Sunday, December 4, 2016


From - By Shamindra Kulamannage
From the moment a consignee sets foot in the central post office to receive a parcel from overseas, he/she i s confronted with naked corruption that has been afflicting the country for decades. It’s quickly apparent that postal department workers are go-betweens to Customs officers, determining import duty on packages people receive from family overseas or of items purchased online.
Postal workers inform any person perceived as wealthy or receiving an item of value that the shipment’s release at a lower Customs duty rate is possible at a fee. To resist the bribe will mean the items will attract extraordinarily high duty and tax, require special approval before clearance or take half the day to get done.
Malfeasance – the violation of public trust by an official – gives victims little choice when a viable grievance process is unavailable. Appealing the Customs officer’s determination through a complaint to the police or the bribery commission against arbitrary duty imposed or a bribe demanded for an Amazon package is futile.
In a country that isn’t morally convinced about the evils of corruption, it is seen as the only thing that works. Consignees will pay the bribe, collect their Amazon package and think nothing of it.
Customs officers at the post office harassing consignees are not the only ones with their hands in citizens’ pockets. Corruption at Sri Lanka Customs is legendary. In February 2016, three senior officers – a superintendent, a deputy superintendent and an assistant superintendent – were arrested in a sting operation, with assistance from an importer associated with the firm Steel Impex, for accepting a Rs125 million bribe. Thereafter, two more Customs superintendents were arrested over their alleged involvement in the same graft.
Quantifying the reach of corruption at Customs is difficult, but evidence suggests it is widespread, involving junior officers, like those at the post office, to superintendents, some of whom were caught in the bribery commission’s sting operation. The importer who tipped off the bribery commission says two Customs directors initiated an arbitrary investigation against Steel Impex, an Indian company providing duty-free spare parts to the Sri Lanka Transport Board (SLTB), which he was associated with, summoned him on 10 occasions to record statements, harassed him and Steel Impex business partners, and subsequently proposed a Rs150 million bribe to ‘settle the matter outside official channels’. These two Customs directors – a position at the second level of the department hierarchy – have not been arrested so far.
ustoms Ordinance, the law governing Customs, enacted in 1869, is nearly a century and a half old. It’s one of the oldest laws in the Sri Lankan statute books and one of the oldest customs ordinances in the world. Drafted in a classical English style with difficult to comprehend long-winded sentences, it was meant for an era when trade was slow moving. In the century since, developments include containerised cargo, transshipment, global supply chains, computerisation and ecommerce, resulting in faster transactions at a lower cost.

Quantifying the reach of corruption at Customs is difficult , but evidence suggests it is widespread, involving junior officers, like those at the post office, to superintendents, some of whom were caught in the bribery commission’s sting operation.

