CUSTOMS RISK MANAGEMENT. CARIBBEAN
MODULE 5
MANAGING CARGO AND PASSENGER RISKS PRACTICAL CASES
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Course author Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT). Course coordinator Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT), the Institute for the Integration of Latin America and the Caribbean (INTAL) (www.iadb.org/en/intal) and the Inter-American Institute for Economic and Social Development (INDES) (www.indes.org). Module author for the Latin-American region Rodolfo Ponce Díaz. Module author for the Caribbean region Dwain Powell. Director Port Community System, Jamaica. Pedagogical and editorial coordination The Inter-American Institute for Economic and Social Development (INDES) (www.indes.org) in collaboration with CEDDET Foundation (Economic and Technological Development Distance Learning Centre Foundation) (www.ceddet.org).
Copyright © 2017 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB’s name for any purpose other than for attribution, and the use of IDB’s logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.
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Table of Contents List of Figures .................................................................................................................. 5 Glossary ........................................................................................................................... 5 Acronyms ......................................................................................................................... 6 Module Introduction ....................................................................................................... 7 General Objectives of the Module.................................................................................. 8 Learning-Oriented Questions ......................................................................................... 9 UNIT I. ELEMENTS TO CONSIDER AND RISK INDICATORS FOR CARGO DURING THE THREE STAGES OF CUSTOMS CONTROL (PRE-ARRIVAL, CONCURRENT AND POST-CLEARANCE) .......................................................................10 Learning Objectives ...................................................................................................... 10 I.1. General elements to be considered and risk indicators for consignments during the three phases ................................................................................................. 11 I.2. Peculiarities of pre-arrival control ........................................................................... 12 I.3. Peculiarities of concurrent control ..........................................................................14 I.4. Peculiarities of post-clearance control.................................................................... 15 SYNTHESIS OF THE UNIT .............................................................................................. 16 UNIT II. ELEMENTS TO CONSIDER AND RISK INDICATORS IN THE INTERNATIONAL MOVEMENT OF CARGO ................................................................... 17 Learning Objectives ....................................................................................................... 17 II.1. Elements to Consider and Risk Indicators by Type of Transport .......................... 17 II.2. Maritime Transport ................................................................................................ 18 II.3. Air Transport .......................................................................................................... 22 II.4. Ground Transport .................................................................................................. 25
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SYNTHESIS OF THE UNIT .............................................................................................. 28 UNIT III. ELEMENTS TO CONSIDER AND RISK INDICATORS FOR PASSENGERS DURING THE THREE STAGES OF CUSTOMS CONTROL .............................................. 29 Learning Objectives ...................................................................................................... 29 III.1. Elements to Consider and Risk Indicators for Passengers During the Three Stages of Customs Control................................................................................. 29 III.2. Pre-Arrival Control ................................................................................................. 32 III.3. Concurrent Control ............................................................................................... 33 III.4. Post-Clearance control ......................................................................................... 34 SYNTHESIS OF THE UNIT .............................................................................................. 37
Complementary Material .............................................................................................. 38 Bibliography .................................................................................................................. 38
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List of figures Figure 1. Source: Ultraserfinco. (2016) ........................................................................... 8 Figure 2. Source: Electrical, electronic and pollutant recyclers. (2016) ...................... 21 Figure 3. Source: El Universal.mx (2016) ..................................................................... 27 Figure 4. Source: SEIDDEN identificaciĂłn. (2016) ...................................................... 27 Figure 5. Source: The sun of Tijuana. (2016) ................................................................. 31 Figure 6. Source: Pulse. (2016) ...................................................................................... 31 Figure 7. Source: El estĂmulo.com (2016) .................................................................... 36
Glossary n WCO Cargo Targeting System: IT application developed to assist Customs
with assessment and targeting of risks associated with cargo. n Manifest: a document listing the cargo, passengers, and crew of a ship, air-
craft, or vehicle, for the use of customs and other officials. n Revised Kyoto Convention (RKC): main trade facilitation customs conven-
tion, aims at facilitating trade by harmonizing and simplifying customs procedures and practices. n Supply Chain: the sequence of processes involved in the production and
distribution of a commodity. n Biometrics: the measurement and analysis of unique physical or behavioral
characteristics (such as fingerprint or voice patterns) especially as a means of verifying personal identity.
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Acronyms n API: Advance Passenger Information. n AWB: Air Waybill. n BL: Bill of Lading. n RKC: Revised Kyoto Convention. n IPR: Intellectual Property Rights. n IATA: International Air Transport Association. n ICAO: International Civil Aviation Organization. n AEO: Authorized Economic Operator. n WCO: World Customs Organization. n IMO: International Maritime Organization. n PNR: Passenger Name Record. n HS: Harmonized System.
