COOPERATION BETWEEN CUSTOMS AUTHORITIES AND THE PRIVATE SECTOR FOR BETTER CUSTOMS BORDER CONTROL MANAGEMENT
By Thomas Bifwoli
Border control and management is one of the great challenges facing most countries. In a globalized world, government authorities must balance between maintaining security while facilitating speedy and legitimate trade. In the absence of that balance, smuggling, trafficking and illegal migration, organized crime, and terrorism will flourish.
A typical border control agency increasingly has to adapt to a world without ‘’borders’’. This is a world driven by the following:
- Open borders: a border is more than the traditional border crossing points. Vast unmanned land borders, among others, pose unique challenges for border agencies. Relevant authorities must continuously find solutions for these challenges.
- Increasing mobility of people, both legitimate and illegitimate: governments have to constantly think of new ways to manage this increased flow.
- Trade volume increase: there is an increased need to respond to challenges such as smuggling of illicit goods.
Governments alone cannot manage or achieve these objectives. Now, more than ever before, there is a need to involve the private sector in addressing border control and management challenges. As is the case, Customs and other border agencies around the world increasingly involve the private sector in one way or another. This means that border control management agencies must redefine their role, transform themselves, re-train their personnel, and rebuild their technical capacities in-line with these new demands.
To help countries effectively define these new security and operational objectives, the World Customs Organization (WCO) has developed the SAFE Framework of Standards, specifically its Pillar II that addresses the Customs-to-Private sector arrangements. WCO member states are advised to implement this recommendation – engaging the private sector in a structured manner as stated in the SAFE Framework of standards – as one way of addressing the gaps in the management of borders.
This paper will look at the role of the private sector in securing the supply chain, the inherent challenges of this arrangement, and what needs to be done to make sure it works for the best interest of better border control and management. Lastly, the paper will articulate how the private sector could serve as the missing link to better and more effectively monitor UN sanctions, particularly the immensely complex prohibitions imposed on the DPRK and its proliferation of weapons of mass destruction as well as its prolific export business of conventional arms.
2. Customs-to-Business/private sector connection
To ensure the security and safety of the international trade supply chain, the WCO SAFE Framework recommends establishing a partnership with the private sector. Since Customs does not operate in a vacuum and does not control the private sector, this partnership is conceived as a voluntary arrangement that is expected to synergize public-private efforts and self-interests to promote secure and safe trade. As stated in the Framework, “the main focus of this pillar is the creation of an international system for identifying private businesses that offer a high degree of security in respect of their role in the supply chain”.
These partnerships are naturally expected to bring benefits to both Customs agencies and the private sector. Chief among them is the expedited processing of goods. By relying on public-private partnerships, border enforcement agencies (Customs) are asking the partners to assess risks and threats to the supply chain. The partners are then expected to address these risks as soon as they are detected. This shared responsibility benefits not only Customs but also the world in general since Customs is now able to focus on facilitating legitimate trade.
The main focus of this pillar is the creation of an international system for identifying private businesses that offer a high degree of security guarantees in respect to their role in the supply chain. The WCO has defined, under Pillar II of the SAFE Framework of Standards, several critical factors, together with mutual respect of each other’s roles and responsibilities, that are meant to help Customs as they go about establishing the partnerships. Detailed explanations and elaborations about each of these Standards are available in the main SAFE text (see here: http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/frameworks-of-standards/safe_package.aspx). They address the following concerns:
How effective is the implementation of this Pillar to enable Customs to secure and protect the international trade supply chain? The continual reforms that Custom agencies the world over have been undertaking must be coupled with other efforts related to challenges to securing adequate funding and adjusting to the ever evolving modus operandi of criminal networks, among others.
3. Gaps and shortcomings
There is no comprehensive study of the impact and success of implementation of Pillar II (of the WCO SAFE Framework of standards); but, on an anecdotal level, some level of success has been noted. Most Customs administrations, particularly of developing countries, have reported improvements in revenue collections as a result of working with the private sector. Programs like the Authorised Economic Operators (AEO), which permits the vetting of trusted supply chain actors, have helped to increase the effectiveness of border control operations. In turn, the trusted players help Customs in managing risks (including security and safety – other than revenue risks) in the supply chain. However, it is noted that there is room for improvement as noted below under case studies.
Numerus reports have pointed to existing gaps in the cooperation between Customs and the private sector. It is not out of the ordinary to find reports of trusted, “reputable” import and export companies being involved in the smuggling of contraband, including UN embargoed material.
