By Dave Sherwood
SANTIAGO (Reuters) – In January 2017, Chilean Customs inspectors acted on a tip from a whistleblower: The country’s prized crop of raspberries was under threat.
Inspectors raided the offices of Frutti di Bosco, a little-known fruit trading company on the second floor of a tower block in downtown Santiago.
The files, company data and sales records they seized revealed a food trading racket that spanned three continents.
At its heart was a fraud centered on raspberries. Low-cost frozen berries grown in China were shipped to a packing plant in central Chile. Hundreds of tons of fruit were repackaged and rebranded by Frutti di Bosco as premium Chilean-grown organics, then shipped to consumers in Canadian cities including Vancouver and Montreal, according to documents prepared by Chilean Customs as part of its investigation. The agency calculated that at least $ 12 million worth of mislabeled raspberries were sent to Canada between 2014 and 2016.
Much of that product, the documents showed, came from Harbin Gaotai Food Co Ltd, a Chinese supplier. Canadian health authorities later linked berries from Harbin Gaotai to a 2017 norovirus outbreak in Quebec that sickened hundreds of people. Canadian authorities issued a recall on Harbin Gaotai berries coming directly to Canada from China dating back to July 2016.
What they didn’t realize is that Harbin Gaotai raspberries had also entered Canada through a backdoor during that period in the form of falsely labeled fruit shipped from Chile by Frutti di Bosco.
The scheme, pieced together for the first time by Reuters, lays bare the ease with which mislabeled, potentially risky products can be slipped past the world’s health and customs agencies, even as authorities across the globe scramble to ensure foods entering their countries are free of a new scourge – COVID-19.
Harbin Gaotai did not reply to requests to comment for this report.
Frutti di Bosco’s owner, Cesar Ramirez, who was convicted last year in Chile for falsifying export documents to facilitate the scheme, declined to speak with Reuters. His attorney declined to comment.
Reuters examined thousands of pages of legal filings, investigation documents and trade records obtained through freedom-of-information requests in Chile and Canada. Reuters also spoke to more than two dozen people with knowledge of the case, including the manager of a fruit-packing house that uncovered the deception.
Pulling off the fraud was relatively simple, the investigation revealed.
The Canada-Chile trade pact, which came into force in 1997, allows exporters to self-certify the provenance of their goods, trade experts said. The agreement allowed the mislabeled berries to enter Canada tariff-free, evading a 6% levy slapped on the same fruit imported directly from China, Chilean Customs documents show.
More lucrative still, conventional fruit represented as “organic” could fetch premium prices, piggybacking on Chile’s reputation for safety and quality. Documents certifying the fruit as organic were faked, customs inspectors found.
(For a graphic on how the scam worked, see: https://graphics.reuters.com/CHILE-CRIME/RASPBERRIES/jbyvrmdkope/index.html)
CHILE KEPT IT QUIET
Chile’s export fruit industry, alerted by Customs to the whistleblower complaint in late 2016, immediately grasped the potential fallout for the $ 7 billion sector, according to correspondence obtained by Reuters under Chile’s Transparency Act.
The southern hemisphere nation stocks grocers in the United States, Canada and Europe with grapes, cherries, blueberries and raspberries in the northern winter. If word got out that Chile’s fruit was not what it purported to be – or worse still, if someone got sick – it could tarnish its hard-won image.
“This situation could generate serious problems for the food industry in our country,” Ronald Bown, head of the Chilean Fruit Exporters Association, wrote in a Nov. 15, 2016 letter to Customs obtained by Reuters. He asked the agency to investigate the whistleblower’s allegations and warned of “the closing of markets” to Chilean fruit.
Bown confirmed writing the letter and repeated the same concerns when approached by Reuters on July 30.
Chile did not notify Canada that anything was amiss, however, according to Canadian officials. An alert failed to materialize even after Ramirez, Frutti di Bosco’s owner, alleged he had colluded with the buyer of the fruit – Montreal-based Alasko Foods Inc – to ship the illicit products to Canada, according to Chilean investigation records.
Canada’s food inspection agency said it is now investigating the matter after Reuters contacted authorities there for this story.
Alasko denied wrongdoing. The company is insolvent and entered into receivership last month, according to documents filed Sept. 10 in Quebec Superior Court by financial consultancy Raymond Chabot, Inc, the court-appointed receiver. Raymond Chabot declined to comment.
Alasko officials did not respond to requests for comment regarding the receivership.
