The following video is somewhat dated, but reports still abound regarding corruption within the Customs division of the Ghana Revenue Authority. The video appears to be about 4 years old. The president, John Evans Atta Mills, seen here rebuking staff at the Port of Tema, has since passed on. His message is nevertheless timeless and should be heeded by all customs officials across the continent.
Mike Bimha, Zimbabwean Industry and Commerce Minister says the local industry was being negatively affected by cheap imports into the country, some of which were being smuggled through the country’s borders.
“There are a number of fake import and export permits in the country, which is affecting our industry.As a consequence, my ministry has given a directive that all import and export licenses have to be renewed so that new ones can be issued that have special security features.”
“We are also working on a number of interventions to protect local industry.”
“We are looking at removing duty on raw materials as well as reviewing tariffs and duties with a view to restricting some imports coming into the country.”
“The reviewing of duties is not a once-off exercise but will continue in consultation with local industry.”
“We meet with industry on a regular basis where we discuss tariffs and we make the policy recommendations based on these meetings.
Zimbabwe’s trade deficit is expected to widen this year with statistics showing that the import bill so far this year is now $8,3 billion against exports of $5 billion while imports for last year were $7,6 billion against exports of $4,43 billion. Source: TransportWorldAfrica
An investigation by Brazil’s federal police has uncovered endemic corruption at ports in Rio, Itaguai, Vitória and Santos, with claims of bribes paid to employees of the Inland Revenue Service and to Customs brokers as a means of expediting the entry of illegal goods.
While the detail of the investigations has not been made public, it is clear that 13 people have been indicted, of which four are businessmen. Politicians may be implicated, too.
Investigations, which first started in the Port of Vitória in 2009, have so far led to six cases being sent to the Federal Court in Rio and Espirito Santo. These involve auditors being asked to delete information from a database, the deliberate falsification of information and turning a blind eye in respect of the importation of explosives. All of the companies implicated in the various prosecutions deny any illegal activity took place. Source: Portstrategy.com
With reference to an earlier post “Trade costs and corruption in Ports of Durban and Maputo” (March 2012) the following article ‘Hawks probe Khulubuse Zuma’s pal’ published by the Daily News (Durban) suggests more sinister individuals involved in the scam which saw a policeman being gunned down at his home and no less than 10 SARS officials placed on suspension. A web of intrigue indeed.
A wealthy South Africa-based Taiwanese businessman and former business associate of Khulubuse Zuma, a nephew of President Zuma, is being probed for alleged links to a multibillion-rand racket at Durban Harbour. In June the Hawks in KwaZulu-Natal secured a warrant of arrest for Jen Chih “Robert” Huang, CEO of Johannesburg-based company, Mpisi 74, when investigators from the elite unit also raided Huang’s business in Bedfordview, and his home.
Huang, a convicted murderer, was in Hong Kong on business when the warrant was issued, and it has not been executed after he side-stepped the Hawks by directly approaching the National Prosecuting Authority (NPA) to make representations as to why he should not be arrested. The businessman, part of a delegation that accompanied President Zuma on a state visit to China in 2010, is wanted on multiple counts of alleged corruption.
According to Daily News, Huang denied having any links to alleged illegal activity at the harbour, and referred all queries to his attorney. “I have been out of the country. “Speak to my attorney in Durban. He is handling all matters related to my company.” His attorney, Quintus van der Merwe, confirmed representations had been made to the State, but declined to comment further.
The warrant for Huang’s arrest came weeks after a former South African Revenue Service (Sars) anti-corruption task team member, Etienne Kellerman, was arrested on 80 counts of alleged corruption. Kellerman, 42, is suspected of receiving substantial benefits for allegedly allowing contraband through the harbour. The Daily News broke the story when Kellerman was arrested in April this year after a three-year covert investigation. An international syndicate that was allegedly bribing customs and police officials to allow in container-loads of contraband, was also exposed by the Hawks.
Sars spokesman, Adrian Lackay, told the Daily News that following the joint investigation with police over several months into the existence of a criminal syndicate operating at Durban Harbour, 10 Sars employees had been suspended. “Their suspensions follow the arrests of other suspects outside of Sars. These employees were suspended over a three-week period following the arrest of Kellerman on charges related to fraud, theft and misconduct,” he said.
