When Tunisia’s former president, Zine El Abidine Ben Ali, fell from power at the start of the Arab Spring in 2011, the Tunisian authorities found themselves in possession of a rare archive of financial mischief—a unique paper trail of the lengths to which people (in power) will go to use their clout to make more money than they should the easy way, by bending the rules in their favor. First, we learned that companies linked to the president, his relatives and in-laws deviously cornered a disproportionate share of the country’s private sector profits. Now, we learn that—in pursuit of not just more profits but higher profits—they evaded high customs duties too. Why is this important?
As public prosecutors the world over know, believing that companies are flouting the rules and proving that they are, are two very different things. Sifting through Ben Ali’s vast portfolio is a case in point: after he fled, the Tunisian state confiscated the commercial assets of no less than 114 individuals linked to him. But this month in response to an appeal—apparently by one of Ben Ali’s wife’s relatives—a Tunisian court annulled the decree allowing the state to do so, leaving the ownership of his Tunisian-based assets for the time being, unclear.
In the interim, though, researchers have had a field day sifting through the archive. Their investigations reveal that almost one third of the 662 or so firms owned by the Ben Ali clan were import–export firms, and that they were likely to have been among the largest, most economically relevant of his companies. Researchers then looked at the ‘evasion gap’ between the value of goods that countries said they had exported to Tunisia, and the value that firms connected to Ben Ali reported they had received. The resulting sample comprised 1,386 products and 16 countries, and covered of 69.75% of all the exports and 61.03% of all the imports declared in Tunisia.
The researchers paid special attention to countries with reputations for good record-keeping, such as Germany, the Netherlands, and Belgium. They found that the declared value of imports by Ben Ali firms exceeded that of the average firm by 18%, and their declared import quantities were 21% higher than the average. In other words, they were importing more than most of their competitors. Yet, especially for goods subject to high tariffs—such as cars from Europe and electronic goods from China—the unit price or value they gave each item was on average 8.1% lower than those reported by another firm, a slip of the pen (or keyboard) that meant they paid less duty.
Ben Ali’s firms used undervaluation as a strategy more often than other Tunisian firms. These also dodged duties, though mostly by underreporting the quantities of their imports or misclassifying them. Morality and legal scruples aside, these tax dodges added up, and today it’s estimated that between 2002 and 2009, underreporting by ‘politically connected entrepreneurs’ lost the Tunisian government at least US$1.2 billion in import taxes—US$1.2 billion more than the government was losing anyway from all the other firms that avoided paying their import duties in full.
The reason this matters is that this was money that could have been used for the public good in Tunisia’s general population of about 11 million. Instead, it contributed greatly to socio-economic inequality by feathering the nests of elite groups of people, many of them already wealthy.
All this evidence of skirting state import (and export) duties resonates widely in the many developing countries where revenues collected by customs usually account for over a third of all state revenues. Customs officials elsewhere in the world will find it all too easy to identify with the Tunisian officials who told researchers that fraud by Ben Ali firms was less likely to be reported to the authorities because doing so might jeopardize their careers or prompt retaliation against their families. Tunisian customs officials also said that politically connected entrepreneurs kept on top of new rules as they were introduced, and proved themselves adept at circumventing new anti-fraud measures by adapting to them.
Tunisian customs authorities are considered among the most corrupted of all government institutions by Tunisia’s citizens and companies. While the Tunisian customs code is consistent with best practices, the combination of a bewildering complexity of import regimes and very weak administrative and IT control, render effective enforcement challenging. A World Bank Export Development Project is supporting customs reforms by simplifying import policy and also by improving the IT system and modernizing systems of recruitment, or Human Resources. All of this should reduce the amount of individual discretion involved in customs procedures, as well as increasing the competiveness of Tunisian exports by improving logistics.
How people go about making profits unfairly offers all sorts of insights into how you can stop them, or others like them. In Tunisia, though, these lessons are yet to be put into effect, for although the privileges enjoyed by the former president’s family appear to have been drastically curtailed, tariff evasion in Tunisia as a whole appears to have escalated—informal, cross-border trade now accounting for more than half Tunisia’s trade with one of its two neighbors, Libya, and more than its official trade with the other, Algeria, from where roughly 25% of the fuel consumed in Tunisia originates.
