Administrative Arrest – Personal Experience

In my last blog, (Administrative Arrest – Russian Customs Scam?), I discussed the Russian Federation State Customs Service practice of administrative arrest and its possible link to a system of kickbacks and organized crime in the port of St. Petersburg. While any definitive link between administrative arrest of cargo and corruption is speculative – and ultimately, almost improvable without a signed confession from a participant in the scheme – the material that I have cited dovetails with many of my own experiences in shipping cargo to St. Petersburg.

In fact, while at Maersk, administrative arrest was a huge issue for the company as a container carrier. Shippers and consignees change the information on the contract of carriage, or Bill of Lading, constantly; this is expected in international trade, and corrections to this information are accepted as a matter of course. A carrier usually charges a fee for an amendment to the Bill of Lading, and this raises no red flags in Customs at the country of destination unless the change is radical or something that would give an alert officer pause.

International container carriers generally accept shipper-packed containers as is, and refuse to make representation to the weight, contents, measure, quantity, quality, description, condition, et cetera of the container. They require the legal signatories of the Bill of Lading, or contract of carriage – the shipper and consignee – to warrant and take responsibility for the accuracy of these facts. This is normal international shipping practice.

Remember that Russian Customs requires ocean carriers to submit a vessel manifest for any vessel arriving in St. Petersburg 48 hours before docking at the First Container Terminal. But Russian Customs also holds the ocean carrier responsible for the accuracy of the cargo measures – an absurd conflation of two distinctly different documents, a Vessel Manifest and a Bill of Lading, that leads not only to high additional costs for shipping companies, but for Russian importers and consumers.

For example, one of Maersk’s clients was a major international sports shoe manufacturer. The Russian importer had continual problems with his cargo falling under administrative arrest. The problems began because the shipper loaded his cargo at different warehouses in China, and at the request of the Russian consignee, asked for a separate Bill of Lading for each portion of the cargo. This is a perfectly normal cargo consolidation practice. Unfortunately, at that time the Maersk line information systems did not support sufficiently the consolidation data – at the first trans-shipment port en route to Russia, they would ‘drop’ all of the Bills of Lading, except for the first alphanumeric one. So a container with six Bills of Lading associated to arriving in Bremerhaven would arrive and during loading onto a Baltic feeder into St. Petersburg, would ‘lose’ all but one Bill of Lading. This one Bill of Lading would duly be entered into the vessel manifest and submitted to Russian Customs.

Upon arrival in St. Petersburg, the importer presented his six Bills of Lading to Customs for clearance, and the inspecting officer would immediately place his cargo under arrest, since the vessel manifest had shown only one Bill of Lading associated with the container, not six. Our best efforts from Maersk to explain the situation, and find a way to handle it besides having Customs open a case and place the cargo under administrative arrest, went nowhere.

I discussed the matter with officers of Baltic Customs more than a few times. Their initial position was that shipping companies should actually station their own representatives to supervise and verify all containers that they carry. That this would require a company the size of Maersk Line to hire thousands upon thousands of additional workers worldwide went right past them. Objections included, Maersk Line is a rich company, and can afford it; we don’t care what international shipping law is, this is Russia and we have our own laws; and the ever-popular, if you don’t like it, you can leave the market. There was no effort to meet us halfway, much less attempt to find a way to mitigate the problem; Baltic Customs was among the least business-friendly government bodies I have ever encountered anywhere.

A few officers were sympathetic, of course, and understood the ridiculousness of the situation. However, they complained their hands were tied, and that the regulations would have to be changed in Moscow by Central Customs. And they certainly were not going to go to bat for western shipping companies. Meanwhile, though, Customs held the cargo for weeks at a time while administrative cases were laboriously opened, shipping documents examined, explanations heard and rulings made. Each one of these cases cost Maersk $3000, hurt relations with the importer and took up dozens of hours of staff time for our in-house lawyer.

Eventually staff found a number of work-arounds; I assigned a few of the better Customer Service associates to monitor, audit and scrub the data for all of the importer’s containers before they loaded on the Baltic feeder, since it was possible to find data by looking in other systems to confirm the number of Bills of Lading per container. In late 2007, Maersk introduced an improved system that integrated shipping data completely, and the problem thankfully disappeared.

Following up on the thought from the kompromat.ru blog written by Vitya, administrative arrest benefits everybody – Customs shows its value by intercepting possible contraband, and by closing arrest cases before they reach court. This second point is very important; Customs always has a chance to lose its case when brought to court, and a lost case is counted as a black mark against performance. By closing the case before it reaches court – that is, without dispute from the importer – Customs shows it is acting correctly. The offender confessed and paid his fine.

The legal sleight of hand is the breeding ground for conspiracy and kickbacks. In the heated and highly competitive St. Petersburg market, only a few freight forwarders or ocean carriers are willing to fight Customs. When they do act, it is usually alone, quietly, and to request the resolution of a single case rather than to change the underlying principle. Raising the issue loudly offers no certain outcome, and carries with it the risk of losing clients and business.

Meanwhile, as Vitya’s blog explains, unscrupulous businesses are eager and active participants in the plan, especially when they can buy back their own goods at a fraction of the cost.