Thoughtful Risk Assessment – The First Step to Reduce a Company’s Exposure to Bribery Risk in Customs

Thoughtful Risk Assessment – The First Step to Reduce a Company’s Exposure to Bribery Risk in Customs

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March 01, 2016

Despite the increased international and domestic efforts to improve integrity in customs administrations over the last two decades, this remains a high risk area for businesses that are committed to anti-bribery compliance. Global shipping and logistics companies are particularly at risk for violating anti-bribery laws due to their reliance on numerous local third parties in dealings with government officials in many remotely located customs and ports. The OECD continues to draw international attention to the problem by referring to bribery in customs as “the hidden tariff on global trade” and making it a central theme for discussion at the OECD Integrity Forum this April.  

What can companies do to protect themselves from compliance risks in customs? This post will focus on the very first step that companies are expected (and are increasingly required) to take – risk assessment. A repeatable, credible and actionable risk assessment is not only a fundamental part of any robust compliance program but also a basis for risk-based third party due diligence. Based on TRACE’s experience running its Shipping & Maritime Initiative, there are several practical recommendations that we would like to share with the business community.

First, companies are strongly encouraged to use specialized indices, such as the Global Business Bribery Risk Index -- TRACE Matrix -- and the World Bank’s Logistics Performance Index, to conduct their first-tier review of bribery risks in a particular customs office. This can later be supplemented by a set of facilitating interviews in most “risky” locations.

Second, customs specialists in the company should assess customs functions that are most vulnerable to corruption, such as processing of import, export and transit declarations; assessment of origin, value, and classification of goods; or physical inspection, examination and release of cargo (please see the complete list in Table 4.1 in Integrity in Customs, by Gerard McLinden). While conducting this analysis, it would also be useful to assess to what degree a particular customs administration comply with the recommendations outlined in the Revised Integrity Development Guide issued by the World Customs Organization in December 2012. The Guide contains detailed checklists for assessing current integrity situations in customs in terms of regulatory framework, transparency, automation, relationship with the private sector, and others.

Third, the company’s compliance team should look into the risks posed by company’s third parties, such as customs brokers, port agents, and freight forwarders, and ask the following questions:

  • What do we need from these third parties that is particularly critical to our business?
  • How many such intermediaries do we engage and what do they do for us?
  • How do we pay for various third parties?
  • What incentives does our business model create for third parties?
  • Are we able to interact directly with third parties, or do we rely on other intermediaries to help us find them?

Finally, risk assessment of customs environment should include evaluation of current controls, such as due diligence and approval of third parties, employee and third party training, expenditures reviews, and audits. 

For more on this topic, please see the following resources:

TRACE Matrix - The Global Business Bribery Risk Index
Customs Modernization Handbook
The Revised Arusha Declaration
The WCO Revised Integrity Development Guide
Anti-Bribery Compliance Challenges in Shipping, Freight Forwarding and Logistics (only available on the TRACE Member Resource Center, under Training Resources – Webinars – Industry Specific)
Conducting an Effective Anti-Bribery Risk Assessment (only available on the TRACE Member Resource Center, under Training Resources – Webinars – Compliance Program and Risk Management)

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Strategic Due Diligence - Active Engagement
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Justina Song Thoughtful Risk Assessment – The First Step to Reduce a Company’s Exposure to Bribery Risk in Customs

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