Saturday, 20 February 2016


Let Tectono Business Review begin by explaining ‘corporate compliance programme’ and ‘supply chain’.  Corporate compliance programme is a programme that ensures that all goods enter a country in conformance with all the country’s import laws and regulations. It has become a precondition for all companies engaged in international transactions. Compliance is no longer a ‘necessary evil’ but a competitive advantage for companies who desire to operate globally. Supply chain means the flow of information, materials, services and money across any activity. In the arena of global trade, nothing is more important than compliance. Failure to adhere to the many rules and regulations governing imports and exports could lead, at best, to costly supply chain delays and, at worst, to steep fines and even the loss of trading privileges. Every company involved in importing and exporting had trade compliance issues to deal with. Whether it is classification, record keeping, documentation, valuation, license determination, denied party review, etc., there will be some evil lurking somewhere which will cause great harm and disruption to the global supply chain when trade compliance is not managed and managed well.

While trade compliance in itself is a major factor in managing global supply chains, so is it to engage senior management in this process. Customs and Border Protection (CBP) and the Bureau of Industry and Security (BIS) have an expectation within their regulations and prowess that senior management does need to get involved in oversight of trade compliance initiatives within their corporate domains. For public companies one could readily argue that in their responsibilities under Sarbanes-Oxley (SOX) would clearly dictate that trade compliance issues having potential financial impact on the corporation, would then be part of the governance of SOX within that company's operation and certainly in their supply chain. In order to develop a successful global trade compliance program, company executives in trade compliance, logistics, supply chain, etc., will most likely have to: spend funds restructure organization deploy personnel set SOP's and protocols all within the structure and fiefdoms of the organization. All five areas listed will come together better and more cohesively when senior management: buys in to the program, allocates funds, breaks down areas of resistance, makes sure everyone falls into line and steps on the right page.

Senior Management does need to understand the issues, consequences, benefits and proactively make sure that managers and staff are involved in taking the high road and protecting the interests of adherence to government. Regulations Trade compliance manuals should always be accompanied by letters from the most senior managers, such as the President, CEO, COO or CFO addressing the company's commitment to Global Trade Supply Chain Compliance Management. This clearly documents and speaks out to government authorities that senior management is aware and "on-board" to what they have to do to be trade complaint.

Some companies have bridged their organizational silos by developing integrated supply chain teams that take a more holistic view of their operations. Placing trade compliance within such a group puts it on par with and gives it the opportunity to influence other critical parts of the supply chain. Supply chain based trade compliance offices are still distanced somewhat from some of the other areas in the company such as accounting and strategic planning. Placing trade compliance within the supply chain organization can, however, be a reasonable compromise to my unreservedly favorite choice and that is to create a completely independent compliance team.

Here are some Tectono Business Review’s recommended key steps to take to ensure that effective compliance enhances supply chain.

Obtain board-level commitment:  Before any compliance program can be successful, buy-in from the board of directors and senior level staff must be secured.  The U.S. Government Sentencing Guidelines state that corporate officers and board members must be knowledgeable about the content of their compliance program, exercise reasonable oversight, and give compliance officers direct access to the Board.  Increasingly around the world, we see governments imposing a standard of care on the board and or senior management.  Senior officers risk personal liability should your compliance program fail.

Assess processes:  Hire outside trade experts to perform a compliance gap analysis on your current compliance processes.  Then fill the gaps.  What gates and stops have been and can be established?  How are compliance records stored and located? Your company is not allowed to trade with certain countries.  Ensure that you have established a list of embargoed countries and created effective stop measures that ensure items are not shipped to those countries directly or indirectly. Electronically screen names and addresses in your master customer/partner files against the various government black lists.  With more than 50 international restricted party lists in existence, it is important to work with a firm that organizes these ever-changing lists into a central database that is monitored and updated daily.

Establish an on-going name and address screening process:  Just because you have screened a customer once does not mean your name screening is done forever.  Governments constantly add and delete names from the various restricted lists.  In 2004, more than 14,000 updates were made to the restricted party lists, while more than 162,000 updates were made since September 11, 2001.  It is vital that you remain current with list updates and modifications.

Perform end use and diversion risk screening:  Take steps beyond mere name screening by collecting end use information from customers and other parties in the supply chain that work with you.  Be certain that your product is being purchased for its intended use.  In addition to end use screening, perform diversion risk screening.  Collect information about the nature of your customer's business to determine whether your product or service is consistent with the business of your customer.  Make sure that your customer is not diverting your product to another party. Perform license determination.  Develop a license determination process for list-based license requirements and perform license determination prior to each export and each re-export.

Write and implement processes and procedures that are part of each business function:  Compliance must be a key concern across the company.  Processes should be in place for IT, R&D, engineering, manufacturing, sales, order entry, fulfillment, shipping, comptroller, legal, the board of directors, and compliance to ensure that the proper measures are taken to control the export and re-export of goods, technology and software. Do not develop processes and procedures only to file them away in a cabinet.  Procure training for the whole company with different levels of training based upon each job function.  Train on your processes and on the ever-changing substantive rules.  Train your staff until they understand how an effective compliance program can make or break a company, and then train them again.

Perform audits every year:  Ensure that your compliance engine is running smoothly by performing annual audits.  Alternate it by performing an internal audit one year and an external audit the next.  It is better to be safe than sorry, and every process breaks down over time unless it is audited.