In its roughly 40-year history, the Customs Department’s Partial Payment Programme has never been governed by a formal policy, despite Custom Commissioner Wade Smith’s assurance following a December audit that one would be drafted by the end of January, Mr. Smith said during a hearing last week before the Commission of Inquiry.
Instead, the department has drafted an application form designed to be sent to the financial secretary for approval, but this form “hasn’t been utilised as yet,” Mr. Smith told the COI on Sept. 22.
Mr. Smith’s admissions came in response to a series of questions from Commissioner of Inquiry Sir Gary Hickinbottom and COI Counsel Bilal Rawat as they set out the context for three “potential criticisms” posed to Mr. Smith.
The criticisms all stemmed from customs programmes that were the subject of reports from the auditor general or internal auditor and subsequently drew scrutiny during two July COI hearings: the Partial Payments Programme, which allows some importers to pay their duties in a series of installments; the Customs Automated Processing System; and the Courier Clearance Process, the system by which third-party couriers import goods into the territory.
First potential criticism
According to the first potential criticism that Mr. Rawat read to Mr. Smith, the Partial Payment Programme itself may breach the Customs Management and Duties Act 2010 because it was introduced without any legislative authority.
As the criticism raised a legal point, Mr. Smith’s lawyer had filed a written submission to the COI, Mr. Rawat said.
Mr. Smith, for his part, wrote in his response to the COI’s “warning letter” that during his tenure as customs commissioner, the legality of the programme had been discussed with counsel in the Attorney General’s Chambers, who advised that it was supported under the act, Mr. Rawat read.
Mr. Smith also said he had been advised by the Ministry of Finance that the programme would continue, with the financial secretary giving final approval on qualifying importers.
After the financial secretary told him in October 2019 that the programme would be discontinued for anyone besides “civil servants and commercial importers,” the financial secretary later revised this guidance, writing in an August 2020 memo that the customs commissioner should “only refer to my office any persons requesting partial payment who they deem as a worthy risk,” Mr. Rawat read.
Likely fraud
The COI’s second potential criticism — that the system for collecting import duties lacks adequate “processes, procedures, controls and safeguards” — stemmed from a 2015 report from the Internal Audit Department that found that almost $265,000 was lost due to likely fraud.
But in his response Mr. Smith rejected this criticism, referencing his earlier position statement, which claimed that the “extremely effective” systems in place allowed Customs to investigate the fraud in the first place before passing on its findings to the attorney general and financial secretary, Mr. Rawat said.
Mr. Smith also wrote that since the reports about the suspected 2015 fraud, several changes have been made to safe-guard against another such instance.
These changes include inspecting cargo prior to releasing it and employing Treasury cashiers, Mr. Smith said.
Noting that customs officers are generally working from limited facilities due to the damage of the 2017 hurricanes, he added that the agency is planning to establish a Courier Declaration Centre.
Mr. Smith said the centre will “assist in ensuring that this type of activity does not happen again,” though he did not explain how.
Asked if the Customs’ Internal Audit Unit has discovered any instances of fraud involving customs officers since the 2015 report, Mr. Smith said that his department opened an investigation within the past two months that involves such allegations.
He added that while some officers were fired for fraud before 2015, none have been terminated for fraud since then.
However, some officers have been “severely reprimanded” for matters relating to fraud since 2015, he said.
Courier clearance system
The final potential criticism put to Mr. Smith was that the customs courier clearance process lacks adequate, appropriate and effective procedures, controls and safeguards.
Breaking it down further, Mr. Rawat described “a significant risk to the public purse in that import duties are not being properly and/or fully collected and accounted for.”
Of particular concern, he said, is the fact that imports are being released “without full payment for customs duties in circumstances where the standing deposit balances are not properly monitored.”
In his written response, Mr. Smith explained that customs monitors importers with standing deposit balances through the Trusted Trader Programme, which allows “trusted traders” — such as most of the territory’s major supermarkets — to release their goods on a cash bond or bank guarantee, Mr. Rawat said.
Through this “informal programme,” Mr. Smith wrote, customs officials check a company’s standing and history of compliance and paying balances, among other measures, before allowing it into the scheme.
“Are the criteria written down at all?” Mr. Rawat asked. “Or are these just the ones you apply as commissioner?”
Mr. Smith said the department has been working for more than a year to align the policies concerning this programme, and he added that it is nearing completion of a draft that he offered to send to the COI.
‘Inappropriate relationships’
Mr. Rawat also suggested that the potential inadequacies of the courier system, and by extension the larger automated processing system, open the department up to another vulnerability, allowing customs officers to give preferential treatment to some importers, including those who might offer gifts or payments.
These “inappropriate relationships” could be allowed to form because there is no system in place that continuously monitors bond agreements, Mr. Rawat said, citing a 2020 report from the internal auditor.
In his response to the warning letter, however, Mr. Smith refuted this charge.
“I’m not of the view that the system lends itself to inappropriate relationships,” he wrote.
He added that a distinction must be made between instances of preferential treatment that are acceptable and those that aren’t, offering the Trusted Trader Programme as an example.
Sir Gary agreed the Trusted Traders Programme is a proper means of giving preference to some importers, but he suggested that there should be concrete, transparent criteria determining which importers qualify for the programme.
“I think your response to that is there are criteria, but they’re not written down,” Sir Gary said.
Mr. Smith replied in the affirmative but reiterated that there is a “draft procedure manual” he planned to send after the hearing.
But in response to further questions from Sir Gary, Mr. Smith confirmed, “It is not in place at the moment.”