MANAGEMENT RESPONSE

Appendix 2
Page 1 of 3

U.S. Customs Service

Memorandum

DATE: MAY 5 2000
FILE: AUD-1-OP BAB

MEMORANDUM FOR DENNIS SCHINDEL
ASSISTANT INSPECTOR GENERAL

FROM: Director,
Office of Planning

SUBJECT: Report on U.S. Customs Service Support for the
Business Anti-Smuggling Coalition

Thank you for providing me with a copy of your draft report entitled
“United States Customs Service Support for the Business Anti-Smuggling
Coalition” and the opportunity to discuss the issues in this report.

In response to the report's recommendation, Customs will take every
opportunity to reemphasize the roles and responsibilities of both the U.S.
Customs Service and the business community with respect to the
Coalition. In addition, Customs will strongly encourage the business
community to develop policies and procedures to ensure the long-term
viability of the Business Anti-Smuggling Coalition (BASC) along the U.S.
Southern border.

The Business Anti-Smuggling Coalition (BASC) program was conceived
as an unconventional, 21" Century, cooperative approach by the public
and private sectors to deal with companies that have the potential of
being compromised by narcotic traffickers. It was never the intent of the
U.S. Customs Service to run BASC. For that reason, the program was
designed to be business-led and Customs supported.

Because BASC is business-led and Customs supported, Customs has
decided against developing a written agreement between the business
community and this agency. Serious consideration was given to the need
Trapition and or advantages of having such agreements. However, unlike the
Carrier Initiative Program (CIP) which was an outgrowth of statutory
* authority that governed narcotic-related civil penalties, BASC is an
attempt to have exportimport companies voluntarily become involved in
Sexvics addressing contraband related issues. Therefore, BASC complements
the common carriers’ efforts that are being put forth under the auspices of
* the CIP. Establishing written agreements between the private sector

Honor

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SUPPORT FOR THE BUSINESS ANTI-SMUGGLING COALITION


As of September 1998, membership by U.S. businesses in the BASC, consisted
of only 51 businesses, 27 of which were in the state of Florida. In our opinion,
this coalition had not made significant progress toward reducing the threat of
smuggling via commercial trade. An increased level of Customs support is
needed to ensure the success of this initiative. Customs must take a more active
role and provide additional resources if the BASC is to survive in a domestic
setting.

BACKGROUND

In April of 1996, the BASC, a business led and Customs supported alliance, was
created in San Diego, California, to combat narcotic smuggling via commercial
trade. The goal of this coalition was the creation of a security-conscious
environment by U.S. businesses at their foreign manufacturing plants to
eliminate, or at least reduce, product vulnerability to narcotics smuggling.
Customs supported the coalition in achieving this goal through public meetings
to raise the awareness level of U.S. businesses that their products are vulnerable
to drug smuggling. Also, by providing a forum in which the business
community and Customs can exchange ideas and information, the BASC makes
available to its members the best security practices in use. This coalition,
therefore, complements the Carrier Initiative Program (CIP)! to provide
coverage for the entire process of manufacturing and shipping merchandise from
foreign countries to the United States. At the time of our audit, there were 105
air, 2,870 sea, and 854 land carriers participating in the CIP while only 51 U.S.
businesses had applied for membership in the domestic BASC.

In February 1998, Customs began to change the focus of its efforts and
resources within the Industry Partnership Program to high-risk foreign locations.
This led to implementing another partnership between Customs and the business
community, the Americas Counter Smuggling Initiative (ACSI). This initiative
builds on the CIP and BASC by expanding the anti-narcotics security programs
to foreign businesses located in Central and South America. Under ACSI, teams
of Customs officers from the Offices of Field Operations, Investigations,
International Affairs, and Intelligence assist foreign business entities and law
enforcement officials in developing and implementing security programs and
initiatives in Central and South America and Mexico. Funding for this initiative
is provided by Customs. Also, high level officials, including the Commissioner

‘A joint effort between commercial carriers and Customs which encourages carriers to improve their
security practices in striving to prevent narcotics from being placed onboard their conveyances.

