Tackling Systemic Cash Extortion in Holds Inspection

Background and Rationale

In 2014, MACN recognized through its anonymous incident reporting mechanism frequent recurring reports of cash demands made during the vessel clearance process in Argentina. Shipping companies operating in Argentina faced challenges in connection with the inspections of holds and tanks, customs declarations, and on-board inspection practices. Failing an inspection was costly since it meant ships were considered off-hire. Depending on market conditions, port costs, and commercial delays accrued from each extra day in port could amount to more than US$50,000 per day. Data from MACN member companies highlighted a systemic issue with cash demands for payment for unclean grain holds, including cases of extortion.

MACN’s Strategy

To address this challenge, MACN sought to understand the root causes and devise solutions with a coalition of champions. MACN and local partner Governance Latam (now Bruchou & Funes De Rioja), in collaboration with other industry stakeholders, catalyzed a collective action initiative to investigate the root causes of the problem and support the government in reforming its procedures to tackle systemic corruption.

After three years of public-private collective action efforts, an integrity-driven regulatory reform was adopted in 2017. The new regulatory framework modernized the inspection system in line with international standards, balancing the government’s responsibility to ensure the cleanliness of vessels exporting agricultural products with the necessary conditions for integrity in the context of foreign trade relations. After the regulation entered into force, MACN has been training and raising awareness throughout the industry about the new requirements to support the broad adoption of the new practices. 

Outcomes and Impact

As a result of the collective action, MACN has seen a 90 percent drop in reported incidents and a dramatic decrease in cash demands. MACN continues having a close dialogue with government stakeholders, MACN members, and external industry partners to monitor the situation on the ground and ensure that integrity standards are being upheld by all parties during inspections. The monitoring is supported by the incident data collected by MACN and input from the industry peer dialogue from MACN’s members.

The reform achieved has contributed to increasing the efficiency, integrity, and transparency of inspections, reducing the possibility of ship delays for unclear or unfounded reasons, and facilitating the smooth passage of vessels to the benefit of the frontline crew, global trade, and the Argentine economy.

Latest News from Argentina

MACN’s Local Partner

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In 2014, MACN members established a collective action initiative to promote the reform of the vessel clearance process for loading grain in Argentina, which had been flagged as an issue by MACN members. MACN partnered with Fernando Basch and Guillermo Jorge – two well-recognized lawyers and integrity champions —to drive this effort.

Basch is still MACN’s “voice on the ground”, engaging with authorities, local stakeholders, and industry players, and has been responsible for training relevant stakeholders, including inspectors, government officials, and port agents, and leading the initiative to succeed.

Fernando Basch is a Partner at Bruchou & Funes De Rioja – a leading full-service firm in Argentina with recognized experience in governance, transparency, and compliance.

Lessons Learned

This collective action initiative shows that it is possible to address systemic corruption when building strong alliances between the public and the private sector. For MACN the initiative is a best-practice template to fight corruption through public-private collective action. The following lessons in particular stand out:

  • Identify the root cause: Map out what’s driving the corruption scheme by asking e.g.
    • Who is receiving the illegal payments, and what are the economic drivers of the corruption scheme?
    • How do incentives work for each stakeholder and why has the corrupt scheme endured over time?
  • Actions should be business driven: Reform actions should not only be driven by integrity concerns but also make business sense and make it easier and less costly for companies to do business. Commercial incentives and operational practices may be as or even more important than legal risks in determining the stakeholders’ behaviors.
  • Local ownership is key: A successful anti-corruption initiative requires a coalition of willing and local ownership from the government, civil society, and local business networks. Companies are just one part of a larger system, and the entire system needs to be engaged in the process of change—raising the bar on efficiency, integrity, and good governance.
  • Engage the global value chain: Support from global headquarters is essential to ensure that all business partners are aligned on expected integrity practices, from the shipping company, port agents, and inspectors to the cargo owners whose products are being shipped around the world.
  • Data gives authority: Incident data gives authority and was instrumental in convincing governments and other stakeholders to recognize the challenge and take action.

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MACN Argentina Timeline

  • 2023

    • Participation at public-private roundtable hosted by Senasa
    • Monitoring of system implementation and new holds inspection app development in coordination with local industry stakeholders
    • Workshop on Integrity and Compliance challenges with local industry players
    • Integrity training to public and private surveyors and port agents
    • Quarterly local-members alliance working group sessions
  • 2022

    • Coordination with local industry stakeholders to successfully resist regressive holds inspection reform
    • Integrity training for local industry associations, including grain exporters and private surveyors
    • Quarterly local-members alliance working group sessions
  • 2021

    • 90% drop in corruption incidents related to holds inspections is maintained and confirmed by MACN members and industry data
  • 2020

    • Resource guide for industry published on the new holds inspection team
  • 2019

    • MACN members report a 90% drop in corruption incidents related to holds inspections
  • 2018

    • Training of public officials, private surveyors, and agents
    • Standardization of customs forms with a General Resolution adopted by the Argentine Customs Authorities
  • 2017

    • New regulatory framework for inspection of holds
    • Inspection funding received to implement integrity training
  • 2015

    • Multi-stakeholder coalition building with engagement from local and international industry players and public authorities
  • 2014

    • Launch of collective action with Governance Latam (now Bruchou Law Firm), the local partner

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“As a result of the collective action, MACN has recorded a 90 percent drop in reported incidents including large cash demands”

“Both private and public stakeholders work close together in enhancing  transparency and integrity in Argentina.”

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