Appendixes
APPENDIX A EXAMPLES OF CUSTOMS ADMINISTRATION KEY PERFORMANCE INDICATORS
Measuring performance is essential to determine the effectiveness of strategies and operations, identify shortfalls, and adopt corrective solutions. Performance is measured through key performance indicators (KPIs), which should be associated with measurable activities for which data from a defined and credible source are available. As a rule, the KPIs originate from strategic objectives that clearly prescribe targets to be achieved over a certain period.
Commensurate with the administration’s capacities, the approach to performance measurement can be incremental, starting with an introduction of the basic KPIs, which will help management to focus initially on the assessment of customs’ fundamental responsibilities and the ones that are most critical to organizational success. Later, more sophisticated KPIs can be introduced to measure specific functions, processes, policies, and outcomes.1 There is no one-solutionfits-all for the KPIs as different customs administrations have different priorities; some are more law enforcement-oriented, others are more revenue-collection oriented, and others are more focused on trade facilitation.
On the other hand, developing a dashboard for easy monitoring on a daily basis, for both corporate and operational KPIs, is always recommended.
The following KPI examples link milestones and indicators as both are important to ensure successful outcomes. In fact, achievement of the milestones often is a prerequisite to moving forward with the steps in the administration’s strategies. The milestones and indicators shown here are frequently used in customs administrations mainly in relation to core processing. The list is not exhaustive.
Revenue Collection
Milestones
The baseline performance information to support the effectiveness of collection monitoring is developed.
An electronic payment system of customs duties, taxes, fees, or charges imposed is implemented as the only payment method.
Indicators
Rate of revenue target achievement
Number of activities for which the electronic payment system is available
Number of electronic payment transactions made during customs clearance
Variation (increase or decrease) of customs collection over time as percentage of GDP by type of tax (customs duties, VAT, excise duties, and so on)
Proportion of customs collection of total revenue collected (in monetary value and as a percentage of GDP)
Variation (increase or decrease) of the imports’ CIF value for home consumption relative to total customs collection
Level of customs collection relative to the variation (growth or reduction) of international trade
Proportion of customs collection over time by type of procedures (goods clearance, PCA, arrears collection, litigation, and so on)
Amount of revenue recovered and related penalties collected by area because of customs intervention (valuation liftings, origin correction, tariff classification, suspensive regimes misuse, exemptions, unreported goods in ports, smuggled goods)
Proportion of import exemptions’ value relative to customs collection
Customs Clearance
Milestones
Customs laws, regulations, and guidelines are simplified and easily accessible.
The customs administration monitors ongoing release times of goods applying a solid and systematic methodology.
A paperless customs clearance process is available in all customs offices.
An electronic single-window system is implemented to facilitate non-tariff permits.
Customs–trade–other government agencies’ coordination committee is in place and meets regularly to improve border processes.
An Authorized Economic Operator (AEO) or a trusted trader program is in place.
Stakeholder surveys are undertaken to measure client satisfaction.
Indicators
Number of customs procedures publicly available and easily accessible on the customs website
Number of customs advance rulings issued per type/coverage in percentage of all declarations
Percentage of cargo released based on pre-arrival information/advanced electronic information
Number of hard copies needed to import or export goods
Release time in hours for imports that do not undergo physical inspection (by each mode of transport)
Release time in hours for exports that do not undergo physical inspection (by each mode of transport)
Release time in hours for imports that do undergo physical inspection (by each mode of transport)
Release time in hours for exports that do undergo physical inspection (by each mode of transport)
Number of regulatory agencies that are fully participating in the single window
Number of non-tariff authorizations approved through the single window system
Number of private-sector and other government agencies that participate in a coordinated border management committee
Number of improved customs procedures developed in consultation with traders
Total value of cross-border imports executed by AEO- or TTP-accredited traders
Total value of cross-border exports executed by AEO-accredited traders
Improvement in the traders’ perception of cross-border facilitation
Risk Management and Compliance
Milestones
A compliance improvement program based on risk management has been developed.
A systematic and transparent methodology to assess and improve selectivity criteria is in place.
Feedback mechanisms are available upon completion of an examination, ensuring that data can be exploited and analyzed in a timely and appropriate manner.
A system is in place for the monitoring and verification of exemptions, concessions, and duty waivers, including for enforcement action and loss recovery.
Indicators
A Risk Management Committee, with clearly defined roles and functions has been established.
A matrix identifying and prioritizing the main risks, including a plan with specific actions for their mitigation is in place.
A clear methodology for the categorization and risk assessment of the entire population of traders is in place.
Trends in percentage of import declarations processed through each selectivity channel
Offense (hit) rate on import declarations: Physical and documentary inspection
Offense (hit) rate on import declarations: Documentary inspection
Offense (hit) rate on import declarations: Supported by nonintrusive inspection (NII)
Offense (hit) rate on export declarations: Physical and documentary inspection
Offense (hit) rate on export declarations: Documentary inspection
Offense (hit) rate on export declarations: Supported by NII
Proportion of examinations that result in seizures
Proportion of the total offenses detected by type of irregularity (number of cases and amount of duty and tax reassessed, if applicable): Misclassification, undervaluation, origin, undeclared goods, noncompliance with non-tariff regulations, and so on
Assertiveness Rate Indicator: Increase in the percentage of positive targeting (hits/shipments inspected) divided by the reduction in the number of shipments inspected over time (shipments inspected/total shipments)
Number of exemptions, concessions, and duty waivers subject to verification and audit
Ratio of the number of detected irregularities during PCAs divided by the number of PCAs
Ratio of the number of PCA audits conducted on AEO applicants divided by the number of AEO applications
Number of audits of bonded warehouses, duty-free shops and SEZ operators (if applicable), number of detected irregularities, and amount of recovered revenues including penalties and fines
Enforcement
Milestone
An enforcement strategy is in place.
Indicators
Rate of violations detected by contraband detection technology (for example, x-ray, endoscopes)
Number, value, and type of prohibited goods seized
Number, value, and type of undeclared cash, banking negotiable instruments, and gems/precious metals seized
Rate of criminal investigations conducted resulting in charges raised
Rate of successful court prosecutions in terms of additional revenue collected and jail sentences
Number of enforcement operations where special investigative techniques are used
Number of suspended clearances because of infringement of intellectual property rights
Number of violations detected by intelligence-led controls
Number of MOUs concluded with OGA and private sector
Number of Customs Mutual Assistance Agreements concluded
Human Resource Management
Milestones
Competency-based recruitment and human resource management is implemented.
Wages and other benefits to all staff are competitive and equitable.
Equal career opportunities and paths to all staff (both women and men) are provided.
Policy, systems, and processes are adopted for leave and flexible work arrangements.
Equitable health insurance is available to all employees that includes the particular needs of women.
Policies to prevent and address incidents of workplace harassment and violence are adopted.
Indicators
Percentage of job descriptions that include competency profiles.
Percentage of job descriptions that are reviewed annually to ensure that the required competencies and qualifications are aligned to the organization’s needs and gender equality.
Pay levels (including pay gaps) and attrition rates for both men and women
Proportion of women in each function or business area and at each level of management
Ratio of women promoted to those eligible for promotion
Percentage of staff using flexible work arrangements
Specific mentoring and coaching programs are available for women and other categories of staff as needed.
Managers and staff are trained on how to effectively encourage, report, and address workplace harassment including sexual harassment cases.
Basic and specialized training programs adapted to organizational needs are made available to all staff and are identified as prerequisite to career advancement.
Private health insurance arrangements are available for staff enrollment in complement of universal/compulsory insurance schemes.
Ratio of managers and staff trained on workplace harassment prevention and management, including sexual harassment.
Ratio of managers and staff who obtained a promotion following a formal review, appeal or grievance.
Integrity
Milestones
Integrity action plan is in place.
Internal controls cover all key functions.
Processes and mechanisms to ensure staff integrity are instituted.
Public perception of integrity is improved.
Indicators
Proportion of key customs functions and processes that have a risk map
Number of measures implemented to reduce officers’ discretion
Variation in number of officer conduct complaints
Proportion of staff that submit an assets declaration in a timely manner
Variation of the perception of corruption by the trade community
Appendix B Issues in Cooperation and Integration of Customs and Tax Administrations
While integrating the tax and customs administration into a single agency can bring significant benefits, this must be analyzed in detail in terms of expected results and potential risks. Having a single management team and merging support functions are not enough by themselves to modernize tax and customs administrations; the process must be accompanied by a comprehensive plan to improve the effectiveness of their core processes.
Crandall and Kidd (2010) concluded that the integration of tax and customs administrations in a semi-autonomous “revenue authority” (RA) would not by itself increase revenue. Partly because of the lack of a performance management framework and operational data, it has often been difficult to demonstrate the benefits of the RAs for revenue mobilization or at least their relative share in revenue increase.
Merging or separating the tax and customs administrations is a decision that governments must make in each case, considering their own context. In some countries that have chosen to implement structural changes of this nature, the Fiscal Affairs Department has provided technical assistance and advice to authorities to help them mitigate risks during the transition period. This technical assistance is focused on ensuring that the governance and management model of the new agency (or agencies) and the new organizational structure are clear, that the core business functions are well defined in accordance with good international practices, and that there are suitable institutional mechanisms for cooperation between the agencies in charge of tax and customs services and control.
Once a decision has been made to bring the tax and customs administration “under one roof,” it is important to retain the function-based approach of HQ structures and the highest level of expertise in each technical area. This can be achieved by integrating common functions such as research, design, planning, and monitoring, making sure that existing tax and customs specialization within each structure is preserved. Internal audit could also be integrated into one unit, provided specialists from each original administration remain primarily involved in their respective core areas; the same approach would work for an integrated legal department.
Other key support functions (human resources, budget, and communications) can be integrated. However, a number of technical issues, including the development of policies that are generally specific to tax or customs, require specialists from both sides. The best example is probably IT development and maintenance, since tax and customs transactions cycles are markedly different and require the use of two distinct systems for their core functions. Another example is the definition of competencies for specialized tax and customs staff; these will differ because many core functions are unique to either tax or customs.
Operations that are part of the regular tax or customs processes should be kept separate and left under the oversight of the heads of tax or customs, respectively. For tax, this includes taxpayer services, assistance and education, audits, appeals, and collection enforcement. For customs, this includes service and assistance to stakeholders, cargo reporting, clearance of goods, post-clearance audit, and partnership programs with stakeholders such as the AEO programs.
Intelligence functions for both areas of business are typically operational and part of the respective processes; hence, they are separated but require close coordination and systematic exchange of information (or access to a common database, including the taxpayer profile). Criminal investigations should preferably be assigned to a single integrated unit, making sure that it is composed of tax and customs specialists.
Some specialized technical functions like debt collection (involving seizure and/or sale of immovable or third-party liabilities) should be positioned in either customs or tax where the expertise and a comparative advantage to carry out such functions exist.
Regarding risk management, if a decision to integrate is made, it would be necessary to develop a common institutional policy aiming at standardizing how risks will be assessed and managed from a strategic perspective, defining how to optimize the usage of data from both agencies, and identifying common points that could help strengthen the core processes of both. However, it is essential to ensure that both agencies have enough room to define their own model to address their own risks, taking into account the particularities of each business, particularly moments and time frames for interventions.
One risk is that the merger could lead to an excessive or even exclusive focus on revenue collection, neglecting the important non-tax functions of customs, as these might not be considered a strategic priority for the new agency. This is especially true for border protection and security as well as for trade integrity, consumer protection, trade facilitation, implementation of trade policy measures, and regional integration. A merged revenue authority must also have the mandate and, most importantly, be given the resources to address these non-revenue areas effectively. This approach should be reflected in the organization chart, strategic and operational objectives, resource allocation, and performance indicators.
Finally, regarding the institutional name of a merged administration, it would always be more convenient that it reflect both the tax and customs functions of the agency for taxpayers and operators to understand that they are dealing with the government entity mandated to enforce both the tax and customs laws of the land.
Appendix C Organization Structure of a Customs Administration
The organization structure in any particular country will need to address its national reality, the needs of its government, and its service model to citizens; as such, varied models are to be expected. Two simplified examples are shown for how a customs administration may be organized, one more typical for medium/ large organizations and one for smaller administrations.
Example of How a Customs Administration May Be Organized: Small Administration
Source: Authors.Example of How a Customs Administration May Be Organized: Small Administration
Source: Authors.Example of How a Customs Administration May Be Organized: Small Administration
Source: Authors.
Example of How a Customs Administration May Be Organized: Medium to Large Administrations
Source: Authors.Note: AEO = authorized economic operator; IT = information technology; TTP = trusted trader program.Example of How a Customs Administration May Be Organized: Medium to Large Administrations
Source: Authors.Note: AEO = authorized economic operator; IT = information technology; TTP = trusted trader program.Example of How a Customs Administration May Be Organized: Medium to Large Administrations
Source: Authors.Note: AEO = authorized economic operator; IT = information technology; TTP = trusted trader program.Appendix D Measures for Optimal Data Usage
Data Validation and verification
Automatic data validation allows determining if certain information falls within the acceptable range of values for a given field, while data verification consists of ensuring its accuracy and consistency. Through validations, it is possible to crosscheck data against existing values in a database. Some examples include verifying (1) taxpayer number as registered in the corresponding agency; (2) container number according to BIC code;2 (3) registered address by the corresponding agency and/or georeferencing; (4) license number as registered in the corresponding agency; (5) number of unloaded containers versus containers manifested; (6) in transloading, reported unloaded weight cargo versus uploaded weight cargo; (7) commercial quantities declared versus inventoried cargo; (8) a single container linked to various simultaneous declarations; (9) manifest that actually arrived versus declared manifests; and (10) incoming cargo versus cargo associated with each customs transaction.
Metrics
Metrics are a set of measures used for statistical analysis, comprising quantitative and qualitative variables. Examples of quantitative variables include (1) volume of transactions; (2) total value of transactions; (3) taxes paid relative to declared customs value; (4) customs value under trade agreements relative to total value, for each economic operator; and (5) total number of trade units. With qualitative variables, it’s useful to focus on binary variables, such as (1) Is it a first-time transaction? (2) Is it the first time this good is imported from the declared origin? (3) Is the trader an individual? (4) Is it the first transaction for this good on this mode of transportation? (5) Is it a high-risk operator for internal taxes?
Indicators
Indicators constitute complex statistical summaries because their construction requires the development of catalogs and the definition of thresholds. For example, (1) economic operator that deals with high-risk customs brokers; (2) operator that imports from high-risk origins; (3) operator that deals with high-risk shippers or carriers; (4) operator importing sensitive cargo; (5) operator declaring a majority of its cargo as residual;3 (6) cargo with record of heightened selectivity controls; (7) cargo commercialized by high-risk suppliers; (8) cargo subject to special regulations; and (9) noticeable inter-annual variations in the value of an operator’s imports/exports. For each case, it is necessary to previously define a catalog to determine what is considered risky, sensitive, or high.
Indices
An index is defined as a weighted arithmetic expression, with the goal of providing a summarized measurement. Some of the various indices that can be built are (1) an operator’s global risk index, (2) a unit price index,4 and (3) an index of container cargo volume.5
Models
Unlike indices, models introduce linear, logistic, or probabilistic regressions through the use of analytical software. Among the most common models are those that are (1) predictive, (2) tree-based, (3) clustering, (4) networking, and (5) neural networks.
Artificial Intelligence
Artificial intelligence can introduce image and text recognition through the use of sophisticated algorithms. A few examples applied to customs include the use of data derived from (1) document-reading—invoices, certificates, and others; (2) scanned images; (3) facial recognition of passengers; (4) vehicle tag recognition; and (5) e-signatures.
