December 16, 2016 / 2:19 PM / 7 months ago

Special Report - Meth gangs of China star in Philippines drug crisis

16 Min Read

A soldier and a policeman guard a "Shabu" (Meth) laboratory making equipment that was seized by government authorities, which drug enforcement officials said can make a daily production of about 200 kilos of "Meth", in a remote village in Arayat, Pampanga in northern Philippines September 22, 2016.Erik De Castro

ARAYAT, Philippines (Reuters) - It was around 10 a.m. on September 22 when the raid on the pig farm began. Accompanied by fire and sanitation officials, a police team entered the compound at the foot of the extinct volcano Mount Arayat, north of Manila, on the pretext they were conducting a safety inspection.

They didn't find any pigs. What they did uncover, in a hangar larger than a football field, was a raised platform supporting a diesel generator, an industrial chiller and distillation equipment – all for the production of the highly addictive drug methamphetamine. The industrial-sized laboratory, the police report said, was capable of producing at least 200 kilograms a day of meth. Around that time, a kilogram of meth had a street value of $120,000, the police said.

Philippine law enforcement authorities had been alerted to the farm by locals who reported spotting vehicles with "Chinese-looking men" entering at night and leaving before dawn. During the raid, police arrested Hong Wenzheng, a 39-year-old Chinese national from Fujian province who is now in prison awaiting trial. Four other men believed to be Chinese nationals escaped and are the target of a manhunt.

The piggery bust points to an uncomfortable truth for Philippine President Rodrigo Duterte as he wages his "war on drugs": The problem he's fighting is largely made in China, the country he is embracing as a potential ally at the expense of longstanding ties with the United States.

The arrest of Hong, who has pleaded not guilty, added to the ranks of Chinese nationals seized in the Philippines on narcotics charges. Of 77 foreign nationals arrested for meth-related drug offences between January 2015 and mid-August 2016, nearly two-thirds were Chinese and almost a quarter were Taiwanese or Hong Kong residents, according to the Philippine Drug Enforcement Agency (PDEA).

Known in the trade as "cooks" and "chemists," meth production experts are flown into the Philippines from Greater China by drug syndicates to work at labs like the one at Mount Arayat. China isn't only a source of meth expertise – it is also the biggest source of the meth and of the precursor chemicals used to produce the synthetic drug that are being smuggled into the Philippines, according to local drug enforcement officials.

"It's safe to say that the majority of the meth we have comes from China," said PDEA spokesman Derrick Carreon.

Warming to China

China's dominant role in the Philippine meth trade has not dissuaded President Duterte from cozying up to Beijing, even as he declares drugs to be his country's greatest scourge. Duterte is waging a brutal anti-narcotics campaign that has killed more than 2,000 people and led to the arrest of more than 38,000. Police are investigating some 3,000 more deaths.

During a trip to Beijing in October, the Philippine president announced his "separation" from the United States and declared that he had realigned with China, casting doubt on the almost seven-decade alliance between Washington and Manila. The pivot to Beijing has bewildered some drug-control officials at home, who say China's leaders have provided little help over the years in stemming the flow of drugs into the Philippines.

"It seems there's very little action on the part of the government of China," said Richard Fadullon, senior deputy state prosecutor and chairman of the drugs task force at the Philippines' Department of Justice. "You'd think that somehow it would be a cause for concern, but there doesn't seem to be that kind of reaction."

Duterte's office did not respond to questions from Reuters.

As he warms to China, Duterte is also spurning the country that is the primary source of aid and expertise to Manila in its battle against drugs – the United States.

The U.S. Drug Enforcement Agency (DEA) provides training and intelligence to drug authorities across the Philippines and supports an interagency task group at the international airport in the capital aimed at countering trafficking. Carreon said the DEA had recently helped uncover six separate incidents of cocaine smuggling at the airport.

"All my friends are in the U.S. DEA," said one senior Philippine drug control official, who spoke on condition of anonymity. "Most information comes from the U.S. DEA."

That may change. Saying it was "deeply concerned" by reports of extrajudicial killings in Duterte's crackdown, the United States recently said it was shifting $5 million in funding for Philippines law enforcement away from police drug-control programs.

Sceptical Drug Officials

Since taking office on June 30, Duterte has aimed some criticism at China. He suggested after the raid on the Arayat meth lab in late September that if Beijing considered his country a friend, China should act to stem the flow of drugs. In August, his government summoned the Chinese ambassador to explain the supply of narcotics from China to the Philippines.

Foreign Affairs Secretary Perfecto Yasay told Reuters at the time that China's ambassador to Manila, Zhao Jianhua, had rejected the charge. "I told him these reports are based on intelligence information, they have been validated so far as we are concerned," Yasay said.

