Navigating the What, Who, and Where of compliance

Logistics leaders navigate a complex web of cross-border regulations, each with unique demands and risks. Enforcement authorities such as the U.S. Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) are intensifying their trade compliance activities, issuing fines and denial orders to businesses that fail to comply.

In addition to these regulations, multilateral frameworks like the Wassenaar Arrangement impose stringent oversight on dual-use technologies, military goods, and sensitive materials, creating compliance obligations for all supply chain participants.

This heightened regulatory enforcement signals a broader trend, with governments now better resourced and more determined to detect and penalize non-compliance. For companies operating across multiple jurisdictions, the stakes are higher than ever, as even minor infractions can result in significant financial penalties, reputational damage and denial orders.

A new compliance landscape

Compliance in global trade is no longer just a checkbox on a long shipment checklist. It's a critical aspect of managing risks in an environment where regulatory scrutiny is intensifying.

Traditionally, freight forwarders may have placed less emphasis on the specific details of the cargo they handled, viewing their role primarily as logistical support rather than compliance oversight. However, today’s regulatory environment has shifted that perspective, placing greater responsibility on freight forwarders to ensure every aspect of their operations meets strict compliance standards.

The What, Who, and Where of compliance

When we talk about the, What, Who, and Where of compliance, we’re referring to three fundamental questions that freight forwarders must answer for every shipment:

1. What is being shipped? (i.e. the goods themselves).

2. Who are you dealing with? (i.e. the parties involved).

3. Where is it going? (i.e. the shipment’s destination).

While these questions might seem straightforward, the answers are becoming increasingly complex.

The 'What': knowing your cargo

First is the 'What' – knowing what is in your cargo, and what the requirements are for those goods.

This involves verifying the nature and classification of the goods being shipped. Accurate identification and classification are essential for declaring the correct duties and taxes, as well as for understanding any import/export prohibitions, restrictions, rules of origin, permit needs, and other obligations tied to the tariff classification.

Furthermore, accurate cargo information is essential for proper tariff assessments and to ensure all necessary permits and licenses are in place. For military or dual-use items, adhering to frameworks like the Wassenaar Arrangement is crucial to avoid export control violations and ensure shipments meet international security standards. Misclassification or failure to comply with these requirements can result in significant fines, delays, or even seizure of goods.

The 'Who': identifying the parties involved

The next question is the 'Who' - understanding who you're working with.

This means screening the individuals or entities involved in a shipment to ensure they aren't blacklisted, associated with illegal activities, or included in sanctions lists published by governments around the world.

It's essential to verify these parties to avoid legal complications and maintain the integrity of your operations. This is particularly crucial considering increasing sanctions and heightened regulatory scrutiny. International authorities have intensified their efforts to enforce sanctions against entities involved in illegal activities or those operating in restricted sectors.  

There have been several cases where shipments were made to sanctioned parties, resulting in substantial fines for freight forwarders due to non-compliance. These incidents highlight the importance of thorough screening to protect your business from financial penalties and reputational damage.

The 'Where': compliance across borders

Finally, the 'Where' addresses the destination of the goods and ensuring compliance with the regulations of various jurisdictions.

This includes adhering to embargoed/sanctioned countries and similar rules in UN Security Council and other autonomous sanctions applied by individual countries. Violating these rules can result in the same fines and legal consequences as breaches of the 'Who' and 'What' regulations.

Many logistics service providers impose their own restrictions on the destinations they will ship to, sometimes requiring internal approval for certain locations. Even if a government has not sanctioned a country, a logistics provider may choose to require approval for shipments to destinations with a high risk of on-forwarding to sanctioned countries. These shipments typically face much more scrutiny than those between G20 countries, but a proactive approach to compliance and risk assessment can help businesses navigate these challenges effectively.

The reality of risk exposure and how to manage it

It’s common for some companies to budget for fines and penalties as part of their cost of doing business. They may factor potential non-compliance costs into their financial planning, viewing these expenses as an unavoidable aspect of operations. While this approach might seem pragmatic, it is fundamentally flawed - especially in today’s environment, where the costs of non-compliance are escalating.

Regulatory authorities are increasingly intensive in their enforcement activities and penalties for non-compliance are becoming more severe. The trend towards higher fines, more frequent inspections, and stricter enforcement means that the financial burden of non-compliance can quickly spiral out of control. In particular, the U.S. government has intensified its scrutiny of sanctions evasion and export control violations. In 2023, the Office of Foreign Assets Control (OFAC) imposed a record USD 1.5 billion in civil monetary penalties for sanctions violations.

Freight forwarders may underestimate their risk exposure, assuming that compliance rests solely with their customers. Yet, the reality is that by managing these goods, forwarders are assuming substantial compliance risks including fines, denial orders, and even personal liability for senior managers of the companies involved.

Leveraging technology to mitigate compliance risks

As the regulatory environment tightens, it’s worth asking: why, as a freight forwarder, would you take on significant risks for goods you don’t own, when tools exist to mitigate them?

Enter ComplianceWise – an innovative solution that seamlessly integrates compliance management into your everyday operations. Tailored for the complexities of global trade, ComplianceWise simplifies navigating the 'What, Who, and Where' of compliance with ease and precision.

A centralized view of compliance risks

A unified compliance risk management system offers a comprehensive overview of your shipments’ compliance status, to help ensure all critical aspects are covered:

• Harmonized Codes: View comprehensive risk assessment results for government regulations, seamlessly integrated through Harmonized System code data powered by BorderWise. Enjoy tailored compliance alerts and in-depth regulatory content designed specifically for your role.

• Parties involved: Check the Denied Party Screening status for all involved parties, ensuring no restricted entities are part of your transactions.

• Embargoed countries: Identify any embargoed countries linked to the job or its parties, streamlining your compliance with international trade restrictions. You can restrict usage of countries based on internal policies designed to, for example, counter onforwarding to embargoed countries.

Ace every audit

Maintaining a robust compliance framework not only helps in day-to-day operations but also prepares your organization for systematic audits:

• Record compliance decisions: Document every compliance assessment decision, including the reasons for blocking or releasing commodities. This ensures that your compliance process is well-documented and easily reviewable during audits.

• Track changes and outcomes: Maintain detailed logs of any changes to a job’s compliance status, providing a comprehensive history of compliance-related actions.

• Generate reports for senior management: Access reports that offer insights into compliance activities, risk exposures, and assessment records, aiding in both internal and external audit processes

Make compliance your competitive advantage

Today’s regulatory environment demands a proactive and integrated approach to managing compliance risks. Freight forwarders must evolve from viewing compliance as a peripheral concern to recognizing it as a central element of their operational strategy, understanding that partnering with customers to ensure overall compliance across the supply chain is crucial to protecting all parties involved.

By centralizing your compliance risk management and ensuring thorough audit readiness, you can turn compliance from a potential liability into a driver of business excellence and resilience.

Choose ComplianceWise to safeguard your operations, protect your reputation, and succeed in an increasingly regulated world.