By Keith Norbury
Just about every country — with the possible exception of North Korea — has criminalized bribery and corruption in international trade, says the President of a U.S.-based organization devoted to helping companies and countries confront the problem. Yet, despite those laws, bribery and corruption remain “rampant” in international shipping, says Alexandra Wrage, President of Trace International, which is based just outside of Washington, D.C.
Ms. Wrage, a Canadian originally from Vancouver, B.C., discussed the impacts of bribery on the project cargo industry during a presentation at the annual Breakbulk Europe conference in Antwerp, Belgium. Project cargoes are more likely to be targeted for bribes than containerized or bulk cargoes, she says, because the labour-intensive nature of project cargos creates more opportunities to extract bribes. “Discharging the vessel is more complicated and requires manual and skilled intervention,” Ms. Wrage said. The master of vessel is focused on dealing with the cargo operation and doesn’t have time to deal with corrupt government officials, she added.
“Additionally, trading patterns of project cargoes are generally in more challenging locations, and unlike big container companies, they don’t have their own ports and terminals, which make it much easier to address bribery,” she said. “Project cargo vessel owners go where the project cargo goes and are unlikely to have longstanding, established relationships with port agents or experience with the local market. This also makes them easier targets.”
Project cargo often consists of expensive equipment, which often has to clear customs. This can create “a point of tension” that an unscrupulous customs official can exploit to extract a bribe, she said. “Whenever you’re in a hurry, they have the advantage,” Ms. Wrage said. “The urgency can also be used as an opportunity for the customs official to demand a bribe to lower the tax level. Alternatively the project interest could offer to pay a bribe to obtain a lower duty.”
Extortionate demands are “rampant” in shipping. Wrage’s organization, which she founded in 2001, generally deals with what she calls “transactional bribery” such as, “Give me half a million dollars and the contract is yours.” What she has observed in shipping are more widespread, extortionate demands. “I would even use the word rampant,” she said in a recent interview.
“So it’s not ‘Give me a payment and I’ll give you some preferential treatment.’ It’s ‘Give me a payment or you don’t get the support you need in a port to offload your cargo,’” said Ms. Wrage, who earned a law degree from Cambridge University but describes herself on the Trace website as “a recovering lawyer.”
Shipping interests also face “constant interaction with low-level government officials who have their hands out,” she added.
Jake Storey, vice-chairman of the Maritime Anti-Corruption Network, said bribes of cigarettes and whisky, which can add up to hundreds of dollars, are commonplace along the Suez Canal, which has earned it the nickname “Marlboro Country” in shipping circles. Should a captain not comply, a tugboat might drop its lines or its pilot will start giving instructions in Arabic instead of English. In more egregious cases, pilots have threatened to let a ship run aground “so that they can extract bribes through salvaging the vessel,” said Mr. Storey, a 25-year industry veteran who is chief risk officer with the international shipping firm Gearbulk. “It’s an example where relatively low level of corruption or bribes or commercial extortion, depending on how you look at it, can escalate into something very, very serious,” Mr. Storey said in a Skype interview from London, U.K., where he is based.
MACN, as the network is known, began as an initiative of shipping giant Maersk in 2011 and formally launched in 2012. It has grown from seven member companies at that time to close to 50 today. In March, MACN was named the winner of Trace International’s second annual Innovation in Anti-Bribery Compliance Award.
Storey’s company, Gearbulk, trades regularly in certain ports and has people on the ground who are familiar with the layout and can confront any potential bribe demands head-on. While MACN members include massive shipping companies like Maersk, Gearbulk, and Canadian Steamship Lines, Mr. Storey pointed out that most of the world’s 20,000 shipping companies have small fleets — an average of four vessels. The highly fragmented nature of the industry makes dealing with the problem difficult because it only takes the willingness of a few companies to pay bribes to perpetuate the corruption. And smaller carriers are most at risk of bribes in part because they are more likely to call at unfamiliar ports. “It’s a bit like a tourist coming to a town for the first time,” Mr. Storey said. “You don’t necessarily know the good areas and bad areas.”
Exactly how much bribery and corruption costs the world economy is a matter of speculation. The World Bank has estimated the losses associated with bribery at $1 trillion a year, which Ms. Wrage noted is a rather suspicious round number. “It’s a crime, and measuring crime is really hard,” she said. Mr. Storey says a fair estimate would be that bribery and corruption add about 10 per cent on average to the cost of global trade. That would also include other forms of corruption, such as misclassifying cargo to avoid customs duties. In such cases, the shipper and the corrupt official might share the spoils at the expense of the government levying the duty.
Government-controlled ports pose greater risks
Mr. Storey and Ms. Wrage agree the problem is much greater in ports in the developing world than in the U.S., Canada, and western Europe, where bribery is virtually unheard of. “If it does happen, it is very, very low level,” Mr. Storey said. “It would more likely be a commercialized payment, if anything.”
State-controlled ports, where stevedores are paid by the government, tend to be more open to corruption than ports run by private stevedoring companies where there’s a commercial fee paid for the service, which might include a productivity bonus, he said. “It tends to be much more open, honest, and at arms length when you’ve got private companies involved,” Mr. Storey said. However it also depends on the degree of competition in the ports. “There may only be one or two stevedores, so there could be a quasi cartel.”
Then there are examples such as the Port of Lagos in Nigeria, where it takes 142 signatures to offload a shipment of cargo. “So it’s created a system for incompetency (and) inefficiency, but also for corruption,” Mr. Storey said. To combat that, the Nigerian Port Authority in late 2014 launched the Electronic Ship Entry Notice system, or e-SEN. By enabling shipping agents to submit and obtain approvals electronically, it is expected to improve efficiencies. Before Nigeria instituted the computer system, 80 to 90 per cent of all cargo at the Port of Lagos was red-flagged for human interaction, Mr. Storey said. However, the program is so new that there are no data available yet on how well it is working. Mr. Storey said MACN plans to survey its members this May on that question.
While Ms. Wrage has praise for Nigeria’s e-SENs system, technology alone isn’t enough to stamp out corruption. Bribery is what she calls “a barnacle crime” because it attaches itself to everything. “For example, any sort of inspection creates an opportunity for the barnacle to find a foothold,” said Ms. Wrage, whose first exposure to corruption was while travelling in Asia after graduating from high school. (She later observed it more closely while in Syria with an international company, and then as an anti-bribery lawyer with aerospace firm Northrop Grumman before she founded Trace). Both Trace and MACN have programs and services to help companies confront corruption. Trace actually consists of two entities that take different approaches to a shared mission of confronting bribery. The non-profit Trace International provides its members with anti-bribery compliance support while Trace Incorporated, a business entity, provides anti-bribery training and customizable due diligence and advisory services to members and non-members alike.
Always ask for a receipt
Among the tools is the Trace Matrix, which was developed in collaboration with the Rand Corporation. The matrix ranks countries based on the level of commercial bribery on a scale of 1 to 100. It also provides details on the factors that go into the score so that companies can tailor their compliance programs.
Among the simple and effective bits of advice that Trace offers for confronting bribe requests are to ask for a receipt, ask to speak to a manager, and saying with an air of innocence to an official seeking a bribe, “Gosh, it almost sounded like you’re asking for a bribe. I’m sure I must have that wrong.”
Just equipping people with those tools helps to foul up the bribe-taking process without being confrontational or exposing oneself to danger, said Ms. Wrage, whose organization has a team of 85 who speak 32 languages and work in offices in four countries. “Bribe takers tend to be kind of lazy,” Ms. Wrage said. “And they want to get a quick payment.”