Category / Customs core competency

by Mike Poverello

Bribery along the corridor

Notwithstanding efforts to minimize collusion, bribery and corruption through increased use of technology, the underlying fact remains that human intervention cannot be completely removed from nodes within the supply chain.Identifying the causes and parties involved in such activity is only the start (yet minuscule) aspect of a problem entrenched in the distrust of government officials and border authorities in particular. Integrity is based on trust. If trust is the placement of hordes of incompetence in public jobs to secure votes, then you will not need to look very far to understand that “the bribe” epitomizes the ultimate enterprise of individuals either bent on extortion, or to avail their services (like prostitutes  to the crooked trader. The following article “Bribery as a non-tariff barrier to trade” (click hyperlink to download) takes account of a wide-spread of role players as to their views and attitudes on the matter. In my view it is a template for what actually occurs at every border across the continent. 

Transparency International (Kenya) and Trade Mark (East Africa) have collaborated in the publication of a review on the subject of bribery in the EAC region. The executive summary elucidates the context – 

The East African Common Market Protocol that came into force in 2010 provides for the free flow of goods, labour, services and capital across the EAC bloc. To achieve this, members undertook to remove all tariff and non-tariff barriers to trade. While progress has been made on the removal of the former, doing away with the Non-tariff barriers along the main transport corridors of the region has remained a challenge.

Taking cognizance of this, Transparency International-Kenya, Uganda, Rwanda and Burundi in conjunction with the Transparency Forum in Tanzania conducted a survey along EAC‘s main corridors — the Northern and Central corridors- that form a vital trade link in the region between August and November 2011. The survey objectives were to measure the impact of bribery practices and create public awareness on the vice.

In determining the size of bribe payable, negotiations came top. The value of consignment and the urgency were some of the other factors sighted by the respondents. According to the survey, truck drivers have devised various means of accounting for bribery expenses to their employers. The most common is road trip expense’. These are anticipated regular amounts given prior to the start of a journey and ad hoc miscellaneous expenses. In the transporters’ books of accounts, the bribes are normally disguised either as anticipated regular amounts or as ad hoc miscellaneous expenses. Source: Transparency International and Trade Mark

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by Mike Poverello

Building hard and soft infrastructure to minimise regional costs

I post this article given it ties together many of the initiatives which I have described in previous articles. The appears to be an urgency to implement these initiatives, but the real question concerns the sub-continent’s ability to entrench the principles and maintain continuity. At regional fora its too easy for foreign ministers, trade practitioners and the various global and financial lobbies to wax lyrical on these subjects. True there is an enormous amount of interest and ‘money’ waiting to be ploughed into such programs, yet sovereign states battle with dwindling skills levels and expertise. Its going to take a lot more than talk and money to bring this about.

South Africa is championing an ambitious integration and development agenda in Southern Africa in an attempt to advance what Trade and Industry Minister Rob Davies describes as trade and customs cooperation within the Southern African Customs Union (SACU), the Southern African Development Community (SADC) and other regional trade organisations.

Central to pursuing this intra-regional trade aspiration are a series of mechanisms to combine market integration and liberalisation efforts with physical cross-border infrastructure and spatial-development initiatives. Also envisaged is greater policy coordination to advance regional industrial value chains. “Trade facilitation can be broadly construed as interventions that include the provision of hard and soft infrastructure to facilitate the movement of goods, services and people across borders, with SACU remaining the anchor for wider integration in the region,” Davies explains.

This approach is also receiving support from the US Agency for International Development (USAid), which recently hosted the Southern African Trade Facilitation Conference, held in Johannesburg.

Trade programme manager Rick Gurley says that virtually every study on trade in sub- Saharan Africa identifies time and cost factors of exporting and importing as the most significant constraints to regional trade potential. Limited progress has been made by SADC member States and SACU partners to tackle the factors undermining trade-based growth, limiting product diversification and increasing the price of consumer goods, including of foodstuffs. However, far more would need to be done to realise the full potential of intra-regional trade.

Regional Alliance
One high-profile effort currently under way is the Tripartite Free Trade Area (T-FTA), which seeks to facilitate greater trade and investment harmonisation across the three existing regional economic communities of the SADC, the Common Market of Eastern and Southern Africa and the East African Community.

