Trade compliance provides a value to companies that is simple enough for management and most employees to appreciate and understand—helping the company avoid legal violations that can result in monetary penalties, loss of import/export privileges and reputational damage that can in turn have negative business and financial implications. But as with most compliance functions, the added value of trade compliance can often be overlooked or underappreciated (even by trade compliance professionals themselves).
Trade compliance teams may find it difficult to demonstrate the added value of their day-to-day work in the same way as other groups within a company. And understandably so: It’s easier to demonstrate value with a tangible benefit that has been obtained, rather than the absence of a penalty or other negative financial implication (e.g., the sales team can quantify the value of a $10 million deal more easily than the trade compliance team can show the value in a $10 million penalty that they theoretically may have helped to avoid by quashing a prospective deal).
Being able to demonstrate the added financial value of trade compliance is significant for a number of reasons:
- It helps break the misconception that trade compliance’s role is simply to act as a roadblock to the business.
- It helps support the case for an increase in the trade-compliance budget and/or new hires.
- Companies that are willing to see trade compliance as a value add (rather than simply the function of “NO”) may be more amenable to offering individual merit increases, bonuses or other financial incentives to trade compliance members and teams who can demonstrate this value.
Export Data and Duty Drawback
Proactive Trade Compliance
The trade compliance function often takes a more passive role when it comes to developing business opportunities. Generally, it’s the sales or business development function that comes to trade compliance when looking to enter new markets and sell to new customers. At that point, trade compliance’s role is either to approve, request further information, or deny the request outright if export regulations or sanctions concerns present an unreasonable risk to the business. But consider the added value of the trade compliance function if it also plays a proactive role in informing and updating the business about potential opportunities that are available due to regulatory changes and legal developments.
Take Cuba, as just one example. Many U.S. companies have strict internal policies regarding trade with Cuba, based on a long embargo history and strict export restrictions, as well as U.S. sanctions on numerous individual persons and entities within the country. Many companies treat trade with Cuba as prohibited, or at the least consider it to be a "country of concern" from a trade compliance perspective, and rightly so, given the political sensitivity and restrictions that are in place. At the same time, the U.S. government has offered a host of exemptions and authorizations available to U.S. companies, people and exporters providing goods and services to Cuba across different industries. For example, see Fact Sheet: Supporting the Cuban People’s Right to Seek, Receive, and Impart Information through Safe and Secure Access to the Internet.
Your sales or business development teams may not be aware of such exceptions and may consider business with certain regions, countries or companies to be off limits based on outdated internal policies. Remaining proactive allows the trade compliance function to flag potential opportunities, as opposed to waiting for others to come to them for approval. Even if certain opportunities or markets may not be feasible in the short term, trade compliance may serve as the catalyst for potential business opportunities down the road. This proactive role adds value to any trade compliance program and ensures that trade compliance remains highly visible within the organization.
Using Other Companies’ Mistakes to Your Advantage
In training slides and/or presentations to management, many trade compliance teams include a section that highlights the potential financial implications of trade violations. For example:
Violations of the Export Administration Regulations, 15 C.F.R. Parts 730-774 (EAR) may be subject to both criminal and administrative penalties. Under the Export Control Reform Act of 2018 (50 U.S.C. §§ 4801-4852) (ECRA), criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both. Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.
Reminders that export violations can mean imprisonment and multi-million-dollar penalties are helpful to draw attention to the importance of the trade team’s role in ensuring compliance. However, try a more targeted approach to show the true added value that the trade compliance function brings to a company. Look for recent examples of companies that have violated trade laws and bring these to the attention of your business, management, chief compliance officer or even to the CEO directly! Ideally, you want to use examples of companies within your industry (possibly even a competitor) that face the same or similar types of trade compliance risks.
Highlight what they did wrong and more importantly, the trade policies, procedures or actions that your team has implemented and enforced to prevent similar violations. In other words, demonstrate your team’s added value through specific, relatable examples. For example: “Our competitor engaged in behavior ‘X’ with regard to the export of product ‘Y’ to country ‘Z,’ and as a result, received a substantial penalty from the State Department. We also export product ‘Y’ to country ‘Z,’ however, we would never receive this type of violation because we take the following precautions and enforce the following policies/procedures to avoid such violations…”
In the end, you’re still showing trade compliance value through the absence of an event, but you’re also adding to your team’s value by bringing to light the presence of another company’s violation that, if not for your team’s adherence to trade compliance, could have just as easily cost your company similar financial penalties and/or reputational damage.
Looking for examples? Both the U.S. Commerce and U.S. State departments provide information online summarizing recent export violations, enforcement actions and resulting financial penalties and oversight agreements. See Don’t Let This Happen to You! Actual Investigations of Export Control and Antiboycott Violations and U.S. Department of State DDTC Penalties & Oversight Agreements.
Developing a Best-In-Class Program to Mitigate Penalties
All trade compliance departments will have issues that slip through the cracks, resulting in violations of differing severity. Knowing that violations will occur, the best way to not only avoid violations but to also mitigate resulting penalties is by having a best-in-class trade compliance program. Trade agencies take many mitigating factors into account when determining appropriate penalties for violations. For example, recent Directorate of Defense Trade Controls (DDTC) consent agreements have considered the following factors when determining penalties:
- A company’s willingness to contribute to an investigation.
- The filing of a voluntary self-disclosure upon discovery of the violation.
- The development and implementation of remedial measures after the fact to deter future violations.
The DDTC and other trade agencies consider such mitigating factors to promote transparency, often resulting in warning letters or lesser penalties for companies that are engaged and proactive in recognizing and addressing trade compliance gaps. Therefore, added value exists within a trade compliance function that is well-staffed, trained and experienced enough to spot potential violations, assess the need for voluntary disclosures, develop corrective actions and work proactively with the applicable trade agencies, all in an effort to mitigate, or even avoid, penalties.
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