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Advisory Council on the Environment

Progress Report on Illicit Use of Diesel Oil

 

(ACE Paper 34/99)
for information

Introduction

During the past 12 months, Customs continuously makes great efforts to combat the misuse of diesel oil in different aspects. The problem has been tackled in different levels, namely the source of supply, distribution and retail. Consequently, we managed to have record seizures of different kinds of diesel oil.

Source

At sea

2.There are two common ways where illicit diesel oil is supplied at sea. First, vessels, of which largely are HK fishing boats or Mainland trade or cargo vessels, which are employed to smuggle light diesel oil (LDO) from Mainland into Hong Kong. Second, culprits would smuggle exporting LDO, which is lower in price, back to Hong Kong, and this is what we call relanding.

 

3.Since September 1998, Customs has stepped up enforcement at sea to detect and suppress such kind of smuggling. The enforcement actions include raiding the vessels while they are discharging illicit LDO and intercepting vessels claimed to export LDO for inspection.

 

4.From September 1998 to July 1999, Customs officers boarded a total of 765 vessels for inspection, of which 16 vessels were found involved in illicit LDO activities. The total seizure amounted to 2,551,919 litres, which is 137.8% increase when comparing to last year. As a result of our enforcement actions, the supply of illicit LDO from sea is now virtually relinquished.

 

 

Seizures by Smuggling at Sea         Table 1

 

Mon/Year Seizures(litre) Mon/Year Seizures(litre) %Change
Sep/97 58,600 Sep/98 94,000 +60.4%
Oct/97 32,680 Oct/98 0 NA
Nov/97 167,750 Nov/98 120,000 -28.5%
Dec/97 94,200 Dec/98 97,000 +3%
Jan/98 102,000 Jan/99 136,000 +33.3%
Feb/98 8,700 Feb/99 0 NA
Mar/98 127,105 Mar/99 36,000 -71.7%
Apr/98 58,000 Apr/99 577,200 +895.2%
May/98 166,036 May/99 1,098,685 +561.7%
Jun/98 10,000 Jun/99 393,034 +3830.3%
Jul/98 248,000 Jul/99 0 NA
Total 1,073,071 Total 2,551,919 +137.8%

On Land

5.On land Customs have an array of actions in battling against the source and the use of illicit diesel oil. There are 3 common sources by which illicit diesel oil is supplied on land. Among others, marked oil detreating plant is the most common source of illicit diesel oil on land. Detreating plant itself is also a distribution centre where detreated oil would be distributed to illegal filling stations for retail. From September 1998 to July 1999, we cracked down a total of 36 detreated oil plants and resulted in a total seizure of 260,155 litres of detreated oil, which is 35.6% increase comparing to last year. The total amount of detreated oil seized during this period is 358,685 litres.

 

 

Detreated Oil - Seizure ( Litres )         Table 2

 

09/97 - 07/98 09/98 - 07/99 % Change
Sep/97 76,900 Sep/98 400 -99.5%
Oct/97 48,300 Oct/98 12,000 -75.2%
Nov/97 13,625 Nov/98 12,000 -11.9%
Dec/97 0 Dec/98 7,500 N.A.
Jan/98 13,050 Jan/99 46,100 +253.3%
Feb/98 8,000 Feb/99 0 N.A.
Mar/98 20,000 Mar/99 51,300 +156.5%
Apr/98 14,700 Apr/99 53,420 +263.4%
May/98 44,000 May/99 32,860 -25.3%
Jun/98 13,000 Jun/99 44,575 +242.9%
Jul/98 16,000 Jul/99 98,530 +515.8%
Total : 267,575 Total : 358,685 +34%

6.Detreating plants are usually located at abandoned farm land in the New Territories, but on independent occasions the detreating process was found shifting to urban area or industrial centre in order to evade Customs detection. In August 1999, Customs discovered 2 detreating plants which were inside a shop in Shamshuipo and an industrial centre in Tuen Mun respectively.

