Compliance executives at companies conducting business internationally may want to add a check of their import-export compliance policies to their to-do list. You might have more work to do on that front than you think.
It’s well known that import-export compliance is tricky. Several different federal agencies enforce the rules, the rules themselves are complicated and change constantly, and, with security and safety concerns top of mind among regulators, penalties for non-compliance are steeper and more common than ever.
“The government obsession with post-9/11 counter terrorism has created a more difficult climate for companies to conduct international business successfully,” says Peter Quinter, a partner in customs and trade law at the law firm Becker & Poliakoff.
Despite all that, it’s an area where compliance often lags. In a survey conducted by Compliance Week and Paisley, more than half of 386 compliance, legal, and audit executives polled described the maturity of their compliance program for customs and import-export laws as “siloed and inconsistent” or “organized but reactive.” Worse yet, 29 percent (113 companies) said they have no formal policy on customs or import-export law at all.
Observers say that’s in line with what they see in practice. While the largest companies in international trade have formal, written programs, most companies “have been lax in having formal a import-export compliance program,” says Quinter.
That being said, the penalties for import-export violations have “dramatically increased” in both number and value, Quinter and others say, and regulators can and do bring criminal charges—which can carry jail time.
“There’s far more incentive for companies to know rules of the road and to have a formal compliance program,” Quinter says. “Even if a mistake is made, a written program can be a mitigating factor in reducing any potential penalties.”
The trouble with relying on an ad hoc approach to import-export compliance, says Giovanna Cinelli, chair of the export control practice group in the law firm Patton Boggs, is that “these laws require the satisfaction of certain baseline elements. If you miss one thing, there’s a domino effect. Everything after that first missing piece is a violation.”
For example, Cinelli says, one of the biggest problems she sees is failure to determine the correct classification for a product in the government’s scheme of items allowed for import or export, which determines which agency oversees it. So the product ends up in the wrong bucket.
“If you get the agency wrong, everything else—your licensing, recordkeeping, and reporting—is wrong,” Cinelli says.
For that reason, she says, compliance programs should emphasize proper classification procedures and who should participate in that process.
“Most programs call for the company to try to self-classify first, then go to the government for classification confirmation,” she says. “Companies are going to have to start flipping that process to limit the back-end consequences.”
“If you miss one thing, there’s a domino effect. Everything after that first missing piece is a violation.”
—Giovanna Cinelli,
Chair, Export Control Practice,
Patton Boggs
Take exports regulated by either the State Department or the Commerce Department, which are mostly classified under either the U.S. Munitions List or the Commerce Control List.
Cinelli explains that the State Department Munitions List is “so broad, at first blush it looks as if everything is controlled.”
On the other hand, the Commerce Control List requires companies to search hundreds of pages of detailed descriptions of performance characteristics and technical specifications to find the correct export commodity control number. If no exact match exists, there’s a basket category (EAR 99) “where people tend to dump things,” Cinelli says.
The risk: if a customs agent disagrees with the classification, “You’ve got a customs violations,” she says.
McCue
Trouble over a classification number can lurk quietly in your compliance efforts for quite a while, too. “Just because an import or export declaration hasn’t been challenged doesn’t mean it’s correct,” says Greg McCue, of counsel in the law firm Steptoe & Johnson. “It may be right, or there may be a ticking time bomb of incorrect declarations.”
Companies can submit a Commerce Classification request to confirm the proper classification. But that can take as long as two months, Cinelli says, and you must be sure that the item is a Commerce Department-controlled product to begin with.
A better option: Ask the State Department to determine commodity jurisdiction, which can protect a company from liability if it exports an item improperly, Cinelli says. Still, while such “CJ” requests theoretically have a 90-day turnaround, regulators can find all manner of reason to delay a final ruling for months or even years, she warns.
What Good Compliance Entails
McCue says an effective import-export compliance policy should meet two objectives. First, it should limit the chance of making a mistake in the first place. Second, if a mistake does happen, “you want it to be something you can show a regulator or government investigator to say, ‘We made a mistake, but we’re not the company that needs a big slap.’ We are trying to do everything right,” he says.
Experts say the keys to crafting an import-export compliance policy are the same as any other good compliance program. First, consider how your company and its employees actually work.
IMPORT/EXPORT Q’S
Below are some frequently asked questions from the U.S. Customs and Border Protection agency.
General Questions for All Transactions:
1. If you have not retained an expert (lawyer, customs broker, accountant, or
customs consultant) to assist you in complying with CBP requirements, do you
have access to the CBP Regulations (Title 19 of the Code of Federal Regulations),
the Harmonized Tariff Schedule of the United States (generally referred to as the
Harmonized Tariff Schedule), and CBPBulletin and Decisions? (All three are
available from the Superintendent of Documents, Tel. 202.512.1800.) Do you
have access to the CBP Website at www.cbp.gov, or other research service that
provides the information to help you establish reliable procedures and facilitate
compliance with CBP law and regulations?
2. Has a responsible, knowledgeable individual within your organization reviewed
your CBP documentation to assure that it is full, complete and accurate? If the
documentation was prepared outside your organization, do you have a reliable
method to assure that you receive copies of the information submitted to CBP,
that it is reviewed for accuracy, and that CBP is apprised of needed corrections in
a timely fashion?
3. If you use an expert to help you comply with CBP requirements, have you
discussed your importations in advance with that person, and have you provided
him or her with complete, accurate information about the import transaction(s)?
4. Are identical transactions or merchandise handled differently at different ports or
CBP offices within the same port? If so, have you brought this fact to CBP
officials’ attention?
Source
U.S. Customs and Border Protection
“The worst possible thing is to spend a lot of time on a policy and to have it sit on a shelf or a hard drive and never get it used,” McCue says. “Put it in a format that will get used, referred to, and updated regularly.”
Second, tailor the policy to your company. A good policy should clearly state exactly who is responsible for what—without being too cumbersome. A policy that is too detailed or too complicated, McCue says, may tempt employees to ignore it.
The policy’s size and level of detail will vary accordingly. “If you have a simple import program on a couple of simple products from non-volatile countries, your policy can be fairly simple,” McCue says. The longer your list of exported products or countries, or if you deal with any sensitive goods or dangerous parts of the world, the more detailed your policy should be.
Policies should also be updated regularly—at least annually, experts say, but more often if necessary—to capture any changes in the rules. For example, McCue says, exporting to a “sleepy area” probably lets you get away with annual updates. But when shipping products to parts of the world under government scrutiny, “the rules change all the time, and you’d better be on top of it.”
Companies should integrate their import-export policy into their operations, including any internal audit processes, “so compliance gets the same attention as other areas and any problems and changes can get reported up the same chain,” says McCue.
Policies must also address recordkeeping, an area where Cinelli says many companies make serious errors. Those missteps can include failure to keep e-mails, lab notes, and the like as part of their import-export records, and not properly securing or segregating technical information stored on servers outside the United States.
And as always, a policy is only as good as the training that accompanies it.
Quinter
“Training should be required on a regular basis for everyone, from the president down to the shipping clerks, to ensure that your policies are being followed,” Quinter says.
Cinelli recommends in-person training for all employees twice a year, and more often for those tasked with responsibility for import-export compliance.
“It needs to provide employees the tools they need to be able to spot issues and develop a framework of analysis to decide on a course of action,” she says. “If your training program doesn’t do that, it isn’t useful.”
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