What DHS Has Failed to Fix, is Fixable

Part 1 of 2

by Dr. Jim Giermanski, Chairman, Powers Global Holdings, Inc.

Among many of its problems, the Department of Homeland Security (DHS) has three that are serious vulnerabilities for the United States: In-Bonds, Transshipments, and Outbound Container Shipments. These three issues are also important for the U.S. International Trade Commission's (USITC) role in protecting intellectual property rights. These are not new and there are multiple options to address and correct them. What is more disturbing is that it is well known that these agencies are aware of these vulnerabilities, but have not addressed them. The fact that DHS focuses on air, as recently demonstrated by the Transportation Security Administration's (TSA) recent Pat-down situation, seems to suggest that because terrorists used aircraft, its attention should be on air travelers. Clearly, the more obvious mode of transport in causing the greatest degree of injury is motor and rail carriage. It could be that DHS is primarily a reactive agency and it is waiting for a container or port-related attack to address these obvious container and port issues.

This analysis will provide a summary view of each of these vulnerabilities, and provide solutions to address them with existing technology and processes available in private-sector markets today. The solutions will also identify different firms with different offerings which have no financial dealings together or joint operational or joint corporate activities. These potential solutions are out there to be reviewed and used as appropriate.

In-bond Vulnerability

In-bond shipments, overseen by DHS's Customs and Border Protection (CBP), have long been an essential part of trade in the United States, but the system may be out of step with the increasing demands of national security. In-bond shipments to and within the United States are shipments not intended to enter U.S. commerce and therefore do not bear the requirement of payment of the appropriate import duties and taxes required under the law. To ensure that the U.S. collects its duties in case an in-bond shipment does enter U.S. commerce, CBP requires the posting of an import bond as security to guarantee payment.

Bonded cargo is carried in sealed containers or trailers. Ordinarily, these conveyances with their cargo have a final destination outside the U.S., but can transit through the country to a border port of export or to a U.S. seaport for export. In-bonds also could have a temporary destination in the U.S., including foreign trade zones and bonded warehouses, that are not technically in U.S. Customs territory.

In 2007, The GAO (Government Accountability Office) investigated the in-bond cargo system which was then characterized by the press as one that allows importers to quickly record incoming cargo allow the carrier/trucker to post a bond instead of the Importer of Record paying full duty, and completing the paperwork and payments later at final US destinations, while shipments move on to other destinations. In its report GAO-07-561 of May 17, 2007, the GAO found that CBP frequently does not follow up on shipments processed through the in-bond system. GAO stated: The limited information available on in-bond cargo also impedes CBP efforts to manage security risks and ensure proper targeting of inspections. In-bond goods transit the United States with a security score based on manifest information and do not use more accurate and detailed entry type information to re-score until and unless the cargo enters U.S. commerce. As a result, some higher risk cargo may not be identified for inspection, and scarce inspection resources may be used for some lower risk cargo.

In May 2007 the U.S. Senate Committee on Finance released a statement that the Committee agreed with the GAO Report and stated that as a result CBP has asked all ports to improve administration of the in-bond program. However, the agency's instructions have not been universally applied. GAO recommended that Customs improve its information collection for in-bond cargo, work to identify holes in the system and close them, and to revive a previously used system to check a sample of in-bond shipments for compliance, and to target some shipments for inspection.

Not only has Customs and Border Patrol (CBP) failed to address the security problem, it now has failed to address the import tax issue which costs the United States hundreds of millions of dollars in revenue, and raises the possibility that contraband could move on to other U.S. destinations to enter illegally the commerce of the United States, thereby avoiding import taxation, or duties. This possibility is as evidenced by CBP’s March 3, 2008 announcement of seizing more than $67 million dollars worth of clothing illegally brought to the United States via the in-bond system. The shipment was supposed to transit through the U.S. Southwest to a Mexican destination.

However, in cities like Laredo, Texas there is now clear and compelling evidence that CBP may be willfully avoiding its responsibility to ensure proper duty and even tax collection. In Laredo, Texas, the largest land port on the southern border, CBP, instead of enforcing and supervising the legal In-Bond process, is accused by many of looking the other way. As a result of CBP's avoidance of action, reputable businessmen in Laredo have now stepped up to contest CBP's lack of enforcement.

U. S. Customs Brokers in Laredo, for instance, claim that many regulations are simply ignored by CBP. One U.S. firm established in a foreign trade zone in Laredo, Texas has had enough of the lack of action by CBP. It has officially notified CBP of 6 specific Federal Regulations that are routinely and repeatedly violated. These 6 regulations involve the use of proper bonded facilities, the use of bonded motor carriers, manipulation of cargo and more.

Second, what impact would this practice have on in-bonds from Mexico carrying drugs? It is possible that a shipment of legitimate cargo destined for Canada which contains drugs or even WMD in addition to the legitimate cargo can enter the United States by using the in-bond system. The contents can be declared as electronic products and entered without inspection by having the proper new in-bond documents filed with CBP enabling CBP to allow the cargo to go to a Mexican forwarding agent on the U.S. side of the border where the container or trailer is opened; the drugs (or any other cargo) removed for further distribution in the U.S., and the original legitimate cargo sent on to Canada in its original status as an authorized in-bond shipment. Or what about a legitimate U.S. in-bond to Guatemala that is opened at the southern border, guns added, and then shipped as a legitimate in-bond into Mexico where it is opened, guns removed, and the shipment continues to Guatemala?