 

7.The other source of illicit LDO is by cross-boundary vehicles. Cross-boundary vehicles are allowed to carry a maximum of 300 litres of LDO depend on the vehicle size when entering Hong Kong from Mainland. Some cross-boundary vehicle drivers would make use of the duty-exemption to discharge the duty-exempted LDO and sell it to other local drivers after their arrival in Hong Kong. Yet, some other cross-boundary vehicle drivers would even make an enlarged fuel tank or false compartment in their vehicles to carry large quantity of LDO when entering Hong Kong. Likewise, those drivers would subsequently discharge the LDO and sell it to other local drivers when arriving in Hong Kong.

 

8.Given this situation, Customs have tightened the checking on the amount of LDO carried by the cross-boundary vehicles. Offended drivers would be compounded on the exceeding quantity of LDO. From September 1998 to July 1999, 35 drivers were compounded at various control points for a total of 4,965 litres of LDO exceeding the duty exemption rate.

 

9.There is also another way of smuggling illicit LDO from Mainland into Hong Kong, it is not so common though. In October 1998, Customs discovered an underground pipe extending from Mainland, along Shenzhen River, into Mai Po, Hong Kong. The pipe was found transferring LDO from Mainland to Hong Kong. Vehicles were deployed to load LDO from the outlet of the pipe in Mai Po and distribute it to illegal filling stations. With the assistance of Guangdong Customs, we were able to recover the pipe from Shenzhen River and subsequently destroy it.

 

Retail and Users

Operations

10.Apart from our routine operations, we have two types of territory-wide special operation, namely Camphor and Rooster, targeted at illegal filling stations and marked oil users respectively. From September 1998 to July 1999, we conducted a total of 8 "Camphor" operations, resulting in 50 arrests and a total seizure of 33,111 litres of LDO and 15,000 litres of marked oil.

 

11.8 "Rooster" operations were conducted during the said period. A total of 77 drivers were arrested for using marked oil as fuel for their vehicles. From March 1999, the scale of "Rooster" has been magnified. Since then, both the number of vehicles selected for fuel tank checks and the quantity of marked oil seized increase. The hit ratio of detecting vehicles using marked oil as fuel drops continuously from about 7 % in January 1999 to 1.9 % in July 1999, which reflects a strong deterrent effect of our enforcement actions.

 

Light Diesel Oil - Seizure ( Litres )         Table 3

 

09/97 - 07/98 09/98 - 07/99 % Change
Sep/97 131,077 Sep/98 171,750 +31%
Oct/97 136,449 Oct/98 26,725 -80.4%
Nov/97 253,410 Nov/98 140,472 -44.6%
Dec/97 227,509 Dec/98 122,797 -46%
Jan/98 126,499 Jan/99 176,179 +39.3%
Feb/98 67,909 Feb/99 33,097 -51.3%
Mar/98 227,757 Mar/99 69,402 -70%
Apr/98 150,749 Apr/99 630,514 +318.3%
May/98 209,350 May/99 1,132,134 +440.8%
Jun/98 77,901 Jun/99 476,285 +511.4%
Jul/98 350,517 Jul/99 59,169 -83.1%
Total : 1,959,127 Total : 3,038,524 +55.1%

Marked Oil - Seizure ( Litres )         Table 4

 

Month/Year

Month/Year

% Change

Sep/97 4,310 Sep/98 13,874 +221.9%
Oct/97 8,365 Oct/98 11,046 +32.1%
Nov/97 30,619 Nov/98 16,001 -47.7%
Dec/97 591 Dec/98 25,694 +4247.5%
Jan/98 1,012 Jan/99 25,464 +2416.2%
Feb/98 9,703 Feb/99 17,179 +77%
Mar/98 3,823 Mar/99 60,814 +1490.7%
Apr/98 10,292 Apr/99 62,354 +505.8%
May/98 7,442 May/99 18,630 +150.3%
Jun/98 8,472 Jun/99 58,286 +588%
Jul/98 19,590 Jul/99 54,191 +176.6%
Total : 104,219 Total : 363,533 +249%

12.There is a trend for illicit oil users to switch to detreated oil instead of marked oil for lower chance of being detected during fuel tank inspection. Following the increase of demand in detreated oil, it is foreseeable that the number of detreated plant will go up. Given such situation, Customs will allocate resources appropriately in response to such trend.

