Revenue Programme

Revenue risks in the Customs context include leakage through smuggling of highly taxed goods, such as alcohol, tobacco and motor spirits. They also include commercial fraud activities, such as undervaluation, misclassification, misuse of origin and preferential duties, drawback fraud, among others. In order to address these risks in a structured manner and provide Members with a platform for discussions and exchange of best practices, the Working Group on Revenue Compliance and Fraud was established in November 2014. The Working Group builds on the success of the former Working Group on Commercial Fraud, created back in 2005. It addresses not only enforcement-related revenue risks, but it also deals with the compliance side of business, such as post-clearance audit, voluntary compliance programmes, etc.

Commercial Fraud

Customs commercial fraud is not only an area of concern for the developing countries: it affects developed countries as well. Perpetrators take advantage of every opportunity presented in the multi-modal transportation systems and trade patterns to execute a variety of fraudulent schemes, causing significant damage not only in the form of leakage of government revenues, but also inhibiting economic competitiveness of compliant traders. Furthermore, it is suspected that some aspects of Customs commercial fraud, in particular overvaluation, have been linked to money laundering. Such disguised illegal capital outflows could provide criminal groups with funds to fuel other criminal activities, such as arms purchases/sales, drug smuggling, etc. It remains a long-standing issue, particularly due to its varied modalities and sophisticated nature.

In order to effectively prevent and detect commercial fraud, Customs needs to employ a strategic multi-faceted approach, including capacity building and international cooperation. The WCO addresses the issue of commercial fraud within the framework of its Revenue Programme. In order to provide Members with best practices on this subject, the WCO has adopted several Recommendations. Furthermore, in response to requests from Members to enhance their capacity to counter the problem of commercial fraud, the WCO has produced a number of technical materials and guidance documents.

Tobacco and Cigarette Smuggling

Taxation of tobacco reduces smoking levels (which in turn reduces smoking related diseases such as cancer, heart disease, stroke, and lung disease such as bronchitis and emphysema), and also raises substantial amounts of revenue for governments. Due primarily to commercial fraud, smuggling of tobacco and tobacco products continues to be a global phenomenon that contributes to transnational organized crime, adversely impacts revenue collection, and undermines public health objectives.  The WCO’s Illicit Trade Report describes general trends and patterns of the illicit trade of tobacco including the continued diversification of smuggling routes. There are numerous large-scale smuggling cases, resulting in seizure of more than 10 million pieces of cigarettes. The disposal of such large quantities of tobacco requires involvement of organized distribution channels. In addition, there has been a growing concern within the international law enforcement community that cigarette smuggling appears to have been exploited by organized criminal groups as a global illegal business which generates high profits. Moreover, its proceeds may be linked with international terrorism organizations, which are seeking means of funding their activities.

Trafficking in counterfeit cigarettes is another aspect of problem. Seizures of raw tobacco or leaf tobacco, as well as forged tobacco stamps also continue. Counterfeit cigarettes are sometimes declared to Customs as genuine ones at the point of entry. In this way, counterfeit cigarettes are introduced into the legitimate market and, even though duties and taxes are paid, a substantial profit is still made by the criminals who no longer incur the additional costs associated with concealing the cigarettes.

Given that many countries are the targets of cigarette smuggling, enhanced multi-agency cooperation at the national level is urgently needed. The WCO has been working with other regional and international organizations in an attempt to identify the best possible enforcement strategies to counter this problem, including joint Customs enforcement projects and operations.

Post- Clearance Audit

Post-clearance audit (PCA) process is a structured examination of a business’ relevant commercial systems, sales contracts, financial and non-financial records, physical stock and other assets as a means to measure and improve compliance. PCA is the most effective tool for many aspects of Customs controls, including the application of the WTO Valuation Agreement, and for enabling an effective Customs risk management cycle by measuring traders’ overall compliance and reflecting the results for future controls. By application of a post-clearance, risk-based approach, Customs are also able to target their resources more effectively and work in partnership with the business community to improve compliance levels and facilitate trade.

Recognising the importance of PCA as an instrument to enhance multi-layered risk management approach, in 2012 the WCO Council adopted PCA Guidelines, which serve as the major instrument for Members and the stepping stone in PCA implementation.