Integrity in Customs

Author:Gerard McLinden

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In many developing countries, high levels of corruption drastically reduce the effectiveness of key public sector agencies. Customs administrations are no exception and are frequently cited as among the most corrupt of all government agencies. Given the vitally important role customs plays in revenue collection, trade facilitation, national security, and the protection of society, the presence of corruption in customs can severely limit a nation's economic and social prospects and national development ambitions.

This chapter describes the scope and nature of the corruption problem in customs and identifies a range of practical approaches that can be employed to address it. The chapter is designed to provide a comprehensive framework for analyzing the potential effectiveness of a range of anticorruption strategies and provides practical guidance and advice to customs officials, consultants, donors, and other stakeholders engaged in the identification and implementation of sound anticorruption and integrity development strategies.

Attempts to deal with corruption in the past have often been frustrated by well-intentioned but totally Page 68 ineffective calls for the adoption of industrial countries' standards of administrative honesty, effectiveness, and efficiency or, perhaps, the adoption of quick fix solutions designed to work around rather than deal with the problem. Recourse to preshipment inspection services has at times been inspired by such motives. To effectively tackle the problem of corruption in customs, a comprehensive and sustainable approach that addresses the underlying causes and consequences is required. There are no quick fix solutions. Rather, a pragmatic and situation-specific approach is necessary-one that draws on the lessons learned from previous efforts around the world and that takes into account the fundamental issues of motive and opportunity.

The first section of this chapter provides an introduction to the nature of the corruption problem in customs and describes some important considerations to take into account when framing an effective anticorruption strategy for customs. It also provides an overall framework based principally on the work of scholars such as Robert Klitgaard. The second section reviews the international customs community's response to the problem and outlines a comprehensive 10-point framework for tackling corruption, as contained in the World Customs Organization's (WCO's) Arusha Declaration on Integrity in Customs. The section also provides some practical guidelines on how to develop, implement, and monitor a national customs integrity action plan and how to establish a process and sustainable culture of continuous improvement. A series of key issues and questions are included in a simple checklist for each of the 10 points (see boxes 4.1-4.7 and 4.9-4.11). The final section presents the key operational conclusions derived from the chapter.

Consequences of Corruption in Customs

Customs plays a central role in every international trade transaction and is often the first window through which the world views a country. The implications of corruption in customs on a nation's capacity to benefit from the expansion of the global economy are obvious. Data obtained from the World Bank's Investment Climate Surveys indicate that 40 percent of firms included in the 80-country survey rate Customs/Trade regulation as a major or moderate constraint to business investment (World Bank 2003). As business and investment decisions by multinational companies are increasingly subjected to international competition, the presence of widespread corruption in customs can act as a major dis-incentive to foreign investment. In addition, corruption in customs takes on new significance in the current environment of heightened concern about the security of international trade. Sophisticated systems and procedures designed to detect weapons of mass destruction will offer little protection if they can be circumvented simply by bribing customs officials.

In many developing countries, customs' collections continue to represent a large portion of government revenue. Figures provided by the WCO suggest that in many countries customs collects over 50 percent of all government revenue (WCO 2003a), and delays in the processing of imports and exports can cause significant losses, increase the cost of doing business, affect the competitiveness of a country's firms, and scare away foreign investment. The presence of widespread corruption can, therefore, destroy the legitimacy of a customs administration and severely limit its capacity to contribute to government objectives. The adverse effects of corruption within a customs administration include the following:

* a reduction in public trust and confidence in government institutions

* significant revenue leakage

* a reduction in the level of trust and cooperation between customs and other government agencies and between customs and relevant counterparts in other countries

* low staff morale and esprit de corps (although this is both an effect and a cause)

* a reduction in the level of voluntary compliance with customs laws and regulations by the business sector

* a reduction in national security and community protection

* the maintenance of unnecessary barriers to international trade and economic growth

* increased costs, which are often borne by the poorest sectors of the community.

Most, if not all, customs functions are susceptible to corruption; however, the following activities are frequently cited as being particularly vulnerable as they provide both a motive for unscrupulous traders to circumvent customs regulatory requirements and an opportunity for corrupt customs officials to seek bribes. Table 4.1 lists a number of areas and examples

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Selected Customs Functions Examples of Integrity Violations
Processing of import, export, and transit declarations Soliciting or accepting payment to
* accelerate the processing of documents
* ignore the fact that some cargo listed on the manifest was not declared
* certify the exportation of fictitious exports or provide for a wrong HS classification
* permit goods in transit to be released for domestic consumption.
Assessment of origin, value, and classification of goods Soliciting or accepting payments to
* permit under-invoicing of goods
* not challenge the declaration of goods under a different HS that attracts a lower tariff rate
* accept a false country of origin declaration, thus permitting the importer to benefit from a preferential tariff regime.
Physical inspection, examination, and release of cargo Soliciting or accepting staff who would
* ensure that an inspecting officer is chosen who will take an accommodating approach to the inspection
* skip the inspection
* influence the findings of the inspection
* simply speed up the inspection.
Administration of concessions, suspense and exemption schemes, and drawback schemes Soliciting or accepting payment to
* permit traders to release, for domestic consumption and without paying the required import duties, goods that entered under suspense regimes or goods made with inputs that entered under such regimes
* obtain a release of the bond that is to protect customs revenues in cases of temporary admission of imports without adequate documentation
* permit traders to claim excessive input coefficients for exports produced with inputs that benefited from the suspense regimes
* permit traders to claim drawbacks for fictitious exports
* permit importers to transfer imports that benefited from duty relief to nonauthorized users or for nonintended purposes, or permitting them to import such goods in excess of the amounts agreed to.
Conduct of post-clearance audits Soliciting or accepting payments to influence the outcome of the audit findings.
Issuing of import licenses, warehouse approvals, and authorized trader status approvals Soliciting or accepting payments to obtain these licenses and certificates without proper justification.
Processing of urgent consignments Soliciting or accepting payments to obtain preferential treatment or speedy clearance.
(c) The International Bank for Reconstruction and Development / The World Bank

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where corruption can take place in customs. This list is not intended to be exhaustive.

Customs is vulnerable to corruption because the nature of its work puts its officials, even at junior levels, in situations in which they have sole authority and responsibility; in which they are authorized to make important decisions on the level of duty or taxes or admissibility of imports and exports; and in which careful supervision and accountability is difficult. In addition, they work face-to-face with members of the trading community who have a strong incentive to influence the decisions made by customs officials. High tariffs and complex regulations offer significant incentives for traders to try to reduce import charges and speed up transactions. That many officials are poorly paid is often a strong incentive to accept or solicit bribes in the execution of their duties.

Types of Corruption in Customs

Irene Hors, of the Organisation for Economic Co-operation and Development (OECD) Development Centre, has identified three types of...

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