Report of the Portfolio Committee on Economic Development oversight visit to different entry points focusing on customs fraud, dated 23 February 2010
1. The purpose and terms of reference
The Portfolio Committee on Economic
Development undertook an oversight visit to
· Risk management plan (includes cooperation with other countries on implementation of the plan,
· Fraud prevention plan,
· Mitigating strategy or plan,
· Co-operation and collaboration, that it, intra and inter-departmental,
· The number of officials implicated in fraudulent activities since 2008; and the number of cases won,
· Human resources capacity ,
· Challenges encountered by SARS with regard to capacity at different points of entry.
2. Background to the oversight visit
· Enforcing customs and related trade laws;
· collecting duties and taxes;
· ensuring the social welfare of citizens by controlling the import and export of prohibited and restricted goods; and
· Ensuring timeous clearance of goods and facilitating the speedy movement of travellers through South African borders.
The ‘Framework for South Africa’s response to the international economic crisis’, approved by the Joint Economic Presidential Working Group on 19 February 2009, is the basis for a national response to the impact of the international economic crisis on South Africa. It enjoins the government to take necessary steps to strengthen the ability and capacity of the SARS in order to address customs fraud which has also led to many job losses.
Paragraph 3.9 of the ’Framework for
“The parties acknowledge the problem of customs fraud and illegal imports and are concerned that as a result of the global economic crisis, the level of illegal imports may increase. They recognize the progress made in building an effective enforcement mechanism. They agree that urgent attention should be given and additional capacity be devoted to official enforcement capacity, including SARS, to further improve their effectiveness and impact”
The above quotation captures the significance
of the oversight which the committee undertook to ascertain if there was any
progress made regarding that call for urgent attention to be given on providing
additional capacity to enforcement agency. Prior to the oversight visit, the Committee
was briefed by SARS on customs fraud in
Lebombo Border Post –
The delegation consisted of the following members of the Portfolio Committee:
Ms E.M. Coleman – Chairperson
Ms D. Tsotetsi
Ms P. Bhengu
Ms H. Line
Mr Z.C. Ntuli – Whip
Mr X. Mabasa
Dr S.B. Huang
Mr S. Ngonyama (only attended the
4. The findings
The core functions of Durban Customs include trader management, trade administration, border control, container security initiative, post clearance audits and inspections, regional training, regional risk management and passenger movement.
The Harbour is currently surrounded by industrial and residential
property. The location of the Harbour has continued to constrain the potential
for expansion and has been noted as one of the major challenges. SARS has also noted
4.1.2. Purpose of the visit
To oversee interventions by SARS with regard
to strengthening and providing additional capacity at
4.1.3. Committee’s observations
The delegation noted that the presentation made by
The Committee envisage scheduling a two day follow-up visit to
4.2. Lebombo Border Post
Lebombo Border Post, as a land modality, was identified by the committee to ascertain what interventions or mechanisms have been put in place to effectively and efficiently deal with customs fraud at the border post.
4.2.2. Purpose of the visit
The purpose of the visit was to oversee the interventions by SARS with regard to strengthening and providing additional capacity at Lebombo Border Post as a land modality.
4.2.3. Briefing by SARS Lebombo Border Post
Internal and external stakeholders
Internal stakeholders at Lebombo Border Post consist of the Border Control Operational Coordination Committee (BCOCC), South African Revenue Services (SARS) South African Police Services (SAPS), NIB (Department of Home Affairs), Departments of Agriculture, Department of Health, National Intelligence Agency). Other departments include: Transport, Public Works, South African National Defence Force, Department of Environment Affairs and Tourism, Department of Trade and Industry. In addition, the Border post works closely with the local and district municipalities.
External stakeholders include: clearing agents, for example, tax practitioners; and transport associations. The border post has also established a working relationship with the World Customs Organisation (WCO). Through the BCOCC, Lebombo Border Post, have established a customs to customs and inter border engagements with their Mozambican counterparts. There is also close cooperation and collaboration between Southern African Developmental Countries (SADC) and the Southern African Customs Union (SACU) countries.
SARS also reported about a working relationship that exists particularly
with countries such as
Management of SARS at Lebombo Border Post acknowledged that they did not have a strategy to integrate communities so that they assist SARS to combat customs fraud. At the time of the oversight visit, SARS was using media to inform the public in the surrounding areas on customs fraud and the impact of buying illicit goods and this campaign was done in local languages. SARS acknowledged that they needed to develop an integrated and collective approach for dealing with customs fraud with the assistance of communities.
