Vietnamese exporters can learn from the costly Ting Hsin scandal

On January 1, 2019, the Taiwanese authorities lifted the temporary ban on animal-fat-based products from Vietnam. Consequently, products meeting the systematic inspection and importing requirements of Taiwan’s (FDA) can enter the Taiwanese market. This is a positive signal and an opportunity for Vietnamese exporters. However, it also serves as a reminder of a scandal from 2013 that led to a multi-year ban on such products.

The scandal involved Ting Hsin, formerly a leading food corporation in Taiwan. Allegedly, Ting Hsin and another company owned by Wei Ying Chun imported pig lard used for animal feed in Vietnam and processed it into edible cooking oil to be sold in Taiwan. The incident happened when authorities were conducting a campaign to remove "dirty oil" from Taiwan.

Although no-one was hurt or became ill from the imported Vietnamese animal fat, the investigation left Ting Hsin’s business in ruins. Wei was eventually charged with criminal activity and he now faces a 15 year jail sentence.

The progress of the matter

In 2012 and 2013, Dai Hanh Phuc, a Ho Chi Minh City-based company, exported many animal fat shipments to Ting Hsin as materials for edible oil production and consumption in Taiwan.

At the time, Dai Hanh Phuc approached relevant authorities to prepare the paperwork for exporting animal fat to Taiwan. Lu Thi Hanh, the representative of Dai Hanh Phuc, stated in Phap Luat Online in November 2014 that: from 2008 to 2010, the company had contacted Department of Health, Ho Chi Minh City many times to apply for the Certificate of Food Safety Conditions (“FSC”), but was informed that the company did not need the FSC as Dai Hanh Phuc only traded (not produced) food.

Dai Hanh Phuc signed with Vinacontrol to test the company’s products at Dai Hanh Phuc’s warehouse, before and during the period of containers being loaded for exportation; Vinacontrol issued certificates for those shipments as “fit for human use.” The process of importing animal fats of Ting Hsin during that time also complied with the regulations of the Taiwanese testing agency (FDA) with all conclusions on the quality of Dai Hanh Phuc’s animal fat as fit for human use. They were not tested and concluded as violation of the law by the Taiwanese authorities.

In September 2014, Taipei Office of Economic and Cultural Affairs (“TECO”) in Hanoi sent a written request to Vietnam to answer several questions.

Was Dai Hanh Phuc – the company selling animal fat to Taiwan for Ting Hsin, a legally registered company? Does Dai Hanh Phuc achieve international certificates such as ISO, HACCP? Have authorities conducted periodic inspection of this company? Does the exported cooking oil product of this company have to undergo a certification inspection process, and does the Vietnamese regulatory authority issue a certificate of export? Finally, are the cooking oils sold the Taiwanese company listed as "fit for human" products?

The Ministry of Industry and Trade (“MOIT”) issued two documents to TECO based on the inspection fieldtrip on the actual facility condition of Dai Hanh Phuc and the inspection results of the Department of Industry and Trade, Ho Chi Minh City.

The first document (issued on October 8, 2014) stated that Dai Hanh Phuc has a legal business license; that the company's oil products are mainly for animal feed, and supplied to domestic and foreign markets. It further stated that at the time of inspection, this company did not have ISO, HACCP; Dai Hanh Phuc's products are exported to Taiwan in compliance with the inspection - evaluation - certification process in Vietnam by Vinacontrol Ho Chi Minh City; the company's oil products are only exported as animal feed and not used for food (edible cooking oil).

The content of the second document (issued on October 22, 2014) has some other important conclusions: Dai Hanh Phuc was granted a business certificate to produce animal feed, poultry and aquatic products; animal fat and vegetable oil production and food wholesale and some other business lines.

Dai Hanh Phuc has not been issued with a FSC, which is a prerequisite for a company to produce and trade food. Therefore, the fact that this company intentionally put some oil and fat shipments that are used for people, along with other shipments of fat for animal feed, to export to Taiwan is a fraudulent act, violating the law of Vietnam.

From the above information, the investigation documents of Taiwanese authorities, the trials were opened, including the allegations of the Taichung High Court as mentioned above.