Appendix E Main Components of Economic Operator Compliance History
General Profile
General Profile
| Legal name | Tax identification number (TIN) | ||||||
| Business name | Contact person name and email | ||||||
| Date of registration | |||||||
| Fiscal address | Telephone number | ||||||
| Industry sector | Total employees | ||||||
| Line of business | Wholesale | Retail | Manufacturing | Storage | Service | e-commerce platform | Transportation |
| Company’s legal representative | |||||||
| Type of taxpayer | Natural person | Legal person | |||||
| Global Risk Index (GRI) | Medium | ||||||
General Profile
| Legal name | Tax identification number (TIN) | ||||||
| Business name | Contact person name and email | ||||||
| Date of registration | |||||||
| Fiscal address | Telephone number | ||||||
| Industry sector | Total employees | ||||||
| Line of business | Wholesale | Retail | Manufacturing | Storage | Service | e-commerce platform | Transportation |
| Company’s legal representative | |||||||
| Type of taxpayer | Natural person | Legal person | |||||
| Global Risk Index (GRI) | Medium | ||||||
Customs Data
Customs Data
| Customs transactions overview | |||||||||||||||
| Year 1 | Year 2 | Year 3 | |||||||||||||
| Total CIF/ FOB | Total taxes paid | Total CIF/ FOB | Total taxes paid | Total CIF/ FOB | Total taxes paid | ||||||||||
| Duties | VAT | Excise | Others | Duties | VAT | Excise | Others | Duties | VAT | Excise | Others | ||||
| Imports | |||||||||||||||
| Exports | |||||||||||||||
Customs Data
| Customs transactions overview | |||||||||||||||
| Year 1 | Year 2 | Year 3 | |||||||||||||
| Total CIF/ FOB | Total taxes paid | Total CIF/ FOB | Total taxes paid | Total CIF/ FOB | Total taxes paid | ||||||||||
| Duties | VAT | Excise | Others | Duties | VAT | Excise | Others | Duties | VAT | Excise | Others | ||||
| Imports | |||||||||||||||
| Exports | |||||||||||||||
HS Code Summary
HS Code Summary
| Year 1 | |||||||||||
| HS code | Description | Origin | Units | Unit measure | Value | CIF/FOB | Tax paid | ||||
| Duties | VAT | Excise | Others | ||||||||
| Imports | |||||||||||
| Exports | |||||||||||
| Year 2 | |||||||||||
| HS code | Description | Origin | Units | Unit measure | Value | CIF/FOB | Tax paid | ||||
| Duties | VAT | Excise | Others | ||||||||
| Imports | |||||||||||
| Exports | |||||||||||
HS Code Summary
| Year 1 | |||||||||||
| HS code | Description | Origin | Units | Unit measure | Value | CIF/FOB | Tax paid | ||||
| Duties | VAT | Excise | Others | ||||||||
| Imports | |||||||||||
| Exports | |||||||||||
| Year 2 | |||||||||||
| HS code | Description | Origin | Units | Unit measure | Value | CIF/FOB | Tax paid | ||||
| Duties | VAT | Excise | Others | ||||||||
| Imports | |||||||||||
| Exports | |||||||||||
Selectivity Rates
Selectivity Rates
| Year 1 | Year 2 | Year 3 | ||||||||||
| Imports | Exports | Imports | Exports | Imports | Exports | |||||||
| No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | |
| Physical examination | ||||||||||||
| Documentary examination | ||||||||||||
| Nonintrusive examination | ||||||||||||
| No examination | ||||||||||||
Selectivity Rates
| Year 1 | Year 2 | Year 3 | ||||||||||
| Imports | Exports | Imports | Exports | Imports | Exports | |||||||
| No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | No. Declarations | % | |
| Physical examination | ||||||||||||
| Documentary examination | ||||||||||||
| Nonintrusive examination | ||||||||||||
| No examination | ||||||||||||
Fiscal information
Fiscal information
| Tax returns | Income Tax | VAT | Excise Taxes | ||||||
| Year 1 | Year 2 | Year 3 | Year 1 | Year 2 | Year 3 | Year 1 | Year 2 | Year 3 | |
| Total income | |||||||||
| Total tax deductions | |||||||||
| Total income tax paid | |||||||||
| VAT paid to customs (import related) | |||||||||
| Total VAT paid to suppliers (goods and services) | |||||||||
| Total VAT collected from customers and other sources | |||||||||
| Net VAT paid to the tax administration | |||||||||
| Total excise taxes paid to customs (import related) | |||||||||
| Net excise taxes paid to the tax administration | |||||||||
Fiscal information
| Tax returns | Income Tax | VAT | Excise Taxes | ||||||
| Year 1 | Year 2 | Year 3 | Year 1 | Year 2 | Year 3 | Year 1 | Year 2 | Year 3 | |
| Total income | |||||||||
| Total tax deductions | |||||||||
| Total income tax paid | |||||||||
| VAT paid to customs (import related) | |||||||||
| Total VAT paid to suppliers (goods and services) | |||||||||
| Total VAT collected from customers and other sources | |||||||||
| Net VAT paid to the tax administration | |||||||||
| Total excise taxes paid to customs (import related) | |||||||||
| Net excise taxes paid to the tax administration | |||||||||
Compliance Record
Compliance Record
| Year 1 | Year 2 | Year 3 | ||||
| Type of infraction | Number of Cases | Penalty Assessed | Number of Cases | Penalty assessed | Number of Cases | Penalty Assessed |
| Misclassification | ||||||
| Undervaluation | ||||||
| Incorrect country of origin | ||||||
| Undeclared goods | ||||||
| Smuggling | ||||||
| Contravention or infringement of a nontariff regulation, restriction, or quota | ||||||
| Other | ||||||
| Total | ||||||
Compliance Record
| Year 1 | Year 2 | Year 3 | ||||
| Type of infraction | Number of Cases | Penalty Assessed | Number of Cases | Penalty assessed | Number of Cases | Penalty Assessed |
| Misclassification | ||||||
| Undervaluation | ||||||
| Incorrect country of origin | ||||||
| Undeclared goods | ||||||
| Smuggling | ||||||
| Contravention or infringement of a nontariff regulation, restriction, or quota | ||||||
| Other | ||||||
| Total | ||||||
Value Analysis
Appendix F Economic Operators’ Segmentation and Assessment Methodology
Step 1. Segmentation by size. Economic operators must be segmented according to their relative importance in transactional value (CIF/FOB) levels, resulting in the following criteria: (1) small, (2) medium, and (3) large.8 Each category can be obtained by distribution analysis via the thresholds’ definition or through frequency levels. In the latter case, it will be necessary to calculate the median (M) and standard deviation (SD) as well as knowing the participation percentages of each economic operator within CIF/FOB in relation to the total to complete the following matrix:
Segmentation by Size—Criteria
| Frequency | Calculation Details | Size |
| Very low frequency | % Participation <= (M – 0.75 SD) | Small |
| Low frequency | (M – 0.75 SD) < % participation <= (M – 0.25 SD) | Small |
| Medium frequency | (M – 0.25 SD) < % participation <= (M + 0.25 SD) | Medium |
| High frequency | (M + 0.25 SD) < % participation <= (M + 0.75 SD) | Large |
| Very high frequency | % participation > (M + 0.75 SD) | Large |
| Frequency | Calculation Details | Size |
| Very low frequency | % Participation <= (M – 0.75 SD) | Small |
| Low frequency | (M – 0.75 SD) < % participation <= (M – 0.25 SD) | Small |
| Medium frequency | (M – 0.25 SD) < % participation <= (M + 0.25 SD) | Medium |
| High frequency | (M + 0.25 SD) < % participation <= (M + 0.75 SD) | Large |
| Very high frequency | % participation > (M + 0.75 SD) | Large |
Step 2. Definition of metrics and indicators. Different summary measurements for all economic operators are calculated, many of which have already been defined in Appendix D: Measures for Optimal Data Usage. It is recommended to conduct a distribution analysis of each indicator or metric for the total of economic operators as well as identifying values’ evolution within the period under study. Each value should be included in obtaining the following matrix—which may be useful to identify possible inconsistencies.
Examples—Metrics and Indicators Evolution
| Economic Operator’s Name/Number | Inter-Annual Evolution | |||
| Indicator/Metric | Calculation Formula | Year 1 | Year 2 | Year 3 |
| Customs offenses-compliance record ratio9 | # Declarations with customs offenses / # Total declarations | % | % | % |
| Offenses value ratio | Value of goods in offenses / Value of total goods imported or exported | % | % | % |
| Sanctions value ratio | Value of sanctions applied / Value of total goods imported or exported | % | % | % |
| Age of the company ratio | If date of the opening or registry date is less than xx years—1 If date of the opening or registry date is more than xx years—0 | # | # | # |
| VAT-CIF revenue ratio10 | Total VAT paid / Total CIF | % | % | % |
| Duty–CIF revenue ratio11 | Total duty paid / Total CIF | % | % | % |
| CIF–agreements revenue sharing ratio | CIF with agreements / Total CIF | % | % | % |
| CIF–exemptions revenue sharing ratio | CIF with VAT exemption / Total CIF | % | % | % |
| High-risk country of origin margin ratio | Based on a list of high-risk countries of origin—CIF from high-risk origin country / Total CIF | % | % | % |
| Sensitive goods margin ratio | CIF from sensitive goods / Total CIF | % | % | % |
| Residual tariffs margin ratio | CIF from residual tariff code / Total CIF | % | % | % |
| Tax return non-filers | Non-filing of domestic tax return | # | # | # |
| Profitability ratio | Gross income / Net income | % | % | % |
| Business performance | Net income / ROE | % | % | % |
| Indicator | Calculation formula | |||
| Net margin | Net profit / Sales | |||
| Return on total costs | Operating profit / total cost | |||
| Inconsistence VAT ratio | Import VAT / Domestic VAT | % | % | % |
| Exports—total income ratio | Total exports / Total income | % | % | % |
| Exports—foreign sales | Total exports declared at customs / Foreign sales declared in tax return | % | % | % |
| Economic Operator’s Name/Number | Inter-Annual Evolution | |||
| Indicator/Metric | Calculation Formula | Year 1 | Year 2 | Year 3 |
| Customs offenses-compliance record ratio9 | # Declarations with customs offenses / # Total declarations | % | % | % |
| Offenses value ratio | Value of goods in offenses / Value of total goods imported or exported | % | % | % |
| Sanctions value ratio | Value of sanctions applied / Value of total goods imported or exported | % | % | % |
| Age of the company ratio | If date of the opening or registry date is less than xx years—1 If date of the opening or registry date is more than xx years—0 | # | # | # |
| VAT-CIF revenue ratio10 | Total VAT paid / Total CIF | % | % | % |
| Duty–CIF revenue ratio11 | Total duty paid / Total CIF | % | % | % |
| CIF–agreements revenue sharing ratio | CIF with agreements / Total CIF | % | % | % |
| CIF–exemptions revenue sharing ratio | CIF with VAT exemption / Total CIF | % | % | % |
| High-risk country of origin margin ratio | Based on a list of high-risk countries of origin—CIF from high-risk origin country / Total CIF | % | % | % |
| Sensitive goods margin ratio | CIF from sensitive goods / Total CIF | % | % | % |
| Residual tariffs margin ratio | CIF from residual tariff code / Total CIF | % | % | % |
| Tax return non-filers | Non-filing of domestic tax return | # | # | # |
| Profitability ratio | Gross income / Net income | % | % | % |
| Business performance | Net income / ROE | % | % | % |
| Indicator | Calculation formula | |||
| Net margin | Net profit / Sales | |||
| Return on total costs | Operating profit / total cost | |||
| Inconsistence VAT ratio | Import VAT / Domestic VAT | % | % | % |
| Exports—total income ratio | Total exports / Total income | % | % | % |
| Exports—foreign sales | Total exports declared at customs / Foreign sales declared in tax return | % | % | % |
Step 3. Conversion to binary variables. For each of the measures, distribution is analyzed, and based on the expert judgment from customs, a threshold is determined for each indicator. Importers that go beyond such threshold will be valued with a “1,” which is equivalent to considering them risky in the indicator. For the rest, their value will be “0.”12
Step 4. Definition of weights/balance. Weights for each indicator and metric are determined based on a sub-sample of custom operators with irregularities. Following the previous step, the set of indicators is classified as “1” or “0,” whenever it reaches the threshold. Then adding up the subsequent binary variables will identify which metrics and indicators are the most explanatory. The final weight for each indicator will be determined by dividing the sum of the “1s” occurrences for each indicator over the total sum of occurrences.
Step 5. Global Risk Index (GRI) calculation. For each operator, the global risk index is composed by three elements: (1) weights assigned to each indicator and/ or metric (wi), (2) values obtained as an answer to each indicator or metric (Ri), and (3) the form of the selected algorithm. Concerning the form of the algorithm, customs will have to determine if the GRI chosen will follow a linear, exponential, or any other behavior type that best describes the behavior of the data. In order to facilitate understanding of the other two components, a linear type of GRI will be used for the remainder of this example, irrespective of which, the reasoning will be the same in case of choosing one of the alternates. Therefore, the calculation of the GRI formula would be:
Where:
Wi = Weight assigned to the indicator
Ri = Response obtained by the indicator
n = Total number of indicators
Step 6. Risk segmentation and assessment. Applying the complete formula for the entirety of operators, that is, calculating the value of each measure with the corresponding balancing yields the GRI of all operators. The next step assumes establishing the cut-off points that define low, medium, and high-risk levels. As an example, in Appendix Figure F.1, they were set at 0.75 and 0.85; however, these values will depend on GRI distribution. When size and GRI are exchanged between customs and tax administration, risk profiling is enhanced and comprehensive control possible.
The matrix in Appendix Table F.1, once completed, would summarize all prior steps.
Operators’ Segmentation and Assessment
Operators’ Segmentation and Assessment
| Size | Operators GRI Level | No. of Operators | % of Total Operators | Value of Transactions ($) | % of Total Value of Transaction |
| Large | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Medium | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Small | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Total | # | % | $ | % |
Operators’ Segmentation and Assessment
| Size | Operators GRI Level | No. of Operators | % of Total Operators | Value of Transactions ($) | % of Total Value of Transaction |
| Large | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Medium | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Small | # | % | $ | % | |
| High | # | % | $ | % | |
| Medium | # | % | $ | % | |
| Low | # | % | $ | % | |
| Total | # | % | $ | % |
Appendix G Sensitive Goods Identification Method
Step 1. Identifying sensitive goods from matrix definitions. Matrix analysis helps us to identify the most sensitive goods based on any combination of two selected conditions. Within each matrix, tariff codes distribution will be presented, this is, each cell contains the number of goods that satisfy the value chosen from each condition.
For example, if we consider the matrix “Customs Duties versus VAT,” the matrix may include many lines as different duties values are registered; and many columns according to VAT rates are declared. Then it could be interesting to the analyst to explore the cell that groups the HS codes that paid 0 percent of duties and 0 percent of VAT. Other matrixes that can be used as reference are (1) customs duties versus specific tax; (2) control level—understood as the number of physical inspections, documental inspections and goods released without control—versus detected infractions; (3) control level versus number of importers;13 and (4) certificates versus dual-use and strategic goods.14
Tariff Entries Distribution Matrix
Tariff Entries Distribution Matrix
| Customs Duties versus VAT Matrix | VAT | ||
| Customs Duties | 0% | (…) | X% |
| 0% | # | # | # |
| (…) | # | # | # |
| Y% | # | # | # |
Tariff Entries Distribution Matrix
| Customs Duties versus VAT Matrix | VAT | ||
| Customs Duties | 0% | (…) | X% |
| 0% | # | # | # |
| (…) | # | # | # |
| Y% | # | # | # |
Step 2. Analysis roadmap. Several criteria can be used to select the combination of sensitive or risky goods, for example: (1) choosing tariffs codes that are exempt from paying customs duties and VAT; (2) goods that in the last years have had major value adjustments, misclassification, or other forms of irregularities; (3) tariff codes that are more sensitive from their dual or strategic condition and have not presented certificates; or (4) using a combination of these and other criteria.
Step 3. Goods hierarchy. Once the selection satisfies the analyst, behavior analysis of each tariff code using the defined metrics and indicators can be started. Some examples can be found on the “Measures for Optimal Data Usage” box in Appendix D. This type of analysis would allow discovering, for example, if there is a link between growth and larger trade volumes in tariff codes that pay lower duties and taxes when compared to others which may be similar; this then underlines a potential risk of misclassification. Likewise, it will help analyze trends on the evolution of CIF values, tax revenue, and number of operators. Appendix Table G.2 outlines how this is presented.
Summary for Tariff Code
Summary for Tariff Code
| Sub-tariff | Description | CIF | Rates | Collection | No. Importers | ||||
| $ | GAGR | VAT | Duty | $ | GAGR | No. | GAGR15 | ||
| NNNN.NN1 | (. . .) | $ | % | % | % | $ | % | # | % |
| NNNN.NN2 | (. . .) | $ | % | % | % | $ | % | # | % |
Summary for Tariff Code
| Sub-tariff | Description | CIF | Rates | Collection | No. Importers | ||||
| $ | GAGR | VAT | Duty | $ | GAGR | No. | GAGR15 | ||
| NNNN.NN1 | (. . .) | $ | % | % | % | $ | % | # | % |
| NNNN.NN2 | (. . .) | $ | % | % | % | $ | % | # | % |
Additionally, Appendix Table G.2 can be complemented with an individualized table per tariff code, revealing the behavior of metrics and indicators for each year under study. This summary enables customs to identify relevant goods based on the level and evolution of measures—for example, CIF, number of declarations, and so on. This can be seen in Appendix Table G.3.