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Module Introduction Most countries are immersed in a globalized world crisscrossed by flows of people, goods, investments, information, etc. Unfortunately, such an intricate network gives criminals a chance to bypass border controls due to a lack of updated procedures, or insufficient coordination, collaboration, intelligence or resources. Understanding this is crucial for strengthening the powers of agencies involved in the border enforcement process. In the case of customs administrations, implementing a risk management approach depends on a number of factors, which may be divided into four main categories: the legislative structure, the administrative structure, the technology available and the risk management policies. These four elements are considered essential for customs to fulfill its mission of enforcing the legislation that governs the entry of people, goods and conveyances in a dynamic, effective and secure way. Risk management requires a whole set of rules and regulations that includes internationally recognized principles: a distinction between the rights and obligations of the government and the citizens, the need for computerized information processes, a balance between simplified procedures and sanctions to violators, cooperation among authorities, participation of the private sector, and an appeals mechanism. The administration must provide sufficient numbers of well-paid, properly trained and supervised employees; appropriate facilities preferably equipped with non-intrusive inspection equipment; and adequate financial resources to keep the operation running and updated by adopting the best practices available in the field of customs. Besides receiving enormous amounts of information almost instantaneously, technology allows processing large numbers of data in a whiz and selecting the results based on pre-established criteria for managing risk. Those customs administrations that base their operations on a risk management approach include risk-targeting decisions and procedures that help them to maintain
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proper balance between trade facilitation and border control and security. These procedures comprise the assessment of high-risk operations, the assessment of information, the facilitation of low-risk transactions, and the investigation and sanctions for confirmed high-risk cases. There are four levels of operator compliance: 1. those who are voluntarily compliant, 2. those who try to be compliant but do not succeed, 3. those who avoid complying if possible, and 4. those who deliberately do not comply. Customs administrations must therefore classify the type of non-compliance into high and low risk and, depending on the results, facilitate operations for those who comply and apply sanctions to those who do not.
General Objective of the Module The objective of the module is to have participants recognize and apply risk management techniques to enhance the effectiveness of public resources and decisions with a view to achieving a much-needed balance between control, facilitation and security in supply chains. Customs authorities may focus their efforts and information capacity to intervene on high-risk transactions and perform posteriori verifications. Figure 1. Source: Ultraserfinco (2016)
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At the end of the module, participants will be able to: n Identify elements and risk indicators for cargo and passenger movement in
the three stages of customs risk management (pre-arrival, concurrent and post-clearance). n Analyze the cases presented based on the knowledge acquired in previous
modules.
Learning Oriented Questions n What risk elements and indicators do you consider important during the
pre-arrival control phase? n What risk elements and indicators do you consider important during the
concurrent control phase? n What risk elements and indicators do you consider important during the
post-clearance control phase? n What elements and indicators of cargo risk do you consider important de-
pending on the type of conveyance used? n With regard to the elements and indicators of risk management for passen-
gers, which do you consider essential depending on the means of transportation used?
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UNIT I ELEMENTS TO CONSIDER AND RISK INDICATORS FOR CARGO DURING THE THREE STAGES OF CUSTOMS CONTROL (PRE-ARRIVAL, CONCURRENT AND POST-CLEARANCE)
Learning Objectives n General elements to be considered and risk indicators for consignments dur-
ing the three phases. n Peculiarities of pre-arrival control. n Peculiarities of concurrent control. n Peculiarities of post-clearance control.
At the end of this unit, participants will be able to identify the main elements needed to assess risk during the three stages of customs control (pre-arrival, concurrent and post-clearance) with a view to developing a basic methodology consistent with their own customs operation context. Unlike module 3, this section is purely practical and descriptive.
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I.1. General elements to be considered and risk indicators for consignments during the three phases In previous modules, we have insistently defined the notion of risk management, its different phases, elements, methodologies, assessments and other characteristics. In this unit, we will discuss the basic elements required to define and develop a methodology that suits the context of a customs administration and is appropriate for the corresponding phase (pre-arrival, concurrent or post-clearance), highlighting the fact that some elements are common to all three phases while others are unique to each control phase. a) The section entitled “Guidelines on Customs Control� of the Revised Kyoto Convention highlights the importance of supporting modern customs control programs that combine a risk management approach with other elements. The strength of these elements depends on many factors, both internal and external, but it is important that they are as firmly established as possible. Without question, the most important one is the political determination to initiate, maintain and strengthen a customs management system based on risk assessment. b) Different WCO documents as well as the Revised Kyoto Convention highlight the need to endow national customs authorities with sufficient levels of authority to implement a risk management system. c) One of the crucial elements for managing risk is access to information. This allows generating criteria or risk profiles based on the declarations submitted or the transaction behavior. d) Once the information has been retrieved, the next step is to organize it and store it for exploitation through a database containing risk profiles. The database must be secure, reliable, updated, dynamic and versatile for full integration with other applications, and must contain quality data. e) Once data has been organized, it must be converted into an automated risk selection system. To that end, the WCO has published guidelines like the
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Global Information and Intelligence Strategy that incorporates standards for harmonized risk management and standardized risk assessments. f) Once a country makes the decision to adopt a risk management model into its customs policy1, it must allocate the necessary financial resources for planning, implementing and executing change. g) It is also desirable to complement this change with technological improvements such as non-intrusive inspection equipment, radiation detectors and other devices. h) Both the Kyoto Convention Chapter 6 on customs control and the Framework of Standards to Secure and Facilitate Global Trade mention the need to have professionally trained customs personnel for the adoption of a risk management model.
