Four major U.S. coffee importers have been subpoenaed by the Justice Department in an investigation in connection with a Mexican coffee smuggling scandal that allegedly involved millions of dollars in tax fraud and kickbacks to Mexican officials.
Two of those subpoenaed are Acli International Incorporated and J. Aron & Co., Inc., both New York commodities dealers, administration sources said. The identity of the other was not immediately known.
The Justice Department would not comment on the investigation. Administration sources confirmed, however, that the subpoenas had been served.
A spokesman for J. Aron said, "The matter is in the hands of our lawyers; we will have no further comment." J. Howard of Acli replied, "We never discuss any of this kind of information publicly."
Under the Foreign Corrupt Practices Act, passed last year in the wake of the uproar caused by corporate bribes and questionable payments to overseas governments and agents, payments to any foreign officials for the purpose of obtaining business are illegal. If convicted, a company can be fined up to $1 million; an individual can be fined up to $10,000 and imprisoned for a maximum of five years.
Coffee smuggling is not rare in Mexico, but it has never been practiced on such a widespread scale, informed sources said. The alleged smuggling occurred in late 1977 and 1978. Retail coffee prices reached a peak of nearly $4 a pound in this country in mid of 1977; then they began to fall as consumption dropped.
According to the Latin American Commodities Report, published in London, the smuggling flourished when Central American coffee producers, including Mexico, decided last fall and again in March to cut off exports temporarily in order to boost market prices. Smugglers, major growers and hoarders, the publication continued, were encouraged to buy coffee directly from peasants. Th coffee was smuggled out in trucks and buyers had to pay $2200 per shipment to make officials look the other way. False invoices were used so that, for example, in one case a Mexican exporter usually sent 6,500 bags across the border although he was authorized to send only 3,500. No taxes were paid on the other 3,000 bags. Part of the difference between the actual price and the official or registered price is said to have been kicked back to government officials.
A complaint about prices from coffee producers led to an investigation being ordered by Fausto Cantu Pena, head of the Mexican Coffee Institute. The institute buys about 15 percent of Mexico's annual coffee crop and levies taxes on the exported commodity. The Finance Ministry's investigator Reyes Retana turned up evidence of 3,000 smuggled bags. (A bag contains 132 pounds of coffee.)
The investigation itself appeared to be a cover-up. Both men and other colleagues were indicted for fraud, for having concealed evidence of much greater smuggling activity. The total is said to be 18 to 20 million pounds of coffee, with a market value of $35 million. The Mexican government estimates the exporters evaded $10.6 million in taxes.
In a deposition taken after his arrest, Cantu named several U.S. importers who allegedly purchased the smuggled coffee. The Mexican government then asked the American government for help. Last May Latin American Commodities Report stated: "The news that the U.S. Justice Department has agreed to help the Mexican legal authorities has added substance to rumors that many U.S. importers were involved in the smuggling. The suggestion is that many importers either directly or indirectly were part of a conspiracy to keep themselves supplied with smuggled coffee, thus enabling them to keep away from the open market place at a time when their low stock levels should have forced them to buy."