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Appendix 4

FINAL REPORT DISTRIBUTION
—————————

DEPARTMENTAL OFFICES

Under Secretary for Enforcement

Assistant Secretary (Enforcement)

Desk Officer, Office of Accounting and Internal Control
Director, Office of Strategic Planning

U.S. CUSTOMS SERVICE

Assistant Commissioner, Office of Field Operations
Assistant Commissioner, Office of Internal Affairs
Director, Office of Industry Partnerships

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available to honor this commitment for all current industry partnerships.
Therefore, presentations at public meetings created expectations of
benefits from Customs, which could not be delivered.

Customs also needed to implement policies and procedures in addition to
those concerning the actual performance of the security inspections. For
example, policies and procedures were needed to specifically address
such items as: periodic security updates, documentation and reporting
requirements, record maintenance, and the imposition of sanctions if
recommended security improvements are not made. These are some of
the considerations to be taken into account when determining resource
requirements. However, before progressing to this level, agreement
must be reached and documented as to the responsibilities of each
partnership group. For example, the U.S. business community should
establish policies and procedures to address such items as: the
management structure, and how officers are elected or appointed;
membership qualifications, and the fees and dues to be charged; when,
where, and how often meetings are held; records to be kept; and
methods of disseminating information concerning best practices and law
enforcement intelligence.

CONCLUSION

In our opinion, the BASC can provide an increased opportunity to reduce
the threat of smuggling via commercial trade along the southern U.S.
border. However, similar to their efforts with ACSI, Customs must take
a more active role in the domestic BASC to ensure its success. Customs
needs to work with U.S. business leaders to develop uniform policies
and procedures, which define the roles and responsibilities of both the
public and private sectors. These jointly developed policies and
procedures would not impose mandates on the U.S. businesses, but
wouid serve to clarify each group’s expectations. Aiso, Customs
management must assess the impact the domestic BASC will have on
available resources and develop written procedures for accomplishing
their responsibilities. Likewise, the U.S. business community should
establish written policies and procedures for the operation of the
domestic BASC organization. These actions are necessary to provide the
structure needed to ensure the success and longevity of the U.S. BASC,
and for Customs to deliver its implied commitment of conducting
security reviews for U.S. businesses.

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The BASC Was Never Formalized

Customs entered into the BASC without formally executing a written
agreement concerning the roles and responsibilities of the members.
Instead, Customs adopted the philosophy that the coalition should be a
voluntary program for businesses, with no Customs-imposed mandates.
As a result, the BASC did not have a firm organizational structure or
specific policies and procedures within which to operate.

At a BASC development meeting held in San Diego, California, in April
1996, a major U. S. business entity proposed written agreements that set
forth specific roles and responsibilities, designed to encourage
collaboration among members. This coalition member had successfully
implemented similar written agreements with its business clients. Based
on the coalition member’s experience, the proposal was accepted by the
Southern California Customs Management Center and a draft BASC
document was written. This document included an action plan that
outlined short-term, mid-term, and long-range objectives. Also the
document provided written agreements for the coalition members, a
resource and budget outline, an employee information sheet, and a site
survey questionnaire. This document, however, was never finalized or
formally adopted by either Customs or the business community. In our
opinion, this left the coalition without a formal organizational structure
and uniform set of policies and procedures within which to operate.

From the inception, Customs promoted the BASC as an industry-driven
Customs-supported initiative. Customs encouraged the U. S. business
community to share the responsibility of enforcement and increase their
involvement in self-governing, without Customs mandates. The goal of
the coalition was to allow industry “best practices,” not Customs, to
create industry standards. However, these concepts were not fully
accepted by all business members. Some members expected more
Customs involvement. A formal written agreement outlining the
responsibilities of each participant would serve to clarify both Customs’
and the U.S. business community’s role in the coalition.

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of Customs, have been directly involved with foreign officials and business
executives in developing the ACSI partnership.