The company’s promotional materials claim it is one of Canada’s leading purveyors of frozen fruit, with products sold in Costco (NASDAQ:) and Sam’s Club. Costco declined to comment. Sam’s Club did not respond to a request for comment.
Ramirez told Chilean Customs investigators that Alasko ordered the repackaging of the Chinese berries “because it was more economical to do it in Chile,” to take advantage of the Chile-Canada free-trade deal, Customs records show. He made the same allegations in a civil lawsuit he filed in Chile´s capital Santiago in June 2019, claiming Alasko had “directly financed and supervised” the operation. Canada received 84% of Frutti di Bosco’s produce shipments, the Customs investigation found.
Ramirez last year pleaded guilty to two criminal counts of making false statements on export declarations. He received a $ 6,266 fine and a suspended 122-day jail sentence. Chilean Customs had recommended a maximum fine of $ 55.6 million.
His lawsuit seeks $ 26 million in damages from Alasko and Chilean businessman Mauricio Rebolledo. Ramirez claims in the suit he was duped into participating as a front man in the scam by Rebolledo, whom he alleges operated on behalf of Alasko.
Ramirez told Chilean Customs his firm paid sales commissions to a business tied to Rebolledo, according to investigators’ notes on the raid of Frutti di Bosco’s offices seen by Reuters. Customs did not mention Rebolledo in its final report about the investigation.
Prosecutors did not charge Rebolledo in the case.
In a written response to Reuters, Rebolledo said he was an independent fruit broker who had done business with both Frutti di Bosco and Alasko. He said he was not Alasko’s representative in Chile.
Rebolledo denied wrongdoing and said Ramirez’s allegations about his involvement in the illegal scheme were “false and tendentious.” Rebolledo said the civil suit was “unjustified” and an attempt by Ramirez to “confuse and hold others responsible” for his own misdeeds.
Alasko and Rebolledo have contested the suit, arguing it should be thrown out on grounds of inadequate evidence. The case is pending.
Frutti di Bosco continued shipping fruit, including raspberries labeled as Chilean, to Alasko through at least 2018, according to internal company shipping documents and export declarations viewed by Reuters.
Alasko said in a March 6 statement that it has always complied with all regulations on fruit imports and exports. It said it no longer does business with Frutti di Bosco and declined to comment specifically on that firm’s illicit activity.
“It is the responsibility of the growers and packers to have the proper food safety and organic certifications, and to provide the associated documentation” required for shipments to Canada, Alasko said in the email.
The Canadian Food Inspection Agency (CFIA), however, said importers also play a key role in keeping consumers safe. The “onus is on importers of food into Canada to ensure that they source safe food from reliable suppliers and that the food meets all Canadian regulatory requirements,” the CFIA told Reuters in an email.
A Canadian government spokeswoman said her country’s Foreign Ministry, the CFIA and the Canada Border Services Agency had no records of the case or communication about it from the Chilean government.
Chilean trade expert Hugo Baierlein said the reported lack of communication was highly irregular. He said it would have been standard practice for Chilean officials to reach out in such circumstances. Baierlein served as director of foreign trade for SOFOFA, the Federation of Chilean Industry, an umbrella group that represents Chilean industry.
Chilean Customs would not say whether it had contacted Canada, and that any such communications would be confidential.
The economic relations arm of Chile´s Foreign Ministry declined to answer questions about whether Chile had informed Canada. The agency defended Chile’s handling of the case. “The administrative and judicial procedures operated fully,” a spokeswoman said.
Neither Chile´s Foreign or Customs ministries would comment on any new steps they have taken to deter cheating and ensure the integrity of the country’s produce exports.
Chilean Customs officials were alerted to something fishy in late 2016, when they received a letter from Fruticola Olmue, one of the country’s top fruit-packing plants, located in Chillan, 250 miles south of the capital.
Juan Sutil, the owner of a major Chilean food conglomerate and now head of Chile’s influential Chamber of Commerce and Production, had purchased Fruticola Olmue the previous year. An internal audit raised red flags about work the plant had done for Frutti di Bosco, according to a letter dated Oct. 24, 2016, seen by Reuters, which was signed by Fruticola Olmue General Manager Juan Miguel Ovalle.
Ovalle’s team found that the Fruticola Olmue plant had repackaged imported fruit into plastic bags labeled as Chilean organics, a practice that started under the facility’s previous owners in 2014 and was still happening when new management discovered it, according to documents in the Chilean Customs investigation.
Max Hassler, the former CEO of Fruticola Olmue and a current member of its board of directors, did not reply to a request for comment. He was not charged by prosecutors.
