Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on March 7 - 13, 2016.

 

AFTER more than a week following the raids led by officers from the Customs Department, aided by other government departments, including the police, the Ministry of Finance (MoF) and the Attorney-General’s Chambers, the affected flat steel manufacturers are still in the dark about the reason for the action.

Worse still, many of the companies’ bank accounts have been frozen, leaving them unable to carry out their daily operations and to make the necessary payments to their suppliers.

Checks by The Edge reveal that the raids were conducted under Subsection 44 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, which gives an enforcement agency the power to “issue an order to freeze any property of any person, or any terrorist property, as the case may be, wherever the property may be, and whether the property is in his possession, under his control or due from any source to him”.

Six affected public-listed companies — Southern Steel Bhd, Hiap Teck Venture Bhd, Ann Joo Resources Bhd, Wah Seong Corp Bhd, Amalgamated Industrial Steel Bhd and Prestar Resources Bhd — have announced to the local stock exchange that they had been raided. In their announcements, none of them have revealed the rationale behind the action, largely because they were caught unawares, according to industry players.

An executive from one of the affected companies is visibly upset. “We don’t know why we were raided … They (the Customs officers) came with police, armed with big guns, and were very rough. They switched off [our] surveillance cameras, confiscated [our employees’] handphones and were very difficult, treating us as though we were high-level, wanted criminals,” he says.

When contacted, a senior Customs officer, who was a member of the raiding party, declines to comment. “No, I cannot talk about it. It is confidential,” he says.

Nevertheless, the raids raised many questions among infuriated industry players.

According to Malaysian Iron and Steel Industry Federation (Misif), 12 steel companies, six of which are public-listed companies, underwent an industry-wide audit, which they claim was carried out in a high-handed manner. Nicom Steel Centre (M) Sdn Bhd, POSCO-MKPC Sdn Bhd and Shiuh Dong Industries Sdn Bhd were among those raided.

Misif has lodged a complaint with the MoF in a letter addressed to Deputy Finance Minister Datuk Chua Tee Yong.

In the letter, Misif says, “Our members are bona fide manufacturers that have continued to contribute significantly to the development and well-being of the national economy since several decades ago.

“In view of the above, we seek the urgent attention and assistance to address the ongoing predicaments, especially the freezing of accounts, facing the steel companies.”

One question that arose among those raided is, why was the Customs Department only after hot rolled coils (HRC) and not cold rolled coils, galvanised iron or pre-painted galvanised iron.

The department’s fixation with HRC has sparked speculation as to whether the raids were linked to a feud in the steel industry.

Megasteel Sdn Bhd, the only local HRC producer, has been at loggerheads with other members of the flat steel industry as it has been given a leg-up with import duties of 15% levied on companies seeking to bring in HRC, among others. Prior to this year, import duties were 20%.

Lion Diversified Holdings Bhd holds a 69.79% stake in Megasteel while Limpahjaya Sdn Bhd, a wholly-owned unit of Lion Corp Bhd, owns the remaining 30.21%. Both companies are controlled by businessman Tan Sri William Cheng Heng Jem.

It has been a long battle between Megasteel and the downstream players who want to source their raw materials abroad at lower prices.

In April 2011, Megasteel had submitted a petition for the government to initiate a safeguard investigation into the imports of HRC on the basis that the surge in HRC imports from 2007 to September 2010 had severely and adversely affected the domestic industry — that is, Megasteel — and thus, sought an additional 35% import duty on HRC, which would mean the total duty payable on HRC would be up to 60% for five years, which was not approved by the Ministry of International Trade and Industry.

Also, in 2014, Megasteel had initiated anti-dumping investigations into HRC from China, Indonesia and South Korea, resulting in anti-dumping duties of between 6.35% and 25.4% being imposed over and above the 15% import duties.

A safeguard action restrains trade and protects a particular industry or company — in this case, Megasteel — from foreign competition through restrictions on imports. Late last year, Megasteel had sought more protection, and towards this end, had petitioned for a public hearing for safeguard investigations into HRC imports into Malaysia.

The public hearing was held last November, and Megasteel’s petition came to naught.

Interestingly, last Thursday, Malaysia Steel Association (MSA), whose president is Lion group’s Cheng, issued a press statement to express its concern over the raids on the steel companies. MSA believes that as bona fide manufacturers, the companies have been abiding by the import rules and regulations, and will continue to cooperate with the authorities.

“The authorities deploying such heavy-handed tactics, which have received wide national press coverage, will tarnish the reputation of these companies before the due process of the law can be accorded to them,” the association says.

It is worth noting that one of the subsections of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act has it that a raid “shall cease to have effect after 90 days from the date of the order, if the person against whom the order was made has not been charged with an offence under this Act or a terrorism financing offence, as the case may be”.

For the raided companies, they could possibly be cash-strapped and dipping into deeper losses if their bank accounts were to be suspended for 90 days.

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