen poultry products and optical discs. On land, smugglers commonly made false declarations on manifests to avoid Customs inspection. Container tractors, box-type lorries and private cars were commonly used to smuggle contraband mix-loaded with cargoes or concealed in sophisticated secret compartments. In some cases, smuggled goods were found hidden inside the driving cabins of tractors and goods vehicles, vehicle toolboxes and trailer bodies. At sea, river trade vessels, fishing vessels and motorised sampans were employed for smuggling. The smuggled goods were usually hidden inside containers, fuel tanks or secret compartments of these vessels.

Cigarettes, motor spirit, meat and counterfeit goods were the main items being smuggled into Hong Kong from the Mainland. Altogether 56.3 million sticks of illicit cigarettes, 85 987 litres of motor spirit, 125 953 kilograms of meat and 6 127 243 pieces of counterfeit goods were seized in inbound traffic.

Two sets of the Vehicle X-Ray Inspection System, installed at the Lok Ma Chau Control Point in early 2003, have strengthened the department's ability to inspect vehicles and cargoes. With the assistance of this advanced equipment, the department has detected 88 smuggling cases involving seizures valued at $169.5 million since the two systems were installed.

The department's anti-smuggling capability has also been strengthened by the commissioning of four automatic distillation analysers at the land boundary vehicular check points and the seaport in early 2004. These analysers support quick field tests to discern light diesel oil and motor spirit from cargoes declared as other hydrocarbon oil products. This greatly enhances the capability to detect illicit fuel. For operations at sea, four high-speed pursuit craft have been launched, enhancing the department's capability in intercepting and searching suspicious speedboats and cargoes. The department has also procured five 3-in-1 handheld detectors for narcotics/explosive/chemical warfare agents for use on Customs launches and cargo clearance stations at Kwai Chung and Hong Kong International Airport.

The department continued to liaise closely with the Police Force and other law enforcement agencies in a concerted effort to combat smuggling. Enhanced cooperation with Mainland authorities in exchanging information and mounting parallel operations at the land boundary-crossing points and at sea continued to produce satisfactory results.

Since July 17, 2004, all air and rail cargo manifests except those provided on demand by the department for cargo clearance purposes have to be submitted electronically through a specified service provider appointed by the Government. Electronic submission helps reduce the time and effort required by the shipping industry for lodging paper cargo manifests to different government departments, and the associated storage space. From August 18, 2004, the electronic services for applications of dutiable commodities permits are available at one more service provider appointed by the Government.

The department is exploring, in conjunction with the Commerce, Industry and Technology Bureau, a system for electronic submission of advance road cargo information to enhance the efficiency of customs clearance at the land boundary vehicular crossing points.

The department constantly reviews its performance pledges and ensures their compliance through the delivery of quality services. For better public accountability, the department regularly reviews the quality of its services with the four customer liaison groups connected with the air freight, sea freight, cross-boundary transport and dutiable commodities trades. A home page (www.customs.gov.hk) provides comprehensive and updated departmental information to the public.

To foster and sustain a strong culture of professional ethic and probity among staff members of the department, the Integrity Steering Committee (ISC) restructured its composition in 2004 to improve its representation and established three dedicated Working Groups as its executive arms.

Headed by the Deputy Commissioner, the ISC conducted a survey for the benchmarking of international best practices of integrity management, updated the 'Code on Conduct and Discipline' and collaborated with the ICAC to organise anti-bribery seminars.

The department considers that a culture of healthy lifestyle and prudent personal finance is the key to building staff integrity. During the year, the ISC produced a series of training materials, including a new quarterly publication, The Pine, to inculcate a healthy culture at the workplace and in the family, a video, Prudent Financial Management: U-turn, to deliver the thought-provoking message through a drama, and an informative and inspiring booklet entitled Prudent Financial Management and Positive Living.