“The 10 employees remain suspended pending the outcome of an internal investigation into alleged involvement with clearing agents.” Over the past two years, during this investigation, police seized more than R1 billion worth of counterfeit goods and contraband. The alleged corrupt Sars and police officials are believed to be working in teams between KZN and Gauteng. They are allegedly paid bribes of up to R30 000 for each container allowed to pass through customs undetected. Big name international companies, mainly from China, are also being investigated. Kellerman has pleaded not guilty and is on R100 000 bail.
According to its website – before it was removed – Mpisi 74 is a massive concern, offering a range of services, including import, export, forwarding, warehousing, cellphone telecommunication and machinery, as well as vehicle manufacturing. Just days after Huang was contacted by the Daily News, the website was taken down.It had even boasted pictures of the president’s nephew, Khulubuse Zuma, with the Taiwanese businessman at the company’s headquarters in Bedfordview, on December 9, 2009. The Mail and Guardian, in January, described Huang as the influential middleman in deals between Chinese companies and Khulubuse Zuma. It said Huang was also instrumental in introducing Chinese vehicle manufacturer, Dong Feng Motor Corp, to Khulubuse Zuma, who at one point was the “chairman” of Mpisi.The report said that in 2010, Dong Feng announced a joint venture with Khulubuse Zuma and Huang to distribute its products in South Africa and the rest of the continent.In 1998, Huang was convicted of the murder of a Taiwanese businessman, Ching-Ho Kao, who was found shot dead in March 1996, in the Free State. His body was set alight. The trial began in the Bloemfontein High Court in November 1997. The indictment claimed the motive for the murder was that Kao’s family owed Huang money. Huang was sentenced to an effective 12 years in prison. But, through remission of sentence, he was released in 2003 and set up Mpisi 74.
Source: Daily News (Durban)
Extensive literature argues that reducing trade costs can substantially increase income and improve welfare in trading countries, particularly in the developing world where these costs are highest. In 2007, a shipping a container from a firm located in the main city of the average country in Sub-Saharan Africa was still twice as expensive, and six times more time-consuming, than shipping it from the US. It was also twice as expensive and just as time-consuming as shipping a similar container from India or Brazil, according to the World Bank. As a result, a significant portion of international aid efforts has in recent years been channeled to reducing trade costs and improving logistics in the developing world. Evidence is growing on how corruption in transport networks can significantly increase the cost of moving goods across borders.
A recent paper “Corruption and Firm Behaviour” investigates how different types of corruption affect company behavior. Firms can face two types of corruption when seeking a public service: cost-reducing, “collusive” corruption and cost-increasing “coercive” corruption. Using an original and unusually rich dataset on bribe payments at ports matched to firm-level data, the authors observe how firms respond to each type of corruption by adjusting their shipping and sourcing strategies. Cost-reducing “collusive” corruption is associated with higher usage of the corrupt port, while cost-increasing “coercive” corruption is associated with reduced demand for port services. Data suggests that firms respond to the opportunities and challenges created by different types of corruption, organizing production in a way that increases or decreases demand for the public service. This can have important implications for how we identify and measure the overall impact of corruption on economic activity. The data further allows us to understand the bribe setting behavior of different types of public officials with implications for the design of anti-corruption strategies.
In our setup, firms have the choice to ship through two ports: Maputo in Mozambique, and Durban in South Africa. The majority of firms in our sample are equidistant to both ports while a subset of firms will be significantly closer to the more corrupt port of Maputo. Survey data revealed that the choice of port is driven primarily by the interaction between transport and corruption costs at each port. Transport costs are linear to the distance between each rm and the ports, while corruption costs are determined by the type of product the firm ships. Our main measure of the distortion caused by corruption is how rms shipping products that are more vulnerable to corruption will opt to go the long way around to avoid a closer, but more corrupt port. We also nd suggestive correlations between the level and type of corruption rms face at each port, which directly affects the cost of using port services, and firms’ decision to source inputs from domestic or international markets.
Source: Corruption and Firm Behavior (December 2011) by Sandra Sequeira and Simeon Djankov.
Trade costs and corruption in Ports of Durban and Maputo (mpoverello.com)
Recent years have brought an increased awareness of the importance of trade costs in hindering trade, particularly in the developing world where these costs are highest, says a report in the latest edition of Port Technology. The most salient type of trade costs have often been tariff duties and costs associated with the physical transportation of goods. As a result, several countries embarked on extensive programmes of tariff liberalisation and a significant portion of aid effort was channelled to investments in hard transport infrastructure, such as rebuilding railways and ports (the World Bank alone devotes more than 20 percent of its budget to transport infrastructure projects worldwide).
