Five Trade Compliance Risks

By Jeff Flanagan, Senior Solution Consultant, Precision Software

Obstacles are inherent when your business is involved in global trade. At or near the top of the list are international trade regulations, which are complex and dynamic, changing constantly as financial and political landscapes shift around the globe.

Compliance can be a heavy burden — sort of like hitching a few tons of iron ore onto every cross-border shipment your business makes. The worldwide tangle of laws, rules and guidelines is necessary for each country to protect its interests, but even accepting that regulations are inescapable doesn’t make logistics or supply chain management any easier.

With fines, sanctions and the loss of customers among the potential penalties for noncompliance, it’s beneficial to understand the risks associated with international shipping processes. Here are five key areas of risk to consider pertaining to global trade compliance.

1. Denied Party Lists

These are lists of companies, individuals or organizations that other parties cannot conduct business with, as determined by a U.S. agency or foreign government. Such lists exist because doing business with the denied party may be deemed a threat to national security, or the denied party may have a track record of corrupt business practices, etc. To reduce the risk of noncompliance in this area, check that your trading partners — potential and existing — are not on such lists. Be aware that these lists can change frequently, adding to the burden.

2. Documentation

Compliance in other areas can all be for naught if mistakes are made in what can be a voluminous amount of paperwork. Shipping documentation, export declarations and perhaps even product codes must meet the requirements of the country of your shipment’s destination. Being detained by customs won’t serve your bottom line or your reputation well, so do not ignore documentation details.

3. U.S. Authorities

There are certain conditions for which your shipment will be subject to U.S. trade law, regardless of your location. These include any transactions made in U.S. dollars, any transactions involving an individual from the U.S., and any businesses that bank in the U.S. Being in compliance in these circumstances means following U.S. regulations.

4. Hybrid Sanctions

In stark contrast to an outright ban against doing business in or with a specific country is determining whether you can conduct business with an entity in a country subject to hybrid sanctions. Some scope of certain commercial activities may be permitted, while others are not — making compliance a complex undertaking at best.

5. Supply Chains

If you have an international supply chain or customers, your global trading partners also must be in compliance with regulations in the countries where you do business. Their violations could result in penalties for your business even if your business isn’t fully responsible for the wrongdoing.

Compliance grows more challenging as global trading expands. Mitigating risk requires extensive research into worldwide regulations — which can tax your business’s resources — but having export controls in place to meet requirements is essential to avoid fines and penalties that ultimately would exact a higher toll on your business.

Automated international trade compliance software is an option that could save your business time and help you control costs. In part, this type of software uses available data to carry out functions such as screening for denied party list entities, checking documentation requirements for specific countries and other tasks.

 

Jeff Flanagan is Senior Solution Consultant for Precision Software, a trusted leader in global trade and transportation execution. He has been in the supply chain execution industry for 35 years in support, implementation, project management and sales consulting.