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SETTING CAPACITIES FOR CUSTOMS ADMINISTRATIONS Zagon Csaba1

Abstract A frequently asked question is how large the Defence Forces should be? How large burden the taxpayers should take to finance a proper size of, equipped and directed organisation to guarantee security at the expected level? It has been analysed by actors of the Military Sciences so many times in consideration of the Armed Forces. The Law Enforcement Community, however, takes part in a Countrys defence potential and therefore this question may be asked in relation to their organisations as well. If we take Customs Administrations as an example from the Law Enforcement Community such analysis may be also fulfilled. Customs has their specific responsibilities within the whole security sector; that essentially, but not exceptionally focuses on its economic dimension. Keywords: customs, economic security, risk analysis, staffing capacities Wars may be fought with weapons, but they are won by men. It is the spirit of the men who follow and of the man who leads that gains the victory. Gen. George S. Patton Jr. INTRODUCTION The law enforcement organisations responsible to guarantee the economic security stand in the focus of the authors research topic. In this article both Hungarian and other European countries similar organisations are selected for analysis. Our aim is more about to find proper questions, not to answer them all. While this article concentrates on the law enforcement agencies in capacity setting, these organisations have certain similarities with their military counterparts and sometimes show significant differences either. It is certainly not accidental, because law enforcement agencies were, in historical perspective, developed on military basis and separated from the military according their specific duties. Many examples can be found for organisations having pure law enforcement and others for pure military duties. There are even others with responsibilities covering both of such areas. In our present time there are examples in Europe end elsewhere for those composite services operating the overlapping territories of law enforcement and military lets think about certain Finance or Border Guard and Gendarmerie bodies, or about Military Police services having peace time civilian law enforcement responsibilities. We can see multilevel hierarchies at all the above-mentioned sort of organisations. The members of such military, law enforcement and also composite services wear uniforms or vestments, and all of the employees have their own position within the hierarchy according to their assignment, degree, and some of them have military or similar rank as well. And it is
Zagon Csaba is a PhD candidate at the Doctoral School in Military Sciences, Miklos Zrinyi Defence University, Budapest, Hungary. Contact address: csabaz (at) dravanet (point) hu
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2 just as important like the before mentioned characteristics of such organisations that these individuals are authorised by the law (or similar high degree regulations, quite very often by the Constitution) to use legal force or to put restraint to others in order to fulfil their tasks belonging under their competence. Often we will analyse some statistics purely for illustration purposes. We need see whether our approach is correct or do the numbers collected for statistical reasons support certain ideas developed for setting capacities of such organisations, or even subordinate units of such organisations are built up. We are attempting to mention as many relevant dimensions as we can, however we are unable to browse in details all of them for limited content purposes. Finally, we do not want freeze the analysed organisations in a certain time, but we try to collect possible questions and answers on the basis of the recent development. If a law enforcement or military organisation is currently under reorganisation, or a massive organisational reform is taken place that does not make our question notional or hypothetical. The questions like: how large, in what structure, which capacities, from what budget sources etc. have always their actualities and perhaps are motive powers for the further development. DIMENSIONS Although there is practically no standard how a Customs Administration should be built up, there are main expectations from a Customs Service, what sort of duties should they ensure, what circle of responsibilities should they take. And also what sort of powers they are needed to be in possession for claiming such areas of responsibilities efficiently. How Military Organisations may differ from state to state, even within the NATO Alliance, Law Enforcement Agencies vary even more, while they have to meet certain mandatory expectations, laid down in conventions, agreements, acts and other rules and regulations, or they may follow recommendations on their own free will. Despite the lack of mandatory standards, there these recommendations worked out by various entities such as the World Customs Organisation, United Nations Conference on Trade and Development, The World Bank, the European Union and others. However, if we turn back to the topic of Customs Services, there are so many functions they may fulfil we need to create certain guidelines, groups and categories for the better understanding. STATE STRUCTURE AND CUSTOMS TERRITORY Modern Customs Organisations fulfil state related tasks solely, therefore a brief outlook seems to be necessary what characteristics these modern states have and do they have any impact on the role of the Customs. The states have their civics, state forms including their forms of government such as monarchies and republics as well as other subcategories may be set according to the power s of the heads of states. These forms do not have too much influence on the roles and responsibilities of Customs, if only their name refer to the state form e.g. Royal Customs, His/Her Majestys Customs etc. Even if we stay geographically at Western and Central Europe we can find examples. However, if we see the degrees of self-governance according to their degree of centralisation or de-centralisation, there are unitary states and federal states and also so called devolved state structures to be analysed from the Customs point of view. Unitary state means that most of the competences lie with the central government and only minor or local issues are within the authority of regional governments. According to the state pattern in Western and Central Europe, there are federations of states or regions with equal competences, and other states

