As an attorney focused on ethics and compliance, companies often talk to me after they have discovered an export compliance problem.  In the best cases, the issue can be resolved through speaking with the freight forwarder or updating administrative procedures. 

In the worst cases, the company may need to make a Voluntary Self Disclosure to government enforcement personnel. In this era of massive anti-corruption headlines, many companies have ignored or down-played potential export compliance risks.

Companies need to adopt a new mind-set, a proactive compliance strategy that embraces export compliance company-wide to mitigate the real and significant risks of violations.

Companies who gloss over the underlying circumstances that led to a problem in the first place will usually find themselves dealing with another problem in the not-too-distant future.

It is common for companies to think that they do not need an export compliance program.  Some of these companies rarely export products or services. Others only export “benign” products or services that generally do not require a license, while still others hire a single trade compliance expert and think their job is done.  These are risky mistakes.

Even companies with very little export activity must have a basic compliance program in place or they will be constantly managing (and dodging) potential violations and problems.  You could be the most knowledgeable export compliance expert, but if you haven’t implemented a compliance program to communicate with operational employees you will find yourself without eyes and ears.

Forward thinking companies realize that the best time to implement a basic export compliance program is before a problem arises.  This will save you time and headache down the road. Most companies can prevent 99% of problems with a few basic steps. Of course, if your company is exporting military-grade equipment to countries all over the world, you will need much more than the basics. But, for most of the clients I work with, their export compliance programs consist of the following five components.

1. A clear and simple policy

Export rules and regulations are mind-numbingly complex. Definitions can be hard to find.  That level of detail is not useful for your operational employees. Your export compliance policy should consist of a single clear message: think about what you are exporting, who you are exporting to, and where it is going.

Of course, you will also want to include an explanation of the policy, definitions, reporting lines, non-retaliation policy, and other components you see in most compliance policies, but the underlying message should fit in a single paragraph. Once people become aware of the “what, who, and where” you will have focused attention where it should be.

You do not need your employees to be able to tell you from memory what type of license is needed to export your widgets to Country B – they just need to know enough to ask you.

2. Defined roles and responsibilities

This is where the rubber meets the road.  You need to have clear roles and responsibilities defined for who is going to perform export compliance checks. That can include screening counter-parties for sanctions compliance or reviewing export transactions to consider if a license is needed. Either way, those operational personnel need to know that export compliance is part of their job. In terms of your policy, it isn’t enough to say this is what the company has to watch out for – you need to identify the specific person(s) who will actually make sure that potential issues are flagged.

3. Regular training

This component varies by organization.  Some companies who export frequently should provide basic export compliance training to all their employees on a regular basis. Companies that export infrequently may not need such a comprehensive program and can be effective with a shorter message to everyone. Regardless, the individuals who are responsible for your export compliance – those we just talked about above, need to be thoroughly trained about their areas of responsibility.

Individuals performing sanctions screenings should know why red flags arise and what it means to be on a sanctions list. Targeting those employees results in the best return on your training investment.

4. Meticulous recordkeeping

All the hard export compliance work your employees do will be worthless if they are not creating an audit-ready record. Someone may think they have a good memory, but when issues arise it is often weeks, month, or years later. No one remembers if a screening was conducted, or why certain red flags were resolved. Make sure your employees know the importance of documenting each step taken in the export compliance process.

5. Auditing and monitoring

The last component is making sure that the procedures you put into place are being followed.  I recommend starting with more frequent, less intensive audits of your export compliance procedures. This allows your operational personnel to become familiar with the types of requests and information that may be sought in audits down the road. Not to mention, if an issue does arise, your employees will be ready to go with the information you need to fully assess the facts and circumstances.

These five simple components of an export compliance program will go far to ensure that your employees are ready to prevent your company from making export compliance mistakes.

The post 5 simple steps to a successful compliance program appeared first on Trade Ready.

“Your criminal actions raise serious questions as to whether you have the requisite personal integrity and business ethics to be a responsible Government contractor.”

That’s me.

I was debarred from being a U.S. government contractor, and based on my conduct and offense, it was an appropriate and fair decision. The process by which I was suspended and ultimately debarred was also fair and appropriate.

Furthermore, the protocol the government afforded me in terms of providing an opportunity to address the length of the debarment (it was reduced by one year, if my record remains clear) was quite reasonable and objective.

The unintended consequences of debarment

So, what does debarment have to do with trade? Well, I think everything.

Why should an organization or individual who has breached fair trade, either through bribery or export offenses, be entitled to continue to export without some sanction?

While there has been a recent increase in the discourse around debarment, including the recent changes in the Canadian Public Works and Government Services Canada (PWGSC) Integrity Framework, it remains an infrequent sanction tool.

