17 Oct Minimizing Your Risk of Global Trade Compliance Violations
According to a JP Morgan Chase report, 74% of U.S.-based businesses are seeking to expand globally. However, the landscape surrounding the global trade arena is rife with regulatory uncertainties. The unfortunate reality these businesses quickly come to realize (sometimes painfully so) is that each country and international trade partnership has its own collection of business and trade regulations, making it a must to prioritize trade compliance over global logistics management.
If you’re putting trade compliance first, it will help your efforts to eliminate trade compliance violations. The uncertainty of the global business market and the ever-evolving nature of meeting trade regulations (which have been further complicated by the recent introduction of U.S. tariffs) create a volatile global business environment. It is crucial to understand the exact regulations you need to follow to avoid global trade compliance violations. This turns what was once an option into a requirement for medium and large businesses with a global presence: having a global trade services (GTS) solution in place.
Stop Common Trade Law Issues Before They Happen
Many of the trade law compliance issues we have seen clients struggle with can be summarized into three key categories—but violations within these three categories are much easier to avoid with an appropriate GTS solution in place.
- Querying the business partners against sanctioned, or “denied” list. Several agencies, such as OFAC maintain a list of blocked, or sanctioned, individuals and entities with which U.S.-based firms are not allowed to do business. Checking this list is a vital step when deciding whether or not to do business with an overseas or a domestic entity—and you must investigate not only the businesses but also individuals. All customers, vendors, banks, and account-holders must be checked against the denied lists. Many businesses without a GTS solution in place resort to manually checking this list, which is both time-consuming and prone to errors. The consequences of a mistake in this area may not just saddle your organization with fines and penalties; you may end up on one of these lists as well.
- How GTS can help: GTS solutions contain a Sanctioned Party List (SPL) screening service that will automatically scrutinize all aspects of a business (including personnel) and can be implemented as an independent solution.
- Obtain appropriate export licensing. Countries around the globe have their own ideas in terms of what constitutes appropriate export licensing (even including the legal definition of an export). The complexity of these laws, though, is next to impossible to navigate without some form of automation in place.
- How GTS can help: An SAP GTS solution is a great solution for this task, as it will query the export license regulations as enforced by the Bureau of Industry and Security (BIS) and DDTC (Directorate of Defense Trade Controls), keeping your products from being caught in a regulatory snare.
- Transaction screening. All transactions, such as export, import, and domestic, must be screened against denied lists. Additionally, financial transactions must be checked against the sanctioned lists to ensure that no illicit money is changing hands. A manual process of digging up this information for audits or reporting purposes will be anything but easy.
- How GTS can help: A manual process will simply not work for transaction screening. It will lead to transaction mismanagement and mistakes, and will be an audit nightmare for your business. A well-implemented GTS solution will automate your global trade transactions screening by checking against various sanctioned lists and alerting you to potential issues, while organizing all transactional records for easily-automated audit reporting.
While this is not an all-inclusive list of trade compliance violations we see, addressing each is key. Your goods and services need to be properly delivered, without interruptions to your business due to avoidable violations, resulting in fines or products being held in limbo by port authorities.
Violation of Trade Laws Have Serious Repercussions
The repercussions of these global trade compliance violations can be staggering, with fines, penalties, and confiscated products often surpassing the million-dollar mark. PayPal had a $7.7 million dollar fine in 2015, and so far in 2018, the SEC reports that $230.4 million dollars in fines and penalties have been assessed to companies for various global trade compliance violations. This list includes some well-known names like Dun and Bradstreet and Panasonic.
Global trade compliance violations can affect not only your bottom line, but your reputation. Companies incorrectly importing or exporting goods may end up with revoked licenses, suspended shipping manifests, and product liquidations. And, by inadvertently working with businesses or individuals on one of the watch lists, you can create a negative public sentiment towards your business—one that is impossible to overcome. It is best to avoid this completely and align your business with a logical software solution; a solution that provides solid trade compliance and minimizes your global trade risks.
GTS Implementation Is Key to Navigating Global Trade
The pitfalls of global trade that can sink an organization can easily be mitigated by having a solid solution in place. Implementing GTS within your SAP solution typically can provide up to 95% of your global trade compliance needs. With a solid GTS implementation, every trade partner in each transaction is screened, shipping licenses are properly obtained in accordance with up-to-the-minute data, and your transactions are recorded and investigated seamlessly to get through any audit situation. A GTS solution will easily and independently remove the risks of global trade compliance before they cost your business valuable time and fines.
When Aurum Terra executes a GTS implementation, we help you identify exactly what your organization needs, so that your global trade management touch points number only in the dozens instead of the thousands, greatly reducing overhead and organizational complexity while gaining a high level of compliance. No matter what your business requirements may be, we help you build a solid GTS foundation to streamline your trade compliance processes.