3 have either devolved certain powers to special regions or are federal states (or both). Law enforcement in general, show differences in unitary and federal/devolved state structures, because a local law enforcement services are the elementary components of the state law enforcement system, that is supplemented with state and federal level law enforcement structures with specific and federal areas of responsibility. For instance, Metropolitan Police has competencies in Greater London solely, Police Constabularies in that certain shire (county) where they are established. This sort of law enforcement is responsible first of all, for the local community (represented by the mayor, governor etc.). Their dependency on the Ministry of Interiors or similar state level governmental structures is just secondary. The unitary states have unified law enforcement service structures, where, for instance a single Police Service is responsible organisation in the whole country, although they have their own local units, however they still are members of the same organisations. The unitary states law enforcement units have very limited (collateral) or often no local dependency. They depend on their state level central authority, and/or ministry. Conversely, modern Customs Services whether they are organised within unitary, federal and devolved states does not show such differences, because they have area of responsibility for the entire customs territory of the country. We need to mention here, that there are examples for that specific situation, when the customs territory does not fit into the territory of a country. Not taking into consideration the transit and customs free zones, there are or have ever been federal states with more than one customs territories (e.g. The Federal Republic of Serbia and Montenegro had two customs territories as per their entities had their own Customs Services too) and there are other formations where more than one Customs Authority has responsibility on a single customs territory (Customs Union). Seemingly these led us far from our original topic, how the capacities should be set for the Customs Services. In fact, these state related patterns must be considered. As a summary I constructed a simple chart to demonstrate these dimensions as follows. Table 1: State structures and Customs territory Centralised Decentralised Customs Union unitary state (devolved) and federal state The territory It covers the territory The territory of a member state or of that certain of the federal state or entity of the Customs Union, but their state one or more of its decisions have effect on the entire entity customs territory of the Customs Union

Customs typical area of responsibility

RESPONSIBILITIES OF CUSTOMS SERVICES Although it is the most known duty of the Customs Services, their responsibility go far beyond collecting of customs duties and taxes related to importation of goods. They are responsible for many connecting tasks where common motive may be considered like control of international trade and traffic, or monitoring production of, trade with high tax rate goods (excise products), and also investigation of crime cases committed at their own administrative spheres just mentioned, and so one. We need to create a system here that helps in setting cate-