More recently, new light has been cast on the importance of a different type of trade cost: the cost imposed by the soft infrastructure of transport, defined as the bureaucratic infrastructure handling the movement of goods across borders. While there are many possible sources of inefficiencies stemming from the soft infrastructure of transport, recent research is beginning to document the role played by corruption in transport bureaucracies in driving trade costs. This article provides an overview of this research.
Research into corruption
Corruption can take many forms and emerge in many different phases of the process of clearing goods across borders. Sequeira and Djankov (2011) documented in great detail the ways in which port corruption emerges in Durban and Maputo in Southern Africa – this report is featured in my next post. This research was based on a unique dataset of directly observed bribe payments to each port bureaucracy for a random sample of 1,300 shipments.
The study began by defining two broad categories of port officials that differed in their administrative authority and in their discretion to stop cargo and generate opportunities for bribe extraction: customs officials and port operators. In principle, customs officials hold greater discretionary power to extract bribes than regular port operators, given their broader bureaucratic mandate and the fact that they can access full information on each shipment, and each shipper, at all times. Customs officials possess discretionary power to singlehandedly decide which cargo to stop and whether to reassess the classification of goods for tariff purposes, validate reported prices of goods, or request additional documentation from the shipper.
Regular port operators, on the other hand, have a narrower mandate to move or protect cargo on the docks, and at times even lack access to the cargo’s documentation specifying the value of the cargo and the client firm. This category of officials includes those receiving bribes to adjust reefer temperatures for refrigerated cargo stationed at the port; port gate officials who determine the acceptance of late cargo arrivals; stevedores who auction off forklifts and equipment on the docks; document clerks who stamp import, export and transit documentation for submission to customs; port security who oversee high value cargo vulnerable to theft; shipping planners who auction off priority slots in shipping vessels, and scanner agents who move cargo through non- intrusive scanning technology.
The organisational structure of each port created different opportunities for each type of port official to extract bribes: the high extractive types -customs agents- or the low extractive types -port operators. These opportunities were determined by the extent of face to face interactions between customs officials and clearing agents, the type of management overseeing port operations, and the time horizons of each type of official.
Durban and Maputo
In Durban, direct interaction between clearing agents and customs’ agents was kept to a minimum since all clearance documentation was processed online. In contrast, all clearance documentation was submitted in person by the clearing agent in the Port of Maputo. The close interaction between clearing agents and customs officials in Maputo created more opportunities for corrupt behaviour to emerge in customs relative to Durban.
In Maputo, port operators were privately managed but in Durban, most terminals (for containerised cargo) were under public control, with very lax monitoring and punishment strategies for those engaging in corrupt behaviour. Private management in Maputo was associated with fewer opportunities for bribe payments due to better monitoring and stricter punishment for misconduct. As a result, the organisational features of each bureaucracy determined that the high extractive types in customs had more opportunities to extract bribes in Maputo, while the low extractive types in port operations had more opportunities to extract bribes in Durban. While corruption levels were high in both ports, bribes were higher and more frequent in Maputo relative to Durban.
Finally, port officials with opportunities to extract bribes at each port differed in their time horizons. Customs in Maputo adopted a policy of frequently rotating agents across different terminals and ports, and since bribes varied significantly by the type of terminal at the port, customs agents were aware of the risk of being assigned to terminals with lower levels of extractive potential. On the other hand, port operators in Durban had extended time horizons given the stable support received from dock workers’ unions. Customs officials were therefore the high extractive types with the shortest time horizons, the broadest bureaucratic mandates and more opportunities to interact face to face with clearing agents. As a result, they extracted higher and more frequent bribes, relative to port operators in Durban (the low extractive types) who had longer time horizons and narrower bureaucratic mandates. Source: Port Technology.
My recent post – Harbour mafia busted! – prompts a serious look at human judgement and the cause and effects of corrupt behaviour. The tragedy of the hit on Johan Nortje brings to reality the result of playing with danger. Those that will subsequently be convicted, most likely never conceived this ‘danger’ at the moment of their initial courtship with the criminal underworld. Neither did they perceive that a fellow law enforcement colleague would bear the brunt of their wrong-doing. That’s the reality of consequence of choice.