I.2. Peculiarities of pre-arrival control Even though each stage has its own peculiarities regarding the elements available, the types of risk, the methodology used, etc., some risks are common to all phases. These include the risk of illegal activities not inherent to the goods or the transaction itself, such as the concealment of goods in conveyances or goods sneaked into the original shipment (backpacks with drugs). In this case, the indicator may be the port of origin or re-export where these practices take place. Other more precise indicators like the tariff code can hardly be used, as these codes are very seldom included in the declaration, making the information incomplete. However, customs administrations should strengthen their interventions by means of pre-arrival controls or post-clearance audits, thus decreasing the frequency of concurrent inspections. Audits have emerged as a new form of customs control, seeking to facilitate border crossings by expediting the process. This recommendation is included in the UNCTAD document called “Technical Notes on Trade Facilitation Measures� New York and Geneva (2011).
1
The Jamaica Customs Agency (JCA) has officially adopted the use of risk management within its policy and operational activities—Risk Management Policy (2014).
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Controls may also rely on more and better information obtained through registered arrangements like the Authorized Economic Operator2, international cooperation and/or coordination with other entities of the Tax Administration. When defining and developing a risk management methodology during the prearrival stage, we need to obtain information in advance, for which purpose the receiving country must have a regulation requiring exporters, carriers and dispatchers to submit an advance electronic declaration of the goods (see Annex 1, Section 1.3.1. “Export Goods Declaration” and Section 1.3.2. “Cargo Declaration” of the WCO Framework of Standards of June 2005). This information will be used for conducting a preliminary assessment and for selecting consignments for inspection3. In this stage, our main objective is to discover security and protection risks, although the data may also be used to deal with health risks, as is the case of prohibited goods such as drugs. However, we must consider that, in general, the data contained in declarations, manifests or shipping documents like BL and AWB cannot be processed in the system, as these documents often include a name instead of a fiscal number, the consignee is often not an importer but a bank, the cargo information is susceptible to alteration during the trip, the port of loading is not necessarily the port of origin, the declarations hardly ever include the harmonized code (6 or 4 digits) or an accurate description of the goods. Module 3 Unit II includes a long list of criteria of selectivity of risk indicators. In this stage, even if the administration has sufficient professionally qualified personnel, enough levels of authority, advance information according to international standards, information processing technology, risk profiles, and non-intrusive detection equipment, identifying risk remains a complex task. So if we want to successfully locate an irregular consignment, we should also investigate the level of compliance of private operators, utilize the experience of customs intelligence teams and/or the 2
The Jamaica Customs Agency (JCA) has implemented this program, which has allowed them to facilitate low risk traders. The use of post-audit controls allows the JCA to monitor the program. 3 Currently, the JCA receives electronic maritime cargo manifest information 24 hrs before vessel arrival, and this information is input into the WCO Cargo Targeting System.
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cooperation of other national or international authorities interested in identifying risks. The information obtained and processed during this stage will constitute the base for later stages. An example of this is an import declaration inconsistent with the information contained in the corresponding manifest or bill of lading.
I.3. Peculiarities of concurrent control Concurrent control begins when the declaration and the goods are presented simultaneously to the customs authorities. The main difference with the previous stage is that now authorities have physical access to the goods and to more precise information. This improves the quality of the risk assessment and allows customs to recognize and sample the goods. In this stage, authorities may consider releasing the goods brought in by importers with a good record of compliance, such as AEOs, and retaining for inspection only those operations considered atypical or risky according to specific indicators. All data is expressed as codes for easy processing in computer systems. To this end, customs authorities must have access to updated databases, transmission and exploitation equipment, and risk profiles. So, when the import declarations are finally received, they have had an opportunity to obtain, as a minimum, the information described in Annex 1, Section 1.3.3 of the WCO Framework of June 2005. This information should preferably be coded and include the name of exporter, name of consignor, carrier identification, name of importer, name of consignee, notify party, delivery destination, country of destination, agent, tariff code of the Harmonized System, description of the goods, UNDG number, type of packages, seal numbers, number of packages, value as per invoice, and reference number. When the goods are at a customs facility and there are enough qualified personnel with sufficient powers, customs may order inspections, sampling, notifications, withholdings, seizures, embargoes, exchange of information with other national or international authorities, and/or other actions.
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If the control is positive, authorities will act decisively and may generate an indicator to increase their powers through audits. The most common risks in this stage relate to tax evasion, denial of licenses by other authorities, property licenses, wrong classification, undervaluation and alteration of origin. The main indicators in this stage are: the customs regime or the reason for remaining in the country, tariff code of the Harmonized System, country of origin, country of loading, value of the goods, importer (coded), consignor or agent (coded), carrier (coded), exporter (coded), place of entry, place of exit, destination, country of origin, compliance record of importer or exporter, date of customs control.
