There are many ways people rationalize away risk when it comes to their companies. Ever heard someone say, “We don’t manufacture a tangible product, therefore, we’re not at risk for global trade violations”? Or, “We only sell to domestic markets.” Or even, “Our product is simple and clearly for civilian use, so it poses no military threat.” Assumptions like these could be putting your company at extreme risk.
Screening Business Partners Is Good
Companies that do any type of business must, at a minimum, screen all business partners against the lists published by regulatory authorities. These lists include the denied party lists (DPL), the specially designated national (SND) list, and many more.
Selling products or technology to individuals or companies on these lists carries civil and criminal penalties. If gross negligence is found during an audit, individual people can be charged with a crime in addition to incurring severe penalties and costly fines. These fines are extremely high, and the damage to the company’s brand is never fully repairable.
Just recently, a large bank mitigated down a risk to a fine of $327 million for violating U.S. sanctions on Iraq. And on nearly the same day, another bank was fined $1.92 million for allowing terrorists and drug lords access to U.S. financial systems.
Companies should never think they aren’t at risk if they aren’t screening their business partners. Manual screening is better than nothing at all and documenting the process is even better. The major factor in preventing the levying of fines and penalties is proof that the company did due diligence and checked the business partners prior to shipping goods or technology, or completing financial transactions.
Unfortunately, manually checking business partners is prone to error and resource intensive. Names are added or removed from these lists daily, making it impossible to reasonably keep up with checking updates when in manual mode.
Automated Screening Is Better
Automation is the best way to screen your business partners. The system should include data content that has undergone rigorous quality controls, and be built directly into the back-end systems for real-time checking and updates. Business partners and documents are checked and all activities are recorded in an electronic audit trail.
If your product falls into the wrong hands, this audit trail can be produced for the authorities to demonstrate that every reasonable care was taken. Usually, fines and penalties aren’t levied or are kept to a minimum. The authorities will want to know what corrective action has been taken, but the U.S. Customs and Border Protection knows items can make their way through.
Take Extra Care with Trade Regulations
Check your company’s policies for complying with trade screening regulations. The regulations and lists have different requirements. For example, some entities are categorized as “unverified”, which simply means it isn’t known if a company can or cannot transact business. This would have to be reviewed by a trade compliance professional, with the resulting decision (and all reasons for release or block) captured in the audit trail.
The Office of Foreign Asset Controls (OFAC) is responsible for ensuring that economic sanctions declared on other countries or regimes are enforced. However, there’s no standard issued by OFAC. Companies are required to have their own standard that is documented, implemented, and run as prescribed. This is very important for companies in the financial sector (as illustrated by the banking examples).
So can companies operate in a risk-free environment? No—there’s no such thing as risk free. However, companies can significantly reduce their risk with reasonable effort and care. With the proper systems in place, companies can rest assured they’ve done their part in complying with the regulatory authorities.
I’d like to hear from you. Is your global trade compliance strategy automated and integrated throughout the financial and supply chain business processes? Have you assessed your risk exposure and developed plans to close and reduce this risk? Are you comfortable that you have all the resources to keep you compliant today, as well as the ability to rapidly adapt to new regulations?