4 gories for all known Customs Services, so there it is quite difficult to find a simple one that works for all of them. NATO has, for instance, a simple approach to categorise military organisations giving a clear view on their general functions by using the terms of combat combat support support tasks of the units. If we slightly change it, a system of triple categories may be used for the Customs as follows: main duties supporting duties additional duties. Some additional duties are present to support the efficiency of the main tasks; others however do not connect strongly or even somehow to the main duties. Main duties and supporting ones are often connected to each other and progressing into a certain synergy in a situation of well co-ordinated implementation. Some additional tasks have very little, if nothing connection to the above-mentioned motives, we attempted to list here. In the same time, the list is not exhaustive certainly. The objective was to pick the most relevant elements from the common list of the European Customs Services for demonstration purposes. Although more than one main duty can be specified, these each may be referred as pillars as well. Main pillars of Customs I - Administrative Customs - to check international trade and collect customs duties and taxes; Excise - to check excise production and trade and to collect excise duties, check excise stamps; + Supporting assignments e.g. to provide information for the customers, collect data for the competent authorities and statistical purposes etc. II - Law Enforcement Enforcing the law by checks, inspections at the border/inland scenes in all traffic modes; Patrol operations; Guard and escort duties; High-risk warrants, capture violent criminals, armed suspects, (briefly: to use force if necessary ) III - Criminal Investigation (open) Prevention, detection and investigation of crime offences belonging to the own investigative power; in case if the offence belongs under other authoritys investigative power it has, etc to take over to the competent authority. Undercover investigation + Supporting assignments e.g. crime scene forensic and evidence handling, criminal analysis (strategic and operational), whiteness protection, surveillance capabilities, etc. Additional pillar(s) IV Additional Assignments such as Border Control and Protection, Cost Guard (e.g. in CH, IT, DE/partly) Aliens control (full or limited power)

5 Phytosanitary (limited) Veterinary (limited) Radiological inspection (limited) Control of jewels production and commerce (full or limited power) Supporting pillar(s) V Support Human Resource Management involving Training and Development Recreation Finance, Procurement, Logistics, Maintain Properties e.g. BCPs etc. These tasks are not available all in the area of responsibility of each Customs Service. There are Customs Organisations one entire pillar is missing such as they do not have investigative power at all and if they detect discrepancies, anomalies violation the law considered as a crime they seize evidences, impede suspects and hand them over to the Police or any other authority responsible for the investigation. There are examples to shared responsibilities between two organisations. One of them is an administrative one fulfilling checks no use of force is needed, and the other organisation is responsible for the enforcement and investigation both have patterns from the tasks elements of the customs Services listed above. INDICATORS FOR ANALYSIS We have seen various patterns for areas of responsibility of Customs Services. To go deeper into them we need to set indicators for further analysis. We cannot overestimate the relevance to find proper indicators, however I consider this phase as one of its core part of such work. Lets see a few factors possibly become indicators for the Customs performance. Certainly the list is not exhaustive and may be continued on. Revenues Having responsibility for so many roles in the same time assumes well-structured organisation that can follow priority expectations and also ready to follow the changes in their areas of responsibilities. The main duties of Customs services are administrative: to collect revenue on imported goods and to monitor circulation of excise products. The higher the importance of duties in the national budget the stronger the focus on revenue collection. (We will analyse detailed results on revenue collection later, combined with other indicators.) The authorisation for enforcement in case of non-compliance, and investigation in extraordinary cases if serious violations of the regulations were taken place also belong to the main pillars of responsibility. One challenging factor that a Customs should follow the quickly changing environment either we think about the continuously developing rules and regulations, or the changes of violations and criminal activity. International trade and traffic can change too, just as the politicoeconomic environment where the transactions performed. Gen. Ivn Kovcsics, former deputy-commissioner of the Hungarian Customs and Finance Guard responsible for revenues supposed on the needs on closing up Customs and Tax Administration in Hungary that the situation has changed significantly. Although there were formerly unsuccessful attempts to involve the two authorities under one flag, Hungarys EU