OBJECTIVES, SCOPE, AND METHODOLOGY

The objective of the audit was to determine if Customs provided sufficient
support to the BASC to ensure its success in reducing the threat of smuggling via
commercial trade along the southern U.S. border. This audit was limited to a
review of the BASC as implemented by U.S. businesses, and did not include
other industry partnerships, such as the CIP and ACSI. Our audit included
operations from inception of the program in April of 1996 through September 30,
1998, and was performed at Customs’ Headquarters in Washington, DC, and the
Ports of Otay Mesa, California, and Miami International Airport, Florida.

Our fieldwork also included visits to business partners in El Segundo, California,
and Miami, Florida. At each location, we interviewed personnel and reviewed
data on policies, procedures and operational results. We reviewed information
on individual U.S. business members maintained by Customs Headquarters, and
interviewed selected business members concerning the benefits and services
received.

The audit was conducted in accordance with Government Auditing Standards
issued by the Comptroller General of the United States and included such audit
tests as were deemed necessary.

AUDIT RESULTS

Neither Customs nor the U.S. business community provided sufficient support
to ensure the success of the domestic BASC. A formal written agreement
establishing a viable organizational structure was not executed; and, each had
different expectations as to the roles and responsibilities of the other. The
business community did not provide the leadership anticipated by Customs, and
Customs did not provide the services expected by the business community. As a
result, the success of the domestic coalition has been marginal. In our opinion,
a fully functioning BASC along the southern U.S. border has the capability of
achieving results similar to the Carrier Initiative Program which, during a two
year period, was credited with the seizure of 18,437 pounds of narcotics and the
interception of an additional 59,181 pounds of narcotics that were destined for
the United States.

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In a similar manner, the initial business leader in Miami, Florida, never
became actively involved. It was only after an extensive search by
Customs that another business representative was recruited to lead in the
development of a coalition. In November 1997, this business member
joined with the World Trade Center in establishing a local BASC.
Although this has been one of the more successful partnerships, it also
represents a high degree of risk for Customs. The BASC charges
businesses a membership fee, which is only partially refunded if an
applicant does not become a member. Advertised benefits of
membership include discounted BASC training seminars by the World
Trade Center, free employee background investigations, expedited
processing of cargo through Customs ports of entry in the Miami area,
and mitigation of penalties. A Customs Headquarters representative
stated that only limited site security surveys would be provided by
Customs, although it continues to be prominently listed as a sponsor of
the BASC in the brochure advertising these benefits.

Customs’ Support Of The U.S. BASC Was Minimal

Customs’ primary commitment to the domestic BASC has involved the
promotion of the coalition through public meetings. This limited support
was necessitated by a lack of specific funding for the domestic program.
Also, at the port level, inspectors were assigned BASC responsibilities as
a collateral duty. As a result, Customs has limited resources to support
additional domestic activities, such as security inspections.

Customs participated in only seven promotional meetings along the
southern U.S. border during the period July 1996 to April 1998. These
meetings were dependent on receipt of sponsorship from large U.S.
corporations because funding was not provided by Customs. At some of
these meetings, Customs offered to conduct security inspections of
member facilities as an incentive to membership, and 51 U.S. business
members were successfully recruited.

However, there were no procedures or plans developed as to how or
when security inspections would be performed and Customs did not
maintain documentation on the number of inspections performed.
Similar security inspections were also offered for two other industry
partnerships, the CIP and the ACSI. Management at Customs
Headquarters and port levels agreed that sufficient resources were not

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UNITED STATES CUSTOMS SERVICE
SUPPORT FOR THE BUSINESS ANTI-SMUGGLING
COALITION

OIG-00-109 July 17, 2000

“6

Office of Inspector General

eek

United States Department of the Treasury



agreements with the business community. However, Customs needs to
ensure there is a clear understanding between it and the business
community regarding their roles and responsibilities, and that
participation does not include things such as expedited cargo processing
and mitigation of penalties.

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RECOMMENDATION

The Commissioner of Customs should reinforce the domestic BASC through the
commitment of sufficient funding and personnel and jointly with U.S. business
entities implement policies and procedures needed to ensure that BASC will
continue as a viable organization along the southern U.S. border.

