Dossier

Anti-corruption Collective Action: the logical next step for Customs

By Gemma Aiolfi, Head of the International Centre for Collective Action (ICCA), Basel Institute on Governance

This article outlines the case for Customs administrations to use ‘Collective Action’ to fight corruption and, by doing so, improve Customs policy and its implementation, increase duty and tax collection rates and support government anti-corruption efforts, while creating a fair business environment. This may all sound quite ambitious, but it is also arguably the logical next step for Customs.

The WCO has long recognized the deleterious effects of corruption in Customs, and the imperative to take action to prevent, detect and deter its occurrence. To support these efforts, the WCO and other international organizations have produced a number of standards, tools and guidance that aim to practically support countries committed to tackling corruption.[1] By engaging in ‘Collective Action’ with the private sector, Customs authorities may invigorate their efforts in implementing these standards, and improve the effectiveness of accompanying reforms.[2]

The problem of corruption in Customs

Corruption in Customs affects international trade and is, therefore, an issue that influences the global economy. The effects of corruption in Customs services are well known and frequently cited as including reduced intake of revenue, economic damage through the reduction in revenue, unfair price competition for local industries, under-valuation and/or misclassification of imports and some exports.

In addition, the hazards associated with illegal or dangerous substances and products being introduced into a country are concerning in many countries, and border corruption enables other crimes to flourish, such as terrorism, human trafficking and poaching, all of which can have devastating and long-term consequences.

The World Bank estimates that about 1 trillion US dollars is paid each year in bribes around the world, with the total economic loss from corruption estimated to be many times that number.[3] Estimates also indicate that about 2 billion US dollars in bribes occur in Customs administrations each year. Scholars have found a strong relationship between corruption, bribery in Customs services, and low GDP growth.[4] Businesses have also identified corruption at the border as one of the main obstacles to cross-border trade.[5]

The multidimensional nature of Customs’ obligations represents a tension between facilitating the flow of goods on the one hand, and performing regulatory and coercive duties on the other. In many countries, Customs and other border agencies are equipped with powers that enable them to stop, search, control and seize goods, as well as detain persons, under remits that go well beyond those of other law enforcement agencies.

These powers are predicated on a wide range of laws addressing criminal activities as well as standards for health, safety and agriculture, including the collection of duties and taxes. The discretionary aspects of Customs combined with the locations where these functions are exercised, the handling of money (often cash) at borders, and the involvement of Customs brokers and agents acting as third parties for clients, all contribute to creating increased corruption risks for Customs services.

Research indicates that companies or their brokers that offer bribes, are motivated by the trade-off between time and the cost required to import goods,[6] and traders pay bribes in an institutional environment where they feel removed from the Customs service, which supposedly represents their interests as citizens and business. The legal regimes that permit so-called ‘facilitation payments’ by companies have probably exacerbated the practice and tolerance of bribes at Customs, though this may now be declining in acceptance.

What is Collective Action and why consider it?

Collective Action has been defined variously as a “catch all term for industry standards, multi-stakeholder initiatives, and public-private partnerships”,[7] or it may be a distinct form of interaction: “a collaborative and sustained process of cooperation amongst stakeholders [that] increases the impact and credibility of individual action, brings vulnerable individual players into an alliance of like-minded organizations, and levels the playing field between competitors.”[8]

For the World Bank Institute, Collective Action against corruption can take the form of anti-corruption declarations, principle-based initiatives, business coalitions subject to certification, and integrity pacts.[9] The forms of Collective Action are distinguished from each other by the degree of enforceability of the participants’ joint commitments[10] and, perhaps, by the goals of the initiatives.

By any definition, Collective Action is neither a panacea for all corruption problems, nor easy to achieve, not least because it demands an active and participatory approach by the participants. Establishing such action may also require patience and persuasion; companies want to know the business benefits of joining any group, especially if they are suspicious of competitors’ motives. The public sector may also question the need for a participatory process when their mode of working thus far has been to determine standards and regulations without the need for consultation.

If Collective Action is challenging, why consider it at all in this context? Reasons to do so include addressing the aforementioned ‘tension’ between enforcement and trade facilitation in Customs. The fact that virtually all bureaucratic procedures and control practices are usually more or less ‘negotiated’ between government agencies and the business and logistics sectors, particularly in enclosed or strictly defined areas such as ports and airports,[11] might suggest that Collective Action focusing on preventing corruption and promoting integrity would be a logical and effective approach to tackle issues of joint interest to the public and private sectors.

Initiating Collective Action

Engaging with the private sector can be a challenge in itself, particularly if there is a lack of tradition in consulting with economic operators, and a basic lack of trust between the public and private sectors. Taking steps to alter this premise often requires overcoming prejudices and deep-seated skepticism on both sides. It needs champions who can see the wider benefits, and who can take leadership roles, particularly on the Customs side.