“Several reports from 2016 and 2017 compiled by a special Panel of Experts under the UN Security Council list the Chinese company New Times International Transport Service, NTS, that operates under the Maersk Group logistics company DAMCO, for the shipment of missile components as part of an illegal arms deal between North Korea and Egypt back in 2013”.
Maersk is one of the biggest and reputable shipping lines of the world; it has never publicly addressed the compliance failure by its subsidiary. Being linked to a violation of UN sanctions has in this case however caused very little impact on DAMCO.
Except receiving some unfavorable press by ShippingWatch, an influential industry journal, neither the subsidiary nor the main corporate entity suffered any secondary sanctions or legal ramifications. ShippingWatch reported that a total of 11 parcels were sent from Beijing to Cairo on a plane and that the seller was the North Korean regime; the buyer was the Egyptian military. “The transaction was halted when authorities in an unnamed country got suspicious and seized the cargo en route.”
Weak private sector links, like the one revealed by DAMCO, need to be addressed to improve the management of the supply chain by Customs and related border control and management authorities. Below are two cases to further illustrate such weak links and gaps. Customs authorities are urged to always be vigilant as they enforce the relevant laws for a better managed border.
4. Case studies
a) Abuse of trust accorded to the private sector
In May 2015, Thailand Customs reported a seizure of up-to three metric tons of Ivory from 511 elephant tusks. The origin of the shipment was the port of Mombasa, Kenya. The ivory was “hidden among tea leaves that were shipped out of Kenya on March 24 and went through ports in Sri Lanka, Malaysia and Singapore before coming to Thailand.” Tea is one of the biggest exports from Kenya. It is normal to get shiploads leaving the port of Mombasa for the Middle East and even Far East countries and usually does not pose any security concern. This particular case is even more interesting in the sense that the tea sector is a highly regulated and controlled industry. The stuffing and packaging of tea is usually done under the supervision of Kenyan regulatory authorities. It is generally assumed that criminal groups should not be able to penetrate this chain of custody of such an important Kenyan export commodity to conceal contraband in a consignment.
Kenyan authorities extensively investigated this case and determined that, after the container was stuffed with tea, it was loaded on a truck destined for a ship in the port of Mombasa. It is believed that this truck deviated from its route and went into a private facility where the seals of the container carrying the tea were compromised, the doors of the container opened, and the tea removed and substituted with the three tons of ivory. This new consignment then proceeded to the port for shipment to the destination country.
The consignment, believed to be coming from a “trusted” and known tea exporter, did not receive strict scrutiny from government authorities for possible contraband and was allowed to be loaded on a ship for export. Only a few weeks later was the shipment stopped at the port in Chonburi province in eastern Thailand and, upon inspection, the Ivory was found hidden in tea.
There are several private sector players that were involved in this transaction. They are: the warehouse owner, where the tea was stuffed in the container; the transporter, who moved the loaded container from the tea warehouse to the “private facility” where it is believed the tea was replaced with Ivory; the broker, who arranged the whole process; and the shipping line, who booked the container for export and actually acted as the agent for the ship.
From the reports of both Thai and Kenyan investigation officials, it is apparent that key indicators of anomaly should have triggered an action from the private sector, in this case the shipping line/agent flagging law enforcement agencies. The consignment changed its destination several times. As reported by Thai authorities, the consignment moved through, among others, ports in Sri Lanka, Malaysia and Singapore before ending up in Thailand. Changing or pretending to sell the consignment while en route on the high sea, the shipper’s agent first requested the shipping line to change the consignment initially destined for Dubai to Laos; then, he again requested a destination change to Singapore, then to Vietnam, before finally redirecting the container once more to a notifying party in Thailand.
The practice of making those changes can attract heavy penalties for the shipping line. In Customs operations, such multiple changes are indicators of a possible infringement. Naturally, one would want to question why multiple changes are being requested and what their legitimate purpose might be. Cooperation between Customs and the private sector would have meant that this frequent change would have been flagged to Customs. This is the cooperation that is expected from the private sector for better security and safety of the supply chain under the SAFE Pillar II. Secondly, a “trusted” exporter was expected to provide disclosure to law enforcement agencies (Customs). But he was not willing to collaborate and offer transparency – making this transaction an example how trust gaps still exist that the smugglers can capitalize on—as the smuggling of the seized Ivory demonstrated.
b) Private sector involved in smuggling
Law enforcement agencies such as Customs continually investigate and deal with all kinds of fraudsters whose aim is to bend the rules for their gain. The private sector has in the past and continues to be sometimes an ally and a perpetrator.