The origin of customs collection and control dates back more than 2000 years, as do attempts to undermine a country’s fiscal and economic security. Therefore the scourge of corruption is as old as the laws which gave rise to ‘controls’ at borders and ports of entry. The levying of taxes has always resulted in attempts to circumvent the payment thereof. Corruption of senior officials and politicians is the Achilles heel of poor and developing countries. It is a crime that is largely invisible but its consequences can be far reaching. It destroys confidence and morale in law enforcement structures, and robs local laborers and companies trying to etch out a decent living.
Over the centuries, and particularly the latter decades, governments and their law enforcement arms have fought against fraud in various ways. Populous countries (in the past) always had an abundance of people to staff the Customs or Border agency. Above all it was important for the government of the day to be seen as providing employment, hence a measure of comfort at election time. The close-knit command and control of port and border officials under strict observation of their respective port commanders – who in the past had ultimate control over their regions – proved effective in the main in preventing cross border crimes. However, the emergence of bootlegging and the mafia in the 1930’s (USA) proved a real challenge given that these ‘movements’ had an enormous amount of money to neutralise uncooperative customs officials and law enforcement officers. Buying the cooperation of officials left ‘blackmail’ hanging over the heads of the unfortunate officers. In many cases, breaking silence or turning state witness meant possible assassination for the individual and possibly his family as well. Yet, let it be said that such cross-border crime was very much tangible by way of the persons and the modus operandi involved. No, I’m not suggesting it was easy to contain, but it was certainly a whole lot more visible and localised for the authorities to contend with and address. Still, the manpower and the cost to deploy large task forces on the ground were inhibitive for law enforcement agencies.
Today, the world of ‘illicit goods’ is global; the operators can direct activities from the remotest parts of the world thanks to the information super-highway and all means of information and communication technology available today. Similarly, technology ensures near real-time payments to willing participants in crime. Despite this, the matter of ‘illicit goods’ remains a physical movement requiring ‘people’ to arrange and oversee transportation, and distribution to the buyer. It is a well-known fact that the movement of ‘illicit goods’ has a corresponding financial pipeline through which the profits of crime are channeled. Law enforcement has a challenge in trying to piece these activities together. This will involve cooperation of multiple agencies to bring about a result. More often than not, the selfish ambition of one or other agency overrides the collective approach to smash a syndicate. Once again its the age of key performance areas and indicators, and outcomes based initiatives which get ahead of the real issue – to neutralise an enemy. Today furthermore, unfortunately, its better to secure a huge penalty or forfeiture than to apprehend criminals and face months if not years in court – the revenue target is the primary goal. Money drives both the state and the criminal underworld.
Maybe I will be censured yet. Nonetheless, I will conclude with exercising some freedom of expression concerning views on what I believe fundamentally contributes to criminal and irrational behaviour. The democratic way of modern life has indeed perpetuated a lot of freedoms. With this, however, comes a corresponding responsibility and ability to discern between what is right or wrong. Freedom comes in both guises, sometimes simultaneously so as to confuse the mind – not unlike the ‘forbidden fruit’ in the Garden of Eden – making a choice between the right or wrong path. A flaw in democracy is that it tends to present everything in a “yes we can!” mentality. What this does is ‘challenge’ the individual or group to ‘achieve’. There might be little wrong with this, however, there are no documented guidelines on how to ‘achieve’, hence it is concluded that one must ‘achieve at all costs’. So what has this to do with corruption? The multiplicity of (false) ‘comforts’ offered by the modern world tend to excite the senses and numb the conscience. After all democracy tends to advocate equality in everything, so what can be wrong with a bit of excess, since one has freedom of choice? Wrong! unfortunately, this is the very mentality which drives ‘corrupt’ behaviour. There will always be consequences. Add to this indiscretion some measure of peer pressure, jealousy, or avarice and you have a recipe for a corrupt organisation.
The causes are multi-facetted –
- The blatant disrespect of corporate structures in not recognising the need for staff to spend quality time with their families. (Less work = less profit and poor returns)
- Parents too focused on personal gain or pleasing the shareholder, rather than tending to the real needs of their children to build honest citizens.
- Ill-disciplined ‘educators’ who care little about their ‘learners’ and more about their rights!
- Law enforcement agencies focused on revenue collection rather than law enforcement.
- Lack of knowledge amongst politicians and heads of government agencies as to what their real mission ought to be.
