By James Topham and Niu Shuping
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 industry sources said was prompted by allegations of tax evasion on soy bean imports.
The employees worked at a Chinese unit of Marubeni's Columbia Grain, Inc, a spokesman at Marubeni said, adding he did not know why they had been detained.
Japan's chief cabinet secretary, Yoshihide Suga, said none of the detained staff at the unit were Japanese citizens.
The detentions come amid a wave of soybean defaults in China, where a combination of poor crushing margins and difficulty getting credit has led to a spike in rejected cargoes.
U.S. soybean futures hit their lowest since April 14 on Thursday, on concerns about defaults by importers in China, which buys more than 60 percent of global imports. The market has lost 3.5 percent in five straight losing sessions.
Industry 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, since both are levied based on the cargo values.
The extent of the investigation in China was not immediately clear but the sector, which has seen traders use soybean imports as a way to secure cheaper financing for other investments, has suffered a series of defaults. Beijing has previously cracked down on similar trading practices involving other commodities such as iron ore and copper.
The probe into Marubeni's China unit also comes days after the seizure of a bulk carrier owned by Japan's Mitsui O.S.K. Lines Ltd <9104.T> in a case related to a wartime claim. Mitsui has paid almost $30 million to Chinese claimants and the ship was released, a Chinese court said on Thursday.
The seizure of the 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.
It 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.
Two sources, including one with direct knowledge of the matter, said one of the Marubeni staff being held is Zhang Wenjing, a trading executive with Columbia Grain. Her detention followed tip-offs to customs alleging that the company was evading taxes for soybean shipments sold to a crusher in the province, the sources said.
"The customs received a tip-off that the company was suspected of evading taxes and smuggling by using provisional prices," said one of the sources, 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.
An official at Columbia's Shenzhen office said Zhang was not available and declined to comment when asked if she had been 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 calls made to her mobile phone.
DECLARED CARGO VALUE
Discrepancies in the reported valuation of imported cargoes 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 are up more than 12 percent so far in the year, companies may have under-reported the actual value of the cargo, said the trade source.
One Singapore-based trader with an international firm said it was unlikely Marubeni would deliberately help buyers evade taxes.
"Marubeni has several second- and third-tier customers who could have reported lower values," he said.
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 a China-based trader.
Chinese buyers have threatened to default on more than 20 cargoes, which have not yet been priced, to avoid incurring losses in a depressed local market.
(Additional reporting by Kunihiko Kichise in TOKYO, Naveen Thukral in SINGAPORE and David Stanway in BEIJING; Writing by Aaron Sheldrick and Fayen Wong; Editing by Alex Richardson, Amran Abocar and Ed Davies)