6 integration created a new landscape in the responsibilities. We indicated in 2003 for the Government that the revenues collected from the commodity import will decrease rapidly, because the force majority of the countrys international trade has strong EU orientation and just a little part is imported from the so-called third countries. The length of the outer borders significantly shortened and will get shortened further by integration of new member states. The relevance of the outer border control is getting smaller and smaller. Not so long time ago, customs checked each cargo crossed the border and attention was paid on the tax imposed, and each parcel was cleared in a single customs declaration. Now, the majority of clearances are electronic, and the burden of customs is getting slowly to move towards the system of self-admission. This brief summary highlights the essence of the changes of a landlocked country upon gaining their full EU membership. This foresees new needs for something different customs control and significant changes of their administrations too. Organisation The patterns and solutions already developed for the modern customs concerns single or joint authorities with functional or organisational integrations. Prof. Mikls Szab pointed out an essential tri-partite connexion of the military science in his presentation on the Theory of air supremacy arms race in the air the Hungarian Royal Air Force in the 1930s. The interactions between these entities push forward the military sciences. The most quickly changing from the tree entities called military technical means developed by the power of the military economy, or may be referred simply just armaments. Their frequent change enforces the development of the military organisation, and the more effective use of the armaments. These two together, however, require new combat procedures to gain deployment modes fit better for the new armaments and organisations. Or may be also referred as military science. This urges to develop new theories setting new demands for further development of technical means and military organisations, even more modern combat procedures may be worked out. Organisations would also indicate that in case of even higher developed armaments would allow more effective organisation and so one, and so one. Turning to the core changes of the circumstances of international trade and customs procedure needs triggered by the EU integration that surely will lead to amendments in the customs organisations and their procedures. There are many answers on similar questions; there are even tendencies like the integration of the customs and tax administrations that happened at other EU members. In other countries the functions of such authorities became even more integrated, involving for instance of the border management and the border formalities such as the single window system i.e. developed by the WCO as a recommendation. So, no absolute solution exists that fits for all of the countries in the region, however one thing seems to be repeatedly arisen: the question of what capacities of the customs administration should bear and how large the administration should be? To find proper answers we need to have proper indicators ready and capable to be used for performance assessment and comparison purposes. However, the government expectations overemphasizes the revenue collection means and has very little ideas about the capabilities law enforcement and investigation pillars should get. This can be compiled as they show higher sensitivity on the state incomes collected, and less whether it is originated from compliance or it was somehow enforced.

7 Staffing There is a plausible approach for setting capacities and capabilities if we turn to the human resources. It is always critical how an organisation manages their own recruitment needs, what conditions are set for applicants as education, language skills, health status etc. Similar questions come up in relation with almost all organisations. For the customs point of view the status of the staff seems to be more delicate question. Whether these people serving with the Customs Service need military-like ranks, uniforms, arms, do they need to belong to a military structure or there is no need of it. They may remain civilians, at most they have vestments, their character is administrative employment and do not belong to a military-like organisation, their service show even more like a civilian company character? Even within the EU there are examples for both characters. It seems to be that the character chosen by a country is about their national traditions and expectations how their law enforcement, involving their Customs Service would show. Both may be successful. It is here to be pointed out, that the staff members should indicate somehow they belong to a law enforcement agency if their official procedure may involve using of force. Here uniforms or vestments are more than expected for safety and security purposes as well. I collected data for analysis from the yearly assessment reports of the Hungarian Customs and Finance Guard from the year of 1988 until 2008. I clipped out the numbers of the staff, the revenue collected in total i.e. in all customs duties, taxes and other incomes altogether. I could not get the yearly report from the years of 1997 and 1999, however the data I needed were in the following years assessment reports available as a basis year. So let see the number of staff of the HCFG. It has t be pointed out that about 80 per cent of the population is uniformed officers and non-commissioned officers and about 20 er cent are civilian staff employed at those positions where there is no need a uniformed individual to be filled in. Figure 1: Staffing level of Hungarian Customs and Finance Guard uniformed and civilian from 1987 to 2008

9!000 8!000 7!000 6!000 5!000 4!000 3!000 2!000 1!000 1987 1989 1991 1993 1995 0 1997 1999 2001 2003 2005 2007

The numbers are continuously increasing from the time of change of regime until around 1998, when the new responsibility areas of the customs have been worked out. Right after a phase of stagnate comes where a negative wave indicates the year of EU integration and the result of abandoned borders and border outposts where from the reasons of inflexibility, staff were not in position to be dislocated and left from the service. However, the analysis of the