Summary for Tariff Code
Summary for Tariff Code
| NNNN.NN1 | Year 1 | Year 2 | Year 3 | |
| CIF | CIF NNNN.NN1 / CIF Total | % | % | % |
| CIF NNNN.NN1 | $ | $ | $ | |
| Declarations | Declarations NNNN.NN1 / Total Decl. | % | % | % |
| Declarations NNNN.NN1 | # | # | # | |
| Revenue collection | Revenue NNNN.NN1 / Total Rec. | % | % | % |
| Revenue NNNN.NN1 | $ | $ | $ | |
| Controls | Control NNNN.NN1 / Total controls | % | % | % |
| Importers Concentration—CIF value | Operators that concentrate 80% CIF | # | # | # |
| Operators that concentrate 50% CIF | # | # | # | |
| Importers Concentration—Revenue | Operators that concentrate 80% of total collection NNNN.NN1 | # | # | # |
| Operators that concentrate 50% of total collection NNNN.NN1 | # | # | # |
Summary for Tariff Code
| NNNN.NN1 | Year 1 | Year 2 | Year 3 | |
| CIF | CIF NNNN.NN1 / CIF Total | % | % | % |
| CIF NNNN.NN1 | $ | $ | $ | |
| Declarations | Declarations NNNN.NN1 / Total Decl. | % | % | % |
| Declarations NNNN.NN1 | # | # | # | |
| Revenue collection | Revenue NNNN.NN1 / Total Rec. | % | % | % |
| Revenue NNNN.NN1 | $ | $ | $ | |
| Controls | Control NNNN.NN1 / Total controls | % | % | % |
| Importers Concentration—CIF value | Operators that concentrate 80% CIF | # | # | # |
| Operators that concentrate 50% CIF | # | # | # | |
| Importers Concentration—Revenue | Operators that concentrate 80% of total collection NNNN.NN1 | # | # | # |
| Operators that concentrate 50% of total collection NNNN.NN1 | # | # | # |
Step 4. Once the relevant range of goods is reached, the analyst’s next step is determining the interrelation between operators and risk levels.
Sensitive Goods Linkage with High-Risk Operators
Sensitive Goods Linkage with High-Risk Operators
| Sensitive Tariff Code | Size Segmentation | GRI Level | No. of Importers | TIN | GRI |
| NNNN.NN1 | Large | High | # | TIN 1 | GRI |
| TIN 2 | GRI | ||||
| Medium | # | TIN 4 | GRI | ||
| TIN 5 | GRI | ||||
| Low | # | TIN 7 | GRI | ||
| TIN 8 | GRI | ||||
| Medium | High | # | TIN 10 | GRI | |
| TIN 11 | GRI | ||||
| Medium | # | TIN 13 | GRI | ||
| TIN 14 | GRI | ||||
| Low | # | TIN 16 | GRI | ||
| TIN 17 | GRI | ||||
| Small | High | # | TIN 19 | GRI | |
| TIN 20 | GRI | ||||
| Medium | # | TIN 22 | GRI | ||
| TIN 23 | GRI | ||||
| Low | # | TIN 25 | GRI | ||
| TIN 26 | GRI |
Sensitive Goods Linkage with High-Risk Operators
| Sensitive Tariff Code | Size Segmentation | GRI Level | No. of Importers | TIN | GRI |
| NNNN.NN1 | Large | High | # | TIN 1 | GRI |
| TIN 2 | GRI | ||||
| Medium | # | TIN 4 | GRI | ||
| TIN 5 | GRI | ||||
| Low | # | TIN 7 | GRI | ||
| TIN 8 | GRI | ||||
| Medium | High | # | TIN 10 | GRI | |
| TIN 11 | GRI | ||||
| Medium | # | TIN 13 | GRI | ||
| TIN 14 | GRI | ||||
| Low | # | TIN 16 | GRI | ||
| TIN 17 | GRI | ||||
| Small | High | # | TIN 19 | GRI | |
| TIN 20 | GRI | ||||
| Medium | # | TIN 22 | GRI | ||
| TIN 23 | GRI | ||||
| Low | # | TIN 25 | GRI | ||
| TIN 26 | GRI |
Appendix H Branch Measures to Decision Tree Model
Each declaration will be analyzed per branch/node based on a pre-defined condition, and if it is met, it will continue toward the subsequent node until the end of the tree, where an eventual control decision will become evident.
There are three decision branches: (1) sensitive operator identification, (2) analysis of sensitive tariff codes, and (3) the analysis of suppliers and unit prices. In branches 1 and 2, a set of indicators and metrics are defined. Some examples of measures are included in Appendix Tables H.1 and H.2.
Operators Branch Measures
Operators Branch Measures
| Name of the Indicator | Syntax of the Indicator | Definition |
|---|---|---|
| A.1. Customs offenses compliance record ratio | Declarations with customs offenses / # Total customs declarations | Identify the level of compliance for each operator |
| A.2. GRI | GRIi | Recognize the operator’s level of risk according to GRI. |
| A.3. Age of the company | Opening or registering date I ≥ N years – Non-new taxpayer Opening or registering date i < N years – New taxpayer | Identify habitual and casual operators. |
| A.4. Declared earnings | Sales reported in internal taxes / CIF Total | Identify possible deviations between purchases abroad and local sales |
| A.5. Declared taxes | VAT on sales reported in internal taxesi / Sales reported in internal taxesi | Recognize if there are deviations in taxes paid based on sales in the internal market. |
| A.6. (…) |
Operators Branch Measures
| Name of the Indicator | Syntax of the Indicator | Definition |
|---|---|---|
| A.1. Customs offenses compliance record ratio | Declarations with customs offenses / # Total customs declarations | Identify the level of compliance for each operator |
| A.2. GRI | GRIi | Recognize the operator’s level of risk according to GRI. |
| A.3. Age of the company | Opening or registering date I ≥ N years – Non-new taxpayer Opening or registering date i < N years – New taxpayer | Identify habitual and casual operators. |
| A.4. Declared earnings | Sales reported in internal taxes / CIF Total | Identify possible deviations between purchases abroad and local sales |
| A.5. Declared taxes | VAT on sales reported in internal taxesi / Sales reported in internal taxesi | Recognize if there are deviations in taxes paid based on sales in the internal market. |
| A.6. (…) |
Goods Branch Indicators
Goods Branch Indicators
| Name of the Indicator | Syntax of the Indicator | Definition |
|---|---|---|
| B.1. Offenses compliance record ratio repayments | Declarations with customs offenses / # Total declarations | Identify the level of compliance of each tariff code. |
| B.2. Does it constitute a residual tariff code? | Residual tariff code according to chosen criteria16 | Identify if the attributed generality warrants undervaluation. |
| B.3. Is a certificate or permit required? | Certification or permit is required. | Mandatory certification or permit defines these products as higher risk. |
| B.4. Was it imported for the first time during the surveyed period? | The good does not appear in customs declarations prior to the surveyed period. | New good can explain access to new industries but might also indicate substitution of national production. |
| B.5. Internal taxes paid | Internal taxes paid / Total CIF | Identify the relation tax/imported value. |
| B.6. (…) |
Goods Branch Indicators
| Name of the Indicator | Syntax of the Indicator | Definition |
|---|---|---|
| B.1. Offenses compliance record ratio repayments | Declarations with customs offenses / # Total declarations | Identify the level of compliance of each tariff code. |
| B.2. Does it constitute a residual tariff code? | Residual tariff code according to chosen criteria16 | Identify if the attributed generality warrants undervaluation. |
| B.3. Is a certificate or permit required? | Certification or permit is required. | Mandatory certification or permit defines these products as higher risk. |
| B.4. Was it imported for the first time during the surveyed period? | The good does not appear in customs declarations prior to the surveyed period. | New good can explain access to new industries but might also indicate substitution of national production. |
| B.5. Internal taxes paid | Internal taxes paid / Total CIF | Identify the relation tax/imported value. |
| B.6. (…) |
With respect to the first dimension, the analyst must identify (c.1) if the goods were sent by a supplier with customs offense record, within the same tariff code or a different one; and/or (c.2) if any operator involved—importer or customs broker—already has a prior history with the supplier. The second level of analysis proposes to identify if (c.3) the unit price of goods falls outside the confidence interval; (c.4) goods belong to a market with a high unit price dispersion; and (c.5) the goods belong to a tariff codes group with higher rates of duties and tax repayments. While the set of indicators and metrics in the branch A should be oriented toward operators, the measures in the branch B are applied to goods. Meanwhile, the branch C considers broadening the analysis in two ways: on the one hand, a suppliers’ analysis and, on the other, a unit price study.
Appendix Figure H.1 graphically presents how the inductive decision process is represented. Selecting one or more indicators per branch and when they become activated or confirmed, the tree is completed, and the control decision should be displayed.
Decision Tree Model Graphic Representation: Model I
Decision Tree Model Graphic Representation: Model I
Decision Tree Model Graphic Representation: Model I
Based on these branches, the proper decision tree model must be chosen. Since the customs declaration is submitted, this decision process starts with the first node. If at least one of the four models is activated, then it is possible to move to the second node. The activated condition/s on the first and second nodes start to build the I, II, III, or IV tree model. The most widely used decision tree models are shown in Appendix Table H.3.
Indicator-Based Decision Tree Models
Indicator-Based Decision Tree Models
| Tree Model | First Node | Second Node | Third Node | Fourth Node |
|---|---|---|---|---|
| I | Operator with prior irregularities | Goods with offenses record | Supplier with prior irregularities | Unit price with high deviation from average value or outside confidence intervals |
| II | “X” indicator for the operator activated | “Y” indicator for goods activated | ||
| III | Several indicators for the operator activated | Several indicators for goods activated | ||
| IV | High GRI level | Identified as a sensitive good |
Indicator-Based Decision Tree Models
| Tree Model | First Node | Second Node | Third Node | Fourth Node |
|---|---|---|---|---|
| I | Operator with prior irregularities | Goods with offenses record | Supplier with prior irregularities | Unit price with high deviation from average value or outside confidence intervals |
| II | “X” indicator for the operator activated | “Y” indicator for goods activated | ||
| III | Several indicators for the operator activated | Several indicators for goods activated | ||
| IV | High GRI level | Identified as a sensitive good |
Appendix I Cluster Analysis
Description
Historical information for a period of no less than 6 months must be considered, and the percentage of offenses detected over the total import transaction must be analyzed. The methodology can be applied to any customs regime. According to the following steps, this iterative method can be displayed between steps 2 and 6:
Step 1. Importers selection. Through a list of importers, it will be possible to recognize who are the operators with the greatest number of declarations with adjustments and/or customs offenses. This analysis may suggest not considering certain HS chapters that could bias the analysis and insert distortions in the levels of offenses detected, that is, chapters 22 or 87.
| ADJUSTMENTS AND OFFENSES OPERATORS | FOB value | Declarations |
| IMPORTER | $ | # |
| IMPORTER 1 | $ | # |
| IMPORTER 2 | $ | # |
| IMPORTER 3 | $ | # |
| IMPORTER 4 | $ | # |
| (…) | $ | # |
| IMPORTER 10 | $ | # |
| ADJUSTMENTS AND OFFENSES OPERATORS | FOB value | Declarations |
| IMPORTER | $ | # |
| IMPORTER 1 | $ | # |
| IMPORTER 2 | $ | # |
| IMPORTER 3 | $ | # |
| IMPORTER 4 | $ | # |
| (…) | $ | # |
| IMPORTER 10 | $ | # |
Step 2. Customs agents analysis. Only customs brokers linked with offenses need to be considered under the selected importers. The first alternative that this methodology proposes is starting with customs brokers with a higher number of offenses and then identify importers connected with these cases.
| FOB value | Declarations | |
| IMPORTER 1 | $ | # |
| CUSTOMS BROKER 1 | $ | # |
| CUSTOMS BROKER 2 | $ | # |
| CUSTOMS BROKER 4 | $ | # |
| IMPORTER 2 | $ | # |
| CUSTOMS BROKER 1 | $ | # |
| CUSTOMS BROKER 8 | $ | # |
| IMPORTER 3 | $ | # |
| CUSTOMS BROKER 6 | $ | # |
| CUSTOMS BROKER 7 | $ | # |
| (…) | $ | # |
| CUSTOMS BROKER 10 | $ | # |
| FOB value | Declarations | |
| IMPORTER 1 | $ | # |
| CUSTOMS BROKER 1 | $ | # |
| CUSTOMS BROKER 2 | $ | # |
| CUSTOMS BROKER 4 | $ | # |
| IMPORTER 2 | $ | # |
| CUSTOMS BROKER 1 | $ | # |
| CUSTOMS BROKER 8 | $ | # |
| IMPORTER 3 | $ | # |
| CUSTOMS BROKER 6 | $ | # |
| CUSTOMS BROKER 7 | $ | # |
| (…) | $ | # |
| CUSTOMS BROKER 10 | $ | # |
Step 3. Supplier–importer linkage. Even though the next step may choose different courses of action, it is proposed to identify the main suppliers that participated in commercial transactions of the adjusted goods. It is possible that the same supplier may be present in more than one selected importer, which are the cases that continue to the next step. A second alternative proposed by the methodology suggests starting with a noncompliant supplier and then identify connected importers. Customs brokers will be incorporated in step 3.
| SUPPLIER M | Valor FOB | Declarations |
| CUSTOMS BROKER 1 | ||
| IMPORTER 1 | $ | # |
| IMPORTER 2 | $ | # |
| SUPPLIER M | Valor FOB | Declarations |
| CUSTOMS BROKER 1 | ||
| IMPORTER 1 | $ | # |
| IMPORTER 2 | $ | # |
Step 4. Risk origin country connections. When an operator’s noncompliant network is identified, it is possible that only some countries of origin are linked with these offenses. The route may incorporate additional components as the mode of transport and the customs entry point or local office. These conditions can be added to the cluster if there is a strong correlation trend between them.
| SUPPLIER M | Origin country | FOB Value | Declarations |
| CUSTOMS BROKER 1 | |||
| IMPORTER 1 | $ | # | |
| A | $ | # | |
| B | $ | # | |
| IMPORTER 2 | $ | # | |
| B | $ | # | |
| C | $ | # | |
| D | $ | # |
| SUPPLIER M | Origin country | FOB Value | Declarations |
| CUSTOMS BROKER 1 | |||
| IMPORTER 1 | $ | # | |
| A | $ | # | |
| B | $ | # | |
| IMPORTER 2 | $ | # | |
| B | $ | # | |
| C | $ | # | |
| D | $ | # |
Step 5. Goods analysis. In addition to identifying the HS codes with the greatest participation in these fraudulent events, it may be relevant to complement it with an analysis by (1) type of packaging, (2) technical details of the good, (3) storage conditions, and (4) perishing and/or toxicity requirements.
| SUPPLIER M | HS CODE | Origin country | FOB Value | Declarations |
| CUSTOMS BROKER 1 | ||||
| IMPORTER 1 | $ | # | ||
| NNNN.NX | B | $ | # | |
| NNNN.NY | $ | # | ||
| NNNN.NZ | $ | # | ||
| NNNN.NR | $ | # | ||
| IMPORTER 2 | $ | # | ||
| NNNN.NX | B | $ | # | |
| NNNN.NM | $ | # |
| SUPPLIER M | HS CODE | Origin country | FOB Value | Declarations |
| CUSTOMS BROKER 1 | ||||
| IMPORTER 1 | $ | # | ||
| NNNN.NX | B | $ | # | |
| NNNN.NY | $ | # | ||
| NNNN.NZ | $ | # | ||
| NNNN.NR | $ | # | ||
| IMPORTER 2 | $ | # | ||
| NNNN.NX | B | $ | # | |
| NNNN.NM | $ | # |
Step 6. Cluster definition. When there is a high level of concentration in all or some previous conditions, it is possible to recognize a risk cluster. In this way, each variable—customs broker, supplier, country of origin, mode of transport, customs office, and good—become relevant in the discovered combination. This immediately leads to the identification of a new multivariable profile.
| SUPPLIER M |
| CUSTOMS BROKER 1 |
| NNNN.NX |
| ORIGIN COUNTRY B |
| SUPPLIER M |
| CUSTOMS BROKER 1 |
| NNNN.NX |
| ORIGIN COUNTRY B |
APPENDIX J A GRADUATED PENALTY/SANCTIONS REGIME
A strong, fair, and transparent penalty and sanctions regime is an essential part of the customs compliance model. The penalty and sanctions regime ensures penalties are applied uniformly, consistently, and in an equitable manner for offenses of equivalent weight with the overall objective of molding client attitude toward self-regulation. Penalties must be appropriate to the severity of the offenses involved. Should they be too severe, administrations will hesitate to apply them, which can lead to a diminished deterrence impact and open the administration to pressures to settle cases inappropriately.
Customs offenses/breaches can generally be broken down into three categories: the first category includes non-prosecutable breaches or contraventions that are not serious in terms of customs revenue and that are subject to administrative fines with no provision for prosecution.
The second category includes breaches, which are more serious and subject to prosecution, but for which the offender can request an administrative settlement by customs (sometimes referred to as a “prosecution avoidance fee” or “offense settlement or compounding”). In some cases, customs may require permission of the prosecutor (often the Director of Public Prosecutions) to assess the administrative penalty and avoid prosecution. There is a risk of lack of transparency if such transactions are carried out without some form of disclosure or involvement of the prosecutor in the decision.
