Trade Compliance

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Eliminating the “Hidden Tariff” of Global Customs Corruption

Posted February 08, 2016

Despite meaningful progress made by some countries over the past decade, corruption continues to bedevil customs administrations around the world, irrespective of development level.

Jeroen Michels, a policy analyst with the Organization for Economic Co-operation and Development (OECD), writing at the FCPA Blog last week, cited customs corruption as being the common thread linking several recent news stories: the deadly Tianjin explosion in China that killed dozens of people and injured hundreds more; the multi-million dollar La Linea scandal which rocked the government of Guatemala, eventually leading to the resignation and imprisonment of president Otto Molina Pérez; and ongoing criminal investigations by the Department of Justice against U.S. retail giant Walmart over allegations of bribery in Mexico and India.

Each case serves to demonstrate how corruption in customs can have a number of seriously damaging effects including revenue loss, distorted markets, and increased public health and security risks. Even so, “lucrative spoils mean that customs administrations worldwide remain a high-risk area for corruption,” Michels says. Moreover, he notes that “such scandals and catastrophes arise with unfortunate regularity” owing to the very nature of the customs making it especially vulnerable to various forms of corruption and other criminal activities in regards to almost every function it performs.  

This phenomenon was explained quite well in a 2012 paper by Gerard McLinden and Amer Zafar Durrani, two specialists with the World Bank, published in the World Customs Journal:

It’s a simple fact that customs officials, even at junior levels, enjoy extensive discretionary powers and interact daily with traders who have a strong incentive to influence their decisions. Moreover, the fact that many customs officials work in situations where careful supervision is practically impossible creates an environment ripe for corruption. Add to the mix the poor pay and difficult working conditions customs officials in many countries have to contend with as well as very little probability of getting caught and it is no real surprise that Customs continues to be perceived as amongst the most corrupt of government institutions.

Complicating matters further is the fact that many corrupt transactions occur side-by-side with honest ones and are conducted between parties that are frequently part of the same extended informal social and business network. As a former Secretary General of the WCO noted: “There are few public agencies in which the classic pre-conditions for institutional corruption are so conveniently presented as in a Customs administration. The potent mixture of administrative monopoly coupled with the exercise of wide discretion, particularly in a work environment that may lack proper systems of control and accountability, can easily lead to corruption.”

Michels states that 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.

With that aim in mind, the 2016 OECD Integrity Forum “Fighting the Hidden Tariff: Global Trade without Corruption,” on April 19-20, 2016 in Paris will provide what the organization describes as “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.