Examples of Collective Action

A basic approach to anti-corruption Collective Action draws the public and private sectors in a dialogue that is structured, sustained, goal oriented, transparent, and supported by the Customs authority. For example, Canada, Russia and the United Kingdom have all set up Customs-related consultative committees that include industry stakeholders, who provide feedback on a variety of initiatives, policies and regulations, including some that relate to anti-corruption.[12]

A wider version of the consultative approach has been taken by Guatemala. The Customs authority leads a ‘whole-of-government’ approach based on an agreement that establishes a “Public-Private Sector Discussion and Cooperation Roundtable for Customs Affairs,” to which some 17 institutions have signed up to.

One of the main strengths of this initiative, perhaps lies in the realization that the public and private sectors can “all wake up and work together to the benefit of the country” according to one member. This method of working includes formalized meetings involving three groups that ensure information-sharing with the highest levels of government, coordination of activities, and a technical group that includes representatives from all stakeholders.

The goals of improving efficiency in Customs and business are being addressed systematically and transparently. The initiative has its weaknesses according to the private sector, such as the slow pace of reform and dealing with hierarchical structures in the public sector. While there remains much to be done, the approach is supported on all sides and led by Customs.

Other examples that embrace a whole-of-government approach include Brazil (Procomex) and Mexico (Customs Modernization and Competitiveness Board):

  • In Brazil, the public and private sectors collaborate to map business processes to inform and drive key procedural changes. The process includes giving due consideration to both trade efficiency and implementing appropriate integrity controls;

 

  • In Mexico, the public and private sectors work together through the Board to design and implement policies in seven areas, namely (1) open and two-way communication, (2) transparency, (3) collaboration, (4) inclusion of all stakeholders, (5) innovation to anticipate changes and challenges, (6) integrity, mutual trust and understanding, and (7) accountability and joint responsibility.

A different Collective Action that brings together civil society, Customs brokers and the government is the Turkish Customs Broker Initiative. Set up in 2013, it is still a work in progress[13] and needs to resolve some outstanding issues, but has also made progress since its inception.

In 2013, The Ethics and Reputation Society of Turkey (TEID) convened 250 participants representing 8% of Customs brokers and 67% of all Customs clearances in five Turkish cities. Under the auspices of Turkish Customs, the brokers signed a Code of Ethics. They then had one year to implement the Code via a compliance programme to address bribery risks, after which they would receive the “Ethical Broker Logo” that would identify them as a broker capable of managing identified risks.

The Turkish initiative has a fully thought out governance structure that envisages committees to ensure transparent procedures to award the logo, remove it, and to manage the process. Even though not all of the original aims of the initiative have yet been met, the process is informative for others seeking to develop participatory approaches involving Customs brokers.

Conclusion

Combating corruption requires a multiplicity of approaches. Collective Action does not provide the only solution, but in combination with other legal, institutional and administrative reforms, multi-stakeholder engagement can lead to informed policy making and more effective implementation of processes that are fair and relevant to economic operators. At the same time, such engagement can assist in increasing the collection of duties and taxes, decreasing bribery, and facilitating trade.

More information
www.collective-action.com

[1] For example: WCO Revised Arusha Declaration (2003), WCO Revised Integrity Development Guide, WCO SAFE Framework of Standards to Secure and Facilitate Global Trade (2012), UN ASYCUDA.

[2] On the need for ‘big bang’ reforms in Customs, see Michael B, Ferguson F, Karimov A. (2010) Do Customs Trade Facilitation Programmes Help Reduce Customs-Related Corruption?

[3] http://www.worldbank.org/en/topic/governance/brief/anti-corruption.

[4] Michael B (2010).

[5] OECD/WTO (2015), Aid for Trade at a Glance 2015: Reducing Trade Costs for Inclusive, Sustainable Growth, OECD Publishing, Paris, http://www.oecd-ilibrary.org/development/aid-for-trade-at-a-glance-2015_aid_glance-2015-en.

[6] Michael B (2010).

[7] Pieth M (2007) Multi-stakeholder initiatives to combat money laundering and bribery. In:Brutsch C, Lehmkuhl D (eds) Law and legalization in transnational relations. Routledge, Oxford, pp 81–100.

[8] World Bank Institute (2008) Fighting corruption through collective action, a guide for business, World Bank. http://info.worldbank.org/etools/docs/antic/Whole_guide_Oct.pdf

[9] Ibid. World Bank (2008).

[10] Design and Enforcement of Voluntary Anti-Corruption Agreements in the Private Sector, a study commissioned by the G20 Anti-Corruption Working Group and prepared on behalf of the B20 Task Force, Draft 30 May 2013, p. 5 (on file with the author).

[11] Cantens T (2016).

[12] OECD (2016) Customs Integrity: Taking Stock of Good Practices, Responses to the G20 ACWG Integrity in Customs Self-Assessment Questionnaire.

[13] Remaining elements include: establishing a “Joint Committee for Combating Corruption in Customs” together with the Ministry for Trade and Customs along with other stakeholders; and addressing the position of ‘runners’ who handle the paperwork and assist physical Customs control procedures, but have the lowest wages and try to mitigate their low income with improper payments.