The existing SADC FTA should be fully implemented by the end of the year, with almost all tariff lines traded duty-free and, if established, the T-FTA will intergrate the markets of 26 countries with a combined population of nearly 600-million people and a collective gross domestic product (GDP) of $1-trillion. At that size and scale, the market would be more attractive to investors and could launch the continent on a development trajectory, Davies avers. It could also form the basis for a later Africa-wide FTA and a market of some $2.6-trillion.

However, as things stand today, intra- regional trade remains constrained not merely by trade restrictions but by a lack of cross-border infrastructure, as well as poor coordination and information sharing among border management agencies such as immigration, customs, police and agriculture.Cross-national connectivity between the customs management systems is also rare, often requiring the identical re-entry of customs declarations data at both sides of the border, causing costly and frustrating delays.

USAid’s regional economic growth project, the Southern African Trade Hub, is a strong proponent of the introduction of several modern trade-facilitation tools throughout the SADC – a number of which have already been successfully pioneered. These tools, endorsed by the World Customs Organisation (WCO) Framework of Standards, which offers international best-practice guidelines, are aimed at tackling the high costs of exporting and importing goods to, from, and within Southern Africa, which has become a feature of regional trade and discouraged international investment.

Bringing up the Rear
A country’s competitiveness and the effec- tiveness of its trade facilitation regime are measured by its ranking on World Bank indices and, with the exception of Mozambique, Southern African States perform poorly – with most in the region settling into the lowest global quartile of between 136 and 164, out of a total of 183. “Our transaction costs in Africa across its borders are unacceptably high and inhibit trade by our partners in the private sector,” says WCO capacity building director Erich Kieck. “We need our States to develop good ideas and policies, but the true test lies in their ability to implement them,” he notes.

He adds that not only does trade facilitation require efficient customs-to-customs connectivity, but also demands effective customs-to-business engagement, adding that, while customs units are responsible for international trade administration, they are not responsible for international trade. “The private sector is the driver of economic activity and international trade, and government’s responsibility is to understand the challenges faced by the business community and develop symbiotic solutions,” Kieck notes.

Despite the establishment of regional trade agreements and regional economic communities in Southern Africa, many partner- ships have failed to deliver on their full potential to increase domestic competitiveness.

In a report, African Development Bank (AfDB) senior planning economist Habiba Ben Barka observes that, despite the continent’s positive GDP growth record – averaging 5.4% a year between 2005 and 2010 – it has failed to improve its trading position or integration into world markets. In 2009, Africa’s contribution to global trade stood at just under 3%, compared with nearly 6% for Latin America and a significant 28% for Asia.

“Since 2000, a new pattern of trade for the continent has begun to take centre stage, as Africa has witnessed an upsurge in its trade with the emerging Brazil, Russia, India and China economies. Overall, Africa is trading more today than in the past, but that trade is more with the outside world than internally,” says Ben Barka. She adds that while many African regional economic communities have made some progress in the area of trade facilitation, much greater effort is required to harmonise and integrate sub-regional markets.

To address enduring trade barriers, consensus among business, government and trade regulators appears to lean towards the adoption of one or a combination of five facilitation tools. These include the National Single Window (NSW), the One-Stop Border Post (OSBP), cloud-based Customs Connectivity, Coordinated Border Management (CBM) and Customs Modernisation Tools.

A National Single Window
NSWs connect trade-related stakeholders within a country through a single electronic-data information-exchange platform, related to cross-border trade, where parties involved in trade and transport lodge standardised trade-related information or documents to be submitted once at a single entry point to fulfil all import, export and transit-related regulatory requirements.Mauritius was the first SADC country to implement the NSW and consequently improved its ranking on the ‘Trading Across Borders Index’ to 21 – the highest in Africa. It was closely followed by Ghana and Mozambique, which have also reported strong improvements.

Developed in Singapore, the benefits of government adoption include the reduction of delays, the accelerated clearance and release of goods, predictable application, improved application of resources and improved transparency, with several countries reporting marked improvement in trade facilitation indicators following the NSW implementation.

In South Africa, the work on trade facili-tation is led by the South African Revenue Service (SARS), which focuses on building information technology (IT) connectivity among the SACU member States, and strengthen- ing risk-management and enforcement measures. However, SARS’ approach to the NSW concept remains cautious, Davies explains. “SARS has considered the viability of this option as a possible technological support for measures to facilitate regional trade, but considers that this would fall outside the scope of its current approach and priorities in the region,” he said.