Customs play a critical role in securing borders, facilitating trade and collecting revenue. It’s also a giant organisation. The logistics industry, which frequently deals with Customs, insists the outdated legislation be repealed and a modern law that can address the industry’s challenges be introduced. “There are bottlenecks for which you cannot blame Customs officers, because they are working according to the rules of their organisation. This is why we are pressuring the government to change these rules,” says Sean Van Dort, chairman of the Shippers’ Council, the main industry body representing businesses shipping goods into and out of Sri Lanka. He contends that their demands to overhaul legislation aren’t aimed at belittling Customs officers’ responsibilities or powers.
However, trade unions representing Customs employees oppose the repeal and replacement for those exact reasons. They oppose rolling back the sweeping power the ordinance grants the Customs director general and its officers.
A draft of a new law, drawing on Singapore’s and India’s laws, was handed to the finance minster in April 2016 and tabled in parliament in September. Due to opposition from employees led by the Customs Officers Union and All Ceylon Custom Services Union (ACSU), the ministry appointed a committee to fine-tune the draft. However, trade unions are unwilling to consider new legislation, favouring minor tweaks to the Customs Ordinance of 1869 instead. Chairman of the Ceylon Chambers Import Sector Dinesh De Silva told a recent seminar that he is dismayed there are no firm timelines for the introduction of the new law.
It’s unclear how this impasse will be overcome. Trade unions are threatening to strike and thereby undermine government revenue unless the status quo is preserved.
raconian and controversial provisions empower officers to be the judge and jury over any deemed Customs law violation. This impunity denies the aggrieved any chance of a fair trial. Customs Ordinance is one of the most serious penal enactments in the country.
Section 127 of the Customs Ordinance grants power to Customs officers to arrest any individual who is ‘under suspicion of commission of an offence’. The officer conducting the investigation can file a B-report before the magistrate and put any suspect in remand custody. A magistrate then has no jurisdiction whatsoever to grant bail to a suspect. While Customs will file a B-report outlining the evidence to have a magistrate remand a suspect, the inquiring officer who frames the charges will also pass judgment and determine any penalty. A magistrates court judge can only impose a maximum Rs25,000 fine, however, a Customs offices can impose a penalty up to three times the value of the duties and levies not paid or evaded.
At the conclusion of a criminal investigation, a suspect is given a complete dossier of the evidence the prosecution intends to use against him in the interest of a fair trial. In a Customs inquiry, nothing is given to the suspect, not even a copy of the suspect’s own statement.
“The right to a fair trial is constitutional protection given to citizens. So it’s grossly unfair for officers conducting the investigation and inquiry to be passing judgment,” contends N Kodituwakku, a lawyer specialising in the Customs Ordinance. In passing the judgment, officers determine the penalty based on the duties and levies that should have been paid, of which the officer is automatically entitled to claim a third, as a reward.
When an officer has personal financial gain from a judgment, expecting impartiality and justice is unrealistic. “If you have an encounter with Customs and if the system offers a reward to the person presiding over the examination or arbitration, you know it’s not a fair game,” says Vice Chair of the Exporters Association Chrisso De Mel.
Constitutional supremacy should mean no provision in any law can supersede it. The constitution also requires any agency to honor and respect the freedom of citizens and their right to live without fear or favour.
Senior Customs officers – as in the case of the Rs125 bribe demanded from Steel Impex – are known to abuse the law to their personal advantage.
Steel Impex and the importer associated with the firm who later tipped off bribery sleuths complied when Customs recorded statements alleging that there had been tax fraud. Steel Impex maintained that its imports on behalf of state-owned SLTB were duty free and, in any case, suggested that Customs take up any issue about import duty with SLTB. The importer liaising with Customs on behalf of Steel Impex, whose identity is being withheld, then found that the Customs director started probing his own businesses, hurling accusations and threatening. Those investigated, even unfairly, comply because of the immense power wielded by Customs officers.
However, Article 13 of the constitution says no person shall be taken into custody without following due process.
he appeal process against a penalty is first to the director general of Customs and then the finance minister; only once those have been exhausted can an appeal be moved to the judicial system. Because cargo stuck at Customs can bankrupt an importer, they will often settle the matter by a bribe. Sri Lanka Customs is a department of the Ministry of Finance. The new bill has withdrawn the powers of Sri Lanka Customs to penalise offenders and proposed a new three-member Customs Appellate Tribunal appointed by the Judicial Service Commission. Two of its members will be retired judges of the Supreme Court or the Court of Appeal, while the third member will be a retired senior Customs officer or another specialist in the field.
Any crooked Customs officers have reason to be nervous about their ability for graft in the future when their power to be judge and jury are withdrawn.
In 2014 – the last year for which a Sri Lanka Customs annual report is available – penalties totaling Rs245 million were imposed on 586 cases. Officers investigating these would have collected a third of this amount, or Rs81 million, as rewards.
In 2014, Customs registered 4,458 cases; most of these were completed. While there is no evidence to suggest that any of these were ‘settled outside of official channels’, at least with Steel Impex, Customs officers demanded a Rs150 million bribe and were about to accept Rs125 million when they were arrested. This is without even commencing an investigation against Steel Impex.
Quantifying corruption’s reach is difficult, but the Customs office is certainly rotten.
Sri Lanka’s imports and exports touch $30 billion annually. The number involved in grand corruption can be mind-boggling. The scale of potential corruption, especially in imports, which were $18.9 billion in 2015, is tremendous, even if it were limited to one percentage of the total. A percent of Sri Lanka’s annual import bill is the equivalent of Rs27 billion.
Kodituwakku contends that Customs can collect double the revenue it now nets if it and its stakeholders weren’t corrupt.
“Everyone says Customs officers are corrupt, but we are as corrupt,” points out Sean Van Dort, at a public seminar to discuss the highlights of the proposed new Customs law. “You are the people who sign the invoices and cheques for all these transactions, so you and I are more corrupt than them,” he says, addressing an audience comprising private sector executives from the logistics industry.
He adds that, a decade ago, following his employment at apparel exporter MAS, he refused to pay. “I had some problems early, but today my cargo goes smoothly,” he provides an exporter’s perspective.
he cost of corruption vastly exceeds the actual amount stolen. Countries that are unable to provide a fair and rule-based system to investors are unattractive for investment. While foreign capital goes elsewhere, local businesses deliberately stay small to avoid scrutiny and harassment. Citizens – realising that their taxes will be stolen – avoid paying. Economies suffer from low growth and fewer jobs are created, leading to a brain drain and stagnation. Soon enough, a country’s position as a kleptocracy, where only corruption works, becomes entrenched.