The role of the private sector is equally important, as is Customs’ management operators in providing security of the global supply chain. But the arrangement is being challenged in many different ways:
- Firstly, when shipping lines do not prove to be reliable partners in combatting e-fraud, specifically the falsification of import/export documents. These are key transport documents that, once tampered with, change the whole dynamics of Customs control.
- Secondly, transport vessels (ships, vehicles and even aircrafts) are used in smuggling—many times with the knowledge of crews and co-conspirators located at various control points.
- Thirdly, individuals may be involved in criminal activities while their links/connections with criminal networks are not known to the agencies they work for.
- And lastly, corruption remains an overarching challenge that affects both the public and private sector when the management of international supply chains are compromised.
Usually Customs and border control agencies rely on the goodwill, honesty, and transparency of the private sector. In instances where the private sector is involved in fraud, particularly involving internal staff, it becomes extremely difficult for government authorities to exercise control. In particular, it is a challenge for Customs to audit the compliance of shipping lines’ internal lapses that usually lead to breach of compliance laws and provisions.
Financial institutions and their due diligence and compliance efforts could be natural allies to the international shipping industry. These two industries share strong mutual compliance interests in sharing information, particularly in the always challenging transactions involving the import and export of arms and other military products. Sometimes, these products are under a UN embargo. Before a shipment of materials and cargo under sanctions is readied at a given point of Customs control, the costs of logistics have to be paid before it can leave a port. The question therefor always is whether the involved financial institution was already aware of the potentially problematic nature of the transaction before sanctioned goods find their way to a Customs control area. And why do banks and shippers not exchange information, particularly in cases where a violation of international law such as UN sanctions is being committed?
5. Trade-based money laundering
In research conducted and published by the US Congressional Research Service, financial institutions were accused of promoting trade-based money laundering (TBML). TBML involves the exploitation of the international trade system for the purpose of transferring value and obscuring the true origins of illicit wealth. “Financial institutions are wittingly or unwittingly implicated in TBML schemes when they are used to settle, facilitate, or finance international trade transactions (e.g., through processing wire transfers, providing trade finance, and issuing letters of credit and guarantees.” These financing schemes compromise border integrity and could be used to support terrorism.
Banks that received payments from UN designated individuals and entities in violation of the relevant resolutions need to be aware that there are consequences to this practice. Banks should not be processing payments for illegal goods and financial institutions need to do more when it comes to due diligence. Similarly, private sector entities like shipping lines need to integrate the practical implications of concepts like “Know Your Customer” throughout their operations, subsidiaries, agencies, and brokers so that they do not, willingly or not, transport illegal goods.
If private sector entities realize that, despite their best efforts, a compliance failure occurred, there needs to be a provision to share relevant information with law enforcement agencies immediately. While pro-active information sharing is at the heart of the SAFE Pillar II, post-facto transparency, even after a crime was committed, is a key factor in how the private sector can enable Customs and other border control agencies to quickly close gaps in their operations and improve the border management. Now, the Customs-to-Private Sector partnership would fulfil its intended objectives.
6. Policy recommendation
The WCO AEO program hinges on the pre-vetting of trusted private sector players. The intention is to create buy-in opportunities to companies who are committed to be reliable and cooperative partners in border management. In exchange, qualifying companies receive benefits from governments and border control agencies, including faster border transits and clearances of goods. However, as the case studies above demonstrate, the AEO pre-vetting alone does not guarantee that all the border control loopholes are sealed. There clearly are incidences where the trusted Custom to private sector relationship is abused; these undermine the goodwill and commitment from the honest private sector actors and tend to jeopardize the success and potential benefits of SAFE Pillar II.
Shipping lines, as the key player in the international maritime trade, come into sharp focus for more cooperative and responsible behavior. As long as shipping lines do not proactively address aberrations, such as multiple transshipments or rerouting of containers or goods, by closely monitoring and questioning the motives of such actions by the consignor and consignee, the public-private partnership is being undermined by deliberately ignoring gaping loopholes. Without addressing such trust deficits, Customs and border agencies will have only limited success in securing the supply chain, including preventing UN embargoed materials from traversing into conflict regions.
About Thomas Bifwoli
Thomas Bifwoli has worked for the Kenya Revenue Authority (KRA); and was previously seconded to the World Customs Organization Regional Intelligence Liaison Office for Eastern and Southern Africa (WCO RILO ESA) as Head of Office. He serves as the coordinator of a UN sanctions monitoring expert group.