Trade Compliance Is Simple, Except When It Isn’t

With the new year, I have been thinking back on the last 12 months and where I have seen the most confusion for companies regarding import and export compliance.  It has been a tough year for companies doing international business and for compliance and risk professionals.  We have all spent hours trying to determine what export control reform will mean for our companies, we have watched countries negotiate for greater access to the U.S. market and we continue to see increased enforcement for all types of trade enforcement, from customs and border protection to the Department of Treasury, the Department of Justice and the Securities and Exchange Commission.  Each of these areas requires companies to examine their internal processes, procedures and documentation for doing business globally.  On the surface it sounds simple, but in reality it isn’t as easy as senior management may assume.

Let’s say the CEO embraces compliance and instructs management to ensure the company is protected.  What usually happens? Management meets and decides to:

• Train internally
• Update the company’s manual
• Send a few employees to additional training

Check, check, check.  Compliance is good.  So why do I think this company is not really improving its compliance? Several reasons:

1. Internal training requires real understanding of the new regulatory environment.  Most companies don’t have internal officers who have had the time or the motivation to appreciate the nuances of the export changes.  In fact, in most companies, export and import roles are dispersed throughout the company.  Logistics, sales, business development and product development all play a role in the process, and no one person really understands all the procedures that go into internal compliance.  Internal training that is just “check the box” may allow you to document that your employees have been trained, but it really doesn’t make you any more compliant or reduce your corporate and individual risks.  Therefore, internal compliance officers need good, in-depth training that is tailored specifically for your business, is up-to-date and considers your existing procedures so the training jibes with your internal SAP-style system and your method for doing business.  That usually means one-on-one training.
2. In-house lawyers usually have an understanding of the big picture and the importance of training and compliance, but they are wearing lots of hats and can’t delve into the details. They either need a bucket of money to rely on external consultants or to hire compliance experts.  If you aren’t in a trade-centric city, finding even an experienced trade paralegal can be tough.
3. Where is the funding coming from?  If no funding is allocated to improve the compliance process and documentation, increase due diligence by internal investigations, hire more people, pay for advanced export training or bring in a trainer, how is it possible to improve compliance?
4. And it always comes back to the “tone at the top.”  Senior management cannot delegate away compliance responsibility.  If every senior manager doesn’t treat trade compliance as a real risk area, then the receptionist and the facilities manager won’t either.  Why do we care if the receptionist and facilities manager understand about trade compliance?  Because they are your front lines.  The facilities manager has to know that technology controlled by the Commerce Department can’t be visible to the evening cleaning crew or it could be a deemed export.  The receptionist has to know that the overnight package going to China must be treated differently than the designs going to St. Louis.  You can’t assume the third-party shipper has this under control.  They are only your agent.

These issues are even more complicated for large companies.  Large companies that import and export daily have teams of people crossing many departments involved in trade.  However, often one department doesn’t take full responsibility for the big picture.  This leaves big gaps in compliance.  Moreover, large corporations are also trying to meet business deadlines and corporate objectives. Legal staffs and budgets for outside law firms have been cut and everyone is trying to do more with less.  Yet they may be exporting and/or importing thousands of different SKUs.  Even if internal audit participates and makes recommendations, I see companies not able to focus on what needs to be done.  They are just too busy running the business.  Projects start but don’t get completed. Personnel don’t have the proper knowledge to follow through.  Licenses may be obtained but aren’t being efficiently tracked for compliance with provisos.  Re-export information isn’t being communicated from the foreign party or subsidiary to someone who knows the requirement to notify the government of the change.  Too much is happening too fast.  Our computer systems aren’t set up to keep up.

What do I suggest? How can companies manage trade compliance?

1. It isn’t enough to just train.  Charles E. Duross, Deputy Chief of the U.S. Department of Justice’s FCPA unit recently said, “Training is insufficient.”  I would say training alone isn’t enough.  To be compliant, companies actually must commit to a new way.  Just like in sports and music, knowledge is a requirement, but you must practice.  Compliance must be proactive to prevent violations.  No longer is “hope for the best and change after a problem is discovered” an acceptable risk profile.  The global marketplace is becoming synonymous with the marketplace in general. We are all doing global business and the bar has to be raised.
2. Embrace technology.  Anyone I know personally will be laughing.  I repel technology. However, new project management formats are being developed to help compliance groups manage and follow legal obligations. Again, this sounds simple, but I have seen many companies just lose track of requirements.  The IT system must be set up so that busy professionals can’t hit “dismiss” and overlook a compliance obligation.
3. Resources will have to be dedicated to such compliance. Again, it isn’t an afterthought. Trade compliance must have a seat at the table along with other serious risks.  More people will have to get down and dirty and learn the details on a day-to-day basis so risks can be spotted and addressed.
4. Senior management must stay engaged throughout the year.  A lot can be done by mirroring corporate wellness programs and safety matters.  “Compliance Minutes” and discussion groups are real possibilities.  Everyone in the company really has a role to play, and when each employee feels empowered, the company will benefit.
5. Accountability.  There is no way around this if you really want to improve compliance. Hold people accountable. Period. It works. (And the government likes it.)

Sorry to be a downer, but I really have seen a lot of missed opportunities for companies to improve compliance, mitigate penalties and be proactive over the last year.  I hope this article will give you ideas to build into your corporate structure.

Footnote: I have been writing trade compliance for CCI since November 2011.  Starting in January 2014, I am passing the baton to my colleague, Klint Alexander.  He has a wealth of knowledge from the standpoint of a government official, a trade practitioner and a university professor.  Please see his bio here.