B2G bribery in logistics

News last week by the Transparency International on global corruption triggered CBRA´s blog topic to deal with B2G bribery in cross-border supply chains.

The global picture of corruption and bribery in business and governmental environments is quite depressing – particularly when reading the latest reports and news by the Transparency International, World Economic Forum, World Customs Organization and World Bank and some other relevant international organizations. In the context of CBRA´s research interest – and this blog – in supply chain security and global trade facilitation, we are focusing purely on “cross-border logistics business-to-government (B2G) corruption” – i.e. how to make both licit and illicit shipments to flow in maximum speed through international borders and/or with minimum indirect border taxes paid. At the same time, we are excluding from the scope any “trade / closing-the-deals –corruption” as well as any type of “business-to-business (B2B) corruption”; as for us these are not relevant aspects In supply chain security per se.

As typical researchers and academics, CBRA team is in favour of exploring and trying to introduce structures to the “often not so well-defined topics and themes” in global supply chain security and trade facilitation. Regarding B2G bribery in cross-border logistics, we introduce next a two-dimensional matrix for analytical purposes. First dimension in the matrix is about the key purpose of the bribe: it can be about supply chain operator bribing Customs to either do the job they are supposed to do versus supply chain operator bribing Customs not to do the job they are supposed to do. Example of the former is so called “speed money”, where Customs officer(s) are expecting a bribe in order to clear / release the shipment(s) in a “speedy manner” – otherwise, there will be delays e.g. due to inspections which would not be carried out if the bribe was paid. Example of the latter – bribing Customs not to do the job they are supposed to do – can be even of more serious consequence, especially if it leads to “turning the blind eye” in front of dangerous restricted or prohibited goods, such as cocaine or explosives; or, just simply using a wrong HS-code to cheat on border taxes. Second dimension of the “B2G bribery in cross-border logistics –matrix” is about economic operator –level bribes versus shipment-level bribes. In the former instance, companies make “lump sum payments” to Customs management in order to secure the fast cross-border flow of shipments for the (agreed time in) future. In the latter instance, the bribes are paid on shipment / transaction level to the “front-line Customs officer”, to support the speedy movement of a specific shipment across the borders. (note: various combinations of the above are of course likely to exist).

Over the years our research team has heard few anecdotes on “B2G bribery modus operandi (MO)” – in particular with economic operator -level B2G corruption activities – where supply chain operators time-to-time visit Customs management to “discuss about issues, how to solve them, how to avoid big penalties etc.”. In one Asian country, the standard protocol is to “accidentally drop money from your pockets onto the Customs office floor”, when leaving the meeting – and of course not looking behind you. In one Latin American country, Customs indicates you “how many lottery tickets to buy from the old man hanging outside the Customs offices” – in this scenario there is most likely no need to check afterwards whether you won in the lottery or not. Next to these say “bit more innovative bribery MO´s”, where proving that legal violation has actually taken place can be somewhat cumbersome, more straight forward MOs exist of course. One example is the so called “brown bag method”, where the agreed amount of cash is simply handed from business to Customs in a brown paper bag. (if the readers of this blog have more examples to share, please send us a note – we are glad to receive emails / faxes / letters, also anonymous ones…)

What are then the negative socio-economic impacts of B2G bribery in global supply chains and cross-border logistics – in other words, why should we care? In simple layman terms, B2G corruption in global logistics leads in many cases to market distortions and unfair competition – as Customs are favouring companies which agree to pay bribes over their “honest competition”, the latter ending up with “unfair delays” in their logistics chains. In some cases one can claim “theft of tax revenues from the people” – especially when bribery is linked to actual fraud in indirect border taxes (e.g. fraudulent HS codes and origin countries). And of course, in the worst case scenario, where bribery could be the key enabler in trafficking of weapons of mass effect, it can lead to massive destruction in infrastructure and suffering of large number of innocent people. (the key international organizations have done lots of analytical, dissemination and other work on this question, and one can easily visit their web-sites and read more detailed reports on this.)

What can be done in the future about the B2G bribery problem in global supply chains? Well, from a researcher perspective that is a hard nut to crack – what can be done to stop both Customs asking for bribes and supply chain operators paying them – no silver bullets exist for this, we believe. As a research project contribution, in the European Framework Program 7 (FP7) Research and Development project CORE, some partners are already working on reviewing various international conventions, resolutions and resource guides in anti-corruption programs and activities – intention being to embed some of the key findings into the supply chain security demonstrators taking place across the globe during the remaining 3.5 years of the CORE-project. In the grand scheme of anti-corruption policies, programs and activities, we recommend to follow the programs and good practices as published by the key international organizations, see examples below – and, we plan to have a separate expert interview –blog on this topic, within 2-3 months from today.

Further readings can be found at following web-links:

Integrity in Customs – Revised Arusha Declaration – World Customs Organization

United Nations Convention against Corruption – United Nations Office for Drugs and Crime

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions – The Organisation for Economic Co-operation and Development

“Corruption is ´Public Enemy Number One´ in Developing Countries”, says World Bank Group President Kim

The Worldwide Governance Indicators (WGI) project – World Bank

A Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA) – Department of Justice (DOJ) and Securities and Exchange Commission (SEC)

Corruption Perception Index – Transparency International

“How do we stop countries from exporting corruption?” – Transparency International

Global Agenda Council on Transparency & Anti-Corruption 2014-2016 – World Economic Forum

WEF Partnering Against Corruption Initiative (PACI) – World Economic Forum

“Has Globalization Made Corruption Worse?” – World Economic Forum

B2G: soborno en la logística

News last week by the Transparency International on global corruption triggered CBRA´s blog topic to deal with B2G bribery in cross-border supply chains.

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