Vehicles detained for forfeiture

13.During our enforcement operations, we would detain vehicles used for storing and supplying illicit LDO and those having repeated record of using illicit fuel. 187 numbers of vehicle were detained for being used for illicit fuel storage or suppliers from September 1998 to July 1999. 5 other vehicles were detained for having repeated record of using illicit fuel in the same period.

Strategies

14.We are considering two proposals on legislation amendment. First, we are studying the possibility to add a presumption in the Dutiable Commodities Ordinance in relation to the sulfur content of LDO. The legitimate auto LDO contains 0.05% of sulfur by weight whereas all other types of LDO have a much higher ratio of 0.5%. We suggest presuming the LDO to be dutiable if it is found to have more than 0.05% of sulfur by weight in content. This presumption will have dual benefits: for substantiating the proof of dutiability of LDO, by which the government revenue will be better protected and for environmental protection purpose. Second, we are considering the proposal of introducing a registration system for the suppliers of diesel oil products. By doing so, we believe the transaction of diesel oil products can be better controlled.

15.Co-operations with other Departments, i.e. HK Police Force, Fire Services Department, Environmental Protection Department, ICAC and Mainland Law Enforcement Agencies will become closer and closer. Such co-operations involve intelligence exchange and joint operations. We now have regular operations with Fire Services Department to raid the illegal filling stations in both residential and rural areas.

16.A reward system called "The Oil Industry Reward Scheme" introduced since 1 April 96 encourages public to give information on illicit fuel activities for a maximum reward of HK$140,000.00. In fact, considerable quantities of seizure are made resulting from the contributions of informers under this scheme.

17.Actions are also taken against the car parks in where illegal filling stations were found. Correspondence was made with Lands Department. They responded by warning the management companies of those car parks to take remedial actions where possible, or their tenancy contracts will be terminated.

18.The Customs Special Task Force established in 28 June 1999 also shares the mission of combating the problem of illicit diesel oil. With the establishment of Special Task Force and our outstanding performance in the past 12 months, it is not hard to realize that Customs have demonstrated a strong determination to fight against the problem.

Penalty

19.It has been criticized that the penalty for illicit oil offenders was too lenient to reflect the prevalent trend of the misuse of diesel oil. After much deliberation on the current situation to the Judiciary, the actual penalty for illicit oil offenders generally raises in 1999. The range of penalty for using illicit oil as fuel raises from HK$1,000 to HK$5,000 and is much higher than the old figures, HK$1,000 to HK$2,000.

20.The usual penalty for operators of illegal filling stations also goes up to a range of fine of HK$1,000 to HK$8,000. Magistrates are now more likely to sentence such offenders to suspended imprisonment and probation order, by which a stronger deterrent effect is exposed to the offenders of the same kind.

21.For offences involving bulk seizure, like smuggling dutiable diesel oil by vessels and operating marked oil detreating plants, the sentences are heavier too. The range of penalty of fine for such offenders is from HK$2,000 to HK$46,000 and of imprisonment from 2 months to 6 months.

Penalty of offences under the Dutiable Commodities Ordinance         Table 5

 

Offences

Range of fine

Range of imprisonment

Illicit fuel user

HK$1,000 to 5,000

Nil

Operator of illegal filling station

HK$1,000 to HK$8,000

Suspended imprisonment

and probation order

Operating detreating plant
&amp
Smuggling by sea

HK$2,000 to HK$46,000

2 months to 6 months

Conclusion

22.As a result of our diversified enforcement strategies and actions, we have made substantial amount of oil seizures when comparing to the figures of 1998.

Overall performance in seizure

 

 

Sept 97 to July 98

Sept 98 to July 99

% Change

Light Diesel Oil      
Seizure (litre)

1,959,127

3,038,524

+55.1%

Marked Oil      
Seizure (litre)

104,219

363,533

+249%

Detreated Oil      
Seizure (litre)

267,575

358,685

+34%

Total

2,330,921

3,760,775

+61.3%

23.Customs have the determination and ability to strive for an even better result in the days to come.

 

Customs &amp Exercise Department
August 1999


 

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