Analytics, Data Mining &

Other Tools for Comprehensive Risk Management

Helen Bostock-Rolle, IBM

2015 WCO IT Conference & Exhibition

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Agenda

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IBM‘s Key Differentiators

Challenges & Risks of Customs Agencies

References/Discussion/ Next Steps

Imagine if you could

Applying Customs Risk Management and Analytics

Customs Agency Challenges Leaders Often Stuck Between A Rock And A Hard Place (Revenue & Crime)

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Today’s intensifying challenges mandate a fresh approach to

managing information

Traditional Approaches have become obsolete

Intensifying operational tempo, and expanding mission requirements

Incidents & Threats increasingly asymmetric

Threat is transnational and cross theater

New sense of urgency around Insider Threat

Social Media playing an increasingly important role – agitation, recruitment, intelligence

Internet enables “Open Source” Non-traditional collaboration

Transparency is often a challenge

Downward pressure on Budget – do more with less

Too much data, not enough information

Data is fragmented, siloed and compartmentalized

Different formats and structures

Limited sharing and cross-system correlation – but evolving

Query State vs. Autonomic and predictive limits ability to respond in real time

Inability to link unstructured image and documents with structured data and manage together

Untimely – Sense & Respond vs. Predict & Act

Out of Context, Out of Process vs, In process and “On The Loop”

Copyright 2012 IBM Confidential

Impact of failing to detect high risk cargo is severe and is no longer limited to revenue loss.

Typical issues that Customs administrations face include: insufficient quality of risk profiles inability to capture and maintain knowledge of the ageing population of

targeting officers inability to draw links between entities (companies, people) across

transactions and across silos of automation and the Long IT development cycle that is often required before new a risk profile

can be deployed.

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21st century risk is assymetric

Air traffic example: The 9/11 attacks demonstrated that individuals or small groups can exploit or attack global movement systems and create very extensive and widespread damage to the broader global economy.

Maritime trade example: • In September 2002, U.S. West Coast

seaports experienced a 10-day lockout resulting from a labor dispute.

• The lockout halted the flow of containers at 29 ports, which normally processed 30 containers a minute, 24 hours a day, worth US$320 billion per year.

• Within days factories closed, shops ran out of stock and agriculture products spoiled.

• The total cost of the 10-day strike was US$10-20 billion.

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Financial case for improved targeting capabilities is clear. Risks related to health & safety go far beyond the financial ROI.

In its 2011 year-end report, US CBP (Customs and Border Protection) estimated the revenue evasion for 2011 to be $331 million.

In the UK, the excise tax gaps are estimated to be £3.8 billion of duty losses in 2008-091.

The EU reports that the number of shipments suspected of violating intellectual property rights keeps increasing. In 2011, European Customs agencies detected IPR infringements valued over 1.2 billion Euro2.

Export cargo caused two explosions on the MSC Flaminia vessel in Sept. 2012, killing two men. The vessel was on fire for 6 weeks.

1 Source: HMRC, Measuring tax gaps 2010. http://www.hmrc.gov.uk/stats/measuring-tax-gaps-2010.htm.pdf 2 Source: DG/TAXUD, Counterfeit and piracy, facts and figures. http://ec.europa.eu/taxation_customs/customs/customs_controls/counterfeit_piracy/statistics/

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Customs deals with an immense variety of potential risks

FAKE

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Agenda

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IBM‘s Key Differentiators

Challenges & Risks of Customs Agencies

References/Discussion/Next Steps

Imagine if you could

Applying Customs Risk Management and Analytics

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Imagine if you could…

… detect Customs duty avoidance before goods

are imported?

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Imagine if you could…

… detect smuggled narcotics, guns, illegal goods before they

arrive at your border?

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Imagine if you could…

… have confidence in the IT system that tells you

which containers to inspect?

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Agenda

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IBM‘s Key Differentiators

Challenges & Risks of Customs Agencies

References/Discussion/Next Steps

Imagine if you could

Applying Customs Risk Management and Analytics

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Customs Risk Management

Customs risks are pervasive and very diverse. A recent survey among customs and immigration executives for the IBM Customs, Immigration and Border Management Executive Forum concluded that customs administrations’ top business priority is in the area of targeting and selection.

Targeting and selection is the ability to define which consignments are likely to be fraudulent (and need to be inspected) and which consignments are likely to be compliant and need not be inspected.

The decision whether or not to inspect involves a large diversity of risks, e.g. financial/fiscal risks (fraud), safety and security risks (weapons, drugs), health risks (food safety), economic risks (counterfeit) and environment risks (radioactive substances).

Risk Management, to be most effective, uses information about all channels of trade: cargo (the goods), conveyance (vessel, plane, train, truck, car), persons (people and companies), money, and information.