I.4. Peculiarities of post-clearance control Finally, we will discuss the elements required to define and develop a risk assessment methodology during the post-clearance stage, which starts when the goods are released. Special consideration must be given to internal information, given its objectivity, as well as data from other external sources such as the private sector, foreign agencies, other countries, filed accusations, etc. However, the elements mentioned in the previous section must also be present, i.e. ample powers, far-reaching regulations, databases, exploitation systems, internal intelligence, risk profiles, facility capacity, qualified and honest employees, etc. This control is performed as a result of an audit (analysis of dispatch results) or in compliance with the procedures to verify payment of the corresponding duties (or crosscheck of tax-related information). It is important to remember that the window for control has a limited duration between three and five years, depending on the relevant regulation, so all control procedures must be performed within that period. Some types of fraud relate to value, origin, tariff classification, deposit regime different than customs. In order to fight them, authorities need supplementary information in the form of an extensive review of the relevant company’s financial records. In general, fraud affects goods subject to high tariffs and is usually committed by front companies of recent creation, which gives an indication of risk. 15
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In the case of undervaluation, customs performs two actions. First, a price survey is conducted to identify suspicious operations and generate reference prices as a risk indicator. Next, a review is performed of the company’s entire commercial activity (not just its import declaration) and, if possible, assistance is requested from international authorities. With regard to origin, fraudsters try to take advantage of the lower tariffs applied to goods from preferred countries. In this case, information may be requested for verification under the provisions of the cooperation agreement. Frauds consisting of wrong tariff classification may be counteracted by qualified personnel who know the composition of the goods declared. These reports are usually issued after the goods have been released and are an indication that post-clearance control has been performed. One special feature of this stage is that it allows more time to obtain and analyze information and to plan interventions. The downside is that illicit goods have already been introduced in the country and they may continue to arrive unless measures are taken to prevent economic, environmental, health and security damage, among others, with their respective consequences.
SYNTHESIS OF THE UNIT In this unit we have presented the elements required to define and develop a risk analysis methodology during the three stages of customs control (pre-arrival, concurrent and post-clearance). The elements are the determination to shift towards a risk-management model, adequate regulation, suitable and timely information, risk assessment, use of technology, and appropriate financial and human resources.
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UNIT II ELEMENTS TO CONSIDER AND RISK INDICATORS IN THE INTERNATIONAL MOVEMENT OF CARGO
Learning Objectives At the end of this unit, participants will be able to: n Recognize the peculiarities of managing cargo risks depending on the con-
veyance used and considering variables such as the amount of information and the time available. n Identify the main elements and risk indicators by type of transportation
(sea, air and land) used for international consignments that should be considered during risk management.
II.1. Elements to Consider and Risk Indicators by Type of Transport To understand the context of risk management by type of transport, it is important to remember that supply chains are complex relationships that involve the flow of goods and information between suppliers, customers and other participants like carriers, authorities, shippers, insurers, etc., as well as other factors like time, distance, 17
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resources, means of transport, regulations, etc. One example is the automotive industry, which requires thousands of pieces from several different countries to coincide at a certain time and place for assembling a vehicle. Carefully planning, implementing and controlling the flow of products and information from the origin until the destination has therefore become crucial for the success of international trade. This flow of goods would not be possible without computerized information delivered in advance, so that the actors involved know what to expect and authorities can take the necessary measures to control risk, avoiding physical inspections as much as possible to keep congestion and delays to a minimum. Risk management should aim at anticipating risks and threats, especially related to security and non-compliance, so as to optimize the use of human and material resources at the border. The process should first consider information on the consignment and then review the importer’s declaration. Traditionally, authorities, suppliers, clients, carriers and other actors use this information to track their commercial transactions. But today customs authorities are increasingly focusing their attention on the actors of the supply chain in order to discover risks from specific participants who mask their identity or take advantage of legitimate trade to hide. Some of the data that may be obtained from transport declarations include the volume of the declarant’s operations, the fact that they are new importers, the relationship between a shipping company and a freight forwarder, first-time imports by a certain user, inconsistencies between the origin of the goods and the sending country, weight of the goods inconsistent with the declared weight, and other data.