Transshipment Vulnerability

CBP considers transshipment as sending an exported product through an intermediate country before routing it to the country intended as its final destination.

Specifically, transshipment means that the cargo does not arrive on the vessel it was laden into. So how does this arrival and discharging of cargo in the United States from a vessel different than the one that debarked from a foreign port impact U.S. security? Under CSI, high-risk containers receive security inspections, including X-ray scan and radiation scan before being loaded onboard vessels destined for the U.S. Once high-risk containers are scanned at CSI ports, they are not scanned again until arrival at the U.S. seaport. Worldwide, there are 16 major transshipment ports: Singapore, Hong Kong, Shanghai, Kaohsiung (Taiwan), Pusan (Korea), Tanjung Pelepas and Klang (Malaysia), Rotterdam, Dubai, Gioia Tauro (Italy), Algeciras (Spain), Hamburg, Salalah (Oman), Colombo (Sri Lanka), Port Authority of Jamaica and Antwerp. While not classified as major, there are many more in the Caribbean and South Atlantic, which are of special interest to the United States: Colon and Manzanillo (Panama), Cartagena and Barranquilla (Colombia), Pt. Cabello (Venezuela), Kingston (Jamaica), Havana, Cristobal and Balboa (Panama-Pac), Rio Haina (Dominican Republic), Bridgetown (Barbados), Pointe-a-Pietre (Guadeloupe), Vieux Fort (St. Lucia), and Point Lisas Trinidad).

So what happens when a container is scanned in Japan but goes to Panama where it is discharged and placed in the port until it can be once again laden onto another smaller container vessel for entry into the United States? It is not rescanned since many of these smaller transshipment ports do not have scanning equipment. Additionally, while there are CBP authorities at CSI-operational ports that are also transshipment ports, they are subject to the law of the country in which they were placed and may not personally check or inspect these containers even with intelligence that they contained drugs, counterfeit materials or explosives.

Just as Congress admits that in-bond shipments are a serious problem, so DHS admits that transshipments are a serious problem. DHS's failure to solve this problem is confirmed in this official statement "There is currently no proven technology which can address transshipped containers." This admission was contained in the testimony on container security of then Acting Customs and Border Protection Commissioner Jayson P. Ahern before the House Appropriations Committee, Subcommittee on Homeland Security, release on April 1, 2009.

In fairness, his use of proven technology may extricate him from an otherwise seemingly false statement. Therefore, we have waited many years for a fix that apparently nobody in the Department of Commerce (DOC) or the Department of Homeland Security (DHS) has heard about, or knows about, or has seen. However, based on my direct knowledge, the rest of the trading world is considering or is in the process now of evaluating existing systems that can provide the solution to transshipments, specifically the European Union, China, South Africa, South Korea, Pakistan, Malaysia, and Mexico.

The Outbound Container Vulnerability

There are two major security programs specifically aimed at protecting our ports and surrounding communities against containers used as weapons of mass destruction (WMD) when they arrive at our ports: the Container Security Initiative and C-TPAT. The Container Security Initiative (CSI) and its 24-hour manifest is specifically focused on containers getting ready to sail to the United States. CSI, by virtue of the 24-hour manifest, the cornerstone of its security layer, wants to know information on inbound cargo like:

1. Carrier SCAC Code (Standard Carrier Alpha Code)
2. Last Foreign Port
3. Vessel Name
4. Voyage Number
5. IMO Vessel ID Number
6. Date of Departure from Port
7. Container Number
8. Commodity Description (with HTS-6)
9. Commodity Weight
10. Bill of Lading Number
11. Shipper Name and Address
12. Consignee Name and Address
13. Hazmat Code
14. Seal Number
15. Numbers and Quantity
16. Foreign Port of Lading
17. First Foreign Place of Receipt
18. Vessel Country
19. Date of Arrival at First US Port
20. Port of Unlading
21. Time of Departure from Port.

C-TPAT is a much broader program which recognizes the need for close cooperation with the ultimate owners of the international supply chain, the importers, exporters, carriers, consolidators, licensed customs brokers, and manufacturers.” Both programs, however, look only in one direction at the inbound containers: an inbound fixation. If one examines CBP's security layers, it becomes quite clear that CBP is so concerned about containers coming in, that it ignores security related to containers leaving the Unites States. In other words, it is focused on a potential terrorist plan using a container loaded with a weapon of mass destruction (WMD) shipped from a foreign location to the United States. An examination of all the C-TPAT requirements for all the categories of its participants confirms a 100% inbound fixation. CBP wants to know about the source of the incoming container, any business relationships between the foreign consignor and the U.S. importer-consignee, and almost everything one can think of in the way of information on the incoming container.

(1) For an expanded treatment of this and related issues see: Dr. Jim Giermanski, So You Think CSI works: Gummy Bears or Cocaine, Maritime Executive, Volume 13, Edition 8, March/April 2009, pp. 38-43.

(2) Pamela M. Zaresk, Area Port Director, U.S. Customs and Border Protection, Charleston, SC, Presentation at the Annual South Carolina International Trade Conference, May, 2007

(3) http://www.cbp.gov/xp/cgov/trade/cargo_security/ctpat/what_ctpat/ctpat_overview.xml

(4) Jim Giermanski, Container Security: Is the Layered Approach Working?

Part 2 will run on Tuesday's (January 18) Newsletter