German High Tech Company Fights Philippine Customs Corruption-- For More Than 30 Years

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Manila Skyline from North Manila Harbor

In the age of internet, every company is urged to "tell its story." Recently at IFA Berlin, the German consumer electronics company, Unimex, told us its story fighting theft and corruption, a story that spans three decades and several regimes in the Philippines.

The moment Stephan Finta hit the bottom of the stairs, he knew what he had to do.

He looked up at the two bulky guards from the Customs Office in Manila who had just thrown him down the stairs. Both had guns drawn and one said, "Never come back here, Finta."

When Finta finally had his chance to tell this story in court, no one was surprised. In the Philippines, violence and corruption were the norm at that time.

Usually a consumer electronics manufacturer (video computers, cartridges, game accessories) from Germany was not a target. And certainly this was not the message the Philippines wanted to send abroad to the international business community.

So when Finta took his case to a Philippines court, it took from five years before the court first agreed Finta and his company (Unimex Micro) had indeed endured an injustice and declared in their favor.  Finta thought that would be the end of the story, an end to years of stress, legal expenses, appealing to government officials.

Had the story ended there, it would have been a worthy story, a story of persistence and perseverance that many high tech exporters would understand and perhaps nod their heads with some sympathy.

But Finta's story would go on and on, in a marathon of endurance and fortitude that few others have experienced or even witnessed.

Winning in court was only one point on a 30-year timeline that even today takes Finta back to the Philippines, back to Manila, back to a new government, a government swept into power in 2015 on an anti-corruption ticket.

Stephan Finta, Unimex

IFA Berlin is the world's largest consumer electronics trade show. There we met with Stephan Finta, CEO of Unimex.

"I still have pain in my knees since my run-in with the customs guards, and tumbling down two flights of stairs,” says Finta.

Finta is not looking for compensation for personal injury: his mission is to recover from severe financial losses incurred in surviving the tribulations of exporting, about fighting the corruption that built up in the Philippines around the custom offices, the ports, docks, shipping agents and warehouses.

At the trade show in Germany, Finta tells his story as a warning to other German manufacturers who would export to Philippines and Asia—and to anyone that listens.

And it serves as a cautionary tale in a world where most companies today expect to do international business-- and few know about the corruption and violence which can easily ruin unsuspecting small companies.

Finta's story starts innocently enough. The Atari VCS was riding high in the early 1980s, a popular video game console.  Finta, an American citizen, an ex-US Navy pilot who settled in Germany after working at both Texas Instruments and Fairchild Semiconductor in Europe in the position of Marketing Manager, found a market for specialized Atari software, media and accessories.

This was, after all, the time of the birth of the video game and computer industry and a new market spanned the globe for his own “Made in Germany” memory cartridges and cartridge duplicators as well as other electronics products (from USA) that he exported.

For his company Unimex, Finta signed an exclusive distribution agreement in 1984 with Time Warner allowing sales in Europe and Asia for its complete product range of Atari-related media and products.

In 1985, an importer in Manilla contracted and purchased a shipment of Atari games, thousands of blank memory cartridges, plus Unimex's own “cartridge duplicator." The order value (not the street value but the importer’s cost) was about 1.3 million Deutsche Marks (almost 700,000 euros).

On arrival in the Philippines, the cargo was quickly impounded at Customs. Apparently someone at the shipping company had labeled this shipment as "Industrial Machines."  But not by accident.

On arrival in Manila, Unimex cargo was instantly seized by Customs as the local freight-agent had submitted a deliberately falsified Cargo declaration, listing contents as "Industrial Machines" and falsely accusing Unimex as the “declarer.”

“Manila Customs Agents,” explains Finta, “wanted an excuse to seize the cargo.”

Finta is a tenacious man by nature, but in this case his business rested on a loan from Deutsche Bank, on money borrowed to support the production of the Unimex duplicators and blank cartridges--money that had to be paid back plus the bank’s 12% interest.

The window for profit in consumer electronics devices is a small one: often you only have months to harvest an opportunity. And then your devices, once in great demand, suddenly might as well be bricks. Unimex simply couldn't afford to lose the cargo.