II.2. Maritime Transport Information for maritime transport can be divided into two categories: vessels under 99 gross tons and those over that weight. The latter must be registered with the World Maritime Organization (WMO) and with the Lloyd's Register of Ships. In this 18
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case, information is required regarding the ship, owners, movements, removals and detentions. For the former type of vessel, the information needed to determine the risk will be treated differently. The scarcity of data available will make it necessary to concentrate on this type of operations. The latter type provides much more information, much of which is obtained in advance. In addition, these ships use a radio transponder as part of their standard equipment, so it is very easy to track, locate and identify them. One big advantage is that in this type of transport information can be submitted anywhere between 96 hours and two months prior to the shipment in the case of imports and days ahead in the case of exports, giving Customs the chance to analyze and verify the information. Containerized shipments need to be informed 24 hours prior to loading, with the possibility of physical inspections at the port of origin. Maritime transport provides the largest amount of information and most in advance. The data include the container identification, weight, description of the goods, consignor, consignee, dates of departure and arrival, carrier, shipping company, port of transit, etc. Sometimes, however, it will be necessary to consider information not included in the cargo manifests, especially when tracking cases of non-compliance: A. Goods are not always described accurately. In general only a generic category is included in the declaration, such as “consumer goods”, “goods”, “merchandise", etc. B. The consignor is usually not the real one, but the last to document the goods, such as a logistic services provider. C. The consignee is usually an agent or a bank, not the real one. D. Regarding dates, it is not unusual to have a consignment documented in a manifest that later on disappears from the list and then reappears. This causes dates to shift, making tracking more difficult. 19
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E. With regard to the country of origin, sometimes the goods are sent to a third country for re-export to the intended destination using the country of re-export as origin. This kind of operation is very frequent, especially in the case of countries that produce IPR non-compliant goods, making the task of tracking the true origin very difficult. One big advantage of maritime transport is that information can be submitted up to two months prior to the shipment in the case of imports and days ahead in the case of exports, giving customs the chance to analyze and verify the information. Even with the limitation of the maritime manifest, this information is still valuable to initiate the risk assessment process, verify it and supplement the analysis with the information contained in the export or import declaration. It may also be checked against other similar operations or fiscal databases if the true consignee can be identified or if the information on the manifest or B/L provides accurate dates, quantities, origin and destination, shipping agents, and freight costs; or if it is deemed less reliable in terms of the consignee, the consignor or the contents. Practical case taking place during the pre-arrival stage of control for maritime transport operations. An unclaimed container in a port of Country X has been declared abandoned. The origin is country Y, the consignor is a legal entity that is not listed in the public registers of the country of origin and the consignee is a logistics company without fiscal records. When customs authorities inspect the container to take inventory of the goods and transfer them to government property, they realize it is full of toxic waste. The illustration depicts a similar case. Customs and the health authorities of Country X decide to strengthen controls to prevent the arrival of more waste and, if possible, return the container to its origin. When reviewing the information available, it is determined that Country Y is an industrialized nation with strict regulations for the disposal of hazardous waste, that it is a
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signatory of an international convention for the proper treatment of this type of residues, which increases the costs of disposal by specialized companies, and that there is evidence of similar shipments to countries with less strict regulations. The customs authority of Country X requisitions additional data from the shipping company and the carrier to determine the true origin of the container. The shipping company produces the container rental contract and it is established that the originator is a private individual and that the container actually comes from an industrial area that recycles industrial waste from Country Y. Customs enters the information into the risk alert system and finds two other containers with the same characteristics that have just arrived and six more on their way. Figure 2. Source: Electrical, electronic and pollutant recyclers (2016)
It immediately sends an international alert informing of the case and providing the data for monitoring by all members of the convention. The information available to customs at the time is the following: n Country of origin: Country Y. n Country of destination: Country X.
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n Type of transport: Maritime. n Consignee: Legal entity without fiscal ID. n Consignor: Legal entity without public information on the Internet. n Shipper: N/A. n Tariff code: N/A. n Goods description: “Industrial material�. n Weight: 20,000 kilograms.
Environmental and customs authorities inspect the abandoned container and spend some time finding the marks identifying Country Y as the producer of the goods. At the same time, they request information from international environmental agencies and the representation of Country Y admits the material was exported from its territory. Characteristics of the risk profile: n Type of risk: Environmental. n Criterion for selectivity: Country of origin Y, importer without a tax ID, con-
signor without verifiable data, generic description of the goods. n Risk indicators: Country of origin and Type of cargo: Generic. n Risk profile: Goods imported from Country Y, importer without a tax ID,
prohibited goods (contaminants). Authorities set a period of nine months for monitoring any similar operations and ban their entry or reception in any port.
II.3. Air Transport Elements and indicators of air transport are very similar to those of maritime transport, although the distinctive feature is time. While in the case of maritime transport shipments arrive weeks after being informed, in air transport times are reduced to a matter of hours. Some countries require information to be provided at least four hours in advance, so customs must be extremely effective to collect, or-
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ganize and analyze the data, and use technological tools to respond in a timely manner. Another distinct characteristic of air transport is that it is continually combined with the transportation of people, which makes it particularly susceptible to security threats. Another feature is the type of goods transported, their value and volume. In general, air transport moves goods of lesser weight and volume but higher price that need to be transported quickly and securely. Practical case taking place during the post-clearance stage of control for air transport operations. Customs authorities are alerted of the potential entry by air of pearls with a lower value than the market price from an Asian country. The tariff for these goods are high, so if the declared value is low, there is an illegal advantage over the competition. Even if the trade name of the potential violator is provided, this form of transport makes shipping convenient for its speed and safety. With the information provided by the external source (company), authorities determine the risk indicators required for the assessment and create a specific risk profile they feed into the alert system. The data is: Country of origin X, tax ID of the importer, tariff code. The goods are presented and customs selects the operation for inspection. The shipping coincides with the declaration but doubts persist about the declared value, as it is lower than the value of similar operations but nevertheless is backed by a commercial invoice. Authorities do not have any special arguments to challenge the declaration and decide to release the goods. At the same time, they send a requisition to the internal revenue service requesting an audit to verify the value of the goods. The information available to customs at the time is the following: n Country of origin: Country X. n Type of transport: Air. n Consignee: Legal entity with a large number of operations. 23
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n Domicile: Commercial area of a major city. n Shipper: No record of fraud in the declarations. n Tariff code: 7116.10. n Goods description: natural pearls with a description of the type, origin, size,
color and other commercial characteristics. n Value: 50% less than other similar operations. n Weight: 10 kilograms.