8 pure numbers of staff does not tell so much. It should be compared with further indicators for a better view. Incomes collected This chart indicates the total revenues HCFG collected for the state budget. The chart shows an intensive increase phase until 2003, that increase was broken by the year of 2004, the year of Hungarys EU integration. This particular year was divided to two parts, because the date 1st May was the beginning the full membership and the changes of the customs regime. The year 2005 was the lowest point, from which slow and continuous increase in the amount collected may be seen. This chart however, may be not considered as balanced, because other influencing factors changes the numbers, like inflation rate and we cannot learn from the chart, how much value, purchasing power etc. had that Hungarian Forint in any particular year. Figure 2: Revenues collected by the HCFG in Bln HUF fro 1987 to 2008

3!000 2!500 2!000 1!500 1!000 500 1987 0 1995 1997 1999 2001 2003 2005 2007

1989

1991

1993

As an attempt for indicating the size of the collected revenues I compared with the number of the total staff. This has some balancing result as well, but still not very objective. Figure 3: Average state income collected by a customs officer in Mio HUF

400 333 267 200 133 67 1987 1989 0 1995 1997 1999 2001 2003 2005 2007

1991

1993

I wanted to be also assessed inflation, PPP, GDP, etc but I had to find some more or less objective balancing dimension that would not make the assessment too complicate. I stated that

9 if no significant changes its basis, the state spends almost constant value for their own services. Therefore I compared the revenues collected by the Customs with the state budget. This make absolutely visible that a continuous increase in the efficiency in revenue collection started from less than 10 per cent rose to slightly above 30 per cent. The best years were the period from 1998 to 2003 when modern and effective means resulted that Customs collected every second Forints for the state budget. EU integration broke it down to around 15 per cent. Figure 4: Revenues collected by the Customs compared with the state budget (per cent)

60% 50% 40% 30% 20% 10% 1987 1989 0% 1995 1997 1999 2001 2003 2005 2007

1991

1993

Incomes collected compared to the operational expenditure (running costs) of the Customs Organisation tells us about the expenses like a classical expenses profit balance. This show that the early years Customs ran on insufficient budget profile, resulted that each Forint were spent on the Customs running costs, came back 50 times more in profit. Es the expenses increased and the more effective and modern technical means were integrated into the work of the Customs, profit increased upto 80 times level. But further investment into the operational expenses did not result changes in positive manner. The narrower opportunity came with the EU, profit was fallen to 25 times level, that is still high, but far below the Golden Ages. Figure 5: Incomes collected compared to the operational expenditure (times)

80 70 60 50 40 30 20 10 1994 1996 1998 0 2000 2002 2004 2006 2008

CONCLUSIONS Revenues collected may be significant performance indicator for the customs and the excise administration and may not be relevant for the enforcement and for the investigation, and even less for the additional and support pillars all have their own indicators, although they are often difficult to make countable and comparable. Indicators may differ from pillars to pillars, sectors to sectors, therefore each pillar need their own measuring system.

