Gone are the days when a minimum level of compliance with export control rules were sufficient to satisfy official requirements.
In today’s world, organizations are being asked to be more proactive – go above and beyond – for the sake of national security. This is especially true in the U.S. and European Union.
Look at sanctioned ownership regulations. Companies are not allowed to engage with entities whose shareholding include denied parties. The trigger threshold is 50 percent under the Office of Foreign Asset Control (OFAC) rule. In Europe, it is lower and more demanding. The challenge here, however, is that there are no official denied and restricted parties lists to screen against.
And then there are the U.S. Military End User and Military Intelligence End User regulations. Here there are official denied party screening lists, but the Bureau of Industry and Security (BIS) emphasizes due diligence that goes beyond the lists provided.
Directional rather than Explicit Compliance Guidance
In the past, official guidance was very explicit. For example, lists were published of entities that companies were barred from doing business with. Today, that has changed with guidance that is more directional, meaning that organizations are being told the law but not explicitly who should be screened out. The sanctioned ownership regulation is a case in point.
In order to effectively demonstrate compliance, organizations need to be more proactive in their approach. That is to be more responsible and more accountable than they have ever been.
This issue was discussed extensively in a recent webinar on the Evolution of 3rd Party Risk Management in Sanctions Compliance: Understanding OFAC’s 50 Percent Rule, Changes to BIS’ Military End Use Restrictions, and Other Emerging Compliance Requirements, that was jointly organized by Descartes Visual Compliance and the Export Compliance Training Institute.
Export Compliance Promotes Revenue Creation
Companies might struggle with the notion that they are being asked to do more, especially at a time when many are still trying to recover from the negative effects of the coronavirus pandemic. However, non-compliance attracts fines and penalties, supply chain disruption, and brand and reputational damage.
At the recent 3rd Party Risk Management webinar, another speaker, Jackson Wood, said that compliance was a competitive edge that lifts businesses to maximize revenue creation by minimizing missed market opportunities.
Five Ways to Strengthened Compliance in the New Environment
Compliance in any environment is easier said than done, but here are five ways to strengthen compliance in the new environment:
- Organization-wide Compliance: Maximize compliance by expanding coverage from international trade to include finance, human resources, visitor management to name a few. That’s because it’s illegal to ship anything to a denied party, enter into a financial transaction with them, hire them, or if you deal with controlled technologies even let them walk through your offices and factories. Because new compliance legislation is being spearheaded in the international trade arena, it makes sense for the export compliance professional to work with executive management as a compliance champion.
- Focus on Emerging Export Control Rules: This includes everything from Sanctioned Ownership rules all the way to regulatory updates and how they relate to your products and services. By being up to date and in the know, there will be fewer nasty surprises.
- Calibrate Risk: Engage with major internal stakeholders – Sales, Production, Distribution, Legal and others – to align on strategy to ensure that the organization is doing everything it can to minimize risk while keep revenues flowing.
- Cover all the Major Bases: Organizations need to make sure that they are complying fully with denied party screening and export control requirements, especially with the more complex ones such as OFAC’s 50 percent rule.
- Leverage Technology: Because the new environment is more demanding with a thinner margin for error, an organization’s best bet is to turn to a proven solution provider with scalable solutions for specific requirements that save time and budget – such as Descartes Visual Compliance.
How can Descartes Help?
To help companies manage their export compliance risk more effectively, there are solutions available for restricted party screening, export classification, license determination and management, and sanctioned party ownership screening (also known as Enhanced Risk Management), which can help organizations ensure they are not falling afoul of these new export compliance regulations, as well as potential future restrictions that may be introduced. Having proper and thorough export compliance processes in place can help organizations remain on the right side of the law, and avoid potential bad press, fines, and other financial and reputational damages that violation of export regulations may incur.
If you want to watch the full Descartes/ECTI webinar, please contact the Export Compliance Training Institute.