Still, Duterte has pointed to what he says is a willingness in Beijing to help Manila in its battle against drugs. And, since visiting Beijing in October, he has not pressed the issue of drugs and precursors flowing from China. During that trip, Duterte and Chinese President Xi Jinping agreed to beef up exchanges of intelligence, know-how and technology in fighting drug crimes, and to set up a mechanism for joint investigation of drug cases. In a joint communiqué, the Philippines thanked China for an offer to donate drug detection equipment and help with training.

"China understands and supports the Philippines' policy under the leadership of President Duterte to fight against drugs, and is willing to proactively cooperate against drugs with the Philippines," the Chinese Foreign Ministry said in response to questions from Reuters.

Some Philippine drug officials scoff at China's offers of assistance. "I almost fell off my chair when I heard that China would be helping the Philippines with its drug problem," said a Department of Justice official who has been dealing with drug crimes for many years and has experienced little cooperation from Beijing.

In an interview, Philippine National Police spokesman Dionardo Carlos said: "We are not aware of any high-profile drug cooperation between China and the Philippines since the president's visit to Beijing."

Jeremy Douglas, the regional representative of the United Nations Office on Drugs and Crime (UNODC) for Southeast Asia and the Pacific, says there is "some cooperation and information exchange" taking place between the two countries on regional drug and precursor trafficking. "But we understand it is on a case by case basis and is not systematic or routine," he said. "The only way to make a dent in the trade is to target those that run the business."

Duterte regularly says he will hunt down drug lords. In October, the police announced they were launching a new phase in the drug crackdown that would focus on "high value" targets. But to date, the president's campaign has almost exclusively targeted users and small-time pushers in the country's poorest neighbourhoods, not the drug barons supplying them with meth, or "shabu" as it is called in the Philippines.

Masking the Smell

In another twist, China offered the Philippines assistance with drug rehabilitation during Duterte's visit. Even as meth and precursors continue to pour into the country from China, a Chinese businessman has pledged to fund two 10,000-bed rehabilitation centres in the Philippines, which has few drug treatment facilities. One of the projects opened in late November.

Drug seizures and police raids on meth labs have ticked up under Duterte. Nine laboratories have been dismantled this year, according to PDEA spokesman Carreon, which is more than in the previous three years combined. Six of these labs have been raided since Duterte took office.

Members of the Philippine National Police (PNP) examine plastic bags containing methamphetamine hydrochloride known locally as "shabu", after they were seized in a police anti-drugs operation, at a police station in Quezon city, Metro Manila in the Philippines November 15, 2016.Czar Dancel

Data provided by PDEA also showed that 1,520 kg of meth had been seized this year as of November 10 – 2.5 times the figure for the whole of 2015. This still represents a small fraction of the amount being consumed, says the UN's Douglas.

Near the site of the Mount Arayat police raid, Apolonia Pineda, 68, a local resident, recalls that Chinese men would regularly buy food from a ramshackle general store on the dirt track leading to the pig farm. "The Chinese told us they were setting up a tire factory," she recalled.

The subterfuge had been well thought out. Head-high grass largely concealed the hangar that housed the meth lab, making it impossible for passersby to peek in.

While there were no longer any pigs at the farm, police had found several thousand hogs when they raided a piggery on the other side of Mount Arayat a few weeks earlier. There, they uncovered a smaller meth lab in the basement of a building. According to the police report, 20 kg of the precursor ephedrine and a small amount of methamphetamine were seized. So were seven Chinese nationals, now awaiting trial.

Drug syndicates are locating meth labs in pig farms for a reason, said Graciano Mijares, a senior police official in the region where Arayat is located. The stench from the piggeries masks the powerful odour given off by meth-cooking, he said.

Chinese Control

For centuries, Chinese traders made their way to the shores of the Philippines, landing in junks laden with ceramics, tea and silk that they exchanged for gold, wax, pearls and tortoiseshells. Today, China's exports to the archipelago of just over 100 million people include large quantities of meth and the precursors used to make the drug.

Drug control officials struggle to gauge exactly how much meth is flowing into the Philippines from China. The production volumes of plant-based drugs, like heroin and cocaine, can be calculated from crop surveys of opium poppy and coca in a particular country. It is far more difficult to quantify the production of meth, a synthetic drug made from precursor chemicals like ephedrine and pseudoephedrine that are used legally in the pharmaceutical and other industries.

Officials from PDEA, the Philippine National Police and the Department of Justice paint a picture of an entrenched and sophisticated system of trafficking in meth and precursors from China to the Philippines.

