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Cutting out corruption

In a few months short of ten years, the Maritime Anti-Corruption Network has collected over 50,000 reports of corrupt demands globally, covering more than 1,000 ports in over 150 countries, through its anonymous incident reporting system.

Significantly, over 2,000 of those reports are linked to the risk of the vessel and crew’s safety including threat of physical violence. Meanwhile, 61% of all demands are for cigarettes, 71% of demands cause delay or risk of delay in port, and 61% of all reported incidents are from ports in East Asia and the Pacific region and the Middle East and North Africa region.

“This demonstrates both significant trade volumes in this region as well as potential port integrity challenges,” said MACN CEO Cecilia Müller Torbrand, writing an insight brief for the Global Maritime Forum. “Despite progress being made, the shipping industry is still challenged with different approaches to ethics and integrity. Building a level playing field and aligning standards is critical to the fight against maritime corruption.”

Cost climber
MACN notes that corruption in the maritime sector bumps up operational costs, endangers the safety and well-being of the crew, and is also a barrier to trade and development. It uses the outputs of the anonymous incident reporting mechanism to help the industry to learn from each other to potentially avoid similar incidents in their own operations.

The World Bank estimates that corruption constitutes an additional cost on business of up to 10% of sales in high-risk markets and over 5% in many other countries, while an OECD study found that foreign direct investment is undermined when corruption affects the passing of goods through customs.

Further research demonstrates that corruption in the port and maritime sector is driving up trade costs, particularly in developing countries, with studies from Southern Africa revealing that bribes represent up to a 14% increase in total shipping costs for a standard 20ft container.
“Twenty years ago, researchers and experts paid little attention to bad governance and corruption, but today, the link between the quality of government institutions that implement policies controlling corruption and economic development is clear,” said Müller Torbrand.

She describes the set-up of the maritime industry as “a breeding ground for ‘coercive’ corruption where port officials extract bribes from companies for performing the routine processes of vessel and cargo clearance”. In an industry where operational processes involve many stakeholders across several jurisdictions, interactions with government officials are numerous and they can “enjoy broad discretionary powers”, said Müller Torbrand. This is further deepened by a port that is a “an administrative monopoly over an essential public service”.

The consequences of not getting it right can be extreme: “Anti-corruption enforcement has developed into an area of foreign policy with far-reaching consequences for companies and senior executives. It is no longer a local or siloed problem for companies with fines and enforcement now reaching into head office and senior management. Corruption laws are ever-tightening, while at the same time regulators are increasing in their transnational reach,” she said.

Collaboration and collective action
The societal and economic problems that stem from corruption are now well acknowledged. So too is the role that the private sector can play in actively fighting corruption. MACN goes one stage further, suggesting that collaboration and collective working is needed to bring about the systemic changes in the external operating environment that are required to eliminate corruption. “This is particularly true in the global maritime industry, where corruption occurs as a result of the interplay of a multitude of public and private sector stakeholders,” said Müller Torbrand.

MACN’s work with industry has already borne fruit, particularly in countries where the industry has taken proactive actions, such as in Nigeria, Egypt, and Argentina.

Müller Torbrand gives two examples of success in working in partnership to tackle corruption. First, in Nigeria, prior to collective action, it could take up to 7-10 days to resolve a potential discrepancy. Today, due to collaboration with the Nigerian authorities, it takes 1-8 hours. “This is reducing the operational cost due to delays heavily,” she said.

Second, depending on market conditions, port costs and commercial delays accrued from each extra day in Argentinean ports could amount to more than $50,000 per day. Today, there has been a 90% drop in corrupt demands, reducing operational costs and time-in-port significantly.

“One vessel from a single company trying to change the world has a difficult task – but 50% (or more) of the global fleet working together is a powerful voice for change,” Müller Torbrand said.

MACN reports that well-prepared and trained crews who are challenged with corrupt demands can, in many places, reject demands successfully. But illicit demands still succeed in many other places because there are numerous players in the industry who do not apply the same ethical standards.

More needs to be done and MACN’s call is for an industry-wide approach to combatting corruption, with buy-in, support, and communication from senior leaders critical to making progress.
Source: Baltic Exchange

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