The third category includes the most serious offenses for which customs will pursue criminal prosecution leading to fines and/or imprisonment rather than administrative actions. This includes offenses such as false declarations; fraudulent or counterfeit documents; smuggling and possession of smuggled goods; obstructing, threatening, or assaulting officers; and bribery. A prosecutions policy is required that sets out the conditions under which offenders should be prosecuted and the administrative procedures to follow. An administration’s penalty/ sanctions regime should be made public in order to promote transparency.
The following is an illustrative example of a graduated penalty scheme. Of particular importance is the notion that repeated offenses lead to more serious penalties.
Sample Graduated Penalty Scheme
Sample Graduated Penalty Scheme
| Customs Offense | First Offense | Second Offense (within specified time period) | Third Offense (within specified time period) | Comments |
|---|---|---|---|---|
| Category A. First-Level Offenses: Minor Offenses/Errors: Little or No Revenue Implications | ||||
| A1. Revenue shortfall due to incorrect or misleading information/advice provided by customs. | No penalty | No penalty | No penalty | Customs corrects information/administrative systems. Traders advised of correction action. |
| A2. Declaration error with no revenue impact. | No penalty. Notice of error issued/recorded. | No penalty. Warning issued and recorded. | Penalty: 5% of duty paid value. | Minimum penalty to encourage future compliance. Sanctions may apply to agents. |
| A3. Voluntary disclosure made before client notified of verification intervention (that is, cargo inspection, audit, investigation). | No penalty | No penalty. Official notice—corrective action identified. | No penalty. Formal warning | Repeated instances indicate weaknesses in client systems and controls—increased monitoring may be needed. |
| Category B. Second-Level Offenses: Errors or Omissions That Have Revenue Implications and Are Due to Importer Error or Negligence | ||||
| B1. Incorrect Customs declaration/documentation with revenue impact (incorrect tariff classification/valuation). Failure to provide mandatory information to assess tariff and valuation (and origin). No intent to defraud/falsify documents. | 5% of duty paid value (DPV), plus official warning, recorded in enforcement database. | 35% of DPV | 100–300% of DPV, forfeiture of goods. Possible prosecution. | For repeated offenses forfeiture of goods/conveyance and prosecution are options depending on the case (that is amount of revenue evaded, extenuating circumstances and so on). |
| B2. Provision of misleading/incorrect information to Customs (description of goods, quantity, duty and tax calculation and so on) | 35% of DPV. Goods forfeiture Prosecution | 50% of DPV Goods forfeiture Prosecution | 100–300% of DPV. Goods forfeiture Prosecution | Attempt to mislead customs. Does not include provision of false documentation (see C 2 below). |
| Category C. Third-Level Offenses: Cases of False Documentation with Intent to Evade/Defraud or Outright Smuggling | ||||
| C1. Fraud (false invoices, alteration of documents—wilful intent to evade duty/tax. | 200% of the DPV or goods forfeiture Prosecution. | 300% of the DPV or goods forfeiture. Prosecution. | 300% of the DPV or forfeiture of goods. Prosecution. | Prosecution for second and subsequent offenses attract stiffer penalties (fines, prison). Possible seizure and forfeiture of goods and conveyance. |
| C2. Smuggling | 300% of the DPV or goods and conveyance forfeiture Prosecution. | 300% of DPV or goods and conveyance forfeiture Prosecution. | 300% of the DPV or goods and conveyance forfeiture Prosecution. | As above. |
| C3. Obstructing, threatening or assaulting officers, bribery, use of firearms. | Specific fines as per legislation. Prosecution. | Specific fines as per legislation. Prosecution. | Specific fines as per legislation. Prosecution. | These serious offenses are usually prosecuted in accordance with legislation. Penalties include fines and in the most serious cases incarceration. |
Sample Graduated Penalty Scheme
| Customs Offense | First Offense | Second Offense (within specified time period) | Third Offense (within specified time period) | Comments |
|---|---|---|---|---|
| Category A. First-Level Offenses: Minor Offenses/Errors: Little or No Revenue Implications | ||||
| A1. Revenue shortfall due to incorrect or misleading information/advice provided by customs. | No penalty | No penalty | No penalty | Customs corrects information/administrative systems. Traders advised of correction action. |
| A2. Declaration error with no revenue impact. | No penalty. Notice of error issued/recorded. | No penalty. Warning issued and recorded. | Penalty: 5% of duty paid value. | Minimum penalty to encourage future compliance. Sanctions may apply to agents. |
| A3. Voluntary disclosure made before client notified of verification intervention (that is, cargo inspection, audit, investigation). | No penalty | No penalty. Official notice—corrective action identified. | No penalty. Formal warning | Repeated instances indicate weaknesses in client systems and controls—increased monitoring may be needed. |
| Category B. Second-Level Offenses: Errors or Omissions That Have Revenue Implications and Are Due to Importer Error or Negligence | ||||
| B1. Incorrect Customs declaration/documentation with revenue impact (incorrect tariff classification/valuation). Failure to provide mandatory information to assess tariff and valuation (and origin). No intent to defraud/falsify documents. | 5% of duty paid value (DPV), plus official warning, recorded in enforcement database. | 35% of DPV | 100–300% of DPV, forfeiture of goods. Possible prosecution. | For repeated offenses forfeiture of goods/conveyance and prosecution are options depending on the case (that is amount of revenue evaded, extenuating circumstances and so on). |
| B2. Provision of misleading/incorrect information to Customs (description of goods, quantity, duty and tax calculation and so on) | 35% of DPV. Goods forfeiture Prosecution | 50% of DPV Goods forfeiture Prosecution | 100–300% of DPV. Goods forfeiture Prosecution | Attempt to mislead customs. Does not include provision of false documentation (see C 2 below). |
| Category C. Third-Level Offenses: Cases of False Documentation with Intent to Evade/Defraud or Outright Smuggling | ||||
| C1. Fraud (false invoices, alteration of documents—wilful intent to evade duty/tax. | 200% of the DPV or goods forfeiture Prosecution. | 300% of the DPV or goods forfeiture. Prosecution. | 300% of the DPV or forfeiture of goods. Prosecution. | Prosecution for second and subsequent offenses attract stiffer penalties (fines, prison). Possible seizure and forfeiture of goods and conveyance. |
| C2. Smuggling | 300% of the DPV or goods and conveyance forfeiture Prosecution. | 300% of DPV or goods and conveyance forfeiture Prosecution. | 300% of the DPV or goods and conveyance forfeiture Prosecution. | As above. |
| C3. Obstructing, threatening or assaulting officers, bribery, use of firearms. | Specific fines as per legislation. Prosecution. | Specific fines as per legislation. Prosecution. | Specific fines as per legislation. Prosecution. | These serious offenses are usually prosecuted in accordance with legislation. Penalties include fines and in the most serious cases incarceration. |
Appendix K Implementing Specific Enforcement Initiatives
Customs Mobile Antismuggling Teams
Roles and Responsibilities
These specialized teams provide advanced examination capacity to follow up on targets and profiles developed by customs intelligence and/or identified by operational staff and managers. Activities of mobile antismuggling teams that can move to and operate at any location are focused on both contraband interdiction and revenue evasion. Teams work with line staff who should be included in operations where feasible. Team operations should be guided by operational plans and where available based on risk assessments, specific intelligence, requests from operational areas or other agencies (in accordance with agreements), or the basis of deterrence. Teams are expected to pass along any intelligence information they gather to the Intelligence section.
Organization and Deployment
Typically, mobile antismuggling teams are composed of five to seven customs officers and a supervisor. The number of teams deployed is based on identified risks, geographic considerations, and resource availability. To the extent possible, the teams should be available to support customs line operations. Joint operations with other enforcement agencies such as the police, drug enforcement agencies, border patrols, and military are common and can be extremely effective as either individual projects or ongoing joint forces operations.
Selection and Training
Selection of team members should be based on identified interest, experience including a good enforcement record, demonstrated initiative and potential, and professionalism.
Training should include the following:
Advanced enforcement and examination techniques by mode
Use of contraband detection equipment including scanners and imaging tools
Interviewing and report writing
Safe handling of firearms and if armed the full range of firearms training
Arrest procedures, rules of evidence, and taking of statements
Any training identified and deemed applicable by partner enforcement agencies for specific joint operations
Keys to Successful Implementation of Antismuggling Teams
Sound legal basis for operations
Clearly established terms of reference and operational responsibilities
High-caliber, professional staff (training programs)
Vehicles, equipment, and tools
Operational performance management systems
Automated systems available (enforcement database, operating systems, intelligence systems, risk management systems, and so on)
Effective relationships with operational staff
Effective interagency working arrangements
Establishing a Customs Fraud Investigations Capacity
Roles and Responsibilities
Customs investigations’ mandate is to uncover and investigate past instances of fraudulent activities by traders and others involved in import/export. Forensic investigation of customs fraud is an essential component of a compliance/enforcement strategy. In addition to detecting and penalizing fraudulent activities, their actions, particularly prosecutions, act as a strong deterrent to those who would violate customs legislation through fraud. Investigators regularly execute search warrants to obtain evidence in support of investigations and develop cases for potential prosecution.
Organization and Deployment
The head of investigations should be a senior level reporting directly to the executive in charge of enforcement (often a deputy head of customs). An investigations unit must consist of dedicated, full-time investigators who are not distracted by other operational work. Investigators should not participate in enforcement operations (antismuggling patrols, examination of goods, and so on) other than in exceptional situations or as part of an investigation.
The size of an investigations unit depends on the workload, which reflects trade volumes as well as other factors such as levels of voluntary compliance, enforcement capacity and results, and the nature and level of development of the trading environment. As a general guideline, in small administrations an investigations unit should consist of a minimum of two to four investigators plus a head and support staff. Larger administrations will have more investigators to cope with higher trade volumes and greater potential for fraud.
Investigators work closely with all customs operational units as these will be the primary sources of case referrals. They also have frequent contact with other agencies such as taxation, other regulatory agencies, and the police regarding serious cases of fraud and to share information and intelligence. In cases of serious fraud involving other legislation (criminal code, income tax, and so on), investigators may refer cases to the appropriate agency for action.
Selection and Training
Investigations is a specialist function that requires staff with professional skills and knowledge. Officers should have a university bachelor’s degree, significant customs experience, good knowledge about its laws, regulations, procedures, and systems and also of criminal procedures (rules of evidence, court procedures and testimony), and strong communication and writing skills. Motivation, reliability, and integrity are vital attributes.
Training should include the following:
Customs and criminal legal provisions
Customs penalty structure and policies
Forensic accounting and audit techniques
Fraud investigations techniques and procedures
Rules of evidence (gathering, safekeeping and handling) and court procedures
Report writing
Interviewing, interrogation, and special investigative techniques
Law enforcement operation planning and implementation
Risk management theory and practice
Use of automated systems and tools
Keys to Successful Implementation of an Investigations Function
Adequate legal powers and authorities
Well-trained, experienced, professional investigators
Transparent investigations procedures and standards
Appropriate penalties and sanctions
Provision of ICT systems (intelligence database, enforcement database, file management system, access to all operational systems, access to external databases and systems)
Effective interagency working relationships (tax department)
Establishing a Customs Intelligence Capacity
Roles and Responsibilities
Customs intelligence consists of two major elements: strategic intelligence and analysis and operational/tactical intelligence. A headquarters-based strategic intelligence and analysis function provides strategic risk assessments of emerging threats that are used by senior management in setting enforcement priorities and making high-level resource deployment decisions. Operational/ tactical intelligence supports managerial decision-making on deployment of operational resources, project planning for specialized enforcement teams, and interagency projects. It provides actionable intelligence through lookouts, risk assessments, and briefings of both a local and national nature for use in targeting high-risk transactions and parties for enforcement action. It serves as the contact point between the intelligence organization and operating customs officers.
Intelligence comes from a variety of sources and in a variety of formats. Human intelligence is perhaps the most common form of intelligence and is generally related to the more tactical and operational environments. Sources of information include confidential informants, industry sources, other domestic law enforcement agencies, foreign customs administrations and law enforcement agencies, and international agencies such as the WCO, INTERPOL, regional intelligence offices, and so on. Information also comes from open sources such as the internet, publications, and government reports as well as from closed (confidential) sources such as bulletins and notices issued by enforcement and intelligence agencies, both domestic and foreign, internal documents, and signals intelligence provided by intelligence organizations.
Organization and Deployment
Customs intelligence organizations must be staffed by full-time dedicated specialists led by professional intelligence experts; this work cannot be undertaken on a part-time basis. The head of headquarters intelligence must report to the executive in charge of enforcement.
Field intelligence operations will vary in size depending on the size of the customs organization and the demands. As a minimum each regional operation should have an intelligence unit. Officers need to develop close working relationships with customs staff and local law enforcement agencies as well as with other sources of intelligence information including confidential sources.
Selection and Training
Staff selected for the intelligence unit should be motivated, competent officers with significant experience including in enforcement. They need solid analytical and communication skills and good IT knowledge. Intelligence officers require specialized training in the following.
Customs intelligence processes and techniques
Analytical skills (including use of databases and automated analytical tools)
Interviewing and report writing techniques
Sound communications skills
Surveillance techniques
Keys to Successful Implementation of an Intelligence Function
Adequate legal powers and authorities
Clearly defined roles, responsibilities, and authorities
Well-trained, experienced, professional intelligence officers
Effective interagency working relationships and information sharing agreement
Access to essential ICT systems (databases, intelligence systems)
Risk management policies and systems
Strengthening Post clearance Audit
Roles and Responsibilities
Post-clearance audit (PCA) is also discussed in Chapters 4 and 5, in particular its connection to trade facilitation and risk management respectively. This discussion’s focus on PCA is in terms of its contribution to the enforcement program and how to strengthen its effectiveness.
In addition to increasing compliance and generating revenue, PCA plays a key role in the enforcement process as a major source of information for the purpose of risk management and as a valuable source of case referrals for customs investigations. Results of audits need to be provided to the risk management team in order to update risk profiles and criteria and to establish targets for future verification. When an auditor uncovers evidence of potential fraud (for example, duplicate invoices, false records, evidence of unreported payments, and so on), those observations are to be communicated to the investigations team for review. Should the review find insufficient evidence of fraud, the audit would continue. However, if evidence of fraud is uncovered, then the audit is terminated and the case turned over to investigations for action and potential prosecution. When functioning effectively, PCA is a major source of investigations cases.
A critical factor in the success of efforts to reduce customs interventions at the time of goods clearance by refocusing verification efforts on pre- and postclearance processes is the establishment of a well-resourced and effective PCA program. This shift has resulted in significantly increased workload of PCA units, as more and more transactions are referred for postrelease verification. Two elements of this postrelease verification have emerged. The first is the post-clearance review of transactions. This entails reviews of declarations for quality and compliance that are selected for the “blue channel.”17 Post-clearance assessment units review the tariff classification, valuation, and origin declaration for compliance based on risk assessments and taking into account resource availability. This is not PCA, but a postrelease verification that can be carried out at local offices or at a central location. Information on results of reviews must be communicated to PCA for use in identifying potential risks in developing their audit plans, and back to operating areas as feedback on quality.
PCA is the second postrelease verification element and audits traders in accordance with a risk-based audit plan. These audits (which may be desk audits or on-site audits) are time-consuming, and only a limited number of full audits can be carried out in any given year. In many cases, administrations have not devoted sufficient resources to fully implement this critical program. This creates a compliance gap and increased risk of revenue evasion.
Organization and Deployment
Often the program suffers from a shortage of staff, weak skill levels due to inadequate training, poor application of risk management in audit selection and planning, and in some cases lack of clear legal authorities. External challenges include general low levels of compliance by traders and in particular with recordkeeping requirements.
To succeed, PCA needs to be integrated as a critical element of the customs compliance verification and enforcement program, although it would not directly report to the enforcement organization. While smaller administrations with automated customs processing systems in operation often centralize the PCA function at the headquarters level, most customs administrations create regional PCA units to ensure proximity to importers’ premises for on-site audits. These units generally come under the direction of the national PCA office to ensure consistency and coordinated implementation of audits. Headquarters PCA teams focus on larger importers with operations in a number of locations, or that involve complex audits. All audits are carried out in accordance with the annual audit plan.
Selection and Training
Staff assigned to PCA should have significant customs experience and a good knowledge of customs requirements and automated systems as well as of accounting and auditing practices. Strong communication and writing skills are important. PCA officers require training in the following areas:
Accounting and audit principles and techniques
Advanced customs theory and practices (tariff, valuation, origin, exemption regimes, and so on)
Research and report writing
Interviewing techniques
Risk management theory and practice
Use of automated systems and tools
Keys to Successful Implementation of Post-Clearance Audit
Clearly delineated role and responsibilities of the PCA unit (including position descriptions)
Appropriate legal requirements and authorities in place (for example, books and records, powers of officers)
Adequate staffing levels based on workload (audit plan)
PCA integrated into the risk management and compliance strategies
Risk-based annual audit plans with performance measurement criteria
Trusted trader program (AEO) audits included in audit plans
PCA audit manual in place
Professional audit training (external resources often required) provided
Criteria and procedures established for PCA referrals to investigations
PCA staff have direct access to customs operating systems (including enforcement databases) and automated PCA case management and reporting database in place
Customs Marine Patrol Units
Roles and Responsibilities
To enhance border protection, many customs administrations with marine or inland water borders establish customs marine units to patrol marinas, inland lakes, rivers, and coastal waters. While their primary task is prevention and interception of smuggling and other illegal operations (such as human trafficking, illegal fishing, and so on), they are often used to facilitate remote reporting by pleasure craft and verify their status. They provide customs with the capacity to participate in joint marine operations with other agencies such as the coast guard, marine police, and military in accordance with MOUs with the partner agencies. Generally, customs patrol vessel operations are limited to coastal waters and inland lakes and rivers, although in larger administrations deep water patrol vessels may be deployed.