In 1986/1987, fighting against the ticking clock of consumer interest, Finta flew to Manila at least five times, protesting the illegal seizure and submitting proof that the cargo was legal. Blank cartridges at the time, for example, didn't even warrant any import duty. It turned out he was protesting to a Customs official (the Commissioner) who himself was part of the plot.

The role of Bureau of Customs (BOC) Commissioner is known in Philippines for its “ever-shifting leadership,” attributed to politics and bad job performances due to continuing smuggling and corruption in the bureau. For example, former president Corazon Aquino, felt compelled to change BOC chiefs three times during her term. And she wasn’t the only President that changed BOCs that often.

Face-to-face with the top Customs official, Finta was outraged when the Commissioner told him, “If I say your cargo is illegal, it is illegal no matter what anyone says. And as Commissioner I can overrule Customs Appraisal Division, that’s it.”

The Commissioner was not only unapologetic but had Finta physically pushed and shoved out of the government office and down the stairs. While the physical message was received, the pistols the guards ominously waved over Finta had the opposite of their intended effect.

We told you, Finta by nature is a tenacious man. And to his credit, waving a gun at this former US Navy pilot and advising him to "go home, don't come back" only made him more determined. These thieves wouldn't get away with it, just couldn't get away with it.

Finta hung on this legal case like a bulldog, partially because he couldn't afford to lose this shipment but also because THEY MADE HIM MAD.

Later the Commissioner would be fired under corruption charges and abuse of office, proving that in Philippines some folks and some government officials do have a sense of justice. But having a sense of justice and delivering justice are two different things.

In 1987, Finta won a court-appointed Customs Appraisal to verify the legality of his shipment. But by that time the Unimex cargo went missing. If that wasn't shocking enough, they disappeared from the government's own bonded warehouse, the one place government uses to secure anything vital to their own interests as well as confiscated illicit goods. The one place you would expect would be locked tight, secure, and impregnable to common thieves.

After investigation, Finta found out that his goods were stolen in collusion with customs agents who had access to warehouse—and the goods ended up with local port dealers who sold the units for cash, for millions of pesos.

A Cargo Loss Report was filed. After a five-year struggle, in 1992, Finta won in court when the Court of Tax Appeals (CTA) declared as the goods were missing (yes, stolen) from a Government bonded warehouse, the Bureau of Customs in the Philippines had to be 100% responsible and even pay compensatory interest on the value of the lost cargo, starting from July 1987, the date of the acceptance of the Cargo Loss Report.

Five years of flying back and forth from Frankfurt to Manila had paid off. Finta had in his hand a government decree that proved his loss was due to corruption and that he was due legal compensation for the monetary loss. The court decided he was due legal compensation for the total loss, including bank interest starting in 1987 when the SGS ”Cargo Loss Report publication” was ordered by court.

He wasn't looking for compensation for the personal injury, stress, the travel, the lawyers, or that pain in his back from the man-handling-- and the Court never offered it. Instead they gave him the right to get back his money (and the value of this money over the years it had been taken from him, 6% bank interest starting in 1987, increasing to 12% starting 1992 up until final payment would be made) and restored his faith in justice in the Philippines.  That faith proved short-lived…

While the Court had made its decision in Finta’s favor, getting the government to act on the decision proved to be an even bigger task. And as time ran on, new governments and new officials replaced others and Finta faced new cases of corruption, resentment, and complete disregard for the community of international business.

Philippines Supreme Court

Later the CTA (with new judges) would reverse its decision. Not only was there to be no compensation but they actually claimed Unimex now owed the customs duty to the Philippines, customs duty on goods that (verified by CTA's earlier ruling) officially disappeared from a government bonded warehouse.

In the 90s, Unimex tried to sue the shipper but the Philippines Supreme Court dismissed the claim.

In 2001, Finta filed another claim for justice and was rewarded in 2004 with a second Court of Appeals decision in his favor. the Court ordered a payment equal to the original value of the shipment (669,982 Euro) plus 6% interest from the 1987 shipping date and 12% interest from their date of judgement until fully paid.

