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11 Common Misconceptions: Compliance & Denied Party Screening

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11 Common Misconceptions: Compliance & Denied Party Screening

With the growth of eCommerce, business integration, and global connectivity showing no sign of abating, compliance and denied party screening (DPS) have been thrust into the spotlight. The era of the mega fine has emerged, with fluid international sanctions policies impacting unsuspecting companies in unwelcome ways. In addition to the potential for reputational damage, penalties for non-compliance can include substantial fines—multimillions of dollars in some instances—, revocation of export privileges, and criminal charges, including prison time. 

The solution? Screening for restricted and denied parties, and due diligence to ensure that goods, technologies, and services are not destined for a sanctioned or embargoed country—not to mention screening every financial transaction—should be an integral component of every organization’s governance, risk, and compliance strategy. 

WHO NEEDS TO SCREEN?

While homeland security-sensitive industries (e.g., aerospace, defense, telecommunications, IT, energy, research, financial institutions) have a high bar when it comes to complying with U.S. and international export, trade, and financial laws, ordinary businesses from across all industries have an obligation to adhere to compliance requirements as well—and the penalties for non-compliance can be severe.

The reality is that companies found in violation of international trade regulations come from a wide spectrum of industries, not just the usual suspects. In fact, many organizations that have received financial, or even criminal, penalties fall outside the realm of the higher-risk industries. 

Unfortunately, many companies hold the erroneous belief that compliance and DPS do not apply to them. By increasing awareness surrounding the following misconceptions about compliance and restricted party screening, organizations can take a proactive and vigilant approach to mitigating risk and avoiding costly penalties.

DPS MYTHS: DON’T LET THEM HAPPEN TO YOU 

Screening doesn’t apply to our business, industry, or country.

All businesses, not just those operating within homeland security-sensitive industries, have an obligation to screen. Companies both in the U.S. and those outside of the country that engage with the United States in any capacity—including selling products or services in the U.S., or even using American banks and financial services for transactions—are subject to U.S. export and financial compliance laws.

We don’t need to screen because we supply services, not products.

Every time money changes hands, there is an obligation to ensure that the good or service is not destined for an individual or entity on a government watch list; services (e.g., travel agencies) are not exempt. 

We rely on a third party (e.g., freight forwarder) to screen for us.

Many companies make the mistake of thinking that the burden of compliance rests with the shipping or freight forwarding company but this is not always the case. The U.S. government can designate the owner or seller of the merchandise being exported (or imported) as the Exporter of Record, shifting the onus of compliance to both organizations. 

Our company operates domestically so screening is not required.

A significant number of individuals found on watch lists are U.S. nationals or citizens located in the United States who have been found guilty of violating export laws. Consequently, organizations are obligated to screen regardless of shipment destination.

Export laws don’t apply to us because we’re located outside the U.S. 

Regardless of where an organization’s headquarters or subsidiaries are based, it is highly likely that some, if not all, transactions flow through the U.S. financial system at one point in the purchasing or supply chain process. As such, these transactions fall under the purview of the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC).

We don’t export to countries under sanctions or embargoes.

Virtually every nation, on every continent, has debarred individuals and entities inside their borders—even Antarctica! Given the dynamic nature of international sanction policies, especially in the current political climate, organizations are at risk of engaging with a denied or restricted person or organization regardless of where they export. 

Our goods are EAR99 so we don’t need to screen.

Although an organization’s goods might be EAR99 (under the jurisdiction of the U.S. Department of Commerce and not listed on the Commerce Control List), selling them to a denied party is still subject to penalty. For reference, the 2017 edition of the Bureau of Industry and Security’s Don’t Let This Happen to You is replete with examples of EAR99 export violations.

We already screened our customers and contacts once.

Denied and restricted party lists change frequently, in many cases daily. To ensure compliance, organizations would be best served by screening all transactions at multiple points throughout the business workflow.

The project we needed to screen for is complete so we’re in the clear.

While exports are commonly associated with the shipment of goods, export controls also encompass the transfer of technology, software, or technical data, even when the transfer occurs in the United States. Case in point: although a project may have concluded, the release of controlled technologies (a.k.a. deemed exports) to foreign nationals is subject to U.S. export laws.

We only need to screen the person to whom we’re shipping.

One of the most misunderstood areas of export compliance is the requirements surrounding end-use. End-use compliance involves requesting documentation from the purchaser to confirm they are the ultimate destination of the goods and that they will use the product as intended. While obtaining an end-user statement doesn’t guarantee the veracity of the purchaser’s claim, this process demonstrates that a company has taken additional measures to ensure adherence to export and trade compliance laws and will stand them in good stead if issues arise. 