Operational costs of marine patrol vessels, particularly larger vessels, can be extremely high and for smaller administrations may be prohibitive. Careful feasibility studies including threat assessments need to be undertaken before a decision is made to invest in a marine patrol program. Clear policies and procedures on officer safety and security are essential. Adequate and ongoing budget provisions must be made to ensure the continuing operation and maintenance of these expensive assets.
Deployment and Operational Requirements
Vessels must be “built to purpose” to meet the operating mandate and environment in which they will operate. They must be equipped with all necessary safety and boarding equipment, searchlights and sirens, and so on. A radio communications system will be required, preferably one that can connect with other agencies. Vessel marking must clearly identify the vessel as customs. Intercepting, boarding and searching vessels on the open water can be a dangerous undertaking and customs officers have to be prepared to respond to threats and possible violence. Great care needs to be taken to manage the risks of these patrols and to ensure staff are properly trained, equipped, and supported by law in their actions.
Selection and Training
Selection of marine patrol team members should be based on identified interest, experience including a good enforcement record, demonstrated initiative, and potential. Qualified/licensed persons are required to operate patrol vessels and can be either qualified customs officers or contract mariners.
Marine patrol officers require the following specialized training:
Professionally recognized training/certification for the operation of the vessel
Marine safety procedures and policies
Use of marine related contraband detection equipment
Vessel boarding and securing
Vessel rummaging techniques
Interviewing and report writing
Team members should also be fully trained in the safe handling of firearms; armed officers should have the full range of firearms training (including regular recertification).
Keys to Successful Implementation of Marine Patrols
Sound legal base for operations
Deployment based on feasibility study (risk assessment, capital and operating costs, operating considerations)
Appropriately sized and fully equipped vessels for the operating environment/mandate
Adequate operational funds to ensure continuity (operating, repair and maintenance)
Professional staff recruited/trained in marine procedures and customs rummage techniques and so on
Comprehensive operating/safety procedures and policies in place
Effective working relationships and legal arrangements with other law enforcement agencies
Deployment of Contraband Detection Technologies
Application
Proper deployment of state-of-the-art contraband detection technology (CDT) and equipment is critical to effective customs enforcement. These expensive devices require proper management and utilization to produce results, including the application of risk management. Users need to be adequately trained and equipment needs to be maintained. Systems to record and provide reports on the results of all inspections—both resultant and non-resultant linked to risk management/targeting systems—are required. While a small percentage of consignments should be randomly selected for inspection to gauge overall compliance levels, untargeted random inspections should be the exception to decrease the burden to legitimate trade.
Customs detector dogs (K9 units) are widely deployed throughout the world and have proven to be effective in virtually all modes—passenger processing, cargo inspections, postal and express consignment, and vessel and vehicle searches—and for the detection of various types of goods. Also, one dog can be trained for the detection of more types of goods (explosives, narcotics, currency, and so on). In addition to their operational roles, they provide very effective public relations services. However, detector dog programs are expensive to maintain, require specialized and ongoing training for both the dogs and handlers, and require frequent down time. They require careful management and oversight to ensure that effective levels of performance are maintained.
Customs officers and mobile antismuggling teams require a variety of portable contraband detection kits including digital camera/video recorders, laser range finders, Video Scope (fiber scope), Buster Contraband Detector units (for scanning concealed spaces for potential contraband), flashlights, inspection probes, field drug test kits, extendable mirrors with lights, night vision goggles, drones, and basic inspection tools (screwdrivers, crowbars, wrenches, wire cutters, and so on). These tools make physical inspections faster, more reliable, and less intrusive and enable officers to carry out their inspections in a professional manner.
Risk-Based Deployment
Decisions on the types, numbers, and location of contraband detection technologies require careful consideration given their costs and operational requirements, particularly large container and vehicle scanners, which can cost large sums to purchase and operate. The administration must clearly articulate the nature and extent of risks the technologies are intended to address, the operating environment in which they are to be deployed, and the level of investment to be made. Are they intended to address revenue risks (undeclared or mis-described cargo), illicit contraband (narcotics, illegal firearms, weapons of mass destruction, and so on), environmental threats (endangered species, toxic waste), and/or strategic exports controls? In which modes are they most likely to be effective? Is there a need for mobile scanners? Are they needed for import or export controls or both? The answers to these questions will inform the decision-making process.
Operations
Scanners, in particular large vehicle and container scanners, should be linked to a targeting system to ensure that inspections are not entirely random or untargeted. There are many targeting systems in operation, and more administrations are establishing direct links between these systems and the scanners. Targets are being sent directly to the scanner operating system, and the outcomes of targeted scans (both resultant and non-resultant) are reported back through the system.
Reporting systems should be in place for all contraband detection technologies to provide information on their use and the results achieved. This information is essential to ensure the equipment is properly utilized, addressing identified risks and producing results. Informed decisions can be made on the deployment (or redeployment) and operation of the technologies and, where problems exist, on corrective measures to take.
Keys to Successful Deployment of Contraband Detection Technologies (CDTs)
Base deployment of CDTs on assessments of risk/threats (cost/benefit analyses)
Integrate CDT into enforcement strategy
Minimize random cargo/container inspections—link directly to risk-based targeting systems
Provide operating staff with appropriate training in use of the CDT
Establish reporting systems to record activities and results
Ensure inspection charges are reasonable
Provide operating staff with adequate inspection tools and devices
Establish management oversight and monitoring mechanisms
Appendix L Example of an Outline of a Developing Country’s Customs Administration Enforcement Strategy
A. Overview
Objective
Development of a medium-term enforcement strategy (covering three to five years) to improve the effectiveness of enforcement operations through developing professional capacity and strengthening operational effectiveness based on risk management principles and use of customs intelligence.
Scope
The strategy covers all enforcement and compliance verification activities including antismuggling, intelligence and analysis, interagency and international cooperation, investigations, marine patrols, risk management, post-clearance audit, contraband detection equipment, and ICT development.
Outcomes
Improved capacity of customs staff, improved professionalism
Increased enforcement results (additional revenue, number of cases, contraband seizures and so on)—note that lower results can signal better compliance
Improved levels of voluntary compliance (deterrence)
Provision of essential enforcement tools and equipment (vehicles, vessels, and so on)
B. Strategy Outline
Introduction
Statement (preface) by the director general
Purpose and scope of the enforcement strategy
Current developments in the domestic economy and trade flows
International context (smuggling, security/antiterrorism, and so on)
Brief outline of the contents of the strategy and its implementation
Legal and Institutional Framework
Legal framework (mandate, powers and authorities)
Customs legislation–legal authorities for enforcement
Other relevant national laws and regulations
International commitments and obligations
Relevant government policies and programs
Economic development, trade policies, and so on
Government fiscal plans (for example, revenue mobilization strategies)
Drug control policies and programs
Other (IPR, CITES, and so on)
Customs administration’s strategic objectives and reform and modernization strategies
Assessment of Existing Customs Enforcement Programs
A review of current enforcement strategies, programs, capacities, and organization, including identification of strengths and areas in need of improvement in the enforcement operations.
a. Current enforcement organization and programs
Mandate, roles and responsibilities of the enforcement organization
Organizational structures (including resources assigned to enforcement (by function and location)
Existing action plans/strategies
Inventory of tools and equipment (vehicles, equipment, IT capacities, and so on)
Interagency/international cooperation
b. Review and analysis of enforcement results (historical data)
Analysis of enforcement actions (number of cases, types of goods seized (illicit drugs, contraband, revenue—vehicles and so on) by locations, modes (past three to five years), penalty assessments, revenue generated, prosecutions, and so on.
c. Assessment of strengths, weaknesses, opportunities, and threats (SWOT analysis)
A SWOT analysis is a planning tool used in the development of a strategic or business plan and is generally carried out in the early stages of the plan development as part of an environmental scan exercise in which an examination is undertaken of the internal and external factors that influence the organization and its plans.
Threat Assessment
This section identifies and analyzes current and emerging smuggling and other enforcement threats (commercial fraud, smuggling, illicit drugs, the Washington Convention on Controlling International Trade in Endangered Species of Wild Flora and Fauna [CITES], Intellectual Property Rights, security/terrorism, WMD, export control of strategically sensitive goods, and so on). It provides a basis upon which to develop the enforcement strategy priorities.
A structured risk analysis process identifies and rates all potential risks and threats faced by customs. It takes into account past results and enforcement data and analysis as well as input from officials based on intelligence, experience, trends and the current situation.
Threats are identified in as much specific detail as possible (specific commodities, locations, sources, modus operandi, groups or individuals involved, estimated revenue losses, and so on).
The threat assessment also includes an assessment of customs’ existing capacities and vulnerabilities in terms of resources, physical tools, and equipment, including IT, staff capacities, weaknesses in control systems—border clearance, post-clearance verification—fraud investigation, and so on (based in part on the preceding SWOT exercise).
Enforcement Policy and Guiding Principles
⋆Customs Enforcement Policy Statement
“The customs administration will manage its operations to do the following:
Support the goals and objectives of government
Protect the revenue and the borders of the country
Ensure that revenue collection and enforcement goals are accomplished in a fair, equitable and transparent manner with due regard for the rights of its clients and of the citizens
Achieve compliance through a mix of measures to facilitate voluntary compliance and enforcement measures to deter, detect and penalize intentional noncompliance”
(Specific policies can be included here for antismuggling and so on.)
⋆Enforcement Guiding Principles
This section outlines the fundamental principles that will guide the development and implementation of the enforcement strategy. They set the ground rules for all initiatives and operations proposed in the strategy as well as providing a framework for assessing any new proposals or initiatives. For example:
Voluntary compliance and effective enforcement are complementary
Customs legislation that provides adequate enforcement powers and authorities
An organizational culture of risk management
An effective penalty regime that supports enforcement and sanctions illegal activities
Interagency cooperation and coordination
Well-trained professional customs enforcement officers
An objective, transparent appeal system
An effective use of ICT and contraband detection technology
Enforcement is every customs officer’s business
Customs enforcement practices comply with international best practice and standards
Enforcement Objectives and Priorities
This section includes high-level objectives of the enforcement strategy that respond to the assessed threats and risks identified previously to the assessment of the existing enforcement organization and its performance identified as well as taking into account the priorities and direction of the government. Specific results-oriented and measurable goals and high-level performance indicators are set out in this section.
Action Plans
Detailed action plans to implement the strategic objectives, priorities, and goals identified in the strategy are included here. Action plans should include specific actions, time frames for completion, results to be achieved, and performance measurement criteria with assigned responsibilities. A standardized project planning format is used to facilitate monitoring and evaluation of progress.
Regular progress reports are prepared as part of the planning evaluation process and incorporated into the management reports. The strategy and plans are reviewed and updated as needed to reflect changing conditions and threats on an annual basis.
Index
Boxes, figures, notes, and tables are indicated by b, f, n, and t following the page number.
A
accountability, 73, 75–76, 101–102, 112
Acosta-Ormaechea, Santiago, 40n13, 41n16
Addis Ababa Program of Action, 1
administrative burden reduction strategies, 117–120, 118b, 204n3, 205n4
advanced economies
customs enforcement powers in, 179, 180f
pre-arrival electronic data and, 152, 152f
revenue collections in, 9, 9f
risk management application in, 133, 134f
tariff averages in, 7, 7t
tax administration data shared with customs, 162, 162f
TIN and e-signature use in, 151, 151f
advance rulings, 102, 104–106
Agenda 2030, 1
Andean Community, 124
annual audit plans, 161–162, 163b
antidumping measures, 13, 40
antismuggling enforcement. See customs enforcement
appeals processes, 69, 105–106, 112–113, 184–185
artificial intelligence (AI)
administrative burden reduction and, 119
for data usage optimization, 246
digitalization of customs administration and, 220, 223–225, 223n28, 224f
pre-arrival control and, 153b
risk cluster identification and, 172
scanned image analytics and, 225, 225n32
Arusha Declaration on Integrity in Customs (WCO), 80, 91, 101–102
assessment methodology for economic operators, 168–170, 169–170t, 250–253, 250–251t, 253f, 253t
Association of Southeast Asian Nations (ASEAN), 10
ASYCUDA World, 119, 204n3, 205n4
audits. See post-clearance audits
augmented reality (AR), 232–233
Australia
Japan-Australia Economic Partnership Agreement, 55n37
modernization of customs administration in, 72b
authorized economic operators (AEOs)
compliance history components of, 247–249t
customs enforcement and, 188
defined, 36n6
integrated risk management and, 140b, 150–151, 151b, 151f
for international supermarket chains, 36
mutual recognition agreements and, 124
national security and, 18–19, 19n12
prior actions for, 150, 151n9
segmentation and assessment methodology, 168–170, 169–170t, 250–253, 250–251t, 253f, 253t
trade facilitation and, 109–112
automated contents verification (ACV), 226–227
automated threat detection (ATD), 226–227
B
back-end operations, 211–212
BACUDA (BAnd of CUstoms Data Analysts) of WCO, 222n27
The Bahamas, customs enforcement in, 176, 176n1
Bangladesh, tariffs in, 53n33
banking sector
customs–bank cooperation and, 62
letters of credit and, 36, 37b
Barbados, modernization of customs administration in, 67–68
base erosion, 52
Basel Convention, 15
Belize, trusted trader program in, 110
Benin, customs–tax cooperation and, 212
Bernard, Danielle, 95
big data, 153b, 213–214, 221–224, 224f
bilateral trade agreements, 22, 81–82
bill of lading (B/L), 36, 37b, 62
black market, size estimates for, 45b, 45n20
blockchain, 25, 231–232, 231nn42–44
blue lane, 124
bonded transit transportation, 35
bonded warehouses, 102, 227
border management
cooperative arrangements for, 57, 76–77, 181–182, 181n4, 182n7
joint border controls for, 124
security and, 2, 15–19, 55n36, 76–77, 225, 242
transparency and, 87
bottlenecks
administrative, 22, 114
of customs data, 166b
time-release studies for, 126
Brazil
digitalization of customs administration in, 223n28
e-invoice program in, 154
trade facilitation in, 114
Bremeersch, Christian, 5
BRS Conventions, 15
Brussels Definition of Value (BVD), 60