One-Stop Border Posts
As reported by Engineering News in December last year, effective OSBPs integrate the data, processes and workflows of all relevant border agencies of one country with those of another, which culminates in a standardised operating model that is predictable, trans- parent and convenient. An OSBD success story in Southern Africa is the Chirundu border post, where a collaboration between the Zambia and Zimbabwe governments has culminated in a single structure, allowing officers from both States to operate at the same location, while conducting exit and entry procedures for both countries.

Launched in 2009, this OSBP model is a hybrid of total separation, joint border operations and shared facilities in a common control zone. Implementation of the model has reduced clearance times to less than 24 hours, significantly reduced fraudulent and illegal cross-border activity, enabled increased information sharing between border agencies and reduced the overall cost of export and import activities in the area.

Earlier this year, former South African Transport Minister Sibusisu Ndebele indicated that Cabinet was looking into establishing a mechanism that would bring all border entities under a single command and control structure to address the fragmentation in the country’s border operations, particularly at the high-traffic Beitbridge post between South Africa and Zimbabwe. “The ultimate vision is to create one-stop border operations to facilitate legitimate trade and travel across the borders,” he said.

Customs Connectivity and Data Exchange
Improved connectivity between customs limbs in sub-Saharan Africa has perhaps made the most indelible strides in the region, with improved IT connectivity between States identified as a priority by Sacu.

This includes customs-to-customs inter- connectivity, customs-to-business inter- connectivity and interconnectivity between customs and other government agencies. SACU members have agreed to pursue the automation and interconnectivity of their customs IT systems to enable the timely electronic exchange of data between administrations in respect of cross-border movement of goods. “As a consequence of this acquiescence, we have identified two existing bilateral connectivity programmes as pilot projects to assess SACU’s preferred connectivity approach, cloud computing between Botswana and Namibia and IT connectivity between South Africa and Swaziland,” says SACU deputy director for trade facilitation Yusuf Daya. He adds that a regional workshop was recently convened to explore business processes, functions, data clusters and the application of infrastructure at national level to improve and develop intra-regional links.

Coordinated Border Management
The SADC has been a strong proponent of CBM efforts in the region, which promotes coordination and cooperation among relevant authorities and agencies involved in, specifically, the protection of interests of the State at borders. “The union has drafted CBM guidelines for its members on implementation, based on international best practice, and has received indications of interest from several member States,” explains SADC Customs Unit senior programme officer Willie Shumba.He adds that CBM is a key objective of regional integration, enabling the transition from an FTA to a customs union and, eventually, to a common market, through effective controls of the internal borders.

Customs Modernisation
South Africa’s customs modernisation initiative is well advanced and came about following Sars’ accession to the WCO’s revised Kyoto Convention in 2004, which required customs agencies to make significant changes to it business and processing models. These changes included the introduction of simplified procedures, which would have fundamental effects on and benefits for trade and would require a modern IT solution.

Since its inception, the SARS Customs Modernisation Programme has gained tremendous momentum, with amendments to the Passenger Processing System and the replacement of SARS’s Manifest Acquittal System in the Automated Cargo Management system. Further adjustments were made to enable greater ease of movement of goods, faster turnaround times and cost savings, as well as increased efficiency for SARS. This phase included the introduction of an electronic case-management system, electronic submission of supporting documents, the centralisation of back-end processing in four hubs and an electronic release system and measures to enhance the flow of trucks through borders – in particular at the Lebombo and Beitbridge borders.

Proper Planning
AfDB’s Ben Barka warns that, prior to the implementation of any border improvement efforts by countries in Southern Africa, a thorough analysis and mapping of each agency’s existing procedures, mandate and operations should be undertaken.“Based on these findings, a new set of joint operational procedures need to be agreed upon by all involved agencies and must comply with the highest international standards,” she says.

Development coordination between States is essential, as the largest disparity among regional groupings, in terms of intra-regional trade, is clearly attributable to their differentiated levels of progress in various areas, including the removal of tariffs and non-tariff barriers, the freedom of movement of persons across borders and the development of efficient infrastructure. Source: Engineering News.

