Report of the European Court of Auditors: “Are simplified customs procedures effectively controlled”?

Report of the European Court of Auditors: “Are simplified customs procedures effectively controlled”?

By Martin Ouwehand

Recently, the European Court of Auditors ("the Court") published a special report on their website concerning the effectiveness of controls on simplified customs procedures for imports. Simplified customs procedures for imports are a key element of EU customs and trade policy and are widely used throughout the EU. A recent analysis reveals that in 2008, approximately 70 percent of all imports were made using simplified procedures, meaning that economic operators that are in possession of the relevant customs licenses can benefit from, inter alia, accelerated customs clearance processes as a result of reduced customs formalities/fewer controls. As a result of evolving legislation that is ever adapting to technical, economic, and political conditions, it is expected that this number will further increase during the coming years.

Given this development, it is important to have a clear picture of whether the use of these simplified procedures is effectively being controlled throughout the EU. In this respect, the Court analyzed the two main customs procedures facilitating the release of goods for free circulation into the EU: 1) the simplified declaration procedure and 2) the local clearance procedure. For this purpose, the Court specifically designed a control model. The audit specifically focused on the two following questions:

"(i) Has the Commission developed a sound approach for controls on simplified procedures, taking into account international best practices, and did it monitor the correct application of simplified procedures and the controls thereon?

(ii) Do Member States use a sound and standardized approach for controls on simplified procedures and are these controls effective?"

For their analysis, the Court reviewed the controls and audit methodology that are applied in nine Member States. The results were subsequently measured against the Court's control model. Approximately 1,000 customs declarations were checked. The results of the audit show that simplified procedures are not (yet) effectively controlled in the majority of the Member States that were part of the audit. As to the first question, the Court concludes that a sound approach for controls on simplified procedures was developed by the Commission, including a regulatory framework supported by comprehensive guidelines, however not before the end of 2008.  Aspects relating to risk analysis and controls during processes need to be improved. Furthermore, guidelines for ex-post audits are not complete and the Commission did not start dedicated inspections on simplified procedures for imports until 2008. Therefore, the Court advises the Commission to improve the existing regulatory framework and guidelines, using the Court's model as a basis, and to adequately monitor the implementation thereof in all 27 Member States.

Regarding the second question, the Court concludes that the Member States did not apply a standardized approach for controls/audits. The audit has shown that the controls that were performed were ineffective/poor and that Member States often followed their own interpretation of the rules, rather than the guidance provided by the Commission.

According to the Court, such an absence of checks encourages trader negligence, which may also result in financial consequences. For example, a review of 274 declarations resulted in 49 errors, giving rise to a €558,000 loss in duty payments, a loss that cannot be recovered as a result of lapsed deadlines. Therefore, the Commission is advised to instruct Member States to use a common approach for checks and audits, in line with the control model defined by the Court, and to encourage Member States to exchange information in order to collectively develop a set of "best practices." The Commission's role in this regard should be to actively review the authorization processes of the Member States and to encourage Member States to computerize all aspects of the processing of simplified procedures for imports.

In sum, the Court's audit showed that improvements are necessary in order to ensure proper functionality of customs simplification regimes. As customs authorities rely on completeness and accuracy of information provided by economic operators, it is crucial that the control strategies filter out (potential) irregularities. This is important, not only from a customs compliance point of view but also from a financial perspective. One of the main objectives is that the European customs legislation, control models and guidance tools are uniformly applied in all 27 Member States. This will be a challenge for all parties involved.

If you have any questions on the above or would like to receive more information about the details of the Court's report, please do not hesitate to contact your Greenberg Traurig liaison.