One Stop Border Post (OSBP)
SARS-Lebombo Border Post reported that the government intends to create ‘one stop border posts’ (OSBP). At the time of the visit, the committee was briefed that Phase One of construction was already underway on the South African side of the border post and it was envisaged that it would be partly finished by March 2010, the passenger hall was half complete, and the cargo bypass was expected to be completed during February 2010.
Risk Management (Compliance)
A private company called G4 was deployed to all gates at the border post and their primary duty is to secure the premises. The SAPS presence can be found at all gates, and they check for stolen vehicles and other criminal activities. They also perform checks based on security measures. Customs officials and the Customs Border Control Unit (CBCU) are located at all the exit gates. These officials are responsible for checking compliance to declarations made, identification of undeclared goods and detections.
The presence of those officials and other institutions ensure the realization of Customs mandate of detection of illicit goods, contraband cigarettes, drugs, and currency, precious and semi-precious stones/gems.
Methods of detection
Automated and manual validations: It relates to what SARS defines as the Customs Risk Engine where the risk level of the client or product is measured. The level of such a risk will determine, if it necessitates, a physical search. The system also deals with the Passenger Processing System (PPS) and the Electronic Data Interchange (EDI)
Paper trail and transaction audits
Physical examination of cargo: The border post has specialist team dealing with physical examination of cargo. The examination is determined by the risk level as shown above.
Scanning of baggage
Gate control checks (G4 security)
CBCU and dog unit checks
Fraud Prevention Management
The committee was briefed that the E-release would be operational by the 1st of December 2009 and that the export declaration process would be reviewed. The committee was also informed that the review process would include the procurement of the clearance stamp that is already underway, and the Lebombo stamps would only be used at the border post and G4 security would assist with controls.
Some of the mitigating strategies at Lebombo Border Post include:
· SARS envisage strengthening and reinforcing the CBCU unit. They reported that a further 12 members were undergoing training at the time of the visit;
· The G4 security company would also allocate additional staff;
· The mode of operation for enforcement would be implemented by December 2009;
· The submission on the EDI system has become mandatory; and
· The continuous execution of the risk management plan.
Officials implicated in fraudulent activities
The committee was informed that SARS – Lebombo Border Post had four disciplinary cases, of which two officials were charged (but later resigned), one was dismissed and one acquitted. In addition to the four cases, a security guard was also dismissed for dereliction of duty from the warehouse.
Human Resource capacity
The Lebombo Border Post has a staff complement of 123 employees. The staff placements comprises three shifts of import teams, three shifts of export teams, and three shifts of passenger teams, two teams of CBCU and a dog unit.
4.2.4. The Committee’s observations
Having heard the presentation from SARS Lebombo Border Post, the committee made the following observations:
G4 Security’s (a private security service provider) personnel were not vetted;
The SARS’ advocacy campaigns in the surrounding communities were not as effective as it might be expected;
The private security personnel at the warehouses where goods were being stored could easily be over-powered by syndicates. It appeared that there was not enough security capacity at the warehouse; and
Only four disciplinary cases were investigated at the border post, and all have been concluded.
SARS needs to take concrete and firmer steps with regards to the safekeeping of goods in warehouses. (Enhancement of warehouse security).
Vehicles at the border post need to be regularly maintained and be replaced after a particular period of use or a certain number of kilometres travelled.
The purpose of the visit to the OR
International Airport was to oversee the interventions by SARS on strengthening
and providing additional capacity at the
4.3.3. Briefing by SARS
Risk Management Strategic Plan
The Chief Officer, Mr. G. Ravele, presented an overview of SARS’ activities relating to customs fraud. The Chief Officer briefed that committee on the Risk Management Framework guiding SARS’ interventions to support their strategic goals. As a result, the process then permits SARS to focus resources on high and medium risk areas.
Components of the Risk Management Strategy comprises: (1) environment scanning; (2) Risk identification; (3) Risk analysis (which includes training, development of standard operating procedures and governance thereof); (4) development of a risk mitigation plan; and (5) monitoring & review implementation.
For the period 2009/10, SARS’ Risk Management priorities include the following:
· Support for the SARS accreditation program
· Commercial fraud
· Prohibited goods such as illicit drug trafficking
· 2010 FIFA World Cup
Cooperation and collaboration
The BCOCC is the key inter-departmental coordinating mechanism for border agencies. SARS reported that the National Integrated Border Management Strategy (NIBMS) was adopted by Cabinet in January 2008. The strategic goals of this strategy include coordination of activities of border agencies, provision of strategic direction for Ports of Entry; and protection of the South African society and economy.
SARS also indicated that the inter-agency cooperation is formalised by way of Memoranda of Understanding with inter alia: The Department of Trade Industry, South African Police Services, Department of Water and Environmental Affairs, South African Post Office, Ports Health, and Transnet.