Slideshow (15 Images)

The trade is controlled by small, tight-knit groups of Chinese who oversee the entire process, the officials say: from the procurement of precursors in China to the production of the drug in the Philippines to its distribution by local gangs. Philippines police say many of those running the meth trade are Triads, the ruthless criminal syndicates that have long been involved in drug trafficking.

Precursors are abundant in China. Weak regulation of China's vast chemical and pharmaceutical industries, as well as official corruption, have made the country "an ideal source for precursor chemicals intended for illicit drug production," according to a U.S. State Department report in 2016.

Meth smuggled in from China is typically passed from large ships to smaller vessels, mainly off the coast of the northern Philippines island of Luzon, officials say. Packages are sometimes dropped into the sea off the Philippines' long and poorly patrolled coastlines, and picked up by fishermen. The meth then passes into the hands of local drug traffickers.

Meth production inside the Philippines requires a different operation. Precursors are often hidden in the legitimate cargoes of container ships that cross the South China Sea to the Philippines. Once on land, the chemicals are transported to labs, like the one at Mount Arayat, where a team with Chinese men has been assembled. They include a "chemist" to oversee production of the drug and a "cook" to actually make it. They come in on separate flights posing as tourists or businessmen, according to a senior drug-control official.

The 'Shabu 11'

This was largely the template for the meth operation exposed in the case of the "Shabu 11," as the local media dubbed them. In 2012, 11 men – including five Chinese nationals – were convicted for creating what the judge called a "mega-lab" in the city of Cebu. The lab, uncovered in 2004, aimed at producing "mind-boggling" amounts of meth in a warehouse disguised as a legitimate business, the judge ruled. All 11 pleaded not guilty.

A British national by the name of Hung Chin Chang told the court he had met Calvin de Jesus Tan, a Chinese citizen and financier of the operation, on the island of Macau, according to court records. Chang testified that Tan introduced him to another Chinese man who would rent the premises for the meth lab, pull together a production team and purchase the materials to make the drugs.

The passports of five lab workers – a Chinese national, two Taiwanese and two Chinese Malaysians – were taken away by the team after they reached the Philippines. The group rented three warehouses, one to produce the meth, one for drying it and a third for packaging and storing the product.

In the days before the raid, a police officer testified, the warehouse's lights had been on through the night, the machines inside were working flat out, and there was a foul odour in the air. The 11 men are all serving life sentences in a Philippine jail.

Manila's casino resorts provide traffickers an easy way to launder drug cash. Meth produced at the labs is sometimes driven to casinos in the capital, where many of the high rollers are Chinese, a local drug-control official explained. There, sellers meet the buyers. One side has cash in the trunk of their car, while the other has drugs in the trunk of theirs, and they simply swap keys. The seller then exchanges the cash for chips in the casino, laundering the money.

Lax local regulation makes the casinos largely risk-free for the traffickers. With ambitions to turn Manila into one of Asia's gambling hubs, the government has exempted casinos from anti-money laundering laws that would oblige them to report suspicious transactions.

"Sometimes we have to tread carefully because it has implications in the tourism industry," said PDEA spokesman Carreon, when asked why the government doesn't prevent casinos from being used to launder drug money.

Like Whack-a-Mole

China has at times moved against the production of meth at large labs in its southern provinces. Thousands of suspects were detained in 2014, for instance, during an anti-drug campaign called "Thunder Operations" in Guangdong province.

Despite these efforts, China remains the biggest source of precursors for meth production across Asia. Globally, the bulk of the seizures of raw ephedrine in 2014 was reported by China, with 31.6 tons, according to the International Narcotics Control Board in Vienna. This was followed by the Philippines with 510 kg, which the UNODC believes came mainly from China.

The amount seized in the Philippines is "a proverbial drop in the ocean," said the UNODC's Douglas.

As they step up their efforts against meth production, local drug enforcement officials say they expect traffickers to move some operations to "floating labs," where meth is cooked on boats moored off the coast. In July, four Hong Kong residents were arrested on a fishing boat anchored in Subic Bay, once the site of a U.S. naval base. The men have denied charges of producing and selling meth, and are in jail awaiting trial.

This whack-a-mole pursuit of the Chinese meth gangs won't work, said Fadullon, the senior Philippine justice official.

"They'll just keep on cropping up in different areas which are least expected by the authorities." If the Duterte government wants to get meth off the streets, he said, "eventually they will have to go to the source and come up with high-level discussions on how to put a stop to this - talking with the Chinese government."

Reporting by John Chalmers. Additional reporting by Manuel Mogato, Karen Lema and Tom Allard in Manila, Jesus Malabanan in San Fernando, and Benjamin Kang Lim and Ben Blanchard in Beijing. Editing by Peter Hirschberg.

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