Were products Ting Hsin imported from Dai Hanh Phuc really “dirty?”

According to the testimony of Lu Thi Hanh - representative of Dai Hanh Phuc, included in the first response from the Ministry of Industry and Trade to the TECO in Hanoi: In September 24, 2014, when MOIT came to the company, they only required the company to provide records of the previous two months. However, during those two months, the company only had the oil used as animal feed and had already stopped exporting to Ting Hsin three months ago.

Thus, it may have caused the ministry to mistakenly believe that the company only produced fats and oil for animal feed.

According to MOIT’s response, the input materials for Dai Hanh Phuc were from various suppliers with business registration certificates, free sales certificates, veterinary health qualification certificates, and VAT invoices. The meeting minute between Ting Hsin and Vinacontrol also confirms the 45 shipments that Dai Hanh Phuc exported to Ting Hsin from January 2012 – June 2014 were tested by Vinacontrol at Dai Hanh Phuc’s warehouse, before and during the period of containers being loaded for exportation. Vinacontrol then issued the “fit for human use” certificates for the shipments.

Due to the complicated development of the case, Dai Hanh Phuc sent an official requests to many authorities to clarify the relevant procedures.

For the Ho Chi Minh City Department of Agriculture and Rural Development (“DARD”), in the document no 2345/SNN-QLCL, issued in September 9 2016, stated that: “Dai Hanh Phuc exports vegetable oils and animal fats for animal feed production and as material for food based on the quality requirements of customers, vegetable oil and animal fat for domestic animal feed production; therefore, the company is not subject to food safety certification.”

According to document no 3204/SNN-KHCN dated November 19, 2018 from the Ho Chi Minh City DARD to Dai Hanh Phuc confirmed that from 2011 to 2014, the assessment of the export conditions of animal fats for food material does not require a FSC, so there were no entities granted with FSC for exported food at that time (The business model of Dai Hanh Phuc at that time did not fall into the requirement of FSC). The quality of vegetable oils and animal fats must meet the requirements of clients in importing countries.

A document of Ministry of Justice on this matter, dated December 24, 2018, also clearly states that: FSC (Article 34 of the Law) are granted for companies that are conducting the production and trading of food. Therefore, the FSC is not considered as a certificate for the food’s quality and is not a mandatory requirement for food exporting.

Thus, the fact the Dai Hanh Phuc carried out inspection procedure for each exported shipment via Vinacontrol is another crucial point to prove that the products met the quality requirements of the clients (Ting Hsin), as well as of import inspection agencies of Taiwan.

We learned that during that period, the import requirements of Taiwan authorities mainly were: either (1) the sanitary certificate issued by the exporting country’s competent sanitary authority, proving that the products are for human use; or (2) a notarized report issued by a foreign registered company which was confirmed by our diplomatic agency, proving that the cabin is clean and the oil can be used for human consumption or food processing after refinery process.

Based on the above information, Ting Hsin purchased products that actually met the quality standards, and was admitted by Taiwan’s authorities. Moreover, final products of Ting Hsin were tested by an independent and credible company – SGS Lab, and were verified that the edible oil of Ting Hsin were safe for human.

During the time that Ting Hsin used the imported material of Dai Hanh Phuc to produce and sell cooking oil in Taiwan, there were no reported incidents of consumers harmed by such products.

The 15 year-sentence for Ting Hsin’s chairman

Looking back at how trials have evolved, in November 2015, the Changhua Court ruled that Wei Ying Chung was innocent of "using animal fat to produce cooking oil for humans", but prosecutors have appealed.

In April 2018, Taiwan media reported that the Taiwan High Court decided to turn over the innocent verdict of the Changhua Court in 2015, and the former chairman of Ting Hsin, Wei Ying Chung was sentenced 15 years in prison.

This is an extremely harsh judgment based on the allegation that the Vietnam-based Dai Hanh Phuc, the seller to Ting Hsin, does not have the FSC.

Although the case is not closed yet as the Supreme Court of Taiwan has not rendered its final decision, it leaves us with many thoughts and lessons in trading issues in 2019 with many international laws and Free Trade Agreements that will become effective.