build-operate-transfer public-private partnerships (BTO-PPPs), 215–216, 215n18, 228
Bulgaria, modernization of customs administration in, 72b
business continuity plans (BCPs), 92–93, 93b
business process automation, 228–229
business process reengineering (BPR), 114
C
Cambodia
customs enforcement in, 176, 176n1
customs–tax cooperation and, 212
modernization of customs administration in, 71, 77n3
Capability Maturity Model Integration (CMMI) of Software Engineering Institute, 205n6
capacity building development cycle, 73 carbon taxes, 15, 48–51
cargo
bonded transit transportation of, 35 bonded warehouses for, 102, 227
diversion risks and, 35, 42, 227
inspections of. See inspections
management of, 153–154, 207, 215
misclassifications of. See cargo misclassifications and undervaluations
pre-arrival clearance protocols for, 119– 120, 150–152, 151–152f, 152–153b
release of. See cargo release
selectivity criteria and. See selectivity criteria
targeting and. See cargo targeting
traceability of. See cargo traceability
cargo misclassifications and undervaluations
artificial intelligence and, 223
compliance risks and, 146b customs enforcement and, 197
exports and, 158
risk cluster identification and, 171
sensitive or difficult to classify goods and, 157b, 157n13, 254
single-window portals and, 116
tax evasion and, 98
cargo release. See also green channel
administrative burden reduction and, 119–120
coordinated interagency inspections for, 117
fairness in, 105
integrated risk management and, 157b
pre-arrival controls and, 152
trade facilitation and, 127
cargo targeting. See also inspections; selectivity criteria
data optimization and, 141
international cooperation for, 82
national targeting centers for, 190–191, 190n12
post-clearance audits and, 61
pre-arrival clearance and, 150–152, 152–153b
cargo traceability
carbon border taxes and, 50–51
electronic data exchanges and, 205
excisable items and, 46–47, 46n22
free zones and, 12, 59
integrated risk management and, 132, 153–154, 154b
tax evasion estimates and, 44b
tracking devices for, 123–124, 227–228
transport patterns and, 34
Caribbean Community and Common
Market (CARICOM), 68
CBEZs (cross-border economic zones), 57, 57n40
CCP (Container Control Programme), 17
CDTs (contraband detection technologies), 186, 192, 274–275
C-efficiency, 43, 45–46, 46f
CEMAC (Economic and Monetary
Community of Central Africa), 10
Central America. See also specific countries
administrative burden reduction in, 118
regional transit of goods and, 123–124
trade facilitation in, 120–121
Central American Integration, 124
China
data volume increases in, 221n26
SEZs in, 57n41
United States, trade tensions with, 23–24
CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora), 17–18, 122
Clark, R. James, 95
climate change, 15
cloud computing, 220–221, 229–230, 230n39
CMAAs (customs mutual assistance agreements), 62, 62n51, 81, 121
CMMI (Capability Maturity Model Integration) of Software Engineering Institute, 205n6
CMSs (customs management systems), 206
cognitive robotic process automation (CRPA) bots, 229
collaboration. See cooperation and collaboration
Common Market for Eastern and Southern Africa (COMESA), 10
competitiveness
compliance risks and, 143
customs regulations supporting, 11–12, 175, 181
integrated risk management and, 131, 143
transparency of customs procedures and, 87
VAT and, 38, 40
compliance. See also authorized economic operators; post-clearance audits; trusted trader programs
carbon border taxes and, 50
consumer protection and, 16
customs enforcement and, 177, 177b, 183
customs–tax cooperation and, 78–79
customs valuation controls and, 62
data analytics and mining, 218, 218n23
data sharing and, 26
foreign trade statistics and, 14
integrated risk management and, 143, 168
international standards and mutual recognition for, 25
key performance indicators for, 237–238
lack of, VAT collection and, 41–45
modernization of customs
administration and, 126–127
monitoring for, 150
post-clearance audits and, 160–161
publications access and, 102
transparency and, 100–101, 104
compliance gap, 43, 45, 46f
compliance histories, 109, 111, 119, 168, 184, 247–249t
compliance risks, 26, 143, 146, 146–147b
confidentiality. See data privacy and protection
conflict-affected states. See fragile and conflict-affected states
consignment criteria, 59n46
consumer protection. See environmental and health protection
consumption taxes, 40n13
contact centers, 102–104, 104f, 229
container codes, 245, 245n2
Container Control Programme (CCP), 17
continuity planning, 92–93, 93b contraband detection technologies (CDTs), 186, 192, 274–275
Convention on Facilitation of International Maritime Traffic (International Maritime Organization), 77
Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), 17–18, 122
cooperation and collaboration. See also customs–tax cooperation; data sharing
for border management, 57, 76–77, 181–182, 181n4, 182n7
compliance facilitation and, 177b for customs enforcement, 180–184, 191–193
customs-to-customs, 62, 80–82, 117
interagency inspections, 116–117
international, 80–82
mutual recognition agreements for, 111–112, 124
for regional transit of goods, 122–124
silo mentality and, 208–209, 208n9, 209n10
for trade facilitation, 107–109, 108f
core value training, 88–89
corporate functions, 85
corporate income tax, 36, 52, 59, 183n8
corruption
appeals processes to reduce, 112, 185
breaches of data privacy and, 212n13
coordinated border management to reduce, 77
customs–private sector engagement and, 80
digitalization and, 205, 207
integrity management framework and, 90–91, 91b
penalty application and, 184
professional customs staff and, 185
single-window platforms and, 116
Costa Rica
administrative burden reduction strategies in, 118
guidance documents, access to, 104–105
counterfeit products, 12, 16
counterterrorism, 18–19, 225
country of origin. See origin rules
COVID-19 pandemic
administrative burden reduction strategies and, 119
cloud computing use and, 230
continuity planning and, 92, 93b cost of, 1
customs–private sector engagement and, 80
digitalization and, 203, 207
e-commerce, increase in, 36
economic reforms and, 22
international trade decrease and, 7
slowbalization and deglobalization, 21, 21n14
trade facilitation challenges and, 98–99
Crandall, William, 241
criminal investigations and prosecutions, 179, 193, 242, 263, 267–268
Cross-Border E-Commerce Framework of Standards (WTO), 23
cross-border economic zones (CBEZs), 57, 57n40
cross-border shopping, 42, 42n17
CRPA (cognitive robotic process automation) bots, 229
cultural heritage goods, 18
customer service, 102–104, 104f, 229
customs administration, 2, 5–31
competitiveness, support for, 11–12, 175
crime and. See criminal investigations and prosecutions; organized crime
data collection and, 26. See also data collection
digitalization of, 25. See also digitalization
disruptive technologies and, 218–233. See also disruptive technologies
domestic tax collection and, 8–9, 8–9f. See also tax administration
enforcement of, 175–202. See also customs enforcement
foreign trade statistics production and, 14–15
foundations of, 2–3, 67–94. See also customs administration foundations
in fragile and conflict-affected states, 26–27, 27b. See also fragile and conflict-affected states
global framework for, 23–25, 24b illegal trafficking and, 16–18, 17t. See also illegal trafficking
intelligence gathering and, 19, 189–190, 195, 268–270
international institutions’ role in, 27–29, 28t international trade patterns and, 21–23
modernization of, 1–2
national security and counterterrorism, 18–19, 19n12, 225
organizational structure. See organizational structure for customs
risk management and, 19–20, 131–173. See also integrated risk management
slower trade growth and, 5–7, 6f
staff. See customs staff; training of customs staff
standards and regulations application, 15–16. See also legal and regulatory frameworks
tariffs and, 7–8, 7t. See also tariffs
trade and tax policies’ effect on, 33–65. See also trade and tax policies
trade defensive measures and, 13–14
trade facilitation and, 12–13, 95–129. See also trade facilitation
trade policy implementation and, 10–11, 11t
customs administration foundations, 2–3, 67–94
border management and, 75–76
business continuity planning and, 92–93, 93b
governance and accountability, 75–76
integrity management framework and, 90–91, 91b
international cooperation and, 80–82
key performance indicators and, 73–75. See also key performance indicators
legal and regulatory framework, 86–87
modernization program and, 68–69, 69b
organizational structure and, 82–86, 83b, 243–244
policy and program development, 86
political commitment and, 67–68
private sector engagement and, 80
strategic planning and, 70–73, 72b
tax cooperation and, 77–79, 241–242
transparent and predictable procedures, 87
workforce and, 87–89, 89–90b. See also customs staff
customs–bank cooperation, 62
Customs Blueprints of EU, 235n1
customs clearance. See also cargo release
audits of. See post-clearance audits
back-end operations, disconnect with, 211–212
customs valuation and, 61
digitalization and, 119, 204n3, 205–209, 205n4, 214–216
documents required for, 36
expedited. See authorized economic operators; trusted trader programs
fees for, 215–216, 216nn19–20
green channel for. See green channel integrated risk management and, 155–157, 155–156t, 156–157b
key performance indicators for, 73, 236–237
pre-arrival protocols for, 119–120, 150–152, 151–152f, 152–153b
tax evasion and, 44b
trade facilitation and. See trade facilitation
transport patterns and, 33–35
Customs Convention on International Transport of Goods Under Cover of TIR Carnets (TIR Convention, 1975), 122
customs enforcement, 3, 175–202
antismuggling teams and, 193–194, 266–267
appeal mechanisms for, 184–185
challenges in, 175–176
contraband detection technologies and, 186, 192, 274–275
criminal investigations and prosecutions, 179, 193, 242, 263, 267–268
customs intelligence capacity and, 268–270
field intelligence operations and, 195
field operations and, 194
headquarters functions for, 188–190
ICT systems for, 186, 192–193
interagency cooperation and coordination for, 180–184, 192
interagency risk management and, 191–192
international standards and best practices, 187
joint forces operations for, 195
key performance indicators for, 239
marine patrols for, 195, 272–273
national targeting centers and, 190–191
officers and staff, 185–190
operational performance management
system for, 199–201, 200b
organization of, 187–188
penalty regime to support, 184, 263, 264–265t
post-clearance audits and, 193–194, 270–272
power and authorities for, 179, 180f
principles of, 176
risk management and, 178
strategy development for, 196–199, 198–199b, 276–279
technologies for, 201
voluntary compliance and, 177, 177b
customs environment, 70–71
customs escort services, 35, 123
Customs Financial Intelligence
Cooperation Handbook (Egmont Group & WCO), 159
customs intelligence, 19, 189–190, 195, 268–270
customs management systems (CMSs), 206
customs mutual assistance agreements (CMAAs), 62, 62n51, 81, 121
customs processes, 19–20. See also integrated risk management; simplification of customs processes
customs staff
antismuggling teams, 193–194, 266–267
artificial intelligence and, 225
corrupt practices of. See corruption customs enforcement and, 185–190
data analytics and, 222
data protection and privacy, 213
enterprise-level management support and, 209–211
field operations, 193–195
human resources management and, 87–89, 89–90b, 145b, 149b, 239–240
integrity management and, 90–91, 91b
professionalization of workforce and, 75
staff appraisal management, 75
training of. See training of customs staff
customs–tax cooperation
benefits of, 51–52
carbon border taxes and, 51
customs enforcement and, 182–184
data sharing and, 79, 212, 242
digitalization and, 212
integrated risk management and, 159, 161–162, 162f
issues in, 241–242
modernization of customs
administration and, 77–79
VAT and, 42, 46
customs-to-customs cooperation, 62, 62n50, 80–82, 117
customs unions, 10, 10n3, 11t
customs valuation. See also cargo misclassifications and undervaluations
C-efficiency and, 45, 45n21
customs enforcement and, 183, 183n8
import declarations and value-added tax, 41–42
integrated risk management and, 146b
overvaluation of goods and, 146b, 183n8
pre-declarations for, 208
seller–buyer relationship and, 36
undervaluation of goods. See undervaluation of goods
valuation controls, 60–62
valuation rules, 8, 60, 60n47, 140b
Customs Valuation Agreement (VAL) of WTO, 60, 60n48, 121
D
Daly, Michael, 33
dangerous goods, 16
data
analysis of. See data analytics anonymization of, 214
cleansing process for, 166–167
collection of. See data collection
dictionaries of, 141, 141n4
entry accuracy for, 229, 231
leaks of, 213
linkage of, 167
optimization of, 140–141
privacy and. See data privacy and protection
quality of, 222
reconciliation of, 211–212
sharing. See data sharing
storage of, 214, 222–223, 226, 229–230
validation and verification of, 245
data analytics
big data and, 153b, 213–214, 221–224, 224f
culture of, 178
defined, 222
disruptive technologies and, 221–223
key performance indicators and, 74
machine learning and, 223
open data initiatives and, 218, 218n23
risk management and, 190
scanned image analytics and, 225–227
data collection
customs enforcement and, 186, 195, 198b
customs trends and, 26
digitalization and, 220
disruptive technologies and, 221–223
on foregone revenue, 58
foreign trade statistics and, 14–15
integrated risk management and, 165–172, 166–167b, 245–249
for key performance indicators, 74
mirror analysis to detect fraud and, 43, 43n19
post-audit clearance and, 161
for pre-arrival control, 152, 152f
transshipment and cargo traceability, 34
data privacy and protection
breaches of, 212n13
cloud computing and, 230, 230n39
data optimization and, 141
laws on, 121, 212–213, 230, 230n41
data sharing
customs administration and, 26
customs enforcement and, 181, 183, 218
customs–tax cooperation and, 79, 212, 242
customs-to-customs cooperation and, 62, 62n50, 80–82, 117
electronic data exchanges for, 205
eTIR system and, 123
trade facilitation and, 121
DCMM (Digital Customs Maturity Model), 205–206, 205n6, 206f
debt collection, 242
decision trees, 170, 257–259, 257t, 258f, 259t declaration data, 14–15, 26, 140b
Declaration of the Customs Co-operation Council (WCO), 101–102
de minimis value, 23, 38, 42
departmentalization, 208–209, 208n9
descriptive analysis, 222
developing countries
customs enforcement strategy example for, 276–279
customs escort services and, 123
data sharing and, 26
digitalization and, 25, 205, 205n4, 207
exempted goods in, 12
import tariffs and, 47
natural resources exports of, 14
post-clearance audits and, 107
risk management and compliance systems in, 126
SEZs in, 57
tariff rates in, 54
trade costs in, 96
Trade Facilitation Agreement of WTO and, 13
trade facilitation in, 98, 111
trade mispricing and tax revenue loss in, 52n30
value-added tax and, 8
diagnostic analysis, 222
Digital Customs Maturity Model (DCMM), 205–206, 205n6, 206f
digitalization, 3, 203–234
big data processing and, 213–214
customs clearance vs. back-end operations and, 211–212
data privacy and protection, 212–213
defined, 204n2
digitization vs., 204–206, 206f, 214–215
disruptive technologies and, 218–233. See also disruptive technologies
governance and financing of, 215–216
ICT design and management issues, 214–215
management support for, 209–211
opportunities and challenges provided by, 203–204
organizational reform and modernization, 216–218
persistent manual procedures, 207–208, 208f
revenue collection on e-commerce and, 38, 38n7
silo mentality and, 208–209
trends in customs administration and, 25
Digital Maturity Model (Google), 205n6
direct authority, 188
discretionary selection for inspections, 157b, 169
disruptive technologies, 218–232
applications of, 220
artificial intelligence and, 223–225, 224f
augmented and virtual reality, 232–233
blockchain and, 231–232
cloud computing and, 229–230
data analytics and, 221–223
defined, 218
features of, 218–219, 219t fragile states and, 220–221
robotic process automation and, 228–229
scanned image analytics and, 225–227, 226f
tracking devices and, 227–228
dogs for contraband detection, 274
domestic legislation, 15
domestic tax collection, 8–9, 8–9f
domestic transfer pricing, 52
drug trafficking, 17, 17t, 23. See also illegal trafficking
dry ports, 35
dual-use goods, 19, 158
DUCA (Single Central American Customs Declaration), 120
Duchesneau, Hubert, 67
E
EA (enterprise architecture), 217
East African Community (EAC), 111, 228n37
e-commerce
border security and, 225
as challenge for customs
administration, 22–23, 36–39
data volume increases and, 221
defined, 22n15
revenue collection on, 38, 38n7
value of, 22
Economic and Monetary Community of Central Africa (CEMAC), 10
e-forms, 140b
EFTA (European Free Trade Association), 120
Egmont Group, 159
e-invoice programs, 154
electronic cargo tracking system (ECTS), 227–228, 227n34, 228n37
electronic data exchanges, 205
electronic documents, 25
El Salvador, administrative burden reduction strategies in, 118
emerging market economies
customs enforcement powers in, 179, 180f
pre-arrival electronic data and, 152, 152f
revenue collections in, 9, 9f
risk management application in, 133, 134f
tariff averages in, 7, 7t
tax administration data shared with customs, 162, 162f
TIN and e-signature use in, 151, 151f
VAT collection in, 41
endangered species trade, 17–18, 122
end-use verification, 58
enforcement. See customs enforcement enquiry points, 102–104, 104f
enterprise architecture (EA), 217
enterprise resource planning (ERP), 206, 206n7, 209–211
environmental and health protection
carbon taxes and, 15, 48–51
climate change and, 15
excises and, 46
hazardous materials, 16
neglect of, revenue collection focus and, 242
ozone-depleting substances, 15
