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Industry Insight

Shifting Legacy Maritime Culture through Operational Management, Transparency, and Digital Transformation, Part 3

We begin this week by focusing on the most significant impedance to sustainability and equality in global markets – corruption and transparency. Without its resolution, attempts to tackle other matters will ultimately be undercut by the genuinely global pandemic of corruption. As the saying goes, “one bad apple can spoil the bunch.” As civilization has progressed from monarchies and oppressive regimes, collective action and transparency build a culture of integrity and systems that may eradicate bad actors.

Maritime Bribery & Corruption

“The shipping industry is vulnerable to corruption because it constantly has ships going in and out of ports. When a ship arrives or departs, it’s an opportunity to ask for illegal payments.”

                        – John Sypnowich, Chief Legal and Compliance Officer, the CSL Group Inc., &  Chairman of the Maritime Anti-Corruption Network (MACN)

Corruption is one of the biggest impediments to economic and social development. Its existence increases volatility in the market, prevents long-term investments, increases operations costs, and reduces growth. On a macro level, in 2018, the U.N. and the World Economic Forum stated that the cost of corruption is at least $2.6 trillion, or 5% of the global domestic product (GDP). Moreover, businesses and individuals pay more than $1 trillion in bribes every year. As such, corruption is estimated to add a minimum of 10% to the cost of doing business. Not surprisingly, the U.N. states a visible nexus between grand corruption and mass atrocities.  

In 2017, of the 180 countries and territories ranked by their perceived levels of public sector corruption by Transparency International, the Corruption Perception Index found that more than two-thirds of those ranked scored below 50, with an average score of 43 (0 = highly corrupt, 100 = very clean). For reference, New Zealand and Denmark were the highest-ranked with respective scores of 89 and 88; Syria, South Sudan, and Somalia ranked 14, 12, and 9 respectively, with no country scoring a 100. Regionally, Western Europe averaged 66, Sub-Saharan Africa averaged 32, and Eastern Europe and Central Asia averaged 34.

After generations of fraud and corruption, the maritime industry is banding together to provide transparency. Established in 2011, Maritime Anti-Corruption Network (MACN) is a global business complex working toward the vision of a maritime industry free of corruption. A plague to fair trade and societal benefit is a continual threat from interactions with immigration, customs, and environmental inspections. Through collaboration with external stakeholders (comprised of local governments and port authorities), standardized operating procedures and grievance mechanisms are reducing demands for facilitation payments in the Suez Canal, bribes in Argentina, and improving operations in Nigeria. Organizations such as MACN provide strategy through three pillars, including collective action programs, international capability-building to combat corruption and bribery, and constructing a culture of integrity.

Perhaps the most significant pillar is the “culture of integrity.” The intent is to completely transform the sector from a reactive position to a proactive shift. A shift that no longer entertains the possibility of corruption in any port.  

The Cost of Corruption at Sea

The MANC provides examples of reported incidents. Such as port authorities threaten to delay and fine vessels $60,000 for errors on the fuel declaration or an environmental inspector claiming to find roaches or non-compliant vaccine certificates. Officials offer immediate resolutions to deficiencies through large and direct facilitation payment of several thousand dollars. These bribes and facilitation payments represent the most common forms of corruption at sea. Cecilia Müller Torbrand, Program Director, MANC, explains that “a facilitation payment is a low-level payment made to a low-level official to perform a routine task that you are already entitled to.”

The MACN provides one specific incident that is all too familiar for those who have sailed.

“This call during berthing, the [tugboat] pilot boarded the vessel after making the usual request for cigarettes. The request was declined by the vessel … [Later] I noticed that the stern was moving out … I knew something was wrong. I asked the second mate to check the tug, only to be told that the aft tug had cast off the ship’s line and had left … It was totally unprofessional both for the pilot to leave and for the tugboat to cast off the line and leave without informing the vessel. Holding the ships to ransom and endangering the crew and vessel for what—a carton of cigarettes.”

Despite being a seemingly minor infraction, it represents a much larger spectrum and overall mindset permeating the world from port to port. It reiterates that captains and crew continually experience direct threats to operational and personal safety due to corrupt officials and operators. 

Even though each company is bound by law to have in-place anti-corruption policies, inspectors worldwide often take advantage of ambiguous scrutiny criteria. They use such opportunities to demand payments. Depending on the operation, failure to comply or resist facilitation payments can delay a vessel from sailing. The average cost to operators is estimated to be $50,000 per day.

Corruption is as old as society. Its presence is an existential threat to prosperity and sustainability.  Now with a well-connected global community, watchdogs and other organizations are helping measure and compare corruption’s location, intensity, and cost.  Next week we will discuss recommendations to heighten transparency along with technology that can combat corruption and a mechanism for hope.  As always, please feel free to share your comments or experiences for others to learn from.

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