Customs play a critical role in securing borders, facilitating trade and collecting revenue. It’s also a giant organisation. The logistics industry, which frequently deals with Customs, insists the outdated legislation be repealed and a modern law that can address the industry’s challenges be introduced

Customs Ordinance encourages three main problems: inefficiency, import duty and tax evasion, and outright corruption. Inefficiency afflicts many sections of the logistics industry, not just Customs. However, the apathy at Customs can be mind-boggling. Ceylon Association of Ships’ Agents’ (CASA) Treasurer Iqram Cuttilan told a meeting recently that some of their members have containers held up for seven years for Customs inquiries.
The second problem is tax evasion, with the connivance of Customs. Because Sri Lanka is far from convinced about the immorality of corruption, importers view high duty and taxes as something to overcome by under invoicing to pay less. “It is so corrupt that one can only survive in the trade if they undervalue imports,” points out Kodituwakku, who has long experience with Customs hearings. Some importers use loopholes to place merchandise in lower tariff categories and grease Customs agents with money to look the other way.
Imports can sometimes pass through a tunnel, entering the country as contraband. It happens with Customs involved, when one division of the department detains a container full of contraband and releases it, which prevents any of the other units of Customs from detaining it again. Transshipment cargo is also removed to warehouses outside the port – now an established practice – and containers emptied of contraband, it is alleged.
ike everywhere else in the world, finding an acceptable way to tax citizens is a vexing challenge for governments. States also find that early taxes concentrated on tangible items like land, physical goods and items that arrived at its ports are no longer adequate.
Taxing income and profit is the biggest source of government funds in many countries. The ability to tax income successfully relies on recordkeeping with integrity. Governments have come to rely more on income taxes as freer global trade has brought down tariff barriers. In Sri Lanka, the disproportionate influence of Customs among the government’s revenue agencies is due to its contributing 54% of total revenue and 58% of tax revenue.
However, Customs’ position in their ability to be the judge and jury, denying basic rights to others in the process, is critical to preserve, so they can generate government revenue.
Corruption holds back development. Such corruption annoys the rich – at least those who don’t directly benefit – but has devastating impacts on the poor.
It’s reason to despair. The island that only recently emerged from a long war and voted out a corrupt, authoritarian government less than two years ago has seen no revolutionary change. Key reforms are untouched and the new government is stumbling into crises. The separation of power between the president and prime minister is vague. As a result, shenanigans at Customs are able to hold hostage a government that has failed to deliver the revolution it promised.

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