quality standards and customs administration, 16
e-signatures, 140b, 151, 151f
European Free Trade Association (EFTA), 120
European Port Community Association, 120
European Union (EU). See also specific countries
candidate countries and border controls, 55n36
carbon border tax and, 48–49, 49n28
climate change and, 15
Customs Blueprints of, 235n1
data privacy and protection laws in, 212–213, 230, 230n41
e-commerce revenue collection in, 38, 38n9
Import Control System, 18
Intellectual Property Office, 12
intra-RTA trade in, 10
joint border stations in, 182n7
New Computerized Transit System, 123
Partnership and Co-operation Agreements, 81
undervaluation of imports and revenue loss, 61n49
European Union Customs Business Process Model (EU BPM), 115
excise taxes, 8, 44b, 46–47, 183, 228
exempted goods, 12, 42, 56, 163–164, 164b. See also special economic zones
expert advice, 105–106
expert examination and sampling of exports, 159
exports
integrated risk management and, 158–159
VAT refunds and, 42–43, 43n18, 51, 183
verification of, 43, 43n18
extractive industries, 159
Extractive Industries Transparency Initiative, 14n7
F
face-vetting, 207
facial recognition software, 224
fairness provisions, 105
field operations, 194–195
Financial Intelligence Units (FIUs), 159
fines. See penalties and sanctions
foregone revenue, 12, 58, 164. See also exempted goods
foreign direct investment (FDI), 56
foreign trade statistics, 14–15
forged country of origin, 50, 55, 55n37, 146–147b, 197
fragile and conflict-affected states (FCS)
appeals processes and, 185
banking sectors of, 36
customs enforcement and, 187
customs importance in, 26–27, 27n19
disruptive technologies and, 220–221
strengthening customs administration in, 27b
Framework of Principles and Practices on Customs Professionalism of WCO, 88n11
France, digital services tax in, 24
fraud
blockchain technology and, 231–232
carbon taxes and forged country of origin, 50
compliance management and, 62
Custom Mutual Assistance Agreements and, 121
defined, 146, 146n5
digitalization and, 220
e-commerce and, 23
exempted goods and, 56, 164, 164b
export VAT refunds and, 42–43, 43n18, 183
forged country of origin and, 50, 55, 55n37, 146–147b, 197
identity theft and, 151
integrated risk management and, 139, 146
investigations of, 193, 267–268
machine learning for, 223
mirror analysis to detect, 43
money laundering and, 12, 17, 52, 154, 158
penalties for, 263, 265t prevention of. See customs enforcement risk cluster identification and, 170–172, 171f, 260–262
single-window platform initiatives and, 116
Strategic Anti-Fraud Program of WCO, 19
free trade areas, 10, 10nn2–3
free zones (FZs). See special economic zones
functional authority, 188
G
gap analysis, 43
garbology, 44b
Gemmell, Norman, 40n13
General Agreement on Tariffs and Trade (GATT), 12–13, 40, 216, 216nn19–20
General Agreement on Trade in Services (GATS), 40
Generalized System of Preferences (GSP), 11, 53b, 53n32, 59n45
global financial crisis (2008–10), 5–6
Global Risk Index (GRI), 169–171, 252
global risk indicator, 161n16
Global Survey on Digital and Sustainable Trade Facilitation (UN), 97
global value chains (GVCs), 35, 40, 56
goods/service mixtures, 39–40
Google, 205n6
government resource planning (GRP), 210
GPS (global positioning system), 123, 227–228
green channel. See also authorized economic operators; trusted trader programs
compliance history and, 119
customs enforcement and, 188
fairness in cargo release, 105
random checking of, 61
risk management systems and, 127, 207
gross domestic product (GDP)
black-market size and, 45b
informal market and, 45n20
tax-to-GDP ratio and growth, 48, 48n27, 49f
Guatemala
administrative burden reduction strategies in, 118
customs-to-customs cooperation in, 117
guidance documents, 102–103
gun sales, 18
H
Hammer, H., 214n14
harmonization of customs processes, 101, 113, 120–122
Harmonized Commodity Description and Coding System “Harmonized System”, 14–15, 14n8, 29
hazardous materials, 16
headquarters, role of, 84–85, 187–190
health protection. See environmental and
health protection
high-risk operators, 59, 99, 170, 170t, 190–191
Hollingshead, Ann, 52n30
Holloway, Stephen, 138
Honduras, modernization of customs administration in, 71
Hong Kong, manufacturing services imports in, 40n12
hub-and-spoke transport patterns, 34
human resources management, 87–89, 89–90b, 145b, 149b, 239–240. See also customs staff
human trafficking, 2, 19
I
IDB (Inter-American Development Bank), 123
identity theft, 151
illegal trafficking
antismuggling teams for, 193–194, 266–267
customs administration and, 16–18
data reconciliation and, 211–212
defined, 146, 146n6
of drugs, 17, 17t
e-commerce and, 23
during emergencies, 98
of endangered species, 17–18, 122
exports and, 158–159
fragile and conflict-affected states and, 26
of humans, 2, 19
integrated risk management and, 139, 147b
prevention of. See customs enforcement
rip-off modality and, 147b, 147n8
smuggled on-person goods, 2, 44b
traceability and excises, 47
Illicit Trade Report (WCO), 176
IMF. See International Monetary Fund
import tariffs, 47–48, 48n26, 48t, 49f
indirect taxes, 8
information and communications technologies (ICT). See digitalization; IT systems; technological improvements
information sharing. See data sharing infrastructure, integrated risk management and, 145b, 149b
inspections. See also selectivity criteria
AR and VR for, 232
contraband detection technologies for, 186, 192, 274–275
expert examination and sampling of exports, 159
interagency coordination for, 116–117
nonintrusive and X-ray scanners, 119, 186, 225–227, 225nn31–33, 226f, 274–275
risk management and, 133b, 157b, 169
institutional risks, 143
intangibles, 39–40
Integrated Framework for Trade-Related Technical Assistance, 29
integrated risk management (IRM), 3, 131–173
cargo management and, 153–154, 154b
compliance history and, 168, 247–249t
compliance risks and, 146–147b
customs clearance and, 155–156t, 155–157, 156–157b
customs core processes and, 132–137, 134f, 137–138f
customs enforcement and, 188
customs processes analysis and, 150
data for treatment strategies and, 165
data usage optimization and, 140–141, 165–172, 166–167b, 245–249
exports and, 158–159
indicator-based decision trees and, 170, 257–259, 257t, 258f, 259t
institutional and compliance risk, 143, 144–145b
knowledge of environment and, 139
myths vs. realities in, 133b
operational functioning and, 145–147, 148–149b
post-clearance audits and, 160–164, 162f, 163–164b
preventive focus of, 139, 140b
prior actions and, 150–152, 151–152f, 151–153b
risk cluster identification and, 170–172, 171f, 260–262
risk management committees and, 141–143, 142b
segmentation and assessment of operators and, 168–169, 169–170t, 250–251t, 250–253, 253f, 253t
sensitive goods identification and, 169–170, 170t, 254–255, 254–256t
strategic vision for, 138, 139b
technology adoption and, 140
integrity management framework, 90–91, 91b, 101, 240
intellectual property, 12, 16, 147b
intelligence gathering, 19, 189–190, 195, 268–270
interagency risk management, 191–192
Inter-American Development Bank (IDB), 123
inter-modalism, 225, 225n30
International Convention on Mutual Administrative Assistance in Customs Matters (WCO), 181, 181n6
international cooperation for customs enforcement, 181–182
International Goods in Transit (TIM), 123
international institutions, 27–28. See also specific institutions
internationally accepted definitions, weights, and measures, 121
International Maritime Organization, 77
International Monetary Fund (IMF)
COVID-19
pandemic and continuity planning, 92
COVID-19 pandemic and trade facilitation, 99
on customs–tax cooperation, 26n18, 241
fragile and conflict-affected states and, 27
international trade growth and, 27–28
regional capacity development centers and training programs, 2, 28–29, 28n20, 28t, 29n21
on special economic zones, 12n4
VAT, promotion of, 40
international standards. See also Trade Facilitation Agreement
coordinated border management and, 76–77
customs enforcement and, 187
customs modernization and, 99
data models and, 166n18
for e-commerce, 23
to enable legal and regulatory frameworks, 86
harmonization and, 101, 121–122
importance of, 25–27, 26b
trade facilitation and, 101–102
International Survey of Revenue Administrations (ISORA), 78, 78n5
International Survey on Customs Administrations (ISOCA)
on customs enforcement powers, 179, 180f
defined, 133n2
on electronic data from tax administrations, 162, 162f
on mandatory pre-arrival electronic data, 152f
on risk management trends, 133, 134f
on use of TIN and e-signatures, 151f
international trade growth, 5–7, 6f
international trade patterns, 21–23
international travel
cross-border shopping and, 42, 42n17
human trafficking and, 2, 19
personal items of travelers, 2, 38n8, 42, 42n17, 44b
Interpol, 18
intra-firm trade, 35–36
inventory management, 22
investigations. See criminal investigations and prosecutions
inward processing, 56, 58
IRM. See integrated risk management
ISOCA. See International Survey on Customs Administrations
ISORA (International Survey of Revenue Administrations), 78, 78n5
IT systems
for cargo targeting, 152
for cargo traceability, 153, 154b
customs enforcement and, 192–193
digitalization and silo mentality, 209
fragile states and, 220–221
as operational functioning weakness, 149b
post-clearance audits and, 163b
risk management and, 144b
selectivity rates and, 155–156, 155–156t
software for administrative burden reduction, 119, 204n3, 205n4
J
Japan
Great East Japan Earthquake, 21–22
Japan-Australia Economic Partnership
Agreement, 55n37
scanned image analytics in, 225n32
Johannesburg Convention (WCO), 181, 181n6
joint border controls, 124
joint border stations, 57, 182, 182n7
joint forces operations (JFOs), 181, 181n5, 195
Jordan
enterprise resource planning in, 206n7
SEZ in, 57n39
just-in-case inventory management, 22
just-in-time inventory management, 22
K
Keen, Michael, 7
key performance indicators (KPIs) customs clearance, 236–237
enforcement, 239
examples, 235–240
human resource management, 239–240
integrity, 240
modernization of customs administration and, 73–75
revenue collection, 235–236
risk management and compliance, 237–238
Kidd, Maureen, 241
K9 units, 274
Koh, Jonathan, 203
Kokoli, Robert, 47n25
L
landlocked countries, 20, 35, 98, 111
Laos, customs enforcement in, 176, 176n1
law enforcement agencies, 179, 182, 195, 269
LCs (letters of credit), 36, 37b, 62
leadership and management development, 89
leased goods, 21, 39
least developed countries
defined, 13n6
tariff rates in, 53b, 54
Trade Facilitation Agreement of WTO and, 13
trade facilitation and, 95, 95n1, 98
LeDrew, William, 175
legal and regulatory frameworks. See also trade and tax policies
appeals processes and, 184
cloud computing and, 230
customs enforcement and, 179, 180f, 213
customs programs and, 86
data privacy and protection, 212–213
enabling, 86–87
integrated risk management and, 144b, 148b, 157b
post-audit clearances and, 161
for protection and security, 15–16
regional transit of goods and, 123
simplification of trade formalities and, 113–114
letters of credit (LCs), 36, 37b, 62
line authority, 188
low-income countries
customs enforcement powers in, 179, 180f
customs revenue collection in, 47–48, 135
pre-arrival electronic data and, 152, 152f
revenue collections in, 9, 9f
risk management application in, 133, 134f
tariff averages in, 7, 7t
tax administration data shared with customs, 162, 162f
TIN and e-signature use in, 151, 151f
user fees in, 216
value-added tax and, 8–9, 41, 41n15
M
machine learning (ML), 223, 224f, 226–227
Madagascar, modernization of customs administration in, 71
Mann, Arthur J., 183
manual procedures, 74, 141, 204–205, 207–208, 208f
manufacturing processes, 40
marine patrol units, 195, 272–273
marine pollution, 15
market intelligence, 44b
market price and valuation rules, 60–61, 60n47
market research, 44b
Matsudaira, Tadatsugu, 33, 203
memoranda of understanding (MOUs), 78, 121, 181, 192, 195
MERCOSUR (Southern Common Market), 10, 124
Mexico
e-invoice program in, 154
United States, customs cooperation with, 82
MFN (most favored nation) status, 47, 53–54, 216n20
migration. See human trafficking; international travel
minimum price database, 60–61
mirror analysis of trade statistics, 43, 45b
misclassifications. See cargo misclassifications and undervaluations
mission statements, 72, 72b
mixed goods, 39–40
ML (machine learning), 223, 224f, 226–227
MNEs (multinational enterprises), 52
mobile phones, 39–40
Model Bilateral Agreement on Mutual Assistance in Customs Matters (WCO), 181
modernization of customs administration. See also digitalization; IT systems; technological improvements
barriers to, 214–215
customs clearance and, 155–156
customs leadership and ownership of, 68–69
integrated risk management and, 140–141
international institutions and, 29
organizational reform and, 216–218
political commitment and, 67
risk management and compliance systems, 126–127
success factors in management of, 69b
technological improvements and, 216–218
urgency of, 1–2
money laundering, 12, 17, 52, 154, 158
monopolies, 216, 228n36
Montagnat-Rentier, Gilles, 5
Montreal Protocol (1987), 15
Mordor Intelligence, 23n16
Morozumi, Atsuyoshi, 41n16
most favored nation (MFN) status, 47, 53–54, 216n20
MOUs (memoranda of understanding), 78, 121, 181, 192, 195
multilateral trading system, 52–54, 53b
multinational enterprises (MNEs), 52
mutual recognition agreements, 111–112, 124
Myanmar, customs enforcement in, 176, 176n1
N
NAFTA (North American Free Trade Agreement), 10, 82
Nagy, János, 67, 175
national security, 18–19, 19n12, 225
national targeting centers (NTCs), 190–191, 190n12
national trade facilitation committees (NTFCs), 104, 109, 125–126
natural resources, 56, 159
Netherlands
scanned image analytics in, 225n32
VR use in customs training, 233n46
network analysis, 153b
New Zealand, integrated risk management in, 136–137
Nigeria, closure of land borders in, 24
non-tariff barriers, 61, 122
non-tariff measures (NTMs), 53b
non-tariff regulations, 147b
nuclear non-proliferation, 158
O
one-stop border posts (OSBPs), 57, 182, 182n7
open data initiatives, 218, 218n23
operational performance management systems (OPMS), 189, 189n11, 199–201, 200b
Organisation for Economic Co-operation and Development (OECD), 12, 113
organizational culture, 178
organizational structure for customs
digitalization and reform of, 216–218
examples, 243–244
field operations, 85
functional direction and
management, 84
government apparatus and, 83–84
headquarters, 84–85
overview, 82
principles of, 83b
professional support services, 85–86
organized crime, 19, 78, 158–159
origin rules
carbon taxes and, 50
certificate authenticity and, 231
consignment criteria, 59n46
forgeries of origin, 50, 55, 55n37, 146–147b, 197
preferential, 10–11
RTAs and, 54–55, 54nn34–35
secondhand goods and, 39
self-declarations, 55, 55n37
SEZs and, 59, 59n45
third-party certificates for, 50, 55
traceability and, 50–51
OSBPs (one-stop border posts), 57, 182, 182n7
outlet store surveys, 44b
overvaluation of goods, 146b, 183n8
P
Panamax-size ships, 34
pandemic. See COVID-19
pandemic PCAs. See post-clearance audits
PCS (Port Community Systems), 120
penalties and sanctions
appeals processes for, 69, 105–106, 112–113, 184–185
customs enforcement support and, 184
as deterrent to noncompliance, 62, 141, 150
legal framework for, 114–115
sample graduated regime for, 263, 264–265t
self-declaration of errors and waiver of, 110
pension programs, 78n6
Pérez Azcárraga, Augusto Azael, 131
performance management, 74–75, 241. See also key performance indicators
performance reporting, 74
personal use goods, 2, 38, 38n8, 42, 42n17, 44b
point-to-point transport patterns, 34
political commitment to customs
administration, 67–68. See also legal and regulatory frameworks
Pomerleau, Shuting, 49n28
Port Community Systems (PCS), 120
port congestion, 34–35
post-clearance audits (PCAs)
advance rulings and, 106
authorized economic operator applications and, 111
customs enforcement and, 193–194, 270–272
customs–tax cooperation and, 78
defined, 106
exports and risk management, 159
integrated risk management and, 141, 160–164, 162f, 163–164b
modernization of customs procedures and, 68
trade facilitation and, 106–107
valuation controls and, 61
PPPs (public-private partnerships), 215–216, 215n18, 228
pre-arrival clearance protocols, 119–120, 150–152, 151–152f, 152–153b
predictive analysis, 222
prescriptive analysis, 222
prior actions, 150–152, 151–152f, 151–153b
privacy. See data privacy and protection
private sector, 80, 133b. See also public-private partnerships
Private Sector Consultative Group (PSCG), 80
profit shifting, 36, 52, 59, 183n8
prohibited or restricted goods. See illegal trafficking
protectionism, 7, 21–22, 24, 40
publications for trade community, 102–105, 103t, 104f
public-private partnerships (PPPs), 215–216, 215n18, 228
push- and pull-type data exchange, 62, 62n50
R
radio-frequency identification (RFID) technology, 123–124, 227–228
random selection and inspection, 157b
raw materials, 56, 159
recourse, 112–113. See also appeals processes
red-tape reduction strategies, 117–120, 118b
reform of customs administration. See modernization of customs administration
regional capacity development centers (RCDCs), 28–29, 28n20, 28t, 29n21
regional trade agreements (RTAs)
customs administration and, 54–55, 54nn34–35
defined, 10
goods origin and carbon taxes, 50
increase in, 10
modernization programs and, 67
preferential origin status and, 15n9
SEZs and, 59n45
regional transit of goods, 122–124
resale of secondhand goods, 39
revenue collection key performance indicators, 235–236
revenue leakage, 42, 164b
Revised Arusha Declaration Concerning Good Governance and Integrity in Customs (WCO, 2003), 91
Revised Kyoto Convention (RKC), 29, 86, 97, 112, 121, 187
RFID (radio-frequency identification) technology, 123–124, 227–228
