China’s latest initiatives to enhance Customs integrity and compliance

21 June 2017
By Libing WEI, Policy Adviser, International Cooperation, China Customs

China Customs has rolled out a series of measures to enhance staff integrity at all administrative levels and to promote trader compliance across all sectors. Four of the latest initiatives introduced in this regard are described below, namely the extension of the functions of the Discipline and Integrity Monitoring Bureau, the use of automated random selections to decide on consignments to be controlled, the publication of business credibility statuses, and the undertaking of trader satisfaction surveys on Customs’ service and procedural fairness.

One case – two investigation teams

As a critical step, China Customs has reengineered its integrity monitoring mechanism by extending the power of the Discipline and Integrity Monitoring Bureau. The Bureau is an independent body which reports to both the seven members of the Directors’ Board of the General Administration of China Customs (GACC) and the National Central Discipline Steering Committee – the latter entity monitors discipline in all government bodies and the governing political party.

Appointed by the National Central Discipline Steering Committee, the Bureau’s top officials are selected from among the members of the very same Steering Committee. Officials operating at lower branches and at regional Customs offices, however, are selected by the GACC. Rich in anti-corruption investigation experience, the Bureau staff is tasked with reviewing the implementation of the Customs integrity strategy and action plan at all levels of the administration.

The decision to strengthen the Bureau’s capacities, followed the uncovering of corruption cases in 2014, which brought to light the existence of collusion between frontline Customs officers and smugglers in a southern coastal province. A considerable number of Customs officers, including some in charge of anti-smuggling, were found to have been engaged in illegal trade. They were ‘facilitating’ such trade, not out of negligence, but deliberately while on duty for the sake of seeking illicit gains. As a result, China Customs realized that there were loopholes in the system in place to prevent collusion and smuggling – revealing an information asymmetry between headquarters and the local offices in particular, and the existence of a spirit of ‘comradeship’ between officers.

In this context, it was decided to implement a new policy called “One Case – Two Investigation Teams.” Under the scheme, each violation of Customs regulations, if found to surpass a certain threshold of Customs duty or which causes a considerable negative impact on supply chain security and ethical culture, will be subject to a joint investigation by the Anti-Smuggling Bureau and the Discipline and Integrity Monitoring Bureau. Previously, such cases were investigated solely by officers of the Anti-Smuggling Bureau of the local Customs office concerned.

The officials working at the headquarters of the Discipline and Integrity Monitoring Bureau provide instructions on how the investigation teams should be organized and which procedure they should follow according to the situation on the ground, the objective being to ensure that competencies related to law enforcement and the fight against corruption are well represented.

The joint investigation team employs an information and communication technology (ICT) system called “HL 2008” to report all data related to an investigation process. The system enables the Chinese Customs administration to have at its disposal all historical data on investigated cases and on corruption activities which it has revealed, and to profile economic operators and Customs offices accordingly.

In practice, the new policy applied to all investigations enables all circumstances surrounding an incident to be examined and all the relevant facts to be documented, which assists in the making of an informed decision. It also helps to guard against possible corruption-related nepotism, while supporting the overall integrity of China Customs, which has proved successful in effectively addressing local issues related to compliance management. In 2016 alone, there were 2,633 smuggling cases investigated under this scheme, and close to 80,000 administrative violations identified and investigated nationwide.

Dual automatic random selections

Since 2014, in addition to the existing three main methodologies used to select shipments and consignments to be controlled, namely pre-set risk targeting, sampling and improvised ‘on the spot’ targeting, China Customs uses what it calls “Dual Automatic Random Selections.” Under this scheme, the automated risk management system randomly selects some shipments for inspection, and appoints inspection officers randomly as well to process the inspection. Its main purpose is to deter possible collusion between officers and traders, thereby ensuring a fair and just clearance process.

The selection process works along similar lines to that of pre-set risk targeting: targeting criteria such as increases or decreases in the percentage of screenings on certain industrial product or goods of a particular origin are predefined and entered into the risk search engine. It is, therefore, different from the usual random targeting process, which is based on discretionary judgment on the spot, as it takes advantage of computer rapid assessment and of information coming from a large network of regional offices that is shared through the integrated Customs clearance system.

