Trade Compliance

  • Impact of Trade Compliance

    Export controls regulate the movement of goods, technology, and technical assistance across borders, and sometimes even between persons of different nationalities inside the same country. Export control regulation was originally a tool used to restrict the export of vital goods and technology. The increasing complexity of world politics and trade resulted in the use of export controls as instruments of national security and foreign policy.

    Modern export controls restrict transfers of articles, technical information, and certain services to countries, persons, and regimes that are considered a risk to the exporter’s host country.  In the United States alone, there are multiple regulations, most notably the State Department’s International Traffic in Arms Regulations (ITAR), the Commerce Department’s Export Administration Regulations (EAR), and the Treasury Department’s office of Foreign Assets Control (OFAC), as well as numerous other agency regulations. Some, such as OFAC regulations, also apply to foreign subsidiaries of U.S. corporations.  The EU, UK, China, and emerging markets have similar increasing restrictions on exports and data transfers. There is also a growing category of anti-corruption legislation, such as the UK Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA), which affects international trade.

    Hence, a wide variety of trade compliance laws and regulations expose your company to risk, and are difficult to manage. We assist you in embedding compliance with these laws and regulations into the day-to-day activities of your organization.

  • Why Comply?

    Why comply with trade laws and regulations

    • Because it is your stated company policy
    • To protect sensitive technology
    • To increase customer confidence
    • To increase employee pride
    • To earn the “halo effect” with regulators
    • To avoid bad publicity
    • To avoid delayed shipments
    • To avoid loss of export/import privileges
    • To avoid lost government contracts
    • To avoid debarment
    • To avoid fines, penalties, and imprisonment

    Vulnerability

    When is your organization vulnerable?

    When your organization exports goods or services, it is subject to trade laws and regulations. The extent to which your organization is affected by trade laws and regulations is determined by the products you export, and to where and to whom.

    You should start with four basic questions to determine whether, and to what extent your company is affected by trade laws and regulations:

    1. What do we export? Are there any goods or services in our portfolio that may be regulated by local or international export controls?
    2. To where do we export? Or better, do we – or for that matter, our subcontractors – export to regions that are sanctioned or are otherwise considered a risk? Do we have full access to all information available in the organization on this point? Which trade laws and regulations apply to these regions? And is our organization on all relevant levels aware and fully compliant with all restrictions?
    3. To whom do we export? In other words, how well do we know the end-users of our products and the network of subcontractors and suppliers that they (and we) belong to? Moreover, can we vouch for their integrity? Are any of them listed on a Denied Party List? And can we be sure that they are really the end-users?
    4. Do we know for what purpose our exported goods, services or technologies eventually are being used?  Are we sure our products will not be used for unauthorized purposes? And how can we ensure this?

    If you are not confident that you can correctly answer all of these questions then it is highly likely that you are not complying with applicable trade laws and regulations. The consequences of noncompliance can be severe. Many companies have been fined millions of dollars for failing to comply with trade laws and regulations. Moreover, in some instances key employees were sentenced to serve time in jail and their companies were debarred from exporting for lenghty periods.

    Change

    New situations that require export control management

    In general, every change in network or portfolio requires adjustments to a company’s Internal Compliance Program. Here are a few examples that are often overlooked:

      • Relocation. Your company wants to relocate its production facilities to an emerging market. Questions that should be asked in this situation are: Can your products be manufactured in the intended country, considering possible limitations in exporting intellectual property or vital components to that country? Are there prohibitions that restrict the company from doing business with their proposed partners in this country? Will your company be able to receive or make payments to local financial institutions?
      • Mergers, Aquisitions, and Divestitures. A company that wants to merge with, acquire, or sell a business entity must consider the risks of acquirer’s liability for target company violations, and the risk of deal-killer discoveries of noncompliance or lack of a responsible trade compliance program. Questions that should be asked are: Is the target company fully compliant? How well organized, professional, and integrated is their trade compliance program – and that of their network – and how much will it cost to update it after the deal closes? A thorough due diligence review by FCC will assist clients in making the best decision in such a situation.
      • Launching a New Product or Entering a New Market. Your company has developed a new product and is now planning a worldwide launch. Do you know all the export/import restrictions, licenses, and permits required for your intended markets? Before entering a new market, you need to know the projected costs of being fully complying with trade laws and regulations.
      • Classification of Goods. Are you certain that all your internationally traded products are properly classified as defense articles under State Department controls, dual-use articles under Commerce Department controls, or other less well-known regulations?  The U.S. Export Control Reform Initiative has resulted in current and planned amendments of the ITAR and EAR, which have moved or will move items from the US Munitions List to the Commerce Control List, and will change the requirements for use of export licenses, exemptions, and exceptions.  Both increased and decreased controls are possible, and you need to prepare for extra costs or take advantage of cost reductions.  The classification of your products should be regularly reviewed by technical experts to ensure correct classification.

    Industries

    Most affected industries

    The industries that are affected most by export control regulation are:

    • Aerospace
    • Nuclear
    • Energy (oil and gas)
    • Defence
    • Finance
    • Chemical
    • Life sciences
    • Pharmaceutical
    • Manufacturing
    • ICT
    • Semiconductor
    • Media
    • Transport & Logistics
    • Marine
    • Mining
    • Electronics