In fact, according to the OECD Foreign Bribery Report, of the 427 cases from which the OECD used as its data set, only two resulted in debarment (of which this author is one). The OECD defines debarment as relating “to the additional non-automatic sanction of provisional exclusion from participation in national public procurement processes for a set period.”

So, why is debarment not being used as an instrument of sanction and deterrence?

As University of Virginia (disclosure, my Masters in Foreign Policy is from UVA) Professor Brandon Garrett states in Too Big to Jail, suspension and debarment “may result in what is effectively a death penalty for a company, and in many cases prosecutors and regulators are right to want to avoid such severe consequences for the entire company.”

Avoiding collateral damage

Agreed. For example, in my own case, would it have been responsible to have my former employer debarred, with potentially catastrophic economic consequences, for conduct attributable to me?

Clearly not, and as Professor Garrett states,

Prosecutors are absolutely right to try to avoid collateral consequences of a corporate conviction.

In his concluding chapter, Professor Garrett argues, “for corporate prosecutions to have real teeth, debarment and suspension should be exercised more clearly and forcefully, particularly for recidivists, to ensure that they implement meaningful compliance,” and he reminds us that prosecutors “can wield the most powerful tools.”

Thus, if the FCPA and other anti-bribery enforcement regimes are proving inadequate, even if essential, in terms of deterring foreign bribery, perhaps the “debarment” tool needs to be taken out of the shed.

Perhaps it should be utilized in a way which, while economically painful, is not catastrophic to the hard-working employees and foreign end-users who play a legitimate and lawful role in the value chain.

Here, I think Canada leads the way, and we will get back to the “why and how.”

Hitting where it hurts on the front lines

As to why I consider debarment to be a fair, appropriate and well calibrated sanction and deterrence tool, well, we need to take a deep dive into the front lines of international business. More specifically to hotels, conference center bars and restaurants where business teams congregate after corporate meetings.

It is in this environment, away from the ears of management, where business personnel are likely to exchange ‘war stories,’ and in this case, frustration with the interruption of business due to debarment.

While criminal and enforcement fines, even massive ones, have financial impact on earnings and balance sheets (but as we have seen, not necessarily to share values), they don’t automatically impact field personnel.

Debarment does, as it disrupts sales opportunities, income streams, revenue models, and finally, incentive compensation potential, to those who have international business development responsibility.

When business teams who have had their forecasts and plans interrupted due to debarment start pressuring peers not to engage in conduct which can “screw up the market,” the thinking might really start to shift.

Those internal pressures should not be underrated. If it is the business teams who are misbehaving, why not have the business teams feel the pain?

Even if the ones who are getting the brunt of the punishment are not the ones who committed the fraud, from my perspective, they will be sure to “share the pain and shame” with their cohorts in a way which just might change the “engage in or refrain from” corruption calculus to everyone’s long term benefit.

Now back to Canada.

The Canadian solution of remediation, rehabilitation and cooperation

As Kristine Robidoux, Partner, Gowling Lafleur Henderson LLP, stated in a recent blog article, entitled The New Canadian Integrity Regime: Compliance Carrots to Join the Sticks,

“The previous Integrity Framework had a number of controversial provisions that led to widespread criticism; in particular, suggestions that the Framework was so draconian, confusing and inflexible as to “drive underground” allegations of corporate wrongdoing, contrary to PWGSC’s stated objective of deterring such wrongdoing.”

As for what Canada did to balance the Regime, as Kristine states, “the Regime now provides for the period of contracting ineligibility to be reduced by up to five years if it can be demonstrated that the supplier has adequately addressed and remediated the causes of the misconduct and has cooperated with enforcement agencies in investigating and resolving the conduct at issue.”

Thus, in addition to the debarment sticks, Canada has introduced the carrots of remediation, rehabilitation and cooperation that can all be used to reduce the debarment period.

As Kristine adds, “it is clear that with the recent changes to the Integrity Regime, the Canadian government is attempting to foster an environment that will encourage cooperation, self-investigation and voluntary disclosure by using inducements to potentially shorten the debarment period.”

So, from my perspective as one who has been debarred, it is a fair and appropriate tool which has real impact on the front lines of business, which is where unethical export practices often occur.

While recognizing the potential disproportionate consequences which might result from its use, I think that Canada gets it right by incentivizing organizations via downward departures in the length of debarment, when they show responsible changes in behaviors, policies and compliance practices.

I hope that other countries will look at Canada’s approach and think about how this tool can have a dramatic impact on those who operate on the front lines of overseas business, as well as to the organizations that ultimately have responsibility to maintain ethical, lawful and compliant business practices.

Do you think Canada’s new anti-corruption measures are a step in the right direction?

The post How Canada’s leading the way to compliance with anti-corruption sticks and carrots appeared first on Trade Ready.