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Applied Analytics have the potential to bring substantial business value when applied in Customs Risk Management (targeting)

Increase accuracy of detection profiles and models

Improved effectiveness and efficiency of Customs inspection resources

Reduced number of unnecessary inspections for legitimate trade; reduction of import/export time for legitimate trade

Detect risk earlier in the life cycle of a shipment: prevent rather than detect in hindsight

Discover root causes behind individual violations (networks, conspiracies, fraud or smuggling schemes)

Bridge the gaps between silos of operations of the government

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Only a small percentage of the cargo can be inspected. How can Customs find the needle in the haystack?

Develop risk criteria and algorithms...– to target high risk cargo (the needle, i.e. the small percentage of non compliant cargo) – to identify low risk cargo (cargo of compliant companies whose consignments should

normally not be interrupted for physical inspections) Use analytics to create insights out of the wealth of available information Realize a dynamic business process; reguires high business flexibility Ensure a constant learning cycle; assess effectiveness Identify the “bad guys” as early as possible Implement integrated risk management – across silos of processes and IT systems

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The key strategic imperative for realizing these goals is to utilize the potential of information; to utilize the fact that the world is becoming more instrumented, interconnected and intelligent

Our world is becoming

INSTRUMENTED

Our world is becoming

INTERCONNECTED

All things are becoming

INTELLIGENT

The next generation world leading Customs Administrations focus on data collection, on data sharing and on making decisions to act upon data

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Sense and respond

Instinct and intuition

Manual, partially automated

Few skilled experts

Back office

Traditional Approach

Predict and act

Real-time, fact-driven

Optimized

Everyone

Point of impact

New Approach

Lack of Insight

Inability to Predict

Inefficient Access

Variety

Volume

Velocity

Customs Administrations must adopt new ways of working to ensure Customs compliance and to achieve business values

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Agenda

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IBM‘s Key Differentiators

Challenges & Risks of Customs Agencies

References/Discussion/Next Steps

Imagine if you could

Applying Customs Risk Management and Analytics

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Being successful requires the right tools, the right technology and effective business integration

What are the risks that I need to manage?

What data do I need to enable me to manage

my risks

How do I integrate managing risks into my

business operations

I need to deploy tools to help me define the

priority risks to manage

I need to implement a technical architecture

and technical infrastructure to meet my

data needs

I need to implement a business governance model and business

architecture to deliver optimised outcomes

• Do I really know who I am dealing with?

• Is this company or person a potential problem?

• Do the characteristics of this transaction suggest a problem?

• Which commodities are likely to suggest a risk?

• In which countries do the “bad guys” operate?

• What data do I need?

• What data do I have?

• Can I get data from somewhere else?

• What are data volume, velocity and variety?

• How to fix data ambiguity?

• Use I use non structured data? Social media? Voice? Sensor data?

• Who does what (e.g. central/local, which units)?

• What responses will I deploy (warnings, education, sanctions)?

• Which control methods? • What volumes of ‘at risk’

cases can we deal with?• Should we change the legal

requirements?• Can I get data from outside

my agency – how?

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IBM brings in-depth knowledge and experience to help address our clients’ business needsSubject Matter Experts

IBM has a long-standing commitment to Government Services– Assisting government services organizations since we exist– IBM has over 3,000 consultants currently working on

Government Analytics Services engagements – Over 9,000 Analytics Consultants worldwide

The Global Government Center of Competence offers– A global pool of recognized industry experts– A portfolio of assets to mitigate risks to your projects– Innovative research and points of view that can help you thrive

in a changing world– Each of our experts plays a critical role in defining, developing

and delivering our solution offerings

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IBM’s Risk Framework & Analytics & Risk ProductsSubject Matter Experts

The IBM Customs Risk Management Framework is a full toolkit of products and services that enables the range of business challenges.

IBM Award Winning analytics products are acknowledged in the IT Industry as the industry leading (Cognos, SPSS, SPSS Modeler, SPSS Analytics, i2, Identity Insight, Algo, +)

Flexible approach driven by our insights and knowledge of the Customs industry mean that we can always add value – we understand the industry, understand the problems and have the solutions.

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Agenda

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IBM‘s Key Differentiators

Challenges & Risks of Customs Agencies

References/Discussion/Next Steps

Imagine if you could

Applying Customs Risk Management and Analytics

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SKAT (Danish Tax) implemented SPSS to drive smarter tax collection with predictive modeling

The same technology serves also Customs and other government agencies.

Copyright 2012 IBM Confidential 24

Next Steps – How do I get started?

Engage and IBMer to learn more about how IBM can help. You can see me after the session.

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