We’ll just pay the fine.

Fines incurred as a result of an export of OFAC violation should not be treated as a business expense. In fact, criminal penalties can include jail time and organizations can have their export privileges revoked. Moreover, negative media attention is an increasing concern for risk-adverse organizations attempting to protect their reputation by avoiding conducting business with non-law-abiding people or companies. 

FINAL THOUGHTS

Penalties from any export, trade, or OFAC compliance violation can negatively impact an organization’s bottom line, or ultimately cripple a company’s trade. Implementing a comprehensive screening program that encompasses restricted and denied parties and sanctioned and embargoed countries, coupled with cultivating a culture of compliance within the organization, will help keep goods flowing while minimizing the risk of penalties. 

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Marc Roy is Vice President & General Manager, Compliance Solutions at Descartes Systems Group, the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance, and security of logistics-intensive businesses. 

Descartes

Shipping Support Consolidated with Descartes ShipRush™

Descartes’ cloud-based ecommerce shipping solution ShipRush™ now provides customers increased visibility through its added less-than-truckload (LTL) freight management options.

The global logistics solutions provider announced the adding of LTL freight to the offering, further increasing efforts in streamlining shipping operations while supporting companies as they determine carriers and efficient service options.

“Descartes continues to drive ecommerce shipping innovation by bringing together LTL freight, parcel shipping and rate shopping on a cost-effective platform for ecommerce companies,” said Troy Graham, Senior Vice President, Business Development for Descartes Systems Group.

“These combined capabilities help companies, like ZUP, remove the guesswork from choosing the best combination of cost and service for their shipments.”

“As a multi-channel business, ZUP’s shipping needs are complex. We process both individual marketplace orders and large palletized orders for our network of dealers,” said Nick Kierpiec, director of operations for ZUP.

Beyond increased visibility with its all-in-one capabilites, ShipRush™  supports customers in determining the most cost-effective options for LTL management and usage. The platform assists in how and when to use LTL and can produce bulk shipping savings up to 50 percent while offering access to integrated Enterprise Resource Planning systems (ERP) and carrier rate selection processing.

“The ability to do everything in one platform, including process incoming orders and rate shop the best price and delivery options for parcel and LTL, saves us both time and money,” concluded Kierpiec.

 

Descartes Announces Acquisition of CORE Transport Technologies for Air Cargo Support

Descartes Systems Group announced this week its acquisition of New-Zealand headquartered company CORE Transport Technologies for an up-front consideration of $21 million in addition to potential performance-based consideration. CORE’s customers – which include commercial airlines and ground handlers, utilize the company’s network to successfully track international mail, parcel and cargo shipments as well as US domestic mail and parcel shipments.

“As US domestic and international ecommerce continues to grow, more demands are being placed on carriers and their partners to deliver efficiently and report events in real-time,” said Ken Wood, EVP of Product Management at Descartes. “The CORE acquisition complements our recent investment in Velocity Mail, helping us to better serve the logistics service provider community working with postal authorities around the world. CORE’s solutions also extend beyond mail and parcel shipment tracking, with air cargo tracking solutions that we can add to our Global Logistics Network.”

CORE boasts ten years of providing global connections with trading partners and government postal authorities for its customers. By integrating automation and utilizing data analytics, CORE supports operational efficiencies and streamlined operations to support customers.

“We continue to look for opportunities to add customers, solutions and content to our Global Logistics Network to help our customers manage the lifecycle of shipments,” said Edward J. Ryan, Descartes’ CEO. “By combining with CORE, we’re strengthening our position in the growing domestic and global ecommerce market. We’re also adding new solutions to our Descartes Global Air Messaging Gateway that we believe will present a compelling opportunity for our global air cargo community to enhance real-time tracking and visibility of air shipments.”

Source: Descartes

Descartes Buys Utah-Based Customs Info for $41.5 Million

Salt Lake City, UT – The Ontario, Canada-based Descartes Systems Group, a Canadian supply chain information technology (IT) company, has acquired Customs Info LLC, a provider of trade data content to power global trade management (GTM) systems, for $45.1 million in cash and Descartes’ stock.

Headquartered in Salt Lake City, Utah, Customs Info provides trade data and related research tools to more than 800 multinational shippers in 160 countries.

The data the company provides populates global trade management systems with information on tariffs, duties, regulations, trade agreements, rules of origin, and other trade-related content.

In addition, Customs Info provides online global trade research tools, and “software as a service” (SaaS) classification systems to help shippers build and maintain complex classification databases for their worldwide operations.

Descartes operates a global logistics network used each day by more than 10,000 customers to share critical supply chain information to manage their trade flows.

06/10/2014