_en douane_ ). In a typical semester, there are on average 45 brokers who each handle 173 declarations from 33 different importers.<sup>9</sup> The overwhelming majority of the 3,660 importers in our sample work exclusively with one broker, as is shown in Appendix Table A2. Brokers must have a license, which is issued by the customs administration and they administer the customs clearance process on behalf of the importer by fulfilling customs formalities and submitting documentation.<sup>10</sup> Brokers are accountable for the payment of taxes, duties and potential tax adjustments and are penalized (with a fine) in case of non-compliance. In principle, repeated non-compliance can result in the revocation of the broker’s license. In practice, suspension of brokers due to misconduct is rare. Customs officials and brokers frequently socialize and are part of the narrow elite in the small town of Toamasina. Many brokers either have served as customs officials themselves, or deliberately recruit former customs officials because of their expertise and networks. Thus, there is extensive repeated interaction between inspectors and brokers, both inside and outside of the customs premises.

There is significant information asymmetry between importers and brokers given that the latter are much better informed about customs procedures and are the first point of contact for customs in case disputes arise. Some brokers have transparent pricing schemes which typically depend on the size and contents of the cargo, but others charge a fixed amount (inclusive of potential tax liabilities) per container cleared, irrespective of its content, which implies that their profits directly depend on the amount of tax they remit on behalf of the importer.

To understand how corruption may happen it is instructive to consider the customs clearance process, a stylized version of which is depicted in Figure 1.

1. **Registration.** The first step in the process is the electronic registration of an import declaration by the broker on behalf of the importer via the Automated System for Customs Data (ASYCUDA)++ customs clearance IT system.<sup>11</sup>

2. **Risk analysis.** The second step consists in risk analysis conducted by both GasyNet, a third party service provider that assists Madagascar customs with risk analysis and logistics, and the customs risk management unit.<sup>12</sup> For each declaration, (i) a risk score is issued based on GasyNet’s proprietary risk model, (ii) a clearance channel is recommended along with a qualitative justification. If the yellow channel is selected the inspector only needs to check the documentation. If the red channel is selected the inspector is expected to physically inspect the cargo. However, the inspector is at liberty to change the clearance channel based on her own judgment. In addition, (iii) for a very small subset

> 9These averages do not consider small brokers (i.e., those handling less than 50 declarations per semester) since they will not be part of our estimating sample (described in Section 3).

> 10A very small number of importers - 6 in our sample - obtained their own broker’s license and simultaneously act as importer and broker. They handle 3.2 percent of the declarations.

> 11ASYCUDA is an integrated customs management system developed by United Nations Conference on Trade and Development (UNCTAD) that has been adopted by more than 100 countries’ customs agencies.

> 12In reality the second step (risk analysis) and the third step (inspector assignment) happen simultaneously.

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