- Lack of a real support base within law enforcement agencies to deal with the threats being faced by their organisation.
- Lack of role models in our society.
Is it little wonder then that the majority of tendencies today follow corruption? I’ve yet to note a single statesman (sorry states-person) who is morally upright. I would however like to concede that at least that maverick Prof. Jonathan Jansen (University of the Orange Freestate) is not afraid to stand up and talk straight.
Those interested in the topic of organised crime in Africa should can an interesting analysis (below) which the Internet has freely allowed me to obtain. ICT is without doubt a necessary evil!
- Penetrating state and business: Organised crime in Southern Africa (Peter Gastrow)
- Durban – Harbour mafia busted! (mpoverello.com)
A 3-year covert investigation into a multi-billion rand racket at the Durban harbour has exposed an international mafia, allegedly bribing customs and police officials to allow in container-loads of contraband.
This week, a former Sars customs official was taken by surprise when Hawks and Sars investigators swooped on his Umbilo home and arrested him on 80 counts of alleged corruption. Etienne Kellerman, 47, a former Sars anti-corruption task team member, appeared in the Durban Regional Court on Tuesday. He was released on R100 000 bail and the matter was adjourned to next week. Kellerman is suspected of receiving substantial benefits for allowing contraband through. It is alleged that Sars lost millions of rand in revenue as a result. He resigned from Sars three years ago, days after he was quizzed by Sars investigators about his alleged role in the racket. His job had been to profile and identify high risk companies and containers entering the country.
A further seven Sars officials from Durban and Johannesburg were suspended for their alleged roles in the smuggling racket. Hawks investigator and project manager of this undercover operation, Colonel Brian Dafel, said that in coming weeks they would swoop on 100 more suspects in the country, including Sars officials, police and syndicate members, on charges ranging from racketeering, corruption, money laundering, extortion, murder and attempted murder.
He said the investigation was triggered by informers who tipped them off about the alleged crooked activities and racketeering at the harbour. The undercover investigation was a joint operation by the Hawks, Sars, independent law enforcement agencies and other key role players, Dafel said. He said they were also closing in on suspects believed to have ordered the hit on Warrant Officer Johan Nortjé, an officer in the police’s protection security service. He was responsible for investigating smuggling of goods and drugs through Durban harbour. A hit was allegedly ordered on his life days after he made a R100m counterfeit bust at the harbour. Nortjé was gunned down outside his Montclair home on January 17 last year, 10 days after he had made the bust.
“Nortjé was one of the few honest cops. He was aware of the container racket and was determined to expose it. He was killed because he was hampering the operation of the syndicate members,” Dafel said.
“This is a very dangerous investigation that involves extremely high levels of corruption. “Durban harbour is the biggest port authority that handles 40 percent of the containers nationally. In the past two years, during this investigation, we have seized over R1 billion worth of counterfeit goods and contraband.” He said that several witnesses had been placed in witness protection programmes as they feared for their lives. “People’s lives have been threatened and hits have been ordered. But, none of this will deter this investigation.
Dafel told the Daily News that investigations had revealed that certain SARS and police officials were working in teams between KZN and Gauteng. “This could not be done alone. They worked in groups, including those who cleared the documentation to those who inspected the containers and gave them the final clearance.
Thousands of containers pass through the harbour daily and it is impossible to check each and every one. That is how the counterfeit goods and contraband got through so easily. The syndicate members also communicate through cellphones making it a very smooth operation. He said every member of the syndicate was paid for his or her role in allowing the illegal goods through. The potential value of the illegal commodities was between R10 and R20 million for each container. The international mafia pays bribes of up to R30 000 per container that is allowed to pass through customs undetected. It is reported that one of the biggest problems is the clearing agents who work in cahoots with the police and syndicate members.
Dafel said many of the SARS and SAPS officials who were being investigated stood accused of allowing counterfeit goods or contraband to enter the country illegally, or under-evaluating containers. Since the investigation started, much stricter measures are in place at the harbour making it difficult to smuggle goods into the country. “We have closed the gap significantly for any form of corruption to take place. Also, staff know that they will be arrested and charged if they break the law,” Dafel said.
He said they were also working closely with people abroad and international law enforcement agencies to close in on the racketeers. “There are big name international companies, mainly from China, that are also being investigated. In fact, the goods imported from China are the biggest problem.” Source: Daily News E-edition