“Tipping” Risks in Shipping

“Tipping” Risks in Shipping

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October 01, 2015

In a leading shipping publication recently, there was a reference to an Admiralty clerk in some remote jurisdiction who asked for a “tip” for issuing a claim form. The pervasiveness of small bribes in shipping is hardly a secret. Does euphemistically calling bribes “tips” help sustain the illegal practice in the industry?

First, let’s clarify why the additional payments to various government officials in ports, including customs, immigration, warehousing, stevedoring, etc. are not tips, but bribes:

  • A tip is paid for a service for which there is an alternative available;
  • A tip is voluntary in nature; and
  • The amount of a tip is discretionary and is determined by the quality of service provided.

(This is discussed in further detail in the 2013 Forbes piece “Tips and Bribes: Not the Same Thing.”)

In contrast, government officials in ports demand specific payment amounts for services that only they can provide, often without regard for the quality or timeliness of such services. The demands often leave shipping companies and their agents with the belief that they have no alternative but to pay and, by so doing, expose themselves to the risk of an anti-bribery compliance violation.

In the face of demands, companies may rationalize these payments. They may argue that an extra payment is a legitimate subsidy of low wages in developing countries. And while some of the services which the additional payments purportedly cover may indeed be legitimate, such as overtime work, work during local holidays, or duties outside of the official’s job description, these should be purchased through appropriate channels. They should not become a way to legitimize bribery.

TRACE’s publication The High Cost of Small Bribes offers two responses to requests for additional services:

  • Formalize and document the arrangement by requesting a formal agreement and invoices; and
  • Where feasible, seek the approval of the official’s superior to hire him under a separate agreement.

When it comes to expediting, or facilitation, payments, which are usually demanded to secure licenses, overcome unwarranted delays at customs, or resolve disputes over inflated taxation, it is important to keep in mind that they are prohibited by many countries and largely banned under companies’ compliance policies. Companies and their agents are advised to decline to “tip” by explaining their company’s policy or the relevant law that does not permit expediting payments.

The short-term result of eliminating “tipping” for many companies interviewed by TRACE has been relief from constant demand for small bribes; the long-term results will be reduced bureaucracy, enhanced predictability, and a more stable business environment in the shipping industry.

For more on this topic, please see the following resources:

The High Cost of Small Bribes
Tips and Bribes: Not the Same Thing
Handout Wipeout: Beating Back Bribery in Project Cargo

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Comments 1

  1. Omar Michelena

    Bribery practice most common in developing countries need the intervention of OMC to rule out measures to prevent same. Penalties and fines to staff commiting bribery acts should be deterred by high sanctions.

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