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by Mike Poverello

US Customs – $100 million customs fraud uncovered

 

The article below has been doing the rounds over various social media the last few days. The ‘standout’ issue for me is the fact that such an alleged crime occurred in the USA. With the focus of the customs world nowadays so much on the anti-terror campaign, could it be that one of the single biggest enforcement agencies in the world is not as sharp on traditional customs fraud activities? With the boundless focus on ‘safety and security’ it often seems as though the traditional customs crimes have given way to ‘globally networked syndicates’ using every means of technology to by-pass sovereign authorities. Yet, when you read the brief below, it all boils down to the human factor. To what extent the outcome of this case will attest to the Customs and Border Protection Agency’s risk management capability and moreover the extent to which such campaigns as CT-PAT really give the agency the edge in better ‘knowing’ its customers remains to be seen. A successful border agency must still do the basic things right, as dated as they may seem in the modern world. This case therefore proves how important it is for any national customs and border management agencies to invest in customs-skills training with lesser emphasis on the technology side of things. It is so unfortunate that most countries see Customs Capacity Building as an investment in technology. At this rate with no investment in customs technique, who is going to be able to properly interpret risk indicators if all the agency employs are statisticians and university post-graduates?

SAN DIEGO, CA – A complaint charging eight individuals and three corporations with operating a ring that illegally imported hundreds of millions of dollars in foreign goods into the United States though the Long Beach Port-of-Entry and evaded millions of dollars in import taxes was unsealed today, announced United States Attorney for the Southern District of California Laura E. Duffy.

According to the complaint, the defendants’ scheme focused on purchasing large, commercial quantities of foreign-made goods and importing them without paying import taxes or A Customs duties. As alleged in the charging documents, wholesalers in the United States would procure commercial shipments of, among other things, Chinese-made apparel and Indian-made cigarettes, and arrange for them to be shipped by ocean container to the Port of Long Beach, California. Before the goods entered   States, the defendants generated paperwork and database entries indicating that the goods were not intended to enter the commerce of the United States, but instead would be transshipped “in-bond” to another country, such as Mexico.

As noted in the complaint, this in-bond process is a routine feature of international trade. Goods that travel in-bond through the territory of the United States do not formally enter the commerce of the United States, and so are not subject to Customs duties.By claiming that the goods would be transshipped in-bond to another country, the defendants falsely represented that no Customs duties applied.

According to the complaint, instead of completing the in-bond transshipment, the defendants would hire truck drivers to haul the shipments to warehouses throughout Southern California. After generating the false paperwork and database entries, the goods would then be diverted back to Los Angeles and other destinations for shipment throughout the United States. As the conspirators had now effectively imported the goods tax-free, they could in turn sell more merchandise at cheaper prices and reap greater profits than their law-abiding competitors, including domestic American manufacturers of the same goods.

The complaint alleges that in addition to harming lawful domestic businesses, the defendants deprived the United States of the Customs duties that it was owed on these diverted shipments. To date, the government has already identified more than 90 commercial shipments of Chinese-made apparel, foreign-made cigarettes and other goods that were illegally imported in this manner. Altogether, these shipments were worth at least $100 million and resulted in more than $10 million in lost Customs duties, taxes and other revenue.

According to United States Attorney Duffy, “The charges announced today underscores our commitment to ensure that no one exploits the import process for personal gain. Not only does such illegal conduct present a significant danger to the American people, but it deprives law-abiding companies of a level playing field resulting in the potential loss ofbillions of dollars in revenue.”

“This investigation pulled back the curtain on a potentially costly fraud scheme operating in one of the world’sbusiest commercial centers,” said ICE Director John Morton. “Instead, HSI, aided by our law enforcement partners, exposed and dismantled this criminal ring and now those responsible will be held accountable.”
“Every day, U.S. Customs and Border Protection officials work to protect the U.S. and interdict fraudulent goods from entering the country. I commend the work of our officers for their instinct and diligence, and recognize the seamless coordination across government agencies,” said David V. Aguilar, Acting Commissioner, U.S. Customs and Border Protection. “Joint efforts such as this are crucial to maintaining our nation’seconomic security and competitiveness.”

