Startups already have a lot on their plates. From making sales to managing inventory to achieving a strong cash flow for future growth, it seems that no other priorities are worth looking at.
In this article, we’re going to make the case for international trade compliance. You might not think of your small business as a threat to national security, but following these export compliance laws is actually a huge step towards meeting business goals and reducing the risk of costly penalties all while making sure that sensitive technologies and products do not fall into the wrong hands.
If you are or are planning on operating internationally with foreign third-parties, look to these trade regulations to see what governs the products and services you send out to clients and partners overseas.
Working with Exports, as well as Imports
Your startup likely has partnerships overseas, whether you sell to other countries or you obtain supplies and materials from third-parties. Be mindful of the regulations involving exports compliance. But also be aware of import laws (more on that later in this article).
The U.S. government dictates what happens with exports leaving the country. You might send out a shipment that includes controlled goods or technologies, or you might invite foreign employees over to use your own domestic products and tools. Both cases may involve an export license that must be completed and submitted with appropriate documentation.
Startups that plan on exporting goods will need to understand a concept known as export classification. The Export Administration Regulations, enforced by the Commerce Department’s Bureau of Industry and Security, will scan your shipments and issue licenses based on:
- What you’re sending
- Whether it has dual military and civilian use
- The destination and recipient
- The intended use
Defense and space related items, meanwhile, fall under the State Department’s International Traffic in Arms Regulations (ITAR), as defined in the United States Munitions List (USML).
You will need the export classification codes in your shipping documentation that you submit to the government.
Denied Party Screening
If you are ever caught doing business with embargoed and sanctioned countries or restricted parties, you are at risk of significant legal penalties and a loss in trust among the industry. The same is true for foreign partnerships, securing overseas funding, and if engaged in mergers and acquisitions.
Examples of embargoed regions to avoid include:
- Cuba for human rights abuses
- Iran for poor human rights, a nuclear problem, and potential for terrorism
- North Korea for human rights abuses and a nuclear program
- Syria for human rights abuses, a civil war, and potential for terrorism
- Venezuela for human rights abuses, a drug trade, and political corruption
In terms of denied parties screening lists, there are hundreds of them maintained by governments around the world (the U.S. and European Union among others) as well as world bodies (such as the United Nations, central banks and so on).
Startups and businesses in general are responsible for their own adherence to these bans and therefore must invest in denied party screening solutions to check for non-compliant transactions before they happen.
Sanctioned Ownership Screening
An emerging requirement is to ensure that you are not doing business with a company whose significant shareholders include denied parties. OFAC rules in the U.S. put the ownership threshold at 50% or higher, the percentage trigger point in the EU is more onerous.
But compliance is made more difficult because there are no official lists to screen against. The way to mitigate risk is through a proven sanctioned ownership screening software solution.
A Word About Import Compliance and Controls
There are also many import regulations that U.S. Customs and Border Protection (CBP) agency enforces, including:
- Shipment safety
- Consumer protection
- Intellectual property violations
Taxes and sanctions for non-compliance with these laws can be costly, especially to a startup, so it is definitely worth your time to review import compliance requirements.
But remember that you still need to screen your suppliers against denied parties lists, because doing business with an entity named on a watchlist can result in fines and other penalties.
How Descartes Makes Trade Compliance Easy For Startups
We’ve made it clear that trade compliance is a vital component of any business strategy, but how can startups with relatively little resources comprehensively cover it?
What many organizations of all sizes and industries have discovered is a digital platform to handle all the complexities of international legal compliance. With features like trade automation, integrated screening, compliance management workflows, and export document management, Descartes is a provider of an industry-leading suite of denied party screening, 3rd party risk management solutions, as well as trade content for leading business systems, that can be integrated with minimal disruption, sometimes in under an hour.
Descartes Visual Compliance and Descartes MK Denied Party Screening solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary.
Ensure your startup avoids costly sanctions in the long-run with Descartes. Book a meeting today to get started.