This new policy has proven to complement existing selection methodologies. Although the seizure rate following the inspection of a targeted shipment is not as high as the rates obtained through the implementation of the other three selection methods, the new scheme allows China Customs to demonstrate that it is focused on fairness and justice, and that it is committed to preventing the rent-seeking of public power.

According to the latest report issued at the end of March 2017, on a national basis, 95% of the shipments selected through this method were inspected, with a seizure rate of around 8.8%. In comparison, inspection rates on shipments selected through pre-set risk targeting, sampling and improvised on the spot targeting methodologies were 81%, 14% and 5% respectively, with seizure rates of around 10%, 3.9% and 20% respectively.

Equally meaningful in terms of compliance management, the new policy acts as a greater deterrent for potential illegal traders. Thus, the private sector is not able to speculate on which consignment will be subject to a control and who may be doing the inspection, and Customs officers do not know who will be chosen to inspect which consignment. Moreover, investigation results will ‘feed’ the risk engine, resulting in the improvement of the whole targeting system. Interestingly, the method is widely acclaimed in preventing corruption and has been adopted by other regulatory departments in China.

Publication of business credibility statuses

China Customs and 32 other government departments signed a joint Memorandum of Understanding on Collective Punishment to Discredited Enterprises in March 2017. In line with the national strategy of “Awarding Credibility and Punishing Dishonesty” to build the trust of society, the Memorandum of Understanding (MOU) contains 39 articles related to the punishment of economic operators guilty of dishonest or illegal behaviour.

The MOU states that not only discredited entities, but also their legal representatives, board executives and senior managers shall fall under stricter regulation. It provides that discredited operators are either restricted in their actions or severely regulated wherever they intend to run a business – for instance, in terms of bank loans, investments, and the physical entry or exit of goods at borders.

In addition, the MOU requires all signatory departments to monitor business credibility, and publish evaluation and audit results through a “Single Window for the Publication of Companies’ Credibility Status.” Here, it may be mentioned, that China Customs is already required by law – the Interim Regulations on the Categorized Management of Enterprises’ Credibility, i.e. the law regulating the Chinese authorized economic operator (AEO) programme – to verify the credibility of all enterprises registered with Customs and to publish the results of its assessment.

The credibility of companies is evaluated according to their historical business performance and compliance records as well as via controls and audits. Enterprises are placed in one of four categories:

  • High Credible Authorized Operators (AEO companies);
  • Credible Operators;
  • Ordinary Operators;
  • Discredited Operators.

High credible authorized operators and credible operators are respectively granted clearance facilitation permission, while ordinary operators will be subject to regular enforcement, and discredited operators subject to strict Customs controls.

Trader satisfaction survey in combination with integrity building

Another initiative worth mentioning is the undertaking once a year of a satisfaction survey on Customs’ service and procedural fairness. The Discipline and Integrity Monitoring Bureau is tasked with formulating the survey questions and coordinating the activities of the team in charge of analysing and compiling the results. This survey team is made up of private practitioners on the ground, mainly drawn from the Customs Brokers Association and its regional branches nationwide, based on the close Customs-business partnership already in place.

The survey questions, which are published on the websites of the GACC and the Customs Brokers Association, enable information to be obtained, not only on dishonest practices by traders and Customs officers, but also on the perceptions of traders with respect to Customs’ performance and the effectiveness of its compliance instruments.

Way forward

China Customs is convinced that its latest initiatives to enhance Customs integrity and trader compliance are key to reducing information asymmetry, to combating corruption and to upholding the principle of “compliance for trade facilitation” in boosting business morale on a meritocratic basis. The initiatives being implemented send a clear message – that China Customs is committed to strengthening integrity and compliance awareness by every possible innovative means, as existing approaches could be manipulated by non-compliant traders and officials for illegal gain.

However, keeping an esprit de corps and fighting against Customs corruption is a long hard journey, particularly in the business context where large volumes of shipments are being cleared under more and more ‘facilitated’ measures, making it imperative for Customs officers to demonstrate high integrity and for trade practitioners to comply with the rules. These are two sides of the same coin in the course of building social trust, and in creating a working environment which is professional, ethical and fair.

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