Customs and Tax authorities expand their powers and conduct an audit for taxes paid and foreign trade operations, verify the payment documents for pearls and find no discrepancies with the amounts declared. But when auditing the same operations for sales in the domestic market, they discover big differentials between the value of the import and the sale value in the domestic market that are not accounted for in the tax declarations and are therefore indicative of tax evasion. The risk profile may be determined based on the country of origin, the importer’s tax ID and the type of goods. n Type of risk: Economic – Tax. n Criterion for selectivity: Country of origin X, importer’s tax ID and type of
goods. n Risk indicators: Country of origin X and type of cargo: pearls. n Risk profile: Goods imported from Country of origin X, importer’s tax ID, un-
dervalued goods. Finally, authorities set a period of six months for monitoring the company’s operations in order to verify fiscal and customs compliance.
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II.4. Ground Transport Ground transport (also referred to as Land Border Commercial) may be divided into rail transport and road transport. Rail transport allows for better advance information than road transport, which includes many participants whose services are normally requested on very short notice. In some countries, trucks move goods just a few kilometers, enough to cross the border. Rail transport requires more time due to the more complex nature of its operations, the need for special facilities, and the very large volumes it moves. Rail companies normally utilize the same bills as ships for containers or very similar ones, which greatly facilitates risk management. The information is required at least one hour in advance. In some cases, customs authorities on both sides of the border provide additional facilities to this type of transport, such as inspection in the country of destination. Customs are increasingly using non-intrusive inspection methods like gamma ray radiography to scan the cargo in cases of high security risks. Road transport, on the other hand, is very dynamic and unpredictable. The large numbers of participants make it very difficult to analyze information in advance, forcing customs to check the information in the final declarations. The advantage of assessing risk with the information presented in the customs declaration, even on short notice, is that the declaration contains more detail and is coded, as mandated by customs authorities. This allows using computerized systems to pinpoint high-risk cases and select them immediately. Practical case taking place during the concurrent stage of control for ground transport operations. Some agencies of the health and security sectors, and therefore external sources, have alerted of the potential smuggling of pseudoephedrine or ephedrine into the country for the production of drugs controlled by the government for pharmaceutical use.
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According to the information available, there are producers of pseudoephedrine and ephedrine in Country Z who sell them on the Internet. The substances are not registered as such in the country of origin, although they should be clearly identified in the manifests with their respective names or the codes 2939.41 and 2939.42 of the Harmonized System. Customs authorities fail to identify risk operations in advance. No prior information was received concerning the B/L, as the consignment came from a third country with a common border and entered the country by sea. The declaration is lodged simultaneously with the presentation of the goods, so authorities try to find information on other reported cases that have been detected through physical inspections. As feedback comes in, the risk management group determines the indicators required for risk assessment and feeds them into the alert system: country of origin Z, third countries used as transit points, recent registration as legal entity, tariff code close to the real one, customs agent with a tarnished record. After creating the risk profile, a shipment is presented to the authorities for release with the following information in the declaration: n Country of origin: Country Z. n Conveyance transiting in a third country for entry into the destination coun-
try by land, in container. n Consignee: Legal entity recently registered with the Ministry of Finance. n Domicile: Residential area of a major city. n Shipper: Record of fraud in the declarations. n Tariff code: 2936.21. n Goods description: Organic chemicals, vitamins. n Weight: 20 tons. n Carrier: Not from the border area.
Customs’ selection system orders an intensive inspection of the goods and notifies other health and security authorities. As these substances are not recognizable to the
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naked eye, it takes samples to send to a laboratory. Given the potential risk, the authority orders the performance of a preliminary test simultaneously with the sampling, with positive results for ephedrine. This allows the authorities to retain the goods for later confiscation. Figure 3. Source: El Universal.mx (2016)
Figure 4. Source: SEIDDEN identificaciรณn (2016)
The risk profile may be determined based on the country of origin with transit and the type of goods. n Type of risk: Health and security. n Criterion for selectivity: Country of origin Z with transit and Type of cargo.
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n Risk indicators: Country of origin Z and type of cargo: containerized organic
chemicals. n Risk profile: Goods imported from country of origin: Z with transit in a third
country and containing organic chemicals controlled by the Government. Finally, the authority sets a period of one year for monitoring similar operations, verifying that no new illegal operations take place. Several indicators are enough to initiate an inspection: Country of origin, third country used as transit, organic chemicals, legal entity with recent registration, and shipper with tarnished record.
SYNTHESIS OF THE UNIT In this unit we have seen the elements and risk indicators that are specific to each mode of transport. The main element is information, sent in advance and electronically, so as to assess risk and confirm with other government agencies the information included and the corresponding declarations. The differences between types of transport relate mainly to the time allowed to receive and process the information, as well as the complexity of the supply chain.
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UNIT III ELEMENTS TO CONSIDER AND RISK INDICATORS FOR PASSENGERS DURING THE THREE STAGES OF CUSTOMS CONTROL
Learning Objectives At the end of this unit, participants will be able to: n Identify the main elements for managing risk during passenger movement
in the three stages of customs control (pre-arrival, concurrent and postclearance) and the indicators used to assess risk.
