U.S. export compliance enforcement continues to escalate. The recent $9.4 million export compliance and economic sanction penalty violation levied against DHL is a good indication that the U.S. government has no problem issuing costly penalties, even in these difficult times. Inexplicably, with an increasingly active compliance enforcement environment, some companies continue to scale back financial and workforce resources related to export compliance. That isn’t consistent with basic corporate risk mitigation policies.
Corporate executives are best served by balancing the risk of violating basic trade regulations with the need to keep an effective export compliance program. Having a compliance program on “paper” is not enough to prevent a company from being subject to penalties and operational risk. The challenge is creating the right compliance environment for each business.
An effective compliance program can be maintained on a reduced budget if the essential core practices are clearly defined and followed. The following steps, when properly implemented, can help a company mitigate the risk associated with cross-border trade:
1. Capture senior commitment, globally. Corporate senior management must broadly and emphatically sponsor the export policy in order for it to be successful. It is critical that senior leaders in all locations are very vocal in their support. Export compliance policy should be a concise and clearly written statement issued by management and reiterated annually to all employees around the world. The policy should emphasize the need to comply with regulations and enumerate the risks of non-compliance — for the business as well as individual employees.
2. Create standardized policies, procedures and processes. Best practice guidelines require establishing company-wide processes and procedures that integrate export compliance requirements into daily business practices. They should be developed and documented for the business's entire global community; policies and procedures should not be single-country centric. Effective, streamlined procedures ought to document the day-to-day desktop activities that support the export transaction process. Procedures should have defined inputs that result in expected outputs. They should start in the concept stage of the product design and continue through to the recordkeeping phase. In addition, procedures need to be reviewed periodically to reflect any regulatory or business-process changes.
3. Conduct education and training. Targeting at-risk employees for in-depth training can stretch today's limited budgets. To leverage resources, join previously organized training efforts hosted by other departments such as internal audit, health and safety, and personnel. Tailor training to the different employee job functions—more detailed for shipping, more high-level for sales. Create and stick to a regular schedule for employee training. The world of export regulations is intricate and constantly changing. In addition, subscribe to information services to keep critical employees informed of recent regulation changes and how they impact employee functions.
4. Empower employees. Employ experienced and trained export professionals who have current knowledge of the ever-evolving regulatory environment. Identify employees whose job roles subject them to enacting some form of export compliance. Provide those individuals with the authority to stop suspect export transactions and scrutinize documentation to ensure compliance with the legal requirements of the organization. Document the organization's primary and backup staff and include their name, title, e-mail and telephone numbers so that they may easily be contacted to discuss suspect transactions. Establish formal lines of communication with other personnel exposed to the export process—sales, operations, shipping and customer service.
5. Determine jurisdiction and classification. Jurisdiction and classification of an organization's products must be completed in a timely and accurate manner to avoid derailing the supply chain. The correct U.S. government agency jurisdiction determination is essential in reaching a proper export classification and license authorization. There is no clearly defined regulatory requirement for jurisdiction or classification; nevertheless, the business must report the correct information in export documents. Critically, a fundamental requirement is documenting and substantiating rationale for how items are classified.
6. Design cradle-to-grave license authorization management. Integrating the export compliance organization within a company's product development process is the start to creating an effective authorization management program. Assigning responsibility not only to export compliance but also to the associated business function ensures a more accurate outcome. Utilizing tools with software-based solutions either obtained externally or developed internally helps eliminate inaccuracies in tracking the limitations of the authorizations. These tools will also assist in establishing a corporate repository for all export authorizations.
7. Formalize comprehensive documentation and recordkeeping. It is important to make sure export control retention guidelines are part of your overall corporate retention program. All export transaction-related documents are required to be retained for at least five years from the date of the transaction. Regulations stipulate that all records be kept, especially those reflecting the export and temporary import of defense articles, defense services, dual-use commodities and related technologies. Managing documentation may require a technology control plan that delineates how a company will control its technology. The plan establishes procedures to protect proprietary and export-controlled information.
8. Conduct periodic audits. Establish periodic external and internal evaluation programs to systematically audit export control processes and procedures as well as tangible and intangible export transactions. Theses audit will help pinpoint program flaws and could also be a mitigating factor should federal authorities catch a violation. Audit procedures and time tables should be pre-established and part of the overall compliance program.
9. Establish non-compliance guidelines. A business should publish guidelines for determining when and how to investigate potential violations or non-compliance events. Export compliance personnel should have the authority to investigate and stop export transactions. Enact an investigation plan that collects information, preserves documentation and details an escalation process that should include the legal department. The resolution should include follow up with corrective actions.
Even in challenging economic times, a business can mitigate the risk of cross-border trade. Using well-defined and repeatable processes that are documented and creating metrics and audit measures tailored to meet your organization's unique needs will help your business comply with regulatory requirements and avoid the pitfalls of international trade. Implementing effective business processes will be money well spent. Investment in a sound compliance program could mean the difference between a slap on the hand and multimillion dollar penalties.
Carmen Yunker is a trade management consultant with J.P. Morgan, where she helps clients design and implement export compliance policies and procedures. With more than 15 years of experience in international trade, telecommunication engineering and project management, she conducts in-depth export assessments and audits for clients in the aviation, biosecurity and telecommunication industries.
This article originally appeared in the Logistics Today digital magazine. To read other articles from that issue, click here: http://penton.ebookhost.net/lt/ebook/12/
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