10 The one thing that is constant is change. As the circumstances change where the Customs Administration should operate, there is a continuous need for frequent revision, capacity setting with attention to the expectations. Enforcement positions staffed with officers, administrative positions with civil servants interchangeable position categories might help reducing HR costs and may result circulation that increases flexibility. References 1. We got here in good time to develop a modern organisation, Vm Zoll Magazine, Vol. 2010 Issue 11. p.2, VIVA PrePress ISSN1215-2013 2. Prof. SZAB, Mikls: Theory of air supremacy arms race in the air the Hungarian Royal Air Force in the 1930s, Mindenttuds Egyeteme, semester IX. presentation 3, 2/10/2006. (downloaded from: http://mindentudas.hu/elodasok-cikkek/item/142l%C3%A9giuralom-elm%C3%A9let-l%C3%A9gi-fegyverkez%C3%A9s-a-magyarkir%C3%A1lyi-l%C3%A9gier%C5%91-az-1930-as-%C3%A9vekben.html ) 3. Yearly Assessment Report of the Customs and Finance Guard: 1988, Directorate General of the Customs and Finance Guard, Ministry of Finance, Budapest, 80p. 4. Yearly Assessment Report of the Customs and Finance Guard: 1989, Directorate General of the Customs and Finance Guard, Ministry of Finance, Budapest, 98p. 5. Yearly Assessment Report of the Customs and Finance Guard: 1990, Directorate General of the Customs and Finance Guard, Ministry of Finance, Budapest, 71p. 6. Yearly Assessment Report of the Customs and Finance Guard: 1991, VIVA Kft., Budapest. 133p. 7. Yearly Assessment Report of the Customs and Finance Guard: 1992, VIVA Kft., Budapest. 155p. 8. Yearly Assessment Report of the Customs and Finance Guard: 1993, VIVA Kft., Budapest. 172p. 9. Yearly Assessment Report of the Customs and Finance Guard: 1994, VIVA Kft., Budapest. 176p. 10. Draft Assessment Report of the Customs and Finance Guard: 1995, VIVA Media Management, 171p. 11. Draft Assessment Report of the Customs and Finance Guard: 1996, VIVA Media Management, 159p. 12. Yearly Assessment Report of the Customs and Finance Guard: 1998, VIVA Kft., Budapest. 212p. 13. Yearly Assessment Report of the Customs and Finance Guard: 2000, VIVA Kft., Budapest. 124p. 14. Yearly Assessment Report of the Customs and Finance Guard: 2001, VIVA Kft., Budapest. 112p. 15. Yearly Assessment Report of the Customs and Finance Guard: 2002, VIVA Kft., Budapest. 152p. 16. Draft Assessment Report of the Customs and Finance Guard: 2003, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=2421) 17. Draft Assessment Report of the Customs and Finance Guard: 2004, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=3437)

11 18. Draft Assessment Report of the Customs and Finance Guard: 2005, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=3448) 19. Draft Assessment Report of the Customs and Finance Guard: 2006, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=12504) 20. Draft Assessment Report of the Customs and Finance Guard: 2007, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=18160) 21. Draft Assessment Report of the Customs and Finance Guard: 2008, electronic edition, (downloaded on 19/11/2009 from http://www.vam.gov.hu/displayDoc.do?elementId=23041) 22. Act XCVI of 1994 on the implementation of the state budget of 1993 of the Republic of Hungary 23. Act CIV of 1995 on the implementation of the state budget of 1994 of the Republic of Hungary 24. Act CIX of 1996 on the implementation of the state budget of 1995 of the Republic of Hungary 25. Act CXI of 1997 on the implementation of the state budget of 1996 of the Republic of Hungary 26. Act XLVIII of 1998 on the implementation of the state budget of 1997 of the Republic of Hungary 27. Act CV of 1999 on the implementation of the state budget of 1998 of the Republic of Hungary 28. Act CXVIII of 2000 on the implementation of the state budget of 1999 of the Republic of Hungary 29. Act LXXV of 2001 on the implementation of the state budget of 2000 the Republic of Hungary 30. Act XL of 2002 on the implementation in 2001 of the state budget of 2001 and 2002 of the Republic of Hungary 31. Act XCV of 2003 on the implementation in 2002 of the state budget of 2001 and 2002 of the Republic of Hungary 32. Act C of 2004 on the implementation of the state budget of 2003 the Republic of Hungary 33. Act CXVIII of 2005 on the implementation of the state budget of 2004 the Republic of Hungary 34. Act XCIX of 2006 on the implementation of the state budget of 2005 the Republic of Hungary 35. Act CXXVIII of 2007 on the implementation of the state budget of 2006 the Republic of Hungary 36. Act LXXVIII of 2008 on the implementation of the state budget of 2007 the Republic of Hungary 37. Act CXXIX of 2009 on the implementation of the state budget of 2008 the Republic of Hungary