Isaf-destined containers diverted to local markets: customs clearance reforms fail to check corruption: FTO report

International donor-sponsored major reforms in customs administration and clearance procedures designed to check corruption failed to spot massive long-term abuse in diverting containers ostensibly destined for International Security Assistance Forces (ISAF) in Afghanistan to the local market. The whistleblower was a member of the press.
Senior customs officials said that policy measures were taken from time to time to tighten loopholes in the transit clearance system. However, the recent scam showed that none of these measures were effective in checking that the final destination of thousands of containers, cleared under the cover of ISAF/Nato forces in Afghanistan, actually reached their destinations. Other customs officials, whose names have been mentioned in the list provided by the FBR to the SC, refused to give their comments by saying that the matter is sub judice before the court.
A senior official told Business Recorder here on Friday that containers' scam, like Louis Berger Scam, was reported to the tax authorities when 26 containers, in 2007, were manifested for Afghanistan under the name of Louis Berger US AID Kabul, but they never crossed into Afghanistan, and the trucks returned to the terminal within 25 days.
The FBR had taken key policy measures to plug such loopholes, including creation of the posts of Chief Collectors of Customs, North and South, in January, 2007 to ensure monitoring of the operational side in the field formations. The main objective of the appointment of Chief Collectors was to provide senior level operational heads in the field so that day to day operational issues faced by the Collectorates and by the clients of the Customs department should be addressed and timely resolved.
The North Region covered Model Customs Collectorate (MCC), Peshawar; MCC Rawalpindi; MCC Lahore; MCC Multan; MCC Sambrial and MCC Faisalabad. The South Region covered MCC of PACCS, Customs House Karachi; MCC Appraisement, Customs House Karachi; MCC Exports Karachi; MCC Port Muhammad Bin Qasim, Karachi; MCC Preventive Karachi; MCC Post Clearance Audit Karachi; MCC Hyderabad; MCC Quetta and MCC Gwadar.
In addition, tariff rationalisation was a regular policy feature to reduce incentives of smuggling. Analysts argue that subsequent to the revelation of a scam there was a need to take immediate measures to plug the loopholes in the system. If the system had been exploited, it had to be checked through systems and procedures.
At the policy level, the FBR also issued new transshipment procedures in 2007 to effectively deal with the transshipment of transit goods. Pakistan Customs Containers Security System was also introduced at the time for sealing and de-sealing system for the transit cargo. Such precautionary measures were taken in the past to check such scams.
Another official said that the Board had made it mandatory for the bonded carrier to use only such vehicles/trailer units for transshipment that had permanently installed/fixed tracking device to monitor vehicles used for transshipment purposes. The transshipment was only allowed if the bonded carrier possessed a minimum fleet of 25 registered vehicles in his name or company or vehicles leased by them. The Board introduced the concept of Customs Container Security Unit (CCSU) at Customs House Karachi to control the container sealing operations throughout Pakistan. The container and vehicle were to be sealed with prescribed security and unbreakable seals with progressive serial numbers by the CCSU or authorised person at the focal points (entry), on first come, first served basis, sources added.
When contacted, a former FBR chairman told this scribe that he had not studied the FTO report on the 'ISAF Containers Scam'. However, he acknowledged that some key reforms were introduced in the past. One of such reforms was the introduction of the Pakistan Customs Computerised System (PACCS) for speedy clearance of import and export procedures. There are many other reform initiatives which were taken on the customs side, but so far he had not studied the report, he added.
The FBR data showed that during the period June 2005-2010, a total of 558,141 containers were transited to Afghanistan. Of these, 166,949 (30 percent) containers belonged to the US Military; 52,929 (9 percent) to ISAF/Nato and the remaining 338,263 (61 percent) were commercial ATT consignments.
Some officials, whose names have been mentioned in the list of FBR officials, said that they would finalise comments after reading the FTO report. An expert on customs-related matters categorically raised a question as to why the FBR did not take any action against the accused in the past. A number of containers' scams were detected in the past, but the tax authorities only constituted committees to probe the matter. The FTO report has confirmed the scam and now the responsibility has to be fixed on the concerned officials, he added.
A senior tax official informed this scribe that the ISAF has confirmed to the FBR through a letter that all ISAF containers had reached their destinations in Afghanistan. The FTO report on the scam clearly showed that the ISAF's Forward Mounting Base (FMB), established at Karachi in 2002, had started its import procedures by instituting an appropriate co-ordination mechanism by designating one of the its officers at Karachi to regularly co-ordinate customs clearance matters with Additional Collector Customs Karachi Port.
But this co-ordination system fizzled out when the FMB was shifted by ISAF to Kabul within a year of its establishment at Karachi. Had FBR demanded continuation of effective arrangement for co-ordination with ISAF HQ Kabul through alternative nomination of a Karachi-based official representative as has been put in place now, after the 'ISAF Scam' came to light, the possibilities of misuse of ISAF transit facility would have been contained through better co-ordination and regular prior verification and post-reconciliation of authorisation issued by the ISAF.
The biggest aspect of the ISAF Containers Scam is the non-availability of the data on the movement of ISAF containers. The FTO report on the scam shows that in response to data requisitioned from FBR for the period January 1, 2007 to October 15, 2010, Pakistan Revenue Automation Limited (PRAL) confirmed that Karachi Customs had handled a total of 306,267 transit containers during this period. After analysing the data, the FTO office went into a state of total disbelief. The scandalously shocking picture that emerged about the quality of PRAL data is evident.