“The FDA-Office of Criminal Investigations is fully committed to investigating and supporting the prosecution of those who may endanger the public’s health and safety by importing unsafe and potentially life-threatening products. We commend the U.S.Attorney’s Office in the Southern District of California for their diligence,”said Lisa Malinowski, Acting Special Agent in Charge, U.S. Food and Drug Administration’s Office of Criminal Investigations, Los Angeles Field Office. As alleged in the complaint,defendant Gerardo Chavez is President of the San Diego Customs Brokers Association and a licensed Customs broker. Using his Customs license, Chavez, his employees and his companies—including defendants Tecate Logistics, LLC and International Trade Consultants, LLC—generated the fraudulent Customs paperwork that was integral to the scheme. Similarly, Chavez and his companies would make false entries into Customs databases, in order to create the false appearance that in-bond shipments of foreign-made goods had been lawfully transshipped to Mexico. As part of this effort, Chavez, Joel Varela and others would also forge official Customs markings to make it appear as if a United States Customs official had certified various shipments as having been transshipped to Mexico.

Charging documents also allege that Chavez had several dedicated customers who were part of the conspiracy. For example, defendant Sunil Mirwani, a citizen of the United Kingdom, received dozens of shipments of illegally imported Chinese-made apparel at warehouses throughout the Los Angeles area. Mirwani marketed and sold the apparel using hiscompany, defendant M Trade Inc. Similarly, defendant Rene Trahin and other co-conspirators distributed various shipments of illegally imported “gray market” cigarettes ranging from Indian-made to German-made brands to warehouses, self-storage areas and a residence in San Diego, Los Angeles and parts between.

The complaint alleges that the defendants also imported produce infected by Salmonella Agona. Often called simply “Salmonella,” this pathogen is a potentially life-threatening infectious bacteria. On one occasion, after a shipment of nopal cactus (also known as prickly pear) tested positive for Salmonella,co-conspirator changed the description of the nopal cactus’ grower for subsequent shipments, for the purpose of evading future Food and Drug Administration (“FDA”) inspections. Similarly, defendant Elizabeth Sandoval and Varela conspired to import Mexican snack foods that were mislabeled and adulterated with a prohibited dye. The remaining defendants named in the complaint are employees and agents of Customs brokers, wholesalers and transport companies who are alleged to have knowingly aided the conspiracy.

This case is being prosecuted in federal court in San Diego by Assistant United States Attorney Timothy C. Perry and is being investigated by the Department of Homeland Security, Immigration and Customs Enforcement Homeland Security Investigations, and United States Customs and Border Protection, the Internal Revenue Service, the Food and Drug Administration, and the Alcohol and Tobacco Tax and Trade Bureau. A complaint is a formal charging document and defendants are presumed innocent until the Government meets its burden in court of proving guilt beyond a reasonable doubt. Source: US Department of Justice

 

by Mike Poverello

SA auto industry to gain from 2013 policy shift

Trade remedies are by their very nature complex and most often ill-thought-out. This is said not so much from an entity whom gains to benefit from such an incentive scheme but more from an administrative and compliance perspective. These schemes require more than your average customs and trade consultant; someone who in fact not only knows  customs and trade law very well, but the motor industry as well. Similarly, on the side of the administrating authority an equally adept and experienced team is required to audit this process. I would like to believe that every attempt has been made to ensure that clear legal and procedural guidelines are in the offing, compared to the current MIDP process. On the other side of the coin, exactly how will the local community benefit from the ‘auto cartel’s’ new fortune? Based on SARS recent publication of its Compliance Programme it is noted that the tobacco and textile industries are singled out for scrutiny. Has the motor industry been purposely overlooked?

The SA motor industry stands to benefit from the introduction of a new programme next year, which will affect firm-level strategies, according to Standard Bank research analyst, Shireen Darmalingam. The Automotive Production Development Programme (APDP) aims to raise volumes to 1.2 million vehicles produced per annum by 2020, and to diversify and deepen the components supply chain. The new programme replaces the Motor Industry Development Programme (MIDP), which has been in existence since 1995. The soon-to-be phased out programme centred, among other things, on encouraging motor vehicle and component exports by allowing duty-free imports or reduced import tariffs, depending on the level of local content of exports.

Darmalingam said the replacement of the MIDP should not be viewed as a failure but rather as a point from which to move on and encourage further development of the SA motor industry. She said the APDP would offer the local automotive industry a sense of certainty through to 2020, which should encourage further growth.