Management Response and OIG Comment

Customs management stated that Customs will take every opportunity to
reemphasize the roles and responsibilities of both the Customs and the
business community with respect to the BASC. In addition, Customs will
strongly encourage the business community to develop policies and
procedures to ensure the long-term viability of the BASC along the
southern U.S. border. Based on Customs’ accomplishments to date with
ACSI in foreign locations, Customs feels that any short-term action
should be to continue program development in the foreign locations.
After reevaluating the program and upon obtaining the objectives at the
foreign locations under ACSI, Customs will look to reinforce the BASC
program domestically with particular emphasis along the southern U.S.
border. Customs seriously considered but decided against developing a
written agreement between the business community and Customs.
Unlike the CIP which was an outgrowth of statutory authority that
governed narcotic-related civil penalties, BASC is an attempt to have
export/import companies voluntarily become involved in addressing
contraband-related issues. Customs feels that a written agreement with
the business community and Customs will contradict the concept of a
voluntary program for businesses.

The OIG believes that until Customs devotes its efforts and resources to
the domestic BASC program, the growth of this program will be stifled.
This is indicated by the fact that only two BASC chapters have been
formed in the U.S. since 1996. In contrast, the ACSI program has
resulted in the organization of six chapters during the period October
1997 to October 1999. The progress with the ACSI is directly
attributable to the resources and written guidelines Customs provided for
the program. Written guidelines have not impeded ACSI’s progress, but
have served to define the roles and responsibilities of Customs in the
program without imposing mandates on the foreign business community.
The OIG acknowledges Customs decisions not to enter into written

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The BASC Suffered From A Lack of Leadership

The U.S. business community did not provide sufficient leadership to
ensure that a viable coalition was established and maintained along the
southern U.S. border. Customs encouraged business participants to
establish self-imposed business standards. However, standards were not
developed and adopted. As a result, the success of the BASC program at
each U.S. location depended on the strength and commitment of local
business leadership.

Initially, three major U.S. businesses assumed responsibility for leading
the organization of BASC membership at the Ports of San Diego,
California; Laredo, Texas; and Miami, Florida. This effort, however,
was minimal and resulted in very limited success. For example, in San
Diego, California where the BASC concept originated, the coalition
became inactive in July 1996 approximately 3 months after initiation.
Customs, because of other priorities, stopped actively promoting the
partnership. The originator became disinterested in leading the
implementation of the BASC because the company did not receive
certain expected benefits’ from Customs. This coalition remained
inactive until October 1997 when Customs, with the assistance of the
Border Trade Alliance’, took action to revitalize the coalition. This
action merely resulted in a series of promotional meetings; however, a
specific framework for governing the coalition was not established.

At the Port of Laredo, Texas, the local business leader, who initially
assumed responsibility for working with Customs to organize the
membership, never became actively involved. Only recently have efforts
been made to establish a BASC in Laredo; through the combined efforts
of Customs and the Border Trade Alliance. Again, this effort has been
limited to promotional meetings.

? The BASC member anticipated receiving benefits, such as those enjoyed by CIP carriers. Prominent
among these benefits is expedited processing of cargo and mitigation of sanctions in the event of
unexpected violations by carriers in good standing.

3 An organization of private sector trade businesses conducting import and export business along the
United States and Mexico border.

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OVERVIEW

The United States Customs Service (Customs) is faced with the significant
challenge of reducing the threat of narcotics smuggling while facilitating a
rapidly increasing flow of legitimate trade. This increased workload is the
result of the implementation of trade agreements, such as the North American
Free Trade Agreement (NAFTA), and an overall increase in trade. Customs
has entered into several partnerships with the business community to reduce the
threat of using legitimate trade to smuggle drugs.

This audit focused on one of these partnerships, the Business Anti-Smuggling
Coalition (BASC), which was organized and established in the United States
(U.S.) in April of 1996. This partnership emphasized the creation of a security-
conscious environment by U.S. businesses at their foreign manufacturing plants
to reduce product vulnerability to narcotics smuggling. The audit was
conducted to determine if sufficient support was provided to this coalition to
ensure its success in reducing the threat of smuggling via commercial trade
along the southern U.S. border. In performing the audit, we reviewed Customs
operations in Washington, DC; Otay Mesa, California; and Miami, Florida; and
interviewed BASC members representing the business community.

