While not the sole cause, lack of adequate infrastructure to keep up with the rapid growth in container traffic in Latin America is one of the contributing factors to corruption at some of the region’s ports, said Thomaz Favaro, an analyst at the consulting firm Control Risks and co-author with Niels Lindholm of a study released last December, Stuck in the bottleneck: Corruption in Latin America Ports.
Some customs officials in the region use delays at ports “to sell a fast track approach or a faster way of moving goods in and out of country that creates opportunities for ‘facilitation payments’ or other forms of corruption,” Favaro said.
He cited figures from the UN Economic Commission for Latin America and the Caribbean, that state the region saw annual growth in container traffic of over 14 percent between 1990 and 2010, with 54 percent of traffic concentrated in Brazil, Panama, Mexico and Chile. Colombia, it adds, is closing the gap from those four countries each year as its growth rates increase.
“However, infrastructure capable of handling growth and substantial improvements in port capacity is isolated to only a few countries in this region. As a result, port congestion is a reality throughout Latin America, a problem which, coupled with poor transport links, has pushed up logistics costs and created a breeding ground for corruption practices. In the Brazilian port of Santos customs clearance takes, on average, 21 days to clear a container, as opposed to two days for Rotterdam. The average waiting time for a ship to berth is 16 hours – almost three-times longer than in 2003,” the study said.
With a large number of countries and so much diversity between them, Favaro said it’s difficult to assess whether port corruption is getting better or worse in Latin America.
But he noted clearly the penalties for participating in corrupt activities under laws, such as the U.S. Foreign Corrupt Practices Act (FCPA), the U.K.’s Bribery Act and equivalents in other jurisdictions, are becoming greater.
He pointed to a deal entered into last year by Ralph Lauren with the U.S. Justice Department and Securities and Exchange Commission relating to payments to customs officers and gifts to certain government officials in Argentina between 2005 and 2009.
According to FCPA Blog, Ralph Lauren agreed to pay $1.6 million in combined penalties to Justice and the SEC in exchange for unprecedented dual non-prosecution agreements.
Favaro also said since 2012 at least two oil and gas companies were fined under FCPA, admitting to paying bribes to customs officials in Argentina and Brazil to expedite import/export clearance at the ports.
The Control Risks report pointed to corruption incidents in La Guaira, Venezuela, where it said customs officials were taken into custody for crimes of extortion against companies in the maritime business; at four ports in Brazil—Rio de Janeiro, Itaguaí, Vitória and Santos—where federal police found evidence of companies paying bribes to tax auditors and customs brokers to facilitate the entry of goods into the country; and in Barranquilla, Colombia, where an investigation targeted police officers under similar accusations.
Trade and extortion by the Knights Templar cartel in Lazaro Cardenas led the Mexican army to take over security operations at that port last year.
“Ports are not an island within a country, they are part of a bigger structure and corruption in ports usually reflects corruption in the country as a whole,” Favaro said.
Favaro also expressed concern about renewed economic nationalism in some Latin American countries, pointing to Venezuela where he said “corruption has flourished in the port sector since 2009 when the government nationalized the country’s ports and created a joint Venezuelan-Cuban venture, Bolipuertos, to operate them.”
However, Bolipuertos appears to be aware of the problem and in May its website noted members of Venezuela’s anti-corruption department visited the port of La Guaira, where they received a presentation on increased security to prevent corruption.
Favaro’s report charged that “some of the policies adopted by the administration of Cristina Fernández have also fostered corrupt practices in Argentina. Since the 2008-09 global financial crisis, the Argentine government has sought to manage its trade balance through a series of protectionist measures. As a result, customs procedures have become more cumbersome and difficult.”
He wrote that non-automatic licenses which, according to the World Trade Organization, “should be released within 60 days, can take much longer to be processed by customs officials. This has fostered corrupt practices at ports as companies seek to fast-track their imports. A federal prosecutor in December 2011 filed a complaint against the then Secretary of Industry (who resigned a year later) in relation to allegations that he coordinated a major bribery scheme. The accusations suggest that corruption may not be confined to low-ranking officials.”
The firm Global Trade Alert ranks Argentina and Brazil as having implemented the third and fifth largest number of trade protectionist policies since 2008. (Russia, India and Belarus are ranked one, two and four, respectively.)
The global economic crisis that began unfolding in 2007 hit Latin America hard, it said, slowing down economic growth considerably, but in a report issued last July, titled Not Just Victims: Latin America and Crisis Era Protectionism, it said the region has not just been a victim of protectionism imposed by other parts of the world, but “many Latin American governments—in particular, Argentina and Brazil—have taken numerous, occasionally creative steps to tilt the playing field in favor of domestic firms.”
“With protectionist measures, customs procedures become more cumbersome and difficult and cargo can be seriously delayed. The time to process all these requests is now taking much longer and this has also fostered corrupt practices in ports,” Favaro said.
He said the region could benefit from the expansion of the Panama Canal and creation of transshipment ports. If that leads to faster and more efficient flow of cargo a positive side effect could be reduced need for facilitation payments.
This article was published in the June 2014 issue of American Shipper.