“Whether the APDP will benefit certain industries more than others is still a contested question. Indeed, it appears that some benefits may be in favour of larger firms. Nonetheless, all firms are in line to benefit from the new APDP programme.” She said there was a concern that multinational companies were choosing to source leather products from suppliers closer to the major markets. She added that there was a further concern that the APDP, which aimed to provide a production incentive rather than an export incentive, might impact negatively on export-orientated component companies such as those in the leather sector.
However, she said sectors that supplied the aftermarket should benefit from the shift in policy, from MIDP to APDP, due to be implemented from January next year. Source: Business Live


by Mike Poverello

Customs Core Skills – in danger of extinction or a casualty of progress?

The recent death of a close friend and colleague – Lester Millar – brings to mind, once again, the dire situation of a dwindling ‘knowledge base’ in the area of Customs’ core competency. In an era where most customs or border management authorities are happy to employ people with a variety of tertiary qualifications – with the idea that this alone will be sufficient to ‘arm and support’ them in the field of customs/border control and management – what happened to the skills of yesteryear which allowed both government and trade practitioners to exercise their technical abilities to agree or disagree amicably on a customs tariff or valuation interpretation that could result in thousands of rands (ZAR) going to state coffers or the retailer’s bank account?

Many would argue that with the extent of automation and modern techniques, customs core skills are no longer valid or even necessary. Indeed the extent and design of systems goes so far as removing the relevance of human intuition and decision-making. Today we have automated risk management, automated duty calculation and declaration processing, automated cargo and goods accounting, any even a call centre – so is there really a role for a Customs specialist in the 21st century? Customs Managers today have their reports and other so-called ‘empirical data’ to rely on for decision-making and strategizing. The year-end revenue rush, it-self, relies on such computer generated reports negating the need for an internal ‘think-tank’ to devise means of collecting the hidden revenue before the deadline.

For those in the trade, a similar situation exists, with some difference however. The traditional customs clearance and cargo reporting process is highly mechanised these days and if your systems are up to the task, you can rest assured staff can remain glued to their seats and screens without having to venture to the Customs House. Here too, lies a significant change. The traditional Custom House no longer exists and is basically home to the ‘Customs Frontline’ which deals with ‘physical’ intervention and other trade services. Tariff, Valuation and Origin are now confined to back-office functions accessible via a call centre or tiered response mechanisms embedded in Customs’ new automated workflow; that is, if physical or telephonic access to regional customs specialists have been removed.

Few can dispute the advantages of technology supported processes. Yet, when things go array, even the knowledgeable people have difficulty in resolving an issue. Some suggest that human discretion is dangerous and counter-productive, which perhaps is true if left to an uncouth, power-crazy customs or border control official. Yet, ‘discretion’ is a tenet most necessary for interpretative and cognitive skills which once most Customs Officials used to have.

So what is this core competency to which I refer? First of all Customs competency requires an officer to reason, interpret and apply the customs law in the “fairest” possible way based on the facts at his/her disposal. So it means the officer must have an ability to discern; importantly between right and wrong. Discernment must also take into account an acute understanding of previous/historical evidence relating to a case. For a customs official, it will be important to comprehend the rights and legal obligations of the parties concerned, as well as the documentation relating to the case/transaction. Moreover, where a case/transaction deals with a matter of ‘tariff’, or ‘valuation’ or ‘origin’ the officer must at least have the basic knowledge and skills of the internationally defined rules of interpretation in these disciplines. I say ‘at least’, because in any of the mentioned areas, it may require an expert opinion to further conclude the outcome of a matter.

While automation will take care of validation and computation to the n’th degree, storing and retrieving vast amounts of data in milliseconds, the fact remains that a competent ‘human being’ is still required to preside over a complex decision. Good systems are built on ‘rules’, not exceptions. It is the latter therefore that requires ‘customs core competency’ to resolve.

Our dear friend and colleague Lester was gifted with a phenomenal ability to distill and comprehend information. This knowledge made him one of our finest, and sadly virtually last remaining tariff experts. Add to this, a wonderful and helpful nature and willingness to serve the public – a not too common trait nowadays. Adios Lester…..since we did not fully profit from your time with us, may we at least profit from our loss!

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