Watch Out! Here Are The Top 5 Risk Areas That Are Most Often Overlooked…

By Darlene Enlow, CCS, LCB
Global Trade & Customs Compliance Manager
Metso Corporation

Mitigating risk should be a main objective of any trade compliance program. Most programs include improvements in the well-known areas of risk: classification, the proper utilization of special programs, record keeping, and valuation. These risk areas can quickly consume much of your time and resources, but what about the areas that are not well-known? Are there areas of risk that are being overlooked by your compliance program? If so, what, as global manager, should you look out for?

Below are the top five most overlooked areas that pose the largest risk to a company.

  1. Improper Payments

One of the most often overlooked risk areas in trade compliance is improper payments.

Generally, payments made on behalf of a company by its Brokerage Service Provider (BSP) to circumvent the customs process for importing and exporting goods is considered an improper payment.  It is good practice to make employees aware of the many forms improper payments may take in your respective industry, and conduct regular internal audits to identify any suspicious activity. Increased awareness in this area is key to ensuring compliance to the Foreign Corrupt Practices Act (FCPA) and maintaining a standard of reasonable care. Properly vetting your BSP and monitoring their activity through established KPIs and Quarterly Business Reviews (QBRs) will let you monitor your provider, protect both parties from potential liabilities, and make sure all payments are proper and accounted for.

  1. Keeping up with Denied Parties and Sanctions

An essential step to ensuring your global compliance program is compliant with international sanctions and export controls is to regularly screen the latest denied parties lists. In today’s society, this list is extremely volatile and could change often, so it is important to make sure all levels of employees are aware of any changes that result.

Russia, Iran, and North Korea are just a few of the countries where recent changes have occurred

in regard to imposed sanctions by the federal administration. Because economic sanctions are imposed in the form of establishing higher import duty rates, or restricting the exportation of specific goods from the targeted country, it is imperative to remain informed of emerging legislation and other sanction developments.

  1. The World is not Flat

An effective compliance program takes into consideration that the world is not flat and adjusts in areas where more restrictive processes are needed. One of the most common misconceptions is that a good compliance program can be implemented globally through the standardization of procedures and policies, but it is important to note that Global Compliance Programs are not “one size fits all.” On a macro level, your companies located in higher risk countries may need a more strict compliance program. On a micro level, perhaps only one particular area is higher risk in one location than another. Whatever the case, compliance programs should be in accordance with one another, but particularized enough to address specific risks in different locations. You can keep up to date with high risk countries by checking Transparency International’s Corruption Perception Index (CPI).  If not careful, a universal program may require too many restrictive procedures in countries determined to be low risk and too few procedures in countries determined to be high-risk.

  1. Lack of a Global Compliance Policy

International trade operations are a major source of risk for companies in terms of strict

control by governmental authorities due to customs issues, complex rules regarding import and export controls, and high penalties applicable to international trade activities.  Therefore, it is of the utmost importance to have a sustainable global compliance policy in place that addresses international trade and supply chain issues.  Lacking a Global Compliance Policy invites risk and liabilities to run rampant, so instituting a policy should be your first priority. It will also be instrumental in implementing future trade compliance processes that will prevent and mitigate damages related to the different customs laws of countries where the company operates.

  1. Training

Any business involved in importing or exporting goods cannot avoid involvement in customs and trade compliance issues. Even a basic understanding of customs issues at all employee levels will equip your company to make basic checks for accuracy and completeness. An increased level of knowledge will enable you to plan ahead, minimize costs, and structure your business in the most cost-efficient manner.  Also, more eyes will be equipped to identify potential problem areas early and formulate strategies to deal with them before they become significant difficulties. Finally, a commitment to customs training provides a demonstrable commitment to customs and global trade compliance.

Compliance programs should be risk-based, and if you truly want your program to be successful,

you must continue to manage and mitigate identified risks. Knowing what to look for is the first step in establishing an effective compliance program.  Step two is to assess your current approach to compliance risk management. Step three is to determine the impact those risks pose on your organization and establish processes to address those areas of concern.  The final step is to develop a strategy for conducting regular compliance risk assessments to identify gaps in the program. This approach will aid in the creation of an effective program that enables your organization to mitigate business risks that are often overlooked.
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