With the U.S government casting renewed emphasis on investigating and prosecuting those who evade sanctions and export control rules – businesses must reassess their compliance programs, or risk hefty consequences.
In a March 2023 keynote speech, the US Department of Justice announced significant investment into enhancing the power and capabilities of its enforcement arms, adding more than 25 prosecutors to the National Security Division (NSD) and hiring its first-ever chief counsel for corporate enforcement.
In response to the 2023 changes, Joshua Shrager, Senior Vice President at Kharon and Former US Treasury official remarks, "compliance officers will need to continue to evolve their compliance frameworks to align with the changing regulatory landscape”.
“The recent joint alerts from the US Department of the Treasury's FinCEN and the US Commerce Department's BIS underscore the necessity for a dynamic and informed approach to sanctions and export controls.” He explains, “companies must be adept at navigating these complexities to mitigate risks and avoid the repercussions of non-compliance”.
What’s clear, is that the traditional, disparate approach to customs is increasingly inadequate. With significant real-world penalties and costs at stake, how can global forwarders remain proactive and compliant in the face of sanctions and regulatory change?
Understanding US regulatory governance: who are the OFAC and BIS?
The Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce's Bureau of Industry and Security (BIS) play crucial roles in enforcing economic sanctions and export controls.
OFAC is responsible for implementing and enforcing trade sanctions in accordance with U.S. foreign policy against individuals or locations that pose a threat to the national security, or economy of the United States.
Between 2018 and July 2023, the office initiated 94 corporate enforcement actions in response to sanctions violations. In 2023 alone, these enforcement actions resulted in financial penalties amounting to a substantial $61.8 million USD.
In conjunction with OFAC, BIS oversees and enforces export controls for dual-use and specific munitions items. Their approach involves rigorous investigations of violations, intercepting illegal exports, conducting end-use verifications, and actively pursuing those who breach export control regulations.
Sanctions take varied forms, tailored to specific foreign policy goals. They may be comprehensive, covering a wide range of restrictions, or selective, focusing on particular assets and trade activities.
In this diverse landscape, a nuanced and adaptable compliance strategy is essential, as no one-size-fits-all solution exists for businesses navigating complex international trade. Preparedness and responsiveness are not mere choices; they are necessities.
Current compliance obligations for freight forwarders
Today, compliance encompasses multiple vital obligations.
Accurate documentation includes precise invoices, packing lists, country of origin, and Bills of Lading, as well as the correct declaration of goods' values.
Customs authorities often require importers and exporters to maintain records for a specified duration, a responsibility freight forwarders must assist clients with.
Import or export licenses are mandatory for some goods, and freight forwarders must ensure their clients possess the necessary permits while avoiding transporting restricted or prohibited items.
Compliance also entails adherence to regional and international trade agreements, timely payment of all duties and taxes, and full cooperation during customs inspections. Precise customs declarations and prompt duty payments are crucial to prevent delays and penalties.
The high stakes of non-compliance
Non-compliance with regulations involving specially designated nationals (SDNs) or blocked entities carries severe consequences for businesses. These repercussions extend far beyond immediate issues like blacklisted vessels, seized goods, or fines.
Non-compliance can trigger sanctions, disrupting supply chains, causing delays, dissatisfying customers, and risking contract loss. Regulatory authorities may even revoke crucial licenses or certifications.
Significantly, a company's reputation can suffer, eroding trust among clients and partners, hindering contract renewals and new agreements. Worst-case scenarios can result in market bans.
Given the importance of government sanctions in today's global landscape, investing in compliance automation technology is essential for the secure, efficient movement of goods across borders. Compliance isn't just an option; it's integral to long-term success and sustainability.
How forwarders can install proactive risk management
With a myriad of consequences at stake, establishing a sanctions compliance program (SCP) that prioritises the necessary risk-based approach can appear a daunting task.
However, perfecting a well-rounded compliance strategy can start by implementing regular audits. These audits serve several critical purposes, including evaluating the efficiency of existing processes, identifying potential breaches or systemic inadequacies within an organization, and ensuring ongoing alignment with the rapidly evolving guidelines set by the OFAC.
An audit begins with data collection, where businesses gather critical information including operational records, licenses and customs documents. This data is then reviewed and analysed to determine the company's adherence to regulatory requirements and to determine areas where compliance falls short.
Based on these findings and input from management, a comprehensive audit report is finalized. For businesses with a strong compliance culture, these reports and all supporting data and documents are retained and easily accessible.
Establishing a centralized compliance platform with the ability to track and document the compliance process, including critical decision points, responsible parties, and timestamps, is essential for building a strong defence in case of an audit.
A compelling example is a 2020 OFAC case involving a global shipping company that proactively disclosed numerous violations after an internal compliance review. The case's outcome was significantly influenced by pivotal mitigating factors considered by the OFAC, including the ability to provide clear, concise, and well-organized submissions with supporting documentation. This played a decisive role in reducing the monetary penalty from $4.5 million USD to $1.125 million USD.
Ultimately, businesses that invest in modern technologies capable of automating and aligning with global compliance requirements, will find themselves better equipped to achieve greater operational efficiency, in what is an increasingly complex regulatory landscape.