In the first seven months of 2016 alone, Fruticola Olmue appeared to have packed at least 400 tonnes of mislabeled fruit bound for Canada, enough to fill 25 shipping containers, its letter to Customs said.
“It was so obvious,” Ovalle, who no longer works for Fruticola Olmue, told Reuters. “All of (Frutti di Bosco’s) raw material was imported.”
Fruticola Olmue cut ties with Frutti di Bosco on Oct. 24, 2016, the same day it alerted Customs, according to a separate letter it sent to Frutti di Bosco and seen by Reuters. Fruticola Olmue told Reuters it no longer does business with Ramirez, Canadian frozen fruit firm Alasko, or Rebolledo, the fruit broker.
Searching Frutti di Bosco’s books, Customs inspectors found that between 2014 and 2016 the company had exported more than 3,600 tonnes of fruit and vegetables. The provenance of half that produce wasn’t clear, agency records show. Canada was by far the top export destination, but Frutti di Bosco also shipped to the United States, Kuwait, Turkey and the United Arab Emirates. In their final report to agency leaders, Customs inspectors recommended the investigation be expanded to determine the sources of all the company’s produce.
The investigation dossier provides no evidence of an expanded probe. Customs told Reuters it pursued all avenues and that no open questions remained.
The agency’s final report said Alasko was a major supplier of foreign-sourced fruit that Frutti di Bosco imported into Chile, as well as the top purchaser of Frutti di Bosco’s exports. Chilean Customs did not recommend criminal charges against Alasko.
It did, however, state in its final report that the “scope of this investigation goes beyond our national territory,” and that it appeared “Chinese and Canadian companies” had used Chile as a middleman to dodge tariffs.
Guillermo Gonzalez, head of ChileAlimentos, a trade group that represents Chile´s food industry, condemned the raspberry fraud, but called it an “isolated” incident.
Others aren’t so sure. Complex global supply chains mean law enforcement can’t keep up with players looking to game the system, according to Gary Ades, a U.S.-based food safety consultant.
A dragnet led by Europol and Interpol across 78 countries, including the United States and much of Europe, turned up 16,000 tonnes and 33 million liters of suspect food and drink in just five months in late 2018 and 2019. Consultants estimate food fraud costs the global industry billions of dollars annually.
Ades said the faux Chilean fruit caper would have been easy to pull off. “You just get it into a packing house, and you can’t tell where things are going,” he said. “It’s very, very difficult to trace.”
ILLNESS IN CANADA
As Chile investigated Frutti di Bosco in early 2017, Canada saw an outbreak of norovirus, a highly contagious stomach flu often triggered by food tainted with human feces. It ripped through convalescent homes and children’s daycare centers in Quebec between March and August of 2017, according to a report from Quebec’s Health Ministry and the Ministry of Agriculture, Fisheries and Food. More than 700 people fell ill, the ministry said.
The culprit: Frozen raspberries imported from China, according to an investigation by Canada’s CFIA, the food inspection agency. The supplier: Harbin Gaotai, one of the major sources of raspberries repackaged in the Chilean export scam. Reuters obtained a copy of the CFIA report on the probe via Canada’s Access to Information Act.
Harbin Gaotai, based in Binzhou, China, didn’t respond to requests for comment. Its products have raised concerns elsewhere. The company since 2009 has been on a U.S. Food and Drug Administration watchlist after American authorities found raspberry shipments containing illegal pesticide residue.
In Canada, the outbreak prompted a recall of all raspberry products originating from Harbin Gaotai arriving in Canada between July 24, 2016 and July 26, 2017. The Canadian investigation identified Canada’s Alasko Foods as one of three importers of the tainted berries.
The Chilean Customs investigation showed that Frutti di Bosco was shipping repackaged Chinese raspberries to Alasko in Canada until the end of 2016, which directly overlapped with the period of the Canadian recall.
Some of those Chinese berries were supplied by Harbin Gaotai and shipped to Chile via a middleman – New Zealand-based Directus South East Asia Ltd – according to international trade and ship cargo data viewed by Reuters.
Directus told Reuters it had shipped raspberries to Chile in 2016 but was “not aware of any fraud.” It said it had no relationship with Alasko or Frutti di Bosco beyond those shipments.
No one knows whether the Harbin Gaotai raspberries imported via Chile contributed to the Canadian norovirus outbreak. Canadian authorities, unaware at the time of the illicit triangulation, said they never knew to look.