The BASC as implemented along the southern border has had only limited
success. The concept was developed by a domestic business entity in April
1996 and proposed to Customs out of self-interest. The business entity did not
want its name associated with drug shipments and proposed to strengthen
security at their foreign plants. In return, the company expected certain benefits
from Customs, such as site security surveys and expedited cargo processing.
Customs recognized the value of the U.S. business community’s assistance in
combating smuggling via commercial trade and endorsed the concept. The
business entity proposed implementing the partnership using written agreements
that clearly defined the roles and responsibilities of the partners. This however,
was not achieved and the partnership was never formalized nor funded.
Therefore, Customs’ support was limited to promoting membership at various
U.S. trade meetings and conferences. Without a clearly defined role, Customs
could neither adequately determine the extent of resources required, nor
establish specific policies and procedures for accomplishing their
responsibilities. This lack of structure also directly impacted the U.S. business
community’s ability to provide the leadership necessary to ensure the universal
success of the coalition along the southern U.S. border.

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Appendix 2
Page 2 of 3

MANAGEMENT RESPONSE

-2-

participants and the U.S. Customs Service contradicts the concept of a
voluntary program for businesses, with no Customs-imposed mandates.

To date, the U.S. Customs Service has had success without such
agreements and feels the imposition of contractual documentation would
deter many businesses from becoming involved.

This long-running audit encompassed three domestic sites and indicates
that there has been marginal success. However, in late 1997 the
Customs Service applied risk management methodologies to the
smuggling of narcotics in the commercial environment and determined
that the efforts and allocation of resources expended within the Customs
Industry Partnership Programs should be done in high-risk foreign
locations. This enabled us to address the narcotic concer in the
commercial environment at a very vulnerable stage of the exportimport
process - the place of manufacture and the transport of the product from
factory to port-of-exportation.

The mechanism utilized to achieve this objective remains the Americas
Counter Smuggling Initiative (ACSI), which is an expansion of BASC.
Through this initiative, the U.S. Customs Service has been able to help
numerous business communities establish BASC Chapters in six foreign
countries. This is in addition to the two BASC Chapters that have been
established in the United States. As a result of this success, the World
Customs Organization (WCO) and International Chamber of Commerce
(ICC) have supported BASC as a program that they endorse as a
worldwide model. This concept was finalized at a meeting of the WCO
during the first week of January 2000 and is being put forth under the
auspices of the “WCO Business Partnership”.

During the time period of October 1997 through October 1999, there have
been over 50 ACSI/BASC related foreign team visits and an expenditure
of approximately $800,000. The monies have covered travel-related
expenses, some equipment, and the production of seven videotapes to
assist in the promotion and education of BASC participants. There was
approximately $300,000 budgeted in FY 2000 to fund similar activities in
connection with the Customs Industry Partnership Programs. Fiscal year
to date there has been an additional ten-plus ACSI/BASC related foreign
visits of Customs teams in furtherance of this program.

In addition to allocating these resources, Commissioner Kelly attended
the inaugural BASC event in Cartagena, Colombia and directed the
establishment of a Colombian working group to include the development
and expansion of industry partnerships within Colombia. He also

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Appendix 3
MAJOR CONTRIBUTORS TO THIS REPORT

Charles Mataya, Region Director, Program Audit, Southern Region
Kenneth Coleman, Audit Manager, Program Audit

