Korea exchange stores struggle to keep goods off black market
Editor’s note: This is the second in a two-day series. Part I appeared Dec. 18.
YONGSAN GARRISON, South Korea — While a new computer program at U.S. commissaries throughout South Korea can pinpoint potential black market activity on a daily basis, similar systems at the U.S. military’s exchange stores remain a handwritten and data input affair, U.S. Forces Korea and exchange officials say.
Instead of digital records of each exchange shopper’s purchases at the cash register, military investigators rely on sales summaries, paper receipts of popular black market items and store workers’ watchful eyes to catch suspicious buyers, according to USFK.
When it comes to beer purchases, the system is even weaker, officials acknowledge.
“We have no way to track beer sales,” said Lt. Col. Michael J. McCarthy, USFK’s data management division chief, during a recent interview.
Although shoppers are limited to two cases of beer a day or eight cases each month, the only record that tracks each sale is regular cash register receipts.
Sign-in logs at each register were abandoned 16 months ago because the data proved too large to key into a computer program, McCarthy said.
It’s a weakness that frustrates both U.S. and Korean customs officials and it’s one the Americans are trying to fix, McCarthy and other officials say.
But installing a computerized sales-tracking system at the 100 or so exchange stores in Korea run by AAFES — the Army and Air Force Exchange Service — is complicated, according to Brenda Borland, manager for all stores in South Korea and Japan.
In some respects, South Korea requires a stricter control system to monitor the American goods sold to personnel with base access. Active-duty servicemembers need just show their military identification. Other shoppers must have “ration cards” along with military identification to buy the household goods, clothes, furniture, cosmetics, jewelry, sporting equipment, beer or liquor sold at AAFES stores.
Building a tracking system specific to South Korea would require extra expertise, extra money and, in some cases, extra infrastructure to ensure the equipment would work in some of South Korea’s more rural areas or near the Demilitarized Zone, Borland said.
“It’s cost-prohibitive to do it just for Korea,” she said.
To make matters more complex, the money — an estimated $1.3 million to $2.2 million, according to McCarthy — would have to come from a military budget outside the stores’ own income, Borland said. All profits from AAFES stores must go toward morale and recreation programs designed for servicemembers and their families, she said.
McCarthy said USFK officials are working on implementing a system in the next two years. Until then, AAFES officials and military investigators rely on gumshoe detective work to uncover suspicious purchases among the $200 million in annual South Korea sales, according to AAFES and Air Force Maj. Resti Andin, the USFK customs chief. “It’s more manpower-intensive,” he said.
Investigators must look at gross receipts and use formulas to spot spikes in sales. They must track down the original purchase data and narrow down the cash register, cashier and time of purchase. Then they must find the customer, Andin explained.
AAFES does have “loss-prevention” workers, common among most large retail chains, Borland said. Earlier this fall, AAFES workers were instrumental in catching a soldier who repeatedly stole high-priced electronics by walking them out the front door, according to an official from the judge advocate’s office.
Perhaps one piece of encouraging news is the change in the black market trade itself. In the past few years, South Korea’s market has opened to increased international trade and its own factories are producing affordable electronics popular to both Korean and American shoppers, say customs officials from both countries.
Still, some American goods remain popular, especially liquor and beer, according to Kim Jong-mu, a senior Korean Customs Service investigator who oversees criminal cases involving U.S. military goods and has worked at customs for more than 20 years.
A basement warehouse at the customs office is filled with American-brand beer and liquors, Gerber baby food, infant formula, Colgate toothpaste, Calrose rice, Centrum vitamins, Ivory and Dove soaps, shampoos, Myoplex-brand meal supplements and DVD players.
When Korean customs closes out each case, the nonperishable goods are auctioned off to the Korean public, Kim said. In the end, the money goes back to the Korean treasury, he said.
That, in a nutshell, is what USFK, AAFES and Korean officials say they are trying to do by stopping black-marketing.
“It’s tax evasion,” Andin said.
“And the honest businessman is going to make less money” when competing with black market goods, he said. “You’re taking the opportunity from that honest businessman away.”
Stars and Stripes reporter Hwang Hae-rym contributed to this story.
AAFES manager comments on beer case
YONGSAN GARRISON, South Korea — In the aftermath of a recent high-profile case involving black-marketed beer, the manager for all Army and Air Force Exchange Service stores in Korea and Japan last week spoke briefly about the matter.
This fall, 17 Koreans — including one AAFES worker — were indicted in connection with a scheme to divert 56,000 cases of beer from Area I bases to local businesses, Seoul customs officials have said.
The case actually was more than two years old, AAFES manager Brenda Borland said on Wednesday, and not all of the beer involved in the case came from the military stores.
The large-scale theft was not an issue of keeping a close eye on sales, USFK officials said.
“That’s AAFES’s employees stealing from their employer,” said Lt. Col. Michael J. McCarthy, USFK data management division chief. “Ration control would not have caught that.”
The AAFES worker, Lee Jin-hwa, was found guilty in November in Seoul Central District Court of conspiring to evade tax laws and sentenced to one year in prison. The sentence was suspended for three years.
During Lee’s sentencing, Chief Judge Jang Sung-wan said he gave a lenient sentence because he was convinced Lee “had been under heavy stress of [losing] his job” as the U.S. military realigns its forces on the peninsula. The judge also said Lee was “pressed to boost sales records.”
On Wednesday, Borland said no AAFES worker has lost his or her job as the U.S. begins to scale back its presence here and move most of its bases to the central part of the country. She also said no AAFES worker should fear losing a job based on profit margins.
“We provide service in a lot of places where we make no money,” she said.
As of Friday, AAFES had taken measures to fire Lee, though he is appealing the matter. Currently, he is on unpaid leave, officials confirmed.
AAFES in South Korea has about 2,600 workers and “99 percent work very hard to do the right thing,” Borland said. “I have a hard time brushing 2,600 people with a dirty brush … when it’s only four or five people” who commit crimes, she added.
— Teri Weaver and Hwang Hae-rym