III.1. Elements to Consider and Risk Indicators for Passengers During the Three Stages of Customs Control The entry and exit of people and their possessions (including capital and foreign currency) into and out of a country requires special measures to facilitate tourism, business travel, work commute, etc. Procedures must be in place to ensure expedited border crossing, efficient enforcement of customs and other regulations, simplified
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and standard formalities, clear information in the language of the visitors, coordination with other authorities, advance information and equipment for non-intrusive inspections, while maintaining a balance between control and trade facilitation. All this is only possible through the implementation of a customs risk management system4. Due to the emergence of terrorism in different parts of the world, especially after 2001, and the growth in organized criminal activities, security has been tightened at border points, affecting the movement of goods and people. In some countries, the original customs function has lost its importance, as the collection of duties from travelers is only marginal compared to commercial cargo. Still, customs must be maintained considering other actors and their missions. To what extent? That will really depend on the circumstances of each country such as its geography; neighboring countries; volume of people and cargo traffic; social, security and economic symmetries or asymmetries, etc. Once countries move towards the implementation of a risk management model, the natural tendency will be to adopt the WCO SAFE Framework. Risk management for travelers will need to consider the means of transportation used and the types of pre-arrival, concurrent and post-clearance controls implemented in the country, as well as the information obtained. For example, the airline industry provides advance information and is well equipped in terms of security. However, sometimes the information is scarce or virtually non-existent, as is the case of travelers entering the country by land. In its “Guidelines for Customs Administrations and Air Cargo Agents IATA/WCO on Advance Passenger Information (API)�, the WCO provides a number of recommendations on best practices for processing international travelers. Still, these need to be adjusted to the reality of each individual country and the availability of resources like infrastructure.
4
Currently the JCA utilizes Asycuda World (a customs management system) to assist with their risk management ICT activities.
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This may exceed the capacities of the customs service or even the country’s interinstitutional capacity, making it necessary to resort to bi or multi-national efforts. The pictures below show two realities: one in which Customs is well equipped to carry out its duties and one in which there is no control over the border. Figure 5. Source: The sun of Tijuana (2016)
In this case, customs has the capacity to process entries through technology and information, with minimal human intervention. Figure 6. Source: Pulse (2016)
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In this second case, there is a total lack of control, not only from customs authorities, but also from all other border enforcement agencies.
III.2. Pre-Arrival Control When customs authorities possess information about people entering or leaving the country, they can initiate previous control measures. As mentioned earlier, today’s customs risks go hand in hand with other risks like terrorism and organized crime, in addition to the traditional risks related to health, the environment, movement of money, etc. Therefore, it will be necessary to establish coordination mechanisms among the different agencies concerned. In response to the changes in security and protection, international agencies have adopted new measures. For example, the WCO developed its Framework of Standards to Secure and Facilitate Global Trade or SAFE Framework in addition to other customs and security-related recommendations that include information prior to the arrival of goods and air travelers. One important measure was the requirement to provide Advance Passenger Information (API). WCO, IATA and ICAO established the maximum amount of API and PNR data that should be included in the message sent by the airlines to the immigration or customs authorities responsible for controlling the border point. The API may be obtained from the flight manifest and the PNR from the reservation records. It is up to the governments’ willingness to participate in international cooperation agreements to transmit, process and store the information. In addition to providing passenger names, country of origin, carrier and pieces of baggage, the data allows assessing minimum indicators such as names, recurrent travel, and pieces of baggage. This allows identifying control objectives. In this type of control, the main elements are advance information and process automation, which customs authorities will need to combine with other elements such as the capabilities
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and experience of customs officers, the technology available, etc. It is always recommendable that customs link the passenger’s data with their passport to check for any extra information available and to verify that the person's physical characteristics actually coincide with those included in the passport. This information creates indicators that need to be considered, such as the name, which may be linked to criminal activity; the country of origin, which may have systematic irregularities; any rerouting; the carrier, which may be an irregular record; and the frequency of travel, which may not coincide with regular tourism patterns. In addition, customs must coordinate its operation with other agencies to obtain noncustoms information that may contribute to assessing risk, such as alerts on criminals, drugs, weapons, terrorism, environment, intellectual property, prohibited items, etc. This information will then be shared with other relevant agencies, as this has proven to be one of the most effective methods to deal with potential threats. In the case of maritime and air transport, the information should be considered reliable, as it is obtained from official documents and in accordance with international standards. Today, most countries issue their passports using a standard format that can be read electronically.
III.3. Concurrent Control In concurrent controls for cargo, the goods and the declaration are presented simultaneously, but it is still possible to examine the declaration and select for inspection operations considered risky. The situation is different in the case of concurrent controls for travelers, since the amount of information is very limited, as is the time available to decide whether a passenger will be controlled or not. Some authorities have already implemented many of the WCO’s recommendations, but others still base their controls on random selection due to a lack of information or trained personnel, or base them on the experience and knowledge of their personnel.