Sanctions compliance is more important than ever. As a result, companies need to spend more time to review, assess and enhance their sanctions compliance programs.

Most companies know how to screen potential customers, business partners, vendors and suppliers against Office of Foreign Assets Control (OFAC) lists of prohibited persons and entities.

However, while such a process is important to a compliance program, much more is needed to ensure compliance throughout a company’s operations.

“Check-the-box” type programs are a thing of the past

Gone are the days when a sales clerk ran a customer’s name on a purchase order through a trade compliance database to ensure that the customer was not a prohibited sanctions list.

Companies are required to do much more than that if they want to get full credit from the government for its sanctions compliance strategies.

Under OFAC rules and Department of Justice guidelines, a company has to design and implement an effective sanctions compliance program.

This cannot be a mere check-the-box type of program – it requires a full complement of compliance program elements, most of which are already known to the business community.

I do not intend to list here the elements of an effective program as required under the U.S. Sentencing Guidelines and the DOJ/SEC FCPA Guidance. We all are familiar with those requirements.

Instead, I want to suggest some helpful practical steps.

There are many lessons from recent OFAC enforcement actions. Perhaps the most significant and consistent theme is the fact that many companies have little to no commitment to OFAC compliance other than a basic screening protocol.

Beyond that, companies have focused on anti-corruption, third-party payments and other “more” significant risks.

Here’s where that mindset has to change:

1. Company Culture:

Everyone’s favorite compliance-related topic these days is promoting a “culture of compliance”. That is a welcome development, but there needs to be more to it than just saying culture is important.

Culture is created by actions and communications surrounding conduct and accountability.

When it comes to sanctions compliance, companies have to add the importance of sanctions to the “culture of compliance” message.

2. Risk Assessment:

In many situations, I urge companies not to expend significant resources on a risk assessment. However, in the sanctions area, a risk assessment could be critical, depending on the business’ global operations and potential risks.

For global companies, it is important to examine closely its operations and identify situations where sanctions risks exist.

3. Policies and Procedures:

Too often, companies relegate sanctions enforcement to lower-level managers or employees. A Chief Compliance Officer has to take responsibility for this substantive area and work closely with trade compliance staff to ensure standards are being met.

As part of this effort, a company has to adopt specific policies and procedures for its sanctions compliance program.

The government requires companies to develop trade compliance “manuals,” which need not be exhaustively detailed, but should be drafted to provide procedural guidance for compliance with sanctions.

A sanctions compliance program must name a specific individual, the CCO in most cases, as the person responsible for sanctions compliance.

4. OFAC Database Screening:

Companies rely on database services to conduct OFAC checks. That is all well and good. However, your program is only as strong as your data, and not all data services are infallible.

Companies need to double-check these services, conduct random audits of the checks, and make sure there are adequate reviews of the screening process.

5. Training:

Recent OFAC enforcement actions have highlighted the failure of a company to ensure appropriate training of managers and employees.

This is a requirement that has to be satisfied and documented to demonstrate to the government, if necessary, that training has been conducted.

6. Documentation and Advice of Counsel:

I tend to repeat myself (just ask my wife), but here is a mantra that I say all the time,

A compliance program by definition is ineffective if it is not documented.

Further, to provide additional legal protection, a written “advice of counsel” memo, letter or email should be obtained in any situation where there is a significant question as to the legality of going forward with a transaction.

7. Internal Audit:

A company should audit its sanctions compliance program in accordance with appropriate auditing risk formulas.

If deficiencies are identified, managers should be held accountable for completing any remediation as directed by the internal audit staff.

8. Investigation and Remediation:

A company has to promote a “speak-up culture” and investigate complaints relating to sanctions compliance, remedying any violations that are discovered.

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9. Contract Management System:

A company has to maintain a robust contract management system so that it can review contracts in order to ensure compliance with sanctions restrictions.

Once approved, the contract has to be managed to protect against sanctions violations and any attempt by a customer to evade sanctions requirements, either by facilitating a violation for the benefit of an otherwise prohibited person, or by failing to confirm end user identities and requirements.

Is your sanctions compliance program up to date? Does your company’s “culture of compliance” cover sanctions?

Want to read more about ethics and compliance?

“My hope is that my contribution can lend some weight to an already significant revolution in corporate governance — the rise of the compliance professional and the dedication of corporate leaders and organizations to ethics and compliance.” Michael Volkov

The Revolution in Ethics and Compliance includes a collection of recent essays and blog posts aimed at encouraging corporate leaders to understand how a culture of compliance is not only the best best protection against code of conduct and legal violations, but also how such a culture creates sustainable financial benefits to a company and its employees.

The post 9 ways global businesses need to step up their sanctions compliance strategies appeared first on Trade Ready.