For 71202 containers, there is no information regarding either their departure from Karachi or their arrival at the border customs stations. In case of 27871 containers, that did arrive at the destinations, their departure information from Karachi is not available.
Another 55140 containers are shown to have left Karachi but have no entries of arrival at the border stations. A total of 152054 containers have records for departure from Karachi and arrival at the border customs station, but no record of crossing into Afghanistan. Finally, not a single container, out of 306267, is recorded to have ever crossed over to Afghanistan during the almost four-year period under reference.
As data provided by PRAL was difficult to believe, the FBR was asked to recheck the authenticity of its data. In response, Chief Executive (CEO) PRAL conceded that while the inferences drawn from the data were correct, the data needed to be seen and evaluated in its proper context.
The data did not reflect real-time happenings of events, but the feeding of computers from paper documents after the events, as and when available. The main reason for inadequacy of data was that the 'One-Customs' clearance system was manual, with no direct interface with computers. Using a batch processing system, entries were fed into the computers as and when documents were made available after completion of manual work.
The PRAL, a subsidiary of FBR, further contended that the system was inadequate in case of Afghan transit due to issues of infrastructure and security at the borders. But the question as to why there was no record of departure of 99,073 containers from Karachi where there were no problems of infrastructure or security was not explained, FTO report said.
It is obvious that the FBR's PRAL data was not at all reliable as to which containers had left the ports, and what their situation en-route. Which containers had arrived border stations within time? Which were abnormally delayed and why? Which did not arrive at all? As PRAL data reflected containers that arrived at border stations even before they had actually left the ports at Karachi, there was no doubt left that the data had no semblance to reality and no reliance could be placed on it.
The FTO office was thus left with no option but to explore independent sources for reliable data. The FTO office also asked the National Logistic Cell (NLC) to provide relevant data on Excel format. Initially, the data received was in PDF (Document) format. When pressed that for ease of statistical analysis, data was required in Excel format, the data finally received was not in the prescribed format. It was data for transport of containers from Karachi to border stations with no container number, date, time, truck number, etc, either for departure from Karachi, arrival at border customs-station or cross border.
The report further said that the only meaningful and independent data that the FTO thought it could get was from Terminal Operators: KICT, PICT and QICT. The data from the Terminals was a preferred choice for the following reasons: For their own commercial survival, the terminals have to maintain accurate data regarding arrival, discharge, storage and clearance of containers, both dispatch and receipt, as the terminals bill their clients for the services rendered based on this information.
The terminals charge storage and demurrage on containers from the clients and have to maintain accurate records of arrival and departure of containers. The terminals have to maintain a high degree of computerisation since they have to deal with international companies like shipping lines from whom they receive bay plan files, manifest information, etc. They also have to rely heavily on computers for their internal operations involving planning for loading and discharge of international vessels and for internal moves and stacking of containers which continues round the clock.
The terminals use internationally accepted, standard computer systems like NAVIS etc, as are deployed at other ports around the world. The KICT (Hutchinson Port Holdings) and QICT (DP World) are part of international chains operating multiple terminals across the globe. For internal uniformity they use the same equipment as used at other terminals across the world. PICT, the third terminal, although not part of an international chain, cannot compete and survive in the world of global terminal operators unless it matches their standards in automation.
The terminals are independent of Customs, NLC or PRAL and have no vested interest in the outcome of this investigation. The FTO said that is it possible for a container to leave a terminal from Karachi for a border destination at 10 in the morning and return to the same terminal after having dropped its transit cargo at the border customs-station a few hours later? The analysis of terminal data takes into account such common-sense impossibilities. After obtaining data of transit containers (destined for Chaman, Amangarh, Torkham) exiting from KICT, QICT and PICT on Microsoft Excel format, we proceeded to work out the time taken to complete their round trips to the same terminal.
The report further said that it is necessary to establish a reasonable timeline in which containers can possibly do a round trip of Chaman, Amangarh or Torkham, as the case may be. The US/ISAF/Nato containers go right up to Kandahar or Kabul, as the case may be, taking 16-18 days to complete their Karachi-Afghanistan-Karachi round trip. However, as the FTO office has not as yet received tangible evidence of serious wrongdoing on the part of US/ ISAF / Nato, in relation to transit cargo, and also as we have still to receive reliable data from Afghan/ US/ ISAF authorities to firm up our conclusions on this aspect, the present investigation has been confined to only to Afghan transit trade, including of course cases where name of ISAF/ Nato has been misused for ulterior motives, it added.
The minimum time transit containers require to reach the border-station and back to the same terminal is significantly more than 8 days. The data showed that 11 containers returned to the terminal the same day, after discharging their transit cargo at the border stations. Another 29 containers completed the job within 2 days, 54 in 3 days, 128 in 4 days, 494 in 5 days, 1,784 in 6 days, 4,565 in 7 days and 7,992 containers completed their job in 8 days. Thus, during the past almost four years at least 7,922 transit containers based on a 8-days cut-off time, never made it to the border stations and entered the same terminal empty after discharging their cargo en route. A large proportion may have done so without even leaving Karachi, the report added.
The FBR proposed to the government to empower the customs authorities for screening any container destined for the ISAF and Nato forces operating in Afghanistan through amendment in the relevant Customs General Order (CGO) of 2002. A provision is required to be introduced in the CGO to allow the customs department to examine the containers of ISAF etc which are in transit through Pakistan to Afghanistan. The provision would enable the customs department to physically examine containers wherever there is a doubt, sources added.