Exclusive: Marubeni says Chinese authorities detain three staff at grain unit

TOKYO/BEIJING Wed Apr 23, 2014 9:28pm EDT

A logo of Japanese trading house Marubeni Corp is seen on the company's headquarters in Tokyo May 29, 2012. REUTERS/Yuriko Nakao

A logo of Japanese trading house Marubeni Corp is seen on the company's headquarters in Tokyo May 29, 2012.

Credit: Reuters/Yuriko Nakao

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TOKYO/BEIJING (Reuters) - Three employees at one of Marubeni Corp's (8002.T) grain trading units in China have been detained by authorities, the Japanese trading house said on Thursday, a move sources told Reuters was prompted by allegations the unit evaded taxes on soy bean imports.

The employees worked at a Chinese unit of Marubeni's Columbia Grain, Inc, a spokesman at the trading company said. He added he did not know why they had been detained. He also said he did not know the nationalities of the employees.

The detentions may signal further complications in strained relations between Japan and China. Japan's Mitsui O.S.K. Lines Ltd (9104.T) has paid almost $40 million to Chinese claimants, stemming from a wartime claim after the seizure of one of its ships by a court in Shanghai, media in Japan said on Thursday.

The seizure of a Mitsui bulk carrier set off alarm bells in Japan and the country's top government spokesman warned this week it may damage Japanese business in China.

The probe into Marubeni's China unit comes nearly a year after investigators raided GlaxoSmithKline's (GSK.L) offices in China and detained four senior executives on suspicion of bribery and tax fraud.

It also comes amid escalating tensions between China and Japan over a chain of uninhabited islands both countries claim, after the Japanese government purchased them from private owners in 2012. Japanese companies are switching investment from China to Southeast Asia amid the tensions.

One of the Marubeni staff being held is Zhang Wenjing, a trading executive with Columbia Grain, following tip-offs that the company was evading taxes for soybean shipments sold to a crusher in the province, two trade sources told Reuters.

"Zhang was investigated by customs authorities. The customs received a tip-off that the company was suspected of evading taxes and smuggling by using provisional prices," said one trade source, who has close business dealings with the company.

Another industry source said Zhang and her colleagues were held by customs authorities in the city of Qingdao in Shandong province. He could not identify Zhang's colleagues.

One official at Columbia's Shenzhen office reached by Reuters said Zhang was not available and declined to comment when asked if Zhang was detained.

The Columbia office in Dalian said none of its traders were detained and said Zhang could still be contacted. However, Zhang did not answer phone calls made to her mobile phone on Wednesday.

DECLARED CARGO VALUE

Sources said the allegations of tax evasion were related to discrepancies on the reported valuation of imported soybean cargoes, which would affect customs duty and value-added tax (VAT) since both are levied based on the cargo values.

Such discrepancies are a common occurrence in commodity trade, including soybeans, as sellers typically offer Chinese buyers a delayed pricing mechanism that allows importers to place orders based on a preliminary price.

This provisional pricing would be used to calculate cargo value when making customs declarations.

Buyers are then able to fix prices based on futures prices on the Chicago Board of Trade when cargoes arrive in China or as late as a month after their arrival. This final price would be the actual valuation of the cargo.

Since U.S. soy prices have risen by more than 12 percent so far in the year, both parties may have under-reported the actual value of the cargo, said the trade source.

China's customs authority is familiar with the practice of delayed pricing in commodities trade and has provisions in place allowing companies to adjust the declared cargo value, industry sources said.

"Delayed pricing has been widely used in the industry, we don't know how serious customs authorities will be in handling the case this time," said the source.

Chinese buyers have threatened to default on more than 20 cargoes to avoid incurring huge losses in a depressed local market.

Chinese buyers have not priced most of these cargoes.

(Writing by Aaron Sheldrick and Fayen Wong; Editing by Alex Richardson)

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