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WRITTEN
TESTIMONY OF MICHAEL D. LADEN
BEFORE
THE
UNITED STATES SENATE
COMMITTEE ON GOVERNMENTAL AFFAIRS
DECEMBER 6, 2001
Mr. Chairman, members of the Committee, good
morning. My name
is Michael Laden and I am the President of Target Customs
Brokers, Inc., a wholly owned subsidiary of Target
Corporation. I am
also the current Chairman of the American Association of
Exporters and Importers (AAEI), and I am an appointee to the
Treasury Advisory Committee on the Commercial Operations of
the U.S. Customs Service (COAC).
I would like to thank you for allowing me the
opportunity to express my views on the important matters under
consideration today.
First, and most importantly Mr. Chairman, please allow me to
make a critical distinction; I am not a self-professed expert
on security. I
rely on others, including the U.S. Customs Service, for advice
and assistance on security matters.
What I have to offer the committee today is more than
25 years of practical operational experience on international
logistics and customs matters.
With that in mind, I’d like to divide my remarks into
three separate categories:
What the trade and Customs have already done to secure
international cargo
What COAC and Customs are currently doing to strengthen
security
What steps the Target Corporation has in place or is
considering for the future
From the outset, it is vital for the Committee to keep in mind
that the international trade industry is an intricate weave of
stakeholders: private and government, foreign and national.
Today, the U.S. Customs Service administers more than
400 laws and federal regulations imposed on foreign commerce
by more than 40 federal agencies.
And, while I would rather be before you today to
discuss matters of simplification, the atrocities committed
against our nation on September 11th have preempted
that discussion. That
said, the Committee should know that many of the regulations
and laws governing our business are over 200 years old.
Given the dynamic nature of modern commerce and the
globalization of our economy, many of the regulations we
operate under are antiquated, rendering them incompatible with
today’s modern business practices.
Simplification of onerous or outdated regulations
designed to expedite the flow of legitimate trade will also
result in a significant productivity savings for the U.S.
Customs Service, and other regulating agencies.
This will allow those agencies to optimize their
resources concentrating more on wanton violators and
conspirators.
What the Trade and Customs Have Done
I am pleased to report to you that the trade community and the
U.S. Customs Service, under the direction of the Treasury
Department, are working cooperatively together to improve many
of the security features already in place.
At the U.S. Customs Trade Symposium held in Washington
last week, Customs Commissioner Bonner called upon the trade
community to advance the partnership embracing Customs and the
trade to a new plateau. Speaking
on behalf of Target Corporation, COAC and AAEI, we stand
prepared to work side-by-side with Customs in establishing
practical, effective and cost efficient to ensure the
safekeeping of our supply chain.
The U.S. Customs Service, under the auspices of their Industry
Partnership Program (IPP), developed a series of cooperative
alliances between Customs, and the trade industry at large.
Among these programs are the Carrier, Land Border
Carrier and Super Carrier Initiatives.
In each of these initiatives, the U.S. Customs Service
cooperates with commercial transportation companies to prevent
the introduction of contraband into the stream of legitimate
commerce. The
Customs Service conducts site surveys, if requested, and also
provides extensive training on concealment and narcotics
detection. To induce their participation, the degree of a carrier’s
compliance with the agreement may become a mitigating factor
in the assessment of penalties if narcotics are found in a
conveyance belonging to them.
This is a powerful tool, and today more than 3,800
Carrier Initiative Agreements, and 27 Super Carrier Agreements
have been signed.
Rounding out the U.S. Customs IPP portfolio is the Business
Anti-Smuggling Coalition (BASC).
Created under Commissioner Weiss’s administration in
1995, BASC is a business-led, Customs-supported,
alliance to combat the unscrupulous contamination of
legitimate trade. As
the Customs Service became more successful in closing the air
and sea smuggling corridors, other concealment techniques
evolved. With increased frequency the drug cartels targeted otherwise
lawful commercial shipments as their preferred conveyance for
the movement of their contraband.
Innocent carriers and importers were victimized and
publicly embarrassed by these acts.
BASC is the corporate equivalent of the “SAY NO TO
DRUGS CAMPAIGN” so well known to the American public.
