Assessing the Health of Your International Trade Compliance Program
If your company exports products or participates in international trade, compliance with governing regulations is critical. Notwithstanding the reasons for regulation (i.e., national security, balance of trade, multinational agreements, etc.), lapses in compliance rigor can result in extremely costly fines and penalties; costs that require bottom-line dollars to replace. In terms of compliance, “cost avoidance” is an underrated and misunderstood rationale.
So how does an ethical, global player in international trade ensure compliance? Step one: deploy a compliance program. This program will address each of the applicable program elements necessary to ensure compliance. The use of the term “applicable” is not generous; it intimates that the compliance program must be tailored to the company’s business. There is no one-size-fits-all compliance program. The compliance program must be designed to meet the needs of the business and, at the same time, ensure compliance with the regulatory requirements, and no more. The compliance program cannot afford excessively compliant processes or hypervigilance.
A good compliance program should run invisibly in the background and be exception based. It should not be particularly noticeable unless there is an issue. Assuming this is true, how does one know if their compliance program is working, absent a visit from the Office of Export Enforcement? There are two methods for making this determination. One is an audit; the other an assessment. These terms are often used incorrectly or used interchangeably. Audits and assessments are distinctly different and are intended to produce decidedly different results, though both will indicate the health or robustness of your compliance program.
Comparing Audits and Assessments—Each Has a Place
|Actual transactions and operational activities
|Process elements and behaviors
|Historical event finding leads to addressing violations
|Proactive opportunity to remediate offending processes prior to violations
A trade compliance audit is a review of actual transactions and other operational activities. In export compliance, these operational activities would include restricted party list screening results, product classification accuracy, license determination results, proper use of license exceptions, existence of evidentiary documentation (such as EPCI screening forms), etc.
The findings of an audit are critically important. If an audit reveals a violation and it is determined that the violation is a result of a broken process, the audit has performed a calculable and significant benefit. Despite the subsequent cost of dealing with the violation (e.g., voluntary disclosure), the audit has identified a problem that can be rectified.
Audits should be performed under privilege of legal counsel. Findings of an audit should not be “discoverable” in a court action. If the company auditors are not under privilege by corporate counsel, the audit activities should be conducted under privilege by external counsel.
Assessment: Proactive Tool for Improvement
A trade compliance assessment is typically a subjective assessment, based on the assessor’s level of experience and knowledge, of a compliance program’s robustness or health. An assessment is an examination of the trade compliance process elements associated with a given compliance program. Traditionally, this assessment is based on interviews with compliance process stakeholders. The interviews attempt to capture information that would lead the assessor to believe that a given process is either documented properly, appropriate for the compliance objective, and being followed by compliance personnel according to the training the compliance personnel have been provided regarding the process, vs. the process is not documented, nor adequate to the needs of the compliance program, and not being followed by compliance personnel.
The result of the trade compliance assessment is typically a list of compliance elements listed in order of their subjective quality—red, being broken or non-existent; orange, needing immediate remedial efforts; yellow, needing attention at some point; and green, meaning adequate to the compliance requirement.
Unfortunately, traditional trade compliance assessments require that the assessors physically visit the site and personally interview the compliance process owners or stakeholders. This process is disruptive, expensive, and, in today’s world, risky. Scheduling time to interview process owners is difficult and results in inescapable delays in completing the assessment. Whether the assessor is an external consultant or an internal auditor/assessor, the assessment is expensive. An assessment can also uncover processes that can and must be rectified. The difference is that an audit finds historical events, whereas the assessment provides the proactive opportunity to remediate the offending process prior to any violations.
Assessments typically do not look for evidence of violations. Assessments are limited to the qualification or quantification of the health of compliance processes. The difference is based on how the assessment is conducted. Traditional assessment methodologies rely on human interpretation of evidence provided during the stakeholder interview. New techniques afforded by state-of-the-art assessment tools eliminate the subjective interpretation and quantify the quality of the compliance process independently.
Trade Compliance Assessment Made Easy
In today’s digital world, the costly engagement of compliance professionals or consultants is no longer a prudent choice for trade compliance assessments. With new tools and technology, assessments can be performed at a fraction of the cost in a fraction of the time. Best-practice compliance professionals would be wise to seek out new technologies for performing trade compliance assessments and move their compliance practices into the 21st century.
One such semi-automated tool is the Trade Compliance Assessment Tool (TCAT) by the Trade Compliance Group. The TCAT is a SaaS subscription service designed to allow compliance professionals to perform trade compliance assessments remotely. It can be used on-premises in a more traditional methodology, and its efficiencies and effectiveness are not diminished. The TCAT is based on more than 200 questions that assess the compliance process elements that make up a compliance program. Each process element is scored independently and an aggregate of scores produces the overall risk score.
Additionally, the TCAT quantifies the company’s exposure, which is based on those characteristics that make your business unique—such as types of products, sales regions, sales types, number of employees, number of subsidiaries, etc. Knowing your company’s risk and exposure is highly valuable information that can support the C-Level staff in compliance decision-making. The TCAT produces a Gap Report which immediately identifies all of the gaps in your compliance program, making a clear path for compliance process remediation. And the TCAT is up to 95% less expensive than the traditional methodology described above.