rip-off modality, 147b, 147n8
risk cluster identification, 170–172, 171f, 260–262
risk management. See also integrated risk management
administrative burden reduction and, 119–120
border management and, 77
contraband detection technologies and, 274
customs enforcement and, 178, 178n2, 183, 186, 189–193, 197, 198b
customs intelligence capacity and, 268–270
customs–tax cooperation and, 182–183, 242
digitalization and, 211, 218
key performance indicators for, 237–238
modernization of customs administration and, 70–71, 126–127
physical inspections and, 105
segmentation and assessment of operators and, 253, 254f
single-window platform initiatives and, 115
transit diversion risks and, 35, 42, 227
valuation controls and, 61
VAT exemption and diversion risk, 42
risk management committees (RMCs), 141–143, 142b, 189
risk profiling, 151, 156b, 156n12
RKC (Revised Kyoto Convention), 29, 86, 97, 112, 121, 187
robotic process automation (RPA), 228–229, 228n38
Rotterdam Convention, 15
RTAs. See regional trade agreements rules of origin. See origin rules
S
SAD (Single Administrative Document), 120
SAFE Framework of Standards, 18–19, 110, 112, 121
sampling of goods, 159
sanctions. See penalties and sanctions San Juan, Rossana, 131
scanned image analytics, 225–227, 226f
SDGs (Sustainable Development Goals), 1
SDV (source data verification), 217–218
sea transport, 34–35, 195, 272–273
secondhand items, 39
sectoral studies in audit planning, 163b
security. See also data privacy and protection; illegal trafficking
cross-border crime and, 19
customs cooperative arrangements for, 76–77
customs–tax cooperation and, 242
European Union and external border controls, 55n36
intelligence gathering and, 19
international travel and, 2
national security and counterterrorism, 18–19, 19n12, 225
standards and regulations application, 15–16
segmentation methodology for economic operators, 168–170, 169–170t, 250–253, 250–251t, 253f, 253t
selectivity criteria
carbon border taxes and, 50
customs clearance modernization and, 155, 155–156t, 156–157b
decision trees for, 170
risk management and, 61, 132, 133b, 141
segmentation and assessment methodology, 169
silo mentality and, 211, 211n11
valuation pre-declarations and, 208
VAT and, 42
self-declarations of errors, 110
of origin, 55, 55n37
sensitive goods identification, 157b, 157n13, 169–170, 170t, 254–255, 254–256t
service sector, 21, 39–41
Seychelles, business continuity planning in, 92–93
SEZs. See special economic zones sharing economy, 21
silo mentality, 208–209, 208n9, 211
simplification of customs processes, 113–122
administrative burden reduction and, 117–120, 118b
harmonization and standardization, 101, 113, 120–122
interagency inspections and, 116–117
legal framework for, 113–114
regional transit of goods and, 122–124
single-window platform initiatives and, 115–116
trade facilitation and, 100
trade formalities and, 113
Single Administrative Document (SAD), 120
Single Central American Customs Declaration (DUCA), 120
single-window platform initiatives
coordinated border management and, 76–77
customs enforcement and, 190
customs–tax cooperation and, 212
political support and, 68
risk management and, 140b, 178
trade facilitation and, 115–116
slowbalization, 21–22
small and medium enterprises (SMEs), 111
Small Arms and Light Weapons Project, 18
small value/expedited shipments, 36–39. See also e-commerce
smuggled goods. See illegal trafficking
social network monitoring, 17
social security programs, 78n6
Software Engineering Institute, 205n6
software for administrative burden reduction, 119, 204n3, 205n4
source data verification (SDV), 217–218
Southern Common Market (MERCOSUR), 10, 124
Spain, customs–tax cooperation in, 78
special economic zones (SEZs)
challenges for customs administration, 57–60
domestic transfer pricing and, 52
export VAT refunds and, 43
increase in, 12
tax preferences and, 56–57, 57n38
transshipment and processing, 34
special purpose vehicles (SPVs), 215, 215n16
staff. See customs staff; training of customs staff
standard international codes, 166n18
standardization of customs processes, 101–102, 120–121, 124. See also international standards
standard operating procedures (SOPs), 161
Stockholm Convention, 15
strategic planning, 70–73, 72b, 138, 139b
strengths, weaknesses, opportunities, and threats (SWOT) analyses, 70
subscription business models, 39–40, 39n11
subsidies, 48–49, 51
supply chains
continuity planning and, 92
digital monitoring of, 25
disruption risks to, 21–22
intra-firm trade and, 35
third-party certificates of origin and, 50
Sustainable Development Goals (SDGs), 1
T
tariffs
classification slippage, 42, 50, 146b
on imports, 47–48, 47n23, 48n26, 48t, 49f
multilateral trading system and, 52–54, 53b
as revenue source, 7–8, 7t
task forces, 181, 181n5
tax administration. See also customs–tax cooperation; trade and tax policies; value-added tax
carbon taxation and, 15
cooperative arrangements for, 77–79, 241–242
corporate income tax and, 36, 52, 59, 183n8
domestic tax collection and customs, 8–9, 8–9f
indirect taxes, 8
machine learning for fraud detection, 223
sustainable development and, 1
tax-to-GDP ratio and growth, 48, 48n27, 49f
withholding taxes and, 41, 41n14, 48n26
tax evasion, 43, 44b, 59, 98
taxpayer identification numbers (TINs), 150–151, 151f, 154, 182–183
technical barriers to trade (TBT), 122
Technical Barriers to Trade Agreement (WTO), 122
technological improvements. See also digitalization
administrative burden reduction strategies and, 118–119
cargo traceability and, 154b
contraband detection technologies, 186, 192, 274–275
customs enforcement and, 186, 192–193, 201
disruptive technologies and. See disruptive technologies
guidance documents, accessing, 102, 104–105
inspection services and, 119
integrated risk management and, 140
simplification of customs processes and, 113–114
single-window platform initiatives and, 115–116
terrorism, 18–19, 158, 225
TFSP (Trade Facilitation Support Program), 126
theft of goods, 228
third-party certificates of origin, 50, 55
threat assessments, 198–199b
3D printing, 23, 23n16, 40
TIM (International Goods in Transit), 123
TINs (taxpayer identification numbers), 150–151, 151f, 154, 182–183
TIR Convention (Customs Convention on International Transport of Goods Under Cover of TIR Carnets, 1975), 122
TiVA (trade in value added), 51
tokenization, 219n24, 219t
TPP (Trans-Pacific Partnership), 55n37
traceability. See cargo traceability
tracking devices, 123, 227–228
trade agreements, 22, 81–82. See also regional trade agreements; specific agreements by name
trade and tax policies, 2, 33–65
carbon border tax and, 48–51
customs–tax cooperation and, 51–52
excises and, 46–47
implementation of, 10–11, 11t
import tariffs, 47–48, 48t, 49f
inward processing and, 56
multilateral trading system and, 52–54, 53b
regional trade agreements and, 54–55
special economic zones and, 56–60
trade patterns and, 35–40, 37b
transport patterns and, 33–35
valuation controls and, 60–62
valuation rules and, 60
value-added tax and, 40–46, 46f
trade barriers, 21, 21n14, 95–96, 113, 116. See also CITES
non-tariff barriers, 61, 122
WTO Technical Barriers to Trade Agreement, 122
trade defensive measures, 13–14
trade facilitation, 3, 95–129
authorized economic operator programs and, 109–112
challenges of, 2
coordinated interagency inspections and, 116–117
customs administration and, 12–13
defined, 53b, 96, 99
expert advice, access to, 105–106
fairness provisions and, 105
harmonization and standardization, 120–124
legal framework and, 114–115
as non-revenue function of customs, 242
overview, 96, 96f
pillars of, 100–102
post-clearance audit and, 106–107
publications for traders, 102–105, 103t, 104f
recourse, access to, 112–113
red tape and administrative burden reduction, 117–120, 118b
regional transit of goods and, 122–124
roadmap for, 125–127
single-window platform initiatives, 115–116
stakeholder engagement and, 107–109, 108f
trade formalities, simplification of, 113–114
WTO trade facilitation agreement and, 97–100, 98f
Trade Facilitation Agreement (WTO)
appeals processes, 112
ascension into, 125–126
comment time for new laws, 115
customs brokers’ role, 105
developing countries and, 13
formalities and documentation
requirements of, 118b
guidance documents, availability of, 102
on guidance documents, availability of, 103t
modernization of customs administration and, 68
private sector consultations, 80
regulatory framework, 86
single-window platform initiatives, 115
status of, 97–100, 98f
training on, 29
trusted trader programs, 110
WTO members and, 24b
Trade Facilitation Agreement Facility (WTO), 98
Trade Facilitation Support Program (TFSP), 126
trade financing, 36, 37b, 62
trade formalities simplification, 113–114
trade in value added (TiVA), 51
trade liberalization, 7, 28, 52, 54, 63
trade patterns, 21–23, 35–40
data used to identify, 26, 221–223, 224f
integrated risk management and, 136
risk management and, 61
Trade-Related Aspects of Intellectual Property Rights (TRIPS), 16
trafficking. See illegal trafficking training of customs staff
antismuggling teams and, 266
in cargo release, 157b
in cargo targeting, 153b
in customs enforcement, 185–186
in customs intelligence, 269
in data science, 222
in fraud investigations, 268
human resources management and, 88–89
marine patrols and, 273
in post-clearance audits, 161, 271
simulations for, 232–233, 233n46
in software programs, 119
from WCO, 29, 153n10
training of trade community, 104. See also publications for trade community
transactional data, 212, 212n12
transfer pricing, 36, 52, 59, 183
transit corridors, 123
transit diversion risks, 35, 42, 227
Trans-Pacific Partnership (TPP), 55n37
transparency
appeal mechanisms and, 112–113, 184–185
legal framework for customs administration and, 87
of penalty and sanction regime, 263
published customs procedures for, 102, 104
trade facilitation and, 100–102, 122
transport patterns, 33–35
TRIPS (Trade-Related Aspects of Intellectual Property Rights), 16
trusted trader programs (TTPs), 68, 109–112, 188, 194
U
undeclared goods, 2, 44b, 171, 192
undervaluation of goods. See also cargo misclassifications and undervaluations
artificial intelligence and, 223
compliance risk and, 146b
customs enforcement and, 197
risk management and, 171
VAT taxes and, 45, 61n49, 183n8
unemployment, 21
unilateralism, 24
United Nations
Global Survey on Digital and Sustainable Trade Facilitation, 97
Trade Facilitation Implementation Guide, 100
United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT), 99
United Nations Conference on Trade and Development (UNCTAD), 10, 97, 99, 99n5, 118, 204n3
United Nations Economic and Social Council, 95n1
United Nations Economic Commission for Europe (UNECE), 99, 122
United Nations Environment Program, 15
United Nations International Convention on the Harmonization of Frontier Control of Goods, 77
United Nations Office on Drugs and Crime (UNODC), 17, 158
United Nations Trade Data Elements Directory (UNTDED), 166n18
United States
carbon border tax and, 48
China, trade tensions with, 23–24
Container Security Initiative, 18
counterterrorism, 18
Mexico, customs cooperation with, 82
user fees, 215–216, 216nn19–20
V
valuation. See customs valuation valuation controls, 60–62
valuation rules, 8, 60, 60n47, 140b
value-added tax (VAT)
customs administration and, 41–46, 41n16, 46f
customs enforcement and, 183
customs–tax cooperation and, 40–46, 46f, 52, 52n29
evasion of, 43, 44–45b
import tariffs and, 47–48, 47n23, 48n26
increase in use of, 8–9, 8f
revenue collection from, 9, 9f
revenue collection on e-commerce and, 38
tax policy evolution and, 40–41
valuation controls and, 61, 61n49
value chains, 21–22, 21n13, 35, 40, 51
value statements, 72, 72b
virtual reality (VR), 232–233, 233n46
vision statements, 72, 72b
W
Washington Convention, 17–18, 122
weapons, 18, 19, 158
Weerth, Carsten, 62n51
wholesale store surveys, 44b
Widdowson, David, 138
withholding taxes, 41, 41n14, 48n26
World Bank
modernization of customs administration and, 29
trade facilitation and, 97
user fee schedule of, 216
World Poverty Overview, 1
World Bank Group (WBG), 99, 126
World Customs Organization (WCO)
AEO Compendium of, 112
Arusha Declaration on Integrity in
Customs, 80, 101–102
BACUDA (BAnd of CUstoms Data Analysts), 222n27
border security and, 225
Container Control Programme of, 17
Cross-Border E-Commerce Framework of Standards of, 23
customs enforcement programs of, 18n11
Customs Financial Intelligence Cooperation Handbook, 159
Customs Valuation Agreement, 60, 60n48, 121
data model of, 166–167, 166n18
Declaration of the Customs Cooperation Council, 101–102
Digital Customs Maturity Model, 205–206, 205n6, 206f
foreign trade statistics and, 14
Framework of Principles and Practices on Customs Professionalism, 88n11
functions and contributions of, 24b
Harmonized System of, 14–15, 14n8, 29
Illicit Trade Report, 176
information exchanges between members of, 121
on intangibles, 39
International Convention on Mutual Administrative Assistance in Customs Matters, 181, 181n6
on location of customs administration within government, 83n10
Model Bilateral Agreement on Mutual Assistance in Customs Matters, 181
Model CMAA, 62n51
modernization initiatives, 29
Private Sector Consultative Group of, 80
revenue collection on e-commerce and, 38, 38n7
Revised Arusha Declaration Concerning Good Governance and Integrity in Customs, 91
Revised Kyoto Convention, 29, 86, 97, 112, 121, 187
SAFE Framework of Standards, 18–19, 110, 112, 121
Small Arms and Light Weapons Project, 18
Strategic Anti-Fraud Program, 19
World Poverty Overview (World Bank), 1
World Trade Organization (WTO). See also Trade Facilitation Agreement
Agreement on Customs Valuation, 24b
Agreement on Rules of Origin, 24b
Agreement on Trade-Related Aspects of Intellectual Property Rights, 16
Customs Valuation Agreement, 60, 60n48
Data Model of, 14
e-commerce and, 23
functions and contributions of, 24b
GATT review, 13
modernization of customs administration and, 29, 29n22
multilateral trading system and tariffs, 52–54, 53b
regional trade agreements authorization and, 10
Technical Barriers to Trade Agreement, 122
trade defensive measures of, 13–14
use fees and, 216, 216n19
valuation rules and, 8
X
X-ray scanners, 119, 186, 225–227, 225nn31–33, 226f, 274–275
Z
Zambia, risk management policy in, 178n2
Zimbabwe, authorized economic operator program in, 111
As part of its enlargement policy, the European Union has adopted a set of standards called Customs Blueprints as a practical guideline based on EU best practice for candidate customs administrations to measure their performance toward achieving EU standards. The blueprints provide goals, objectives, and KPIs for 19 functionalities in customs plus four standards about excise duties. https://op.europa.eu/en/publication-detail/-/publication/ad5f6272-7687-11e5-86db-01aa75ed71a1.
A container’s code is made up of 11 alphanumeric digits. The first three letters correspond to the owner, usually followed by the letter U, followed by a six-digit serial number and a verification digit.
“Residual” cargo is a category used to classify cargo that does not fall under any specific category.
The aim of the unit price index is the distribution of unit prices of each product and recognizing which operators or transactions lie outside the confidence interval.
The index of container cargo volume is oriented transactions involving homogenous products or a single product per container to identify cases where its weight per container exceeds the defined confidence intervals.
It is the HS code’s average unit price of goods traded by all operators with the same origin and period.
It is a statistical measurement of the dispersion between numbers that belong to the same data set. Low variance indicates that values do not spread widely.
It is worthy to note that segmentation by size may produce different risk profiles for customs than for tax administration. Size inconsistencies between these organizations may introduce additional risks.
The irregularity ratio measures the economic operator’s compliance level. To build it, the set of penalties, customs duties and taxes repayments, contraventions, and administrative and judicial processes generating a reassessment are considered. Its calculation should stem from the following formula: Irregularity Ratio =
Where: Customs Regimes: 1, 2…. J; Importer: i, i+1, ..., T
Note: When a customs declaration originates more than one irregularity, it should be computed as double both in numerator and denominator. In addition, there are two alternate variants: (1) it is possible to weight the kind of irregularity according to its relative importance. In this case, the formula would be: Irregularity ratio = =
Irregularity Ratio =
The VAT-CIF ratio needs to consider only goods subject to related tax. A default value needs to be shown in tariff code exempted.
Idem.
An additional analysis of missing values needs to be considered in order to determine their treatment within the sample. This could bias the estimates of the risk index downwards for some operators.
This will allow us to recognize which are the most concentrated markets and/or which are the goods that tend to be traded by few importers, which can determine, among other things, collusion practices.
Dual-use and strategic goods are those considered by the WCO through the Strategic Trade Control Program.
Geometric Average Growth Rate (GAGR): (present value / previous period value) 1/n – 1, where n is the number of time intervals in the data set, for example, if the analysis would comprise transactions from 2000 to 2015, then n would be 15.
An often-used criteria is to consider a PA residual if, when read from right to left, it counts n zeros, and the second next number is “9.” An example is 6182.90.00.
The ASYCUDA system has blue channel, and a transaction-based audit is carried out using this channel function.