In May of this year, the first ever World BASC Conference was
convened in Cartegena, Colombia.
Customs officials and business leaders from around the
world gathered to honor the accomplishments of BASC, and to
become signatories to the first worldwide BASC Agreement.
Accentuating the significance of this program and their
commitment to it, the Acting Commissioner of U.S. Customs was
in attendance, as were the Vice President of Colombia and the
majority of his cabinet, and the Secretary General of the
World Customs Organization (WCO).
More than 15 governments leaders and industry
executives entered into the Worldwide BASC Agreement, which
defines and adopts a specific set of standards for maintaining
cargo security. BASC
is a win-win partnership; it is not only endorsed by the WCO,
but it has gained the support of the International Chamber of
Commerce, as well. The
effective BASC and Carrier Initiative Programs were launched
in response to supply chain incursions confined to a certain
geographic region of our world.
So, we have an excellent model from which to build.
Using these concepts as a prototype, the programs can
be retrofitted to become worldwide in scope.
Actions Currently Underway By COAC and the U.S. Customs
Service
On November 17th the Treasury Advisory Committee on
the Commercial Operations of the U.S. Customs Service (COAC)
met for the first time since the events on 9/11.
The 20-member COAC is an expert group of appointees
representing the trade community.
COAC is a compilation of importers, carriers,
customhouse brokers, ports and trade attorneys.
This group meets quarterly to provide advice to
Treasury officials on Customs matters of particular interest
to the trade community. During
the November meeting, Under Secretary of Enforcement Gurulé
briefed COAC members on issues related to supply chain
security, and then authorized COAC to form a Technical
Advisory Team on Border Security.
A plan for organizing the group was presented and
approved by the Under Secretary on November 28, 2001, and the
first meeting of that group was held yesterday, December 5,
2001, at Customs Headquarters.
The outpouring of support has been both heartening and
overwhelming. In
the last few days I have fielded calls from the Arizona
Governor’s Office, practically every major trade
association, and a number of other major corporations offering
their assistance. As
you can readily see, the trade has mobilized quickly and we
are working on very tight deadlines.
Customs Commissioner Bonner has requested a report in
his office no later than December 12, 2001, with a view toward
submitting all Technical Advisory Team recommendations to the
full COAC on January 25, 2002.
In light of the aforementioned complexities of our industry
and cognizant of the fact that this is a significant
undertaking, the Technical Advisory Team has been separated
into three sub-groups, land, marine and air teams.
Teams will be further broken down to address sector
disparities for example; under the marine category different
sub-groups will study containerized cargo versus bulk.
Each group will also examine consolidated shipments
versus factory-loaded consignments.
As a first step, the teams developed a flow chart of
the entire process and identified the critical stakeholders
involved. A
single import shipment will pass through many different hands
and many different checkpoints as it travels to our border. Every hand-off obviously creates new vulnerabilities.
In the next week, the teams and process owners will
examine their respective areas for vulnerabilities and
opportunities to fortify security.
In part, I believe that some of the answers to our
security concerns lie in new or developing technologies, and
perhaps in redesigning and streamlining the information flow,
but we must also rely on good old-fashioned common sense and
American ingenuity. What
it will amount to is building some logic into the systems to
recognize anomalies.
During a typical year, the U.S. Customs Service processes 10.8
million trucks; 5.3 million cargo containers; 1.9 million
railcars; 786,000 commercial aircraft; 140,000 private
aircraft; 220,000 vessels; 123,200,000 vehicles; and 479.8
million passengers. Given
the technology and resources available today, it is
impractical and impossible to search or examine 100% of these
conveyances, cargo and passengers.
Physical cargo examinations are time consuming and
costly. The
infrastructure across our land borders is simply not adequate
to accommodate the massive quantities.
Our airports and marine terminals will become congested
with shipments awaiting inspection.
In today’s environment, the U.S. Customs Service in addition
to selecting cargo or passengers randomly for inspection uses
a risk management tool known as “selectivity” to identify
high-risk shipments. A
number of ideas are currently being discussed; including
improving the data Customs has at its disposal to conduct
selectivity analysis and pre-inspection at origin.
