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Wednesday
Feb032016

Jeroen Michels: Does corruption at customs still scare you? Well, it should

You might not immediately spot the link between the deadly Tianjin explosion in China, the million-dollar La Linea scandal in Guatemala, and the investigations against the giant American company Walmart, all in 2015. The link? Corruption in customs.

In Guatemala, the so-called La Linea scandal led to the resignation of more than 40 public officials and, most notably, to the resignation and imprisonment of the Guatemalan president Otto Molina Pérez. It was a straightforward scheme: importers would bribe customs officials to create fake documents granting importers a steep discount on the import duties for their goods. Allegedly, millions of dollars of customs revenue were siphoned away from the state into the private bank accounts of corrupt importers and custom officials.

In a different scandal, Walmart, the world's biggest retailer, is facing allegations of having paid bribes to low-level officials to clear goods through customs in India. If the allegations are found to be true, Walmart could face an FCPA enforcement action. 

In yet another case, chemical explosions at the Tianjin port in China resulted in the death of more than 150 people. In the aftermath of the catastrophe, it appeared that some misdeclared chemicals had been stored in the warehouse. Unaware, the firefighters tried to control the fire with water, only to worsen the situation. The head of the Tianjin city fire brigade confirmed that there were "large discrepancies between customs papers and inquiries conducted with the company." This suggests customs officials may have accepted bribes to move chemicals through customs without proper documentation.

Corruption in customs can have damaging effects such as revenue loss, distorted markets, and an increased health and security risk. Yet lucrative spoils mean that customs administrations worldwide remain a high-risk area for corruption. Despite progress in some countries and the establishment of international standards such as the WCO Revised Arusha Declaration, which provides a framework for countering corruption, such scandals and catastrophes arise with unfortunate regularity, and not only in developing countries.

J.W. Shaver, former Secretary General of the World Customs Organization stated: "There are few public agencies in which the classic pre-conditions for institutional corruption are so conveniently presented as in a Customs administration."

The nature of customs administration makes it vulnerable to many kinds of corruption -- from a simple bribe payment to large-scale fraud, as in the case of Guatemala. Custom officials, even at a junior level, may have a high degree of discretionary power, sometimes combined with weak monitoring and accountability. Complex tariff systems and red tape encourage the importer or exporter to pay bribes to fast-track the clearance of goods.

Multi-level and coordinated action by governments, customs administrations, the private sector, and civil society is necessary to map corruption risks and, above all, to implement integrity standards to make customs less prone to corruption.

The 2016 OECD Integrity Forum "Fighting the Hidden Tariff: Global Trade without Corruption," on April 19-20, 2016 in Paris, France, will provide a stocktaking platform for all sectors of society to debate the best approaches to prevent, detect, and curb corruption in trade chains, including in customs administration.

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Jeroen Michels is a Policy Analyst with the Public Sector Integrity Division of the OECD in Paris.

Reader Comments (3)

Its not just foreign customs that's corrupt: US CBP officers are being rountinely bribed and/or blackmailed by drug and human traffickers.
February 3, 2016 | Unregistered CommenterMichael Deal
There are numerous countries were customs have established a mafia style extortion scheme despite having their own code of conduct and their own internal controls.....

When we ask them to behave ,they threaten us or block the transit of goods. Most business owners (legitimate or not) pay illegal dues.

It's a demand offer type of underground economy. I would be delighted to bring my experience as a senior compliance officer for a major freight forwarder.

regards

JL
February 4, 2016 | Unregistered Commentergallus
There are 2 distinct issues here that need to be analyzed separately:

1. the importer is bringing in goods legally, but the customs official demands a bribe in order to allow the goods in. This is of particular problem where the goods are perishable so the delay will make the goods useless. In that situation, the customs inspector has the upper hand because delays are fatal to the goods so importer must bribe or lose the goods.

2. the importer is bringing in goods that are either illegal, or he wants to pay less duty than is prescribed by law, so he bribes the customs inspector. In this situation, both parties are working together to undermine the laws of the state.

Stopping type 1 is somewhat easier than type 2. If there is a system of immediate arbitration of decisions by customs inspectors that is independent and not bribable, then the customs inspector loses all leverage since his decision is easily appealable to the arbitration system.

Stopping type 2 is much more difficult.
February 4, 2016 | Unregistered Commenteralan franklin
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