Can $160 Million Clean Up Russian Customs?

One of my favorite things about the internet is that it makes recent history so accessible. I don’t have a hard time remembering research before the web came along – I spent too many long hours in libraries, getting lost in the stacks in pursuit of obscure texts – but I love the ability to conjure these reams of information into my Anchorage office by just hitting a button.

Looking into the activities of the Russian Federal Customs Service takes a little ingenuity and digging but sometimes it yields fascinating and wonderful bits of insight. I ran across a nice little nugget the other day on the World Bank website entitled “A+ for Russian Customs!” The short piece – really little more than just a blurb – dated from 2006 and outlined the successes of a $140 million dollar World Bank program to “modernize the infrastructure for clearing goods.” This is part of a six year Customs Development Project “to modernize the operations of 800+ customs posts manned by the 62,000 staff.”

Since we are already in 2009, the target completion date for the Customs Development Project, it might be a good idea to look and see if the Federal Customs Service indeed earned an A+, which, the World Bank site says, “In early 2005, the Russian business community rated…as the best government agency in terms of openness and transparency.”

First off, rating the FCS as Russia’s best agency in terms of openness and transparency is faint praise for a country rated among the worst for government corruption in the world. During all of my travels to Russia, I can think of any number government agencies that are more transparent than the FCS. The GAI, or Federal Automobile Inspectorate, for example, is a paragon of transparency and openness – when one of their officers, or gaishniki, stops you for a traffic violation, it’s pretty clear that you can bribe him on the spot or fight the ticket in court. Whereas an FCS officer invokes any number of little-known or ambiguous rules when delaying cargo, requiring appeals by letter, and thirty-day response periods for rulings.

The World Bank program involved 24 offices out of over 800, or about .003% of all FCS posts; and with $140 million dollar spread around them, or about $5.83 million per year for 6 years, a little more than $971 thousand dollars per year per FCS post. For a significant customs post, such as Torfyanovka on the Russian-Finnish border, this is chicken feed – the post processes hundreds, sometimes thousands of trucks per day, and with the standard bribe to let a truck through standing at $400 per truck, the incentive to keep taking bribes far exceeds any monies laid out by any foreign agencies.

The program intends to introduce e-filing for customs declarations; this apparently, will help speed up clearance times, as well reveal patterns that can help pinpoint contraband and fight corruption. Electronic systems are hardly a panacea, however, especially in a place like Russia, and particularly in an agency like the FCS. Any electronic system is prone to gaming – how hard would it be, for example, for a corrupt businessman and a corrupt FCS officer to agree on the information put into the e-declaration, and then between them ensures that the cargo gets steered to a single officer or group of officers, for customs clearance? In late 2006, the Russian Federal Transportation Militia raided a series of container carrier offices searching for materials relating to the falsification of data in Bills of Lading. It turned out that corrupt employees in the carriers’ own offices were changing the origins and cargo types for containers of meat. If western companies, with their own internal security systems, can be corrupted, then it is a sure bet that the FCS can be corrupted, too.

In another famous case in St. Petersburg, a Baltic Customs officer was shot dead in his office in 2005. He had been in charge of entering information on 30 shipments of meat into an FCS database. The containers of meat disappeared after leaving the port.

The World Bank website further states, “By the end of 2004, the implementation of a new Customs Code had reduced the processing time inland customs offices from 10 days to 3 days, for 98 percent of the declarations.” At the risk of offending the employees of the World Bank, who are no doubt well-meaning and competent people, this statement just seems dubious. Maybe their target 24 offices were in locations with little or no foreign trade, like Tigil or Diksi in the Russian Far North.

Certainly, they were not in the places where customs declaration processing needs improvement the most, like the First Container Terminal in St. Petersburg, or on the Russian-Finnish and Russian-Latvian borders. In these locations, containers with meat are subject to 100% full physical inspection of their contents, which means a delay of at least one day per shipment but usually winds up being much more (over 10 days, for example, in the port of St. Petersburg). Imported Chinese goods are subject as well to a 70% inspection, slowing down their processing.

That said, even baby steps and small achievements are positive – but we should not get our hopes up too high for the success of reforming the FCS any time soon. Many observers are skeptical that e-filing plans will not work unless there is sufficient political will behind them to really root out corruption. It may already be too late for the current generation, who, in the words of one observer, are incapable of changing. “It's too late," he said. "These guys are used to driving a Mercedes and are used to going on holiday four times a year, and you aren't going to change this."

http://go.worldbank.org/5PNUC2GS90
http://www.templetonthorp.com/en/news172.html