Cooperation with other countries
Cooperation takes place at:
· Multilateral level – The World Customs Organisation that represents 176 customs agencies and development treaties, instruments and best practices;
· Regional level – SARS actively participates in SADC and SACU customs structures
· Trilateral level – The India-Brazil-South Africa (IBSA) Customs Forum
· Bilateral level – MOU’s are concluded with major strategic trade partners where there is a need to exchange intelligence and information.
SARS indicated that eight (8) bilateral treaties are in place including
It was also reported that SARS intends intensifying cross border
investigations, focussing on the following countries:
Customs Operational Mandate
The Customs Operational mandate includes appointing places of entry/exit; specific customs activities; and visible control activities, including anti-smuggling checks and rummages. With regard to movement control, SARS has to account for all goods entering, transiting and leaving the Republic. SARS also have to maximise the use of electronic pre-arrival information and electronic communication with Release Authorities ensuring integrity across the supply chain.
Customs challenges at the Port
SARS informed the committee of the following challenges at the port:
Organised crime (under-invoicing, round tripping, ghost exports, smuggling, counterfeit, corruption),
Increased complexity of international trade (intra-trade within multi-national corporations, transfer-pricing, increase trade volumes),
Capacity to deal with new threats (biological and chemical war agents, weapons of mass destruction, commercial fraud).
Current Customs capabilities at ORTIA inter alia include:
· Non intrusive inspections: body, baggage & container
· K-9 Unit
· Visible border control (CBCU)
· Aircraft rummaging
· Post Clearance Inspections
· Seize or forfeit goods
· Detain goods
Risk Management Capability at the Port
SARS informed the committee that the port-based Risk Compliance Unit is responsible for: conducting standardised risk assessments, port specific trend and threat analysis, conducting industry compliance research, providing in-debt profiles and evasion tactics for customs operations. SARS further explained the high level risk management processes focusing on advanced passenger profiling, advanced cargo profiling and real-time declaration processing.
The enforcement and risk division within SARS also deal with audits, criminal investigations, anti-corruption and security, and debt collection. The division also work closely with the legal and policy division that deals with litigation and appeals.
Within the port, there exists close collaboration with the following departments:
South African Police Services, Airport Company of
The illicit economy: Transhipment
According to SARS,
SARS anti-corruption & security
SARS emphasised that cross border crime has risen as international syndicates target new democracies whose borders they view as weak. SARS’ personnel are actively recruited and offered large sums of money to collude with criminals. The current economic recession contributes to economic pressures resulting in greater vulnerability of staff to bribery and corruption. According to SARS, incentives combined with opportunity and the ability to justify illicit behaviour is fuelling fraud and corruption. Risk assessment showed that all areas of SARS, including Customs, are affected by fraud and corruption.
Customs Area of operation
SARS highlighted that customs is responsible for facilitating cross-border trade. Customs, according to SARS, mitigates risk in a number of ways; namely, utilisation of risk engines, conducting inspections, introducing Standard Operating Procedures and policies to regulate the environment.
Anti-Corruption and Security (ACAS) Unit area of operation
ACAS is responsible for monitoring the Customs systems, processes and people and to identify additional risks. ACAS’ aim is to deter, detect and counter fraud and corruption and to secure SARS people, information and property.
Specific objectives include:
Prevention of fraud & corruption – from an
ethics side it deals with the code of conduct for officials. Pre-screening and
vetting of the CBCU and SARS BCOCC members have been prioritised for vetting
for this financial year. SARS noted that Ethics Awareness Workshops were held
this year at Lebombo Border Post,
Detection and punitive capacity – at SARS there
is a zero tolerance for corruption (dismissible offence), anonymous reporting
channels, joint projects with SAPS at various
SARS indicated that there has been a spike of cases in the last quarter and with the onset of the recession, there has been a high incidence of cigarette theft from warehouses (tobacco is a serious issue with almost 80% of warehouse thefts involving cigarettes). SARS stated that they have noticed the abuse of SARS assets is very high in customs.
4.3.4. Committee observations
· Due to the limited time available, the delegation was unable to properly engage with the SARS Management of OR Tambo International Airport.
· The Committee envisage scheduling a joint oversight visit to OR Tambo International Airport with the Portfolio Committees on Police and Transport during June 2010.
The Committee note that considerable progress has been made with regards to risk management at those points visited, especially at OR Tambo International Airport and Lebombo Border Post. However, the Committee acknowledges that there are still loopholes in the risk management system particularly with reference to customs fraud in the air and land modality. The Committee will, therefore, endeavour to assist SARS (and other departments) to address a range of critical issues that emerged during the oversight visit.
The Committee was however very disappointed with the
Report to be considered.