Compliance: it starts at the top

GeyerGorey LLP draws upon Janet Labuda’s contacts and experience to understand trade enforcement trends.  Here she is with her latest on the importance of compliance. Janet can be reached at the FormerFedsGroup.

By Janet.Labuda@FormerFedsGroup.Com

Whether you are a small to medium sized enterprise, or a large multinational corporation, creating a culture of compliance starts at the top. This compliance culture should permeate your entire organization starting with the Chief Executive, the Chief Financial Officer, and the corporate counsel.

Compliance is not something that can be compartmentalized, rather, it must be ingrained in the consciousness of every employee from the executive suite to the shop floor. This is one area where a top down driven process is vital. The compliance officer is responsible for implementing the compliance focused program that is established by the corporate ownership and top management.

However, all aspects of the company, whether sourcing, transportation, production, marketing, or sales must work together to support the compliance operation. Leaving just the compliance office to establish the ethic and carry the entire company is an accident waiting to happen.

I often hear that various departments in a company do not understand the compliance aspect of the operation, which sometimes leads them to negate the guidance of the compliance department.  This can lead a company down a slippery slope.

The corporate culture must embrace compliance across the entire company and all must understand the risk of potential regulatory violations.  A once a year training program is not going to cut it.  Compliance is something that everyone must  live, day in and day out.  Workplace evaluations should include a compliance segment for each and every employee. Every department head needs to understand and communicate compliance procedures to their direct reports.

The compliance department must keep a finger on the pulse of risk.  The compliance officer should be responsible for communicating these risks throughout the organization and information should be refreshed and disseminated as often as necessary.  To this end, the CEO must make time for compliance officers, and not leave this critical function on auto-pilot.

Once a vibrant internal compliance driven operation is rooted in the day-to-day operation, companies must push their ethic out to their entire supply chain.  This includes interaction with foreign suppliers, agents, and transporters.  Everyone in the supply chain needs to understand that by doing business with your company, they accept the strict standards that support adherence to the laws and regulations governing trade and all aspects of how the business conducts itself.  This should be reflected in all corporate negotiations, contracts, and purchasing agreements.

By taking this position, senior corporate management supports the highest levels of business ethics and integrity throughout the supply chain.  Compliance is not a skate on thin ice, or a fly by the seat of your pants exercise.  A culture of compliance provides that  sure footing needed when regul

Trade compliance–why bother?

by Janet Labuda

I worked in Customs for over thirty years and met regularly with importers to discuss trade risk, compliance, and enforcement. Often, companies would express their concerns about the cost of compliance–the proverbial cost benefit analysis. If money is spent to create a compliance department, what will the benefits be? Do the risks of possibly getting caught by Customs outweigh the investment in corporate trade compliance? How can there be an effective response to risk without the associated high costs?

Just as with most things, there are rules that govern our behavior. When we drive to work there are lane markings on major thoroughfares, and traffic light systems, and posted speed limits to guide us in an orderly fashion. The same can be said for international trade rules. They are meant to make order out of potential chaos. No person or company can operate successfully in an atmosphere of chaos. Business seeks out predictability, and stability. The rules and regulations governing trade provide a needed stable structure that can help companies weather shifts in the global economy or changes to the legal or regulatory framework.

More importantly, the rules help to level the playing field, and enhance and improve the competitive business dynamic. When companies fail to operate using these rules the underpinnings of trade policy collapse. Trade preference program become endangered, national economies become threatened, sourcing models get upended, business relationships are uprooted.

In addition, companies can get swept up in enforcement actions. Customs assesses risk using somewhat broad parameters. It could be driven by product, country of origin, manufacturer, preferential trade program usage, or combinations of these elements. There are also those instances when very specific information reaches the agency.

The better question to ask is what price is paid if my company does not invest in a culture of compliance? Getting enmeshed in Customs or other regulatory enforcement actions can tarnish your brand, lead to expensive law suits and penalty actions, and divert your resources away from your corporate mission and goals.

Ensuring a strong compliance structure in your organization ensures greater facilitation of product entering the commerce which supports just in time inventory practices. Costs are reduced for both government and business by focusing limited resources to enhancing productivity. A compliance driven operation is a win-win.

Who’s driving your trade compliance bus?

We are including a column by Janet Labuda of the FormerFedsGroup which has supported GeyerGorey LLP with investigative and compliance resources and helps FormerFedsGroup clients on compliance issues involving international trade and Customs matters. I will oversee FormerFedsGroup trade compliance training programs and set the protocols of the PerfectShield (TM) certification process.

By Janet Labuda

The short answer to the question who’s driving the compliance bus is your corporate compliance department. The driver’s seat, should not be filled with personnel from your transportation and logistics operation, the sourcing, or import management groups. All parts of your organization need to be involved in your culture of compliance, but the compliance department is where the rubber meets the road, so it should be staffed with highly focused compliance experts. Companies also should ensure that Customs is not in your driver’s seat.

In 1993, the U.S. Congress amended the Tariff Act of 1930 by enacting, as part of the North American Free Trade Agreement, the Customs Modernization Act (Mod Act). Inherent in the legislation was a shift of responsibility, to the importer, to ensure that imports are compliant. In addition, a series of recordkeeping requirements with tough penalty provisions were established. The Mod Act also introduced the two concepts of informed compliance and reasonable care into the legal and trade lexicon. Customs must explain the rules, and importers, and others in the trade community, must take care to understand and follow the rules.