Clara Veal, Auditor-In-Charge

Robert Edwards, Auditor

Gene Wendt, Referencer

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TABLE OF CONTENTS

OVERVIEW .... 0... cccccccccecccceeecesnseeeeesenceeeeeeetreeeeseieeeesecesesesesesesetta serene 1
BACKGROUND ............. 0... ccccccccceeeee ee eeeceeeeeeeenennteeaeeaaeaaaaeeeeaseesseeaeeeeeenaas 2
OBJECTIVE, SCOPE, AND METHODOLOGY ..............ccccseceeeeesesteeeeeesneeseeeee 3
AUDIT RESULTS..........00. 0.0 cccccieceeececeseeeseesenecsnneeeeeeeeeaaeaaeeaeeeeeeeasaeeeeenea 3
The BASC Partnership Was Never Formalized .................cccccceeeeeeeeeeeuseeees 4
The BASC Suffered From a Lack of Leadership................22..cceeeeeeeeeeeeeeneees 5
Customs’ Support of the U.S. BASC Partnership was Minimal...................... 6
APPENDICES
Appendix 1 Abbreviations ...........0....ccccccccssscscceceeeeceeseeeeseeeeeeeeeeeeneaeeees 10
Appendix 2 Management Response...........0......cccccseseeeeeeeeeeeeeeeeuaaeeeeneeeeee 11
Appendix 3 Major Contributors to this Report .................cccceeeeeeeceeceeeeeeeees 14
Appendix 4 Report Distribution ..........0......cccccceeseeeceeeeeeeeeeeenaneeeeeeeeeeeees 15
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DEPARTMENT OF THE TREASURY
WASHINGTON, D.c. 20220

July 17, 2000

OFFICE OF
INSPECTOR GENERAL

MEMORANDUM FOR RAYMOND KELLY, COMMISSIONER
UNITED STATES CUSTOMS SERVICE

FROM: Dennis S. Schindel
Assistant Inspector General for Audit

SUBJECT: Audit Report on the United States Customs
Service’s Support for the Business
Anti-Smuggling Coalition

This memorandum transmits the final report of the Office of
Inspector General’s (OIG) Audit of the United States Customs
Service’s Support for the Business Anti-Smuggling Coalition
(BASC). This audit is the second in a series of planned
audits covering various aspects of the United States Customs
Service (Customs) Operation Hard Line, a long-term strategy
to disrupt and deter narcotics smuggling.

Our report discusses the limited success of BASC along the
southern border and the minimal Customs support of the
domestic program. We recommend that Customs reinforce the
BASC organization along the Southern U.S. border by providing
sufficient resources and jointly developing policies and
procedures with U.S. business entities. Customs management
stated that Customs will take every opportunity to
reemphasize the roles and responsibilities of both the U.S.
Customs Service and the business community with respect to
the Coalition. In addition, Customs will strongly encourage
the business community to develop policies and procedures to
ensure the long-term’ viability of BASC along the U.S.
Southern border.

We appreciate the courtesies and cooperation provided to our
auditors. If you wish to discuss this report, you may call
me at (202) 927-5400 or a member of your staff may contact
Charles Mataya, Director, Program Audits at (713) 706-4611.

Attachment


Appendix 1

ABBREVIATIONS

ACSI Americas Counter Smuggling Initiative
BASC Business Anti-Smuggling Coalition
CIP Carrier Initiative Program

Customs United States Customs Service

NAFTA North American Free Trade Agreement

OIG Office of Inspector General

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Appendix 2
Page 3 of 3

MANAGEMENT RESPONSE

-3-

expanded this working group to an Andean plan (Colombia, Bolivia,
Ecuador, Peru and Venezuela), and is supporting Customs involvement
with the WCO and ICC to establish a worldwide Customs partnership
program.

Based on the accomplishments to date, it is felt that any short-term action
should be to continue developing the program in those foreign locations
(Colombia, Peru, Ecuador, Venezuela, Panama, Costa Rica, Mexico, and
Bolivia) that pose the highest risk. As prescribed under risk management
methodologies, the program will be reevaluated to determine its
effectiveness and any necessary changes. Possible foreign expansion
will be to high-risk Caribbean locations. Additionally, upon attaining our
objectives at these high-risk foreign locations, we will look to reinforce the
BASC program domestically with particular emphasis along the U.S.
Southern border.

We believe that there is currently nothing in the Inspector General draft
report that warrants protection under the Freedom of Information Act or
applicable exemption.

Thank you again for the opportunity to comment on this report. If you

have any questions regarding these comments, please have a member of
your staff contact Ms. Brenda Brockman at (202) 927-1507.

William 2 Riley a

Ce: Chief of Staff
G. Zawadski

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