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If technology is available, customs authorities may resort to scanning or weight systems to differentiate normal from abnormal vehicle weight and contents. One very useful element in supporting passenger identification is biometrics. In this case, the elements that stand out are human resources and their capabilities, as well as technological equipment, whereas the main indicators are the observations by officers or the warnings generated by detection equipment. It is important to remember that the exchange of information is also a great help when travelers wish to make use of customs benefits, such as refunds for taxes paid for goods that will leave the country.
III.4. Post-Clearance control Even though post-clearance passenger controls offer the advantage of having more information, data may be obtained from internal and/or external sources. The downside is that damage may already have been made and may be difficult to repair. However, it will always be preferable to deter any type of non-compliance. As mentioned earlier, in the case of travelers coordination with other agencies is paramount, as some information may not be directly accessible to customs but may be used for operations that exceed its areas of competence, such as the illegal movement of money. In this case, the main elements are information, the possibility to verify it, and the systems used for processing it, normally with the cooperation from other national or international authorities. This also allows the creation of databases that may be utilized in the pre-arrival and concurrent stages. The indicators will be the references of passengers, their frequency of travel, duration of stay, declared purpose of their trip, etc.
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Practical case of passenger air transport during the three stages of control. Customs authorities have recorded the recurrence of female passengers aged 18-25 traveling with children who are introducing concealed drugs from Country Y. Security sources, both national and international, have observed a change in their modus operandi, which now are utilizing Country X as port of transfer. To identify this new form of contraband, customs analyzes the Advance Passenger Information supplied by the air carrier and selects for inspection female passengers arriving from countries X and Y. As the number of travelers is quite large, which implies inspecting declarations, identity documents and baggage, authorities instruct their personnel to act diligently but remain vigilant. With the indicators mentioned a risk profile is elaborated and disseminated among frontline officers. As passengers arrive, customs officers process those travelers who do not meet the profile more quickly and select for detailed control three passengers who match the characteristics described. A review of the documents, face-to-face questioning and baggage inspection reveals that two of them are frequent travelers who intend to visit family. The information confirms their claims. The third passenger is a woman traveling with a child who bears no kinship to her. Her version regarding the purpose of her trip is inconsistent. The visual inspection of her baggage does not show anything unusual, so it is determined that she should be controlled using X-ray equipment and a K9 unit. The procedure reveals a number of packages with drugs hidden in the double bottom of her baggage.
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Figure 7. Source: El estĂmulo.com (2016)
In her purse, the passenger is carrying an address book with a street name and number in the city. This information is relayed to another customs department and shared with the police. The address is raided and a criminal band dedicated to drug trafficking is discovered. Indicators: n Country of origin: Y. n Country of transfer: X. n Type of transport: Air. n Passenger: Female. n Age: 18-25. n Traveling with minors.
The risk profile may be determined based on the country of origin, the country of transfer, young women traveling with minors. n Type of risk: Health. n Criterion for selectivity: Country of origin Y, Country of transfer X, Female
and age. n Risk indicators: Country of origin X and Type of cargo: Drugs. n Risk profile: Prohibited items in the country of destination, drugs. 36
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Finally, customs authorities establish a period of three months to monitor similar operations, sharing their results with other security agencies.
SYNTHESIS OF THE UNIT As is the case with cargo management, the elements to consider and the risk indica-tors for passengers during the three stages of control will depend on information, assessments, resources, other sources, coordination with other authorities, etc. In the case of passengers, the number of elements is lower, although air carriers pro-vide advance information. The concurrent stage has the least information although any technological resources and the experience of frontline officers is very helpful. The post-clearance stage can use a larger number of information sources, both in-ternal and external, permitting to corroborate it and to act with greater detail.
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Complementary Material n Revised Kyoto Convention—General Annex Guidelines, Chapter 6, “Risk
Management in Customs”. n Revised Kyoto Convention—General Annex Guidelines, Chapter 7, Applica-
tion of Information and Communication Technology. n Mujica, Sergio—Deputy Secretary General. E-cooperation: Information tech-
nologies permitting the exchange of information among national and international entities. World Customs Organization. n World Customs Organization (2012). WCO SAFE Framework of Standards
(Project 2005).
Bibliography n Pérez, G. and Jaimurzina, A. (2014). Bases for the formulation of an integra-
ted and sustainable logistic policy in UNASUR. Source: http://www.iirsa. org/admin_iirsa_web/Uploads/Documents/taller_tsp_lima14_CEPAL.pdf n WCO (2012). Guidelines for Post-Clearance Audit. n WCO. Framework of Standards to Secure and Facilitate Global Trade or SAFE
Framework. n C-TPAT, “Risk Analysis in 5 Steps”, Procedures Guide. Source:
www.dian.gov.co/descargas/.../Analisis_de_Riesgo_En_5_Pasos.pdf n WCO Cargo Targeting System, Source:
https://www.youtube.com/watch?v=t2AJisXaAkE n Kyoto Convention—General Annex Guidelines, Chapter 6 “Guidelines on
Customs Control”. Source: http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/conventions/pf_revised_kyoto_conv/kyoto_new/~/media/AE00B7CE28BE44CD9408210989EF615C.ashx
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