Managing Risk, WCO-Style

Managing Risk, WCO-Style

For customs administrations the world over, risk management means more than just combatting terrorism. For many countries, it’s also about protecting their revenue.

Sometimes a single program can accomplish both goals.

In the U.S., risk management has been a common part of the lexicon since the September 11 terrorist attacks cast a spotlight on security. While security still isn’t the highest priority for many others, customs administrations can put the same principles to use to prevent fraud and other nefarious actions that can disrupt a country and its supply chain.

Now the World Customs Organization is actively promoting risk management as a preventive tool, making it the focus of its annual WCO Council meeting last month.

Alan Bruford, the WCO’s deputy director of compliance and facilitation, said 80 percent of the organization’s 176 customs agency members are major sources of revenue for their countries, a fact often lost in the supply chain security debate. Customs officials, he said, recognize it’s important to collect taxes fairly, but it’s just as important to collect all taxes due.

“There’s no doubt that customs administrations almost universally are seeing that risk management approach is the only way they can manage their volumes and expectations that have been put upon them,” Bruford said.

Managing risk relies heavily on the availability of advance information on imports. In the U.S., Customs and Border Protection developed its security regulations, especially the Importer Security Filing, or 10+2, rule around the idea that inspectors would have data on imported cargo before it arrives at U.S. ports or borders.

The WCO equivalent of that standard is the SAFE Framework for Security and Facilitation. For more than six years, the WTO, with the encouragement of the U.S. and other developed nations, has urged members to adopt SAFE’s risk management principles. In time, the framework will be a network customs administrations use to interchange with any other counterpart.

Consider a customs officer at a foreign port who has to deal with an importer who wants to negotiate a lower duty rate or more favorable classification, often with cash passed under the table, said Michael Schmitz, who just retired as WCO’s compliance director. “Risk management gives you the information in advance, and more time to look at it. You get an audit trail, and it helps with integrity,” he said.

Armed with information, customs officers can defeat importers who don’t want to pay what’s due. “The SAFE framework is there to provide visibility over the supply chain, security over the supply chain, and making sure information is reported accurately and correctly,” Bruford said. “Then customs administrations can do their tasks in a transparent and free manner.”

When he attended last month’s WCO Council meeting, Charles Stallworth, assistant U.S. Customs commissioner for international affairs, said most of the other countries were practicing some form of risk management. “One of my surprises was to hear a number of developing nations that said the focus on risk management actually helps the revenue,” Stallworth said. Last year, the U.S. sent technical assistance teams on 331 missions to 87 countries under the WCO capacity building program.

“They are learning very quickly. In the last year or so, targeting and risk management were high requests in our technical assistance programs,” Stallworth said. “Every country adapts their risk management processes with their capability, their market, and their principal and risks focus.”

While the developed countries may focus on security, others may focus on protection against counterfeit or tainted goods. For most, it’s all about protecting the revenue.

On top of it all, risk management does facilitate trade, Stallworth said. Suppose an exporter is shipping trucks to Kenya. “If they trust what you’re doing, know who’s the exporter and who’s receiving the goods; if those are all known and there’s transparency in the process, they’re not likely to spend very limited resources to inspect that shipment of trucks. There’s very little risk that there’s something different from what is on the manifest.”

Risk management is one of the building blocks the WCO hopes to use to build a global network of modern customs administrations, Schmitz said. “Risk management is the one you can implement now, and it will assist you in doing the others,” he said. Customs administrators don’t want to be just the most efficient agencies on the border, “We want to be the indispensable border agency. When you’re looking at border control, you’ll find that nobody manages information better than customs.”

Contact R.G. Edmonson at bedmonson@joc.com.