It took 20 years but Finta won again.  And some corrupt officials (even a Supreme Court justice that continually denied Unimex appeals) were outed. But winning in court (even twice) in the Philippines is apparently nothing you can bank on.

Two years of ignoring the court order went by and in 2006 the Customs office made an appeal to reverse the ruling.

The appeal landed on the desk of Supreme Court Chief Justice Renato Corona who knew opportunity when he saw it. Unimex was subsequently approached by “friends of the court” asking for $100,000 for “not disturbing previous court rulings.”

This “request” was refused by CEO Finta, paying a bribe was out of the question…so you could say it was no surprise when Justice Corona over-ruled both prior court decisions, stating “No interest whatsoever, only original 1985 invoice value” would be paid.

In 2007, the German Ambassador at the time protested strongly to the President’s office, resulting in a rebuke to Justice Corona’s decision. He was “ordered to pay interest.”

Under pressure, Corona had to issue a “modification of his decision” but in revenge he granted interest only starting in 2002-- not starting in 1987 as ruled by the two appeal courts.  Fifteen years of interest were lost in a vindictive stroke of a pen.

At the time Unimex itself was paying Deutsche Bank nearly 12% interest on the cargo stolen in 1985.

Corona’s revenge wasn’t over. He wrote a stern court warning, “Any further protests will lead to a contempt of court citation to Unimex and counsel.”

Chief Justice Corona would later be impeached and dismissed from his post in disgrace, publicly revealed as a corrupt public official who—for personal gain-- could over-rule at whim the rulings from lower courts of the land. Corona is the first Philippine magistrate to be impeached and convicted-- and his trial was the first of its kind in Philippine history.

The Court of Tax Appeals in 2009 issued a Writ of Execution, forcing a partial payment of about 8.6 million Philippine pesos (about 170,000 euro). Later that year, they paid another 26 million pesos.  That left a balance of more than 20,000,000 pesos still due Unimex.

BOC Philippines

The Customs office parried with a new demand of their own: Unimex was fined 2.5 million pesos (about 50,000 euro) in "Custom Duties." In effect, the Customs was insisting "duty" (typically paid on receipt of goods) was now to be paid on the monetary award.

When Finta protested, the Court of Tax Appeals in 2011 confirmed the duty, arguing "since there were no goods to inspect," the Customs office was entitled to this fine. Incredible, but Unimex was forced to pay the 2.5 million pesos, under protest and with further appeal to the courts.

In 2010, The Customs office paid another 21 million pesos. That still left years of interest unpaid and the “customs duty” un-reimbursed. And since 2011, no court in the Philippines would consider an appeal.

In 2014, President Aquino promised Finta to re-evaluate the Unimex claims. Today that request for justice sits in the office of newly-elected President Rodrigo Duerte.

And Finta is once more on his way to the Philippines. The international travel charges, the cost for lawyers, the accumulation of interest on the missing payments... all this makes this case the high tech world's longest, most costly battle for justice.

Finta has set up a company, promising to invest a good part of the reward in the Philippines, in an assembly plant producing Unimex products such as Digital Medical and Fitness Activity Bands, and Blood-sugar Alert bands (otherwise known as “wearables” in consumer electronics industry jargon).

You would think the Philippines wants to clear its name, to stop the bad press, and to encourage more companies to do business in the Philippines.

Along the way, Finta has seen even Supreme Court justices thrown out publicly for corruption. His case reflects the bigger battle in the Philippines-- an internal fight between corrupt and anti-corruption forces.

For Finta, it leads back to that moment, crumpled up at the bottom of the stairs, wondering how this was happening, when he saw the guns of the customs agents looming over him...

"I decided then that I would not be intimidated," Finta explains.  "Philippines is a beautiful country with wonderful people. Their struggle to shake off corruption is an important one for their future. President Duerte has been elected on a platform to rid the Philippines of its corruption. I would like to think that by finally bringing justice to our little German business, that he can win back lots of the business that is intimidated by stories such as ours."

Go Unimex’s 30 –Year Timeline for Justice

Go Unimex Micro