The legislation gave the bus key to the importers. But, an important thing to remember is that although, the importers are driving the compliance bus, the route is dictated by Customs. Most times importers find that they do not travel on the most direct route. Often, there are bumps in the road and unexpected detours. You must be prepared for these inevitabilities.

Over the last few weeks, it has become obvious that international trade will be a priority for U.S. policy makers. The trade community can expect a greater emphasis on the enforcement of laws and regulations, and possible changes to current trade legislation, especially as it relates to preferential access to U.S. markets. Our traditional trade relationships will be tried and tested, and may see unexpected changes to the current norm.

From past experience, the federal government pendulum tends to swing in wide and sweeping arcs. Establishing a predictable balance can be difficult to achieve as guidance and focus shift. Often, the importing community gets caught in the middle.

The time for doing some critical introspection is now. Do not allow your company to be caught off guard. The following recommendations are ways your company can engage in upgrading your bus’s safety and navigation systems:

  1. Put yourself in Customs shoes and do a complete review of your operations and document how you believe your company is meeting a reasonable care standard.
  1. Enhance your corporate internal controls, as needed.
  1. Ensure a transparent and understandable supply chain for all phases of your overseas production.
  1. Don’t fly under the radar screen. Develop a regular outreach to Customs and other federal regulatory agencies.
  1. Review your business relationships to guarantee that there is an understanding that compliance is key to working with your company.
  1. Become a CTPAT tier three partner or an Authorized Economic Operator, and keep abreast of Customs Trusted Trader programs.
  1. Work closely with a professional broker to navigate complex trade issues. A broker dedicated to compliance is a force multiplier for your company.
  1. Understand the nature of any perceived risk, e.g., forced labor, anti-dumping circumvention, trade preference non-compliance, and how your products and partners might be affected by such risk.
  1. Review your sourcing strategies in light of the potential risk you identify.
  1. If you uncover a problem seek legal advice on the best way to move forward to mitigate any potential downstream penalties.
  1. Ensure that all corporate departments are pulling in the compliance direction.
  1. Provide regular compliance training throughout the company.
  1. Work through industry associations to have your voice heard when changes in government policies and procedures affect your business model.

Start your engines, buckle up, and try to enjoy the ride.

Labuda on The Role of Customs in National Economic Growth

The Role of Customs in National Economic Growth

By Janet Labuda**

Traditionally, Customs Services have  been tasked with the collection and protection of revenues generated from the importation of goods into their respective countries. Declared valuation of the imported goods is the basis for the collection of duties and value added tax for the national budgets. However, as the global economy is gravitating toward various free trade and duty-free preference partnerships and regional economic integration the traditional role of Customs is evolving.

Most Customs Services will readily admit that the growth of import trade and resulting complexities are often overwhelming for current personnel numbers, training, and abilities. The World Customs Organization has advocated the use of various risk management programs to identify the highest risk transactions, and therefore direct limited resources to addressing only these risks, while absorbing lower risk situations. Various countries have also established trusted partnerships with members of the supply chain using the business community as a force multiplier for compliance. Modern Customs Services must be on the leading edge of building a culture of compliance within the global trade community.

The international trade community has embraced the concept of just in time inventory procedures and Customs must embrace a just in time response to the needs of business. The lack of timeliness in regulatory decisions, and addressing legal issues, e.g., protests, the inability to create clear and concise regulations to elucidate new legal requirements, and failure to understand the business of business has a detrimental effect on corporate prosperity and subsequently a nation’s economic growth. Customs must see itself as an economic growth engine and compliance partnerships need to be expanded to include economic growth partnerships.

Generally, companies that reach out to Customs are seeking to enhance their compliance footprint, not to engage in questionable trade practices. There is no doubt that there are those in the trade community who engage in undervaluation, circumvention of anti-dumping duties, the introduction of goods that violate intellectual property rights, and in introducing products that adversely affect the health and safety of consumers. In these situations, Customs should take swift and effective enforcement action. Violations such as these also have a dampening effect on economic growth. However, for those companies seeking to be compliant players in the global economy, Customs Services need to step up and engage in collaborative solutions and ways forward.

Customs has a duty to remove unnecessary roadblocks affecting international trade transactions. Creating policies that are the antithesis of global economic partnerships is unacceptable. Customs Services should recognize their role in national economic growth by taking steps to ensure that Customs officials are trained in the complexities of international trade and the legal requirements necessary for a seamless facilitation of legitimate trade. Customs needs to develop programs that enable the highest level of integrity among Customs human resources and to develop strong risk management programs that address serious violations, rather than just seeking to pluck low hanging fruit which have little risk to compliance or which impede the flow of compliant trade. Of course, it is critical to ensure that adequate resources are in place to quickly address requests from the trade community regarding legal advice and rulings. Mutually developed compliance programs must take into account business needs, and provide quick and effective communication with the trade community. Customs must guarantee consistent and uniform treatment of issues across various ports and government agency offices to ensure predictability.

For import/expert issues, Janet can be contacted at Vandegrift Inc.  Janet can also be contacted at FormerFedsGroup.