But from my perspective, sorting out the “known”
from the “unknown” shippers is the most expedient way for
Customs to refocus its energies on potentially problematic
shipments. Last
year, the Customs Service processed shipments entered by more
than 400,000 importers. However
of that number, the top 10,000 importers are responsible for
the vast majority of the import volumes.
In recent years given the explosive growth in trade and
static resources at Customs, they have migrated to an account
based management approach for the top tier of importers. Continued expansion of Customs’ account based management
philosophy is necessary.
Actions Target Has Taken
One of the first tasks I undertook after joining Target in
1998 was establishing a Target BASC Program.
Comparatively, Target does not have substantial volumes
of traffic from countries that BASC identifies as high risk.
This notwithstanding, some of the basic security
standards were embraced when creating the compliance
questionnaire used by our compliance inspectors.
The Target Assets Protection and Import Administration
groups coordinate our BASC participation.
The Target Brands group who maintains responsibility
for Target’s Approved for Purchase Program and foreign-based
compliance inspectors provides additional support.
Target’s bottom line is this: we want no more, nor
any less than exactly what we’ve ordered when it comes to an
international consignment.
Simply stated, we want no contraband of any kind
contaminating our shipments.
The centerpiece of the Target BASC Program is training.
Working closely with our vendors and service provides
located in high-risk countries, we educate them using
seminars, written materials and onsite visits to reinforce our
expectations. These
efforts are further augmented when the factory is designated
for an unannounced compliance inspection performed by Target
Brands. These
rigorous examinations include a review of the premises and
available security features.
When concerns arise, we work closely with the factory
management to rectify matters.
But the process of screening really begins much further
upstream, at the beginning of our relationship with a
particular vendor. In
my view, for an importer, one of the most crucial aspects of
security is having reliable knowledge about the suppliers your
company is associated with.
A few years ago Target launched the Approved for
Purchase Program (AFP) for vendors producing owned brand
merchandise and certain other product categories.
AFP is analogous to making application to become a
Target supplier. The
vendor is required to complete a comprehensive “application
process” by reviewing an AFP Booklet spelling out all of
Target’s expectations, terms and conditions.
Upon receipt of the AFP information, a supplier profile
is created and stored for future use.
AFP information provided by the factory is then
validated during the facility’s first compliance inspection.
To further advance Target’s commitment to the highest
ethical and legal standards, we have recently published and
are just beginning to distribute a Vendor Conduct Guide that
further spells out Target’s expectations related to
compliance with all laws.
Eventually this document will be distributed across our
entire vendor base.
While we will wait until the standards that trade and Customs
are presently preparing for COAC are complete, going forward I
can envision us taking some or all of the following actions:
Expanding and restructuring the Target BASC Program into an
Anti-Contraband Program that is global in scope
Enhancing our compliance inspections programs to include a
more thorough review of security
Enlisting the support of our Quality Assurance department who
also routinely has inspectors in the factories
Encouraging our carriers to review and improve their security
procedures
Modifying our training materials to include all of the new
features in our Anti-Contraband Program
Heightening security awareness across our entire supply chain
The Target Assets Protection team responds to all breaches of
our supply chain integrity through proactive and reactive
investigations. This
team is a valuable tool in protecting our brand image.
Through the use of third party and in-house
investigative resources, all threats to our supply chain are
thoroughly scrutinized. This
team relies not only on internal data, but also has access to
various private and public intelligence sources, law
enforcement agencies and industry peers to aid them in
identifying threats and trends.
The team also routinely interacts with the Overseas
Security Advisory Council at the State Department.
In summary, as it is with so many other business critical
missions, recurrent and consistent communication is imperative
to the success of any program.
Target frequently offers customized training programs
to ensure that new policies or procedures are implemented
uniformly. These
training initiatives are the backbone of any change to
business practices that directly impact our suppliers.
Let me thank you Mr. Chairman for the attention this committee
is giving to the security problem, and for giving me an
opportunity to appear here today to offer my views.
I am sure that I speak for the entire United States
international trade community when I say that we are deeply
concerned about security, and determined to prevent U.S.
international trade from being exploited for inappropriate
purposes. We are
eager to work with the Congress to accomplish this noble and
patriotic goal.
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