Bernie Hart, global product executive with JPMorgan Chase Vastera, offers the following seven key export compliance trends that will characterize the early months of 2006:
1. The FBI Gets More Active in Export Enforcement
The FBI's number one priority is to protect the U.S. against terrorist attack. Separately, the Bureau of Industry and Security's Office of Export Enforcement is tasked with preventing and pursuing illegal exports intended to facilitate the proliferation of weapons of mass destruction (WMDs), or support terrorist entities.
Given the FBI's dedication to counterterrorism, we expect to see an increase in cases in which the agency joins forces with the BIS' enforcement arm to stop illegal exports. Among this year's more high profile joint investigations: the indictment of two men charged with the purchase and export to Pakistan of U.S.-origin triggered spark gaps, items which can be used as nuclear weapons detonators or to break up kidney stones; and an arrest stemming from the attempted export of an experimental, single-engine aircraft and exports of electrical components to Iran, all in violation of the U.S. embargo.
The bottom line: Government eyes are increasingly monitoring your exports.
2. Surprise: You Too Must Be ITAR-Compliant
Through its International Traffic and Arms Regulations (ITAR), the U.S. Department of Defense's Directorate of Defense Trade Controls furthers U.S. national security and foreign policy by monitoring and controlling the export of defense articles and defense services covered by the United States Munitions List (USML). It's only logical that defense contractors would need to be compliant with ITAR issues such as prudent licensing, the assurance of proper end-use of licensed exports, and the prevention of unauthorized transfers.
What many firms are now learning is that products and technologies that they thought were of a purely commercial/industrial (i.e., non-military) nature are subject to control under the ITAR. The slightest tweak to a traditionally commercial item for a specific military application may shift export jurisdiction for that item from the Commerce Department to the State Department.
The bottom line: For some companies, the added responsibility of complying with a whole new set of export regulations will bring "shock and awe".
3. Countries Join the Export Control Club
You think U.S. export regulations are complex? Just wait until developing nations in Asia, Latin America and Eastern Europe start introducing new and more restrictive export policies. As U.S. manufacturers continue to source goods from or set up plants in China, India and Russia, the luster of offshoring may soon lose its appeal to some once new export regulations are introduced. Examples would include the Singapore transshipment rules and the Chinese list-based and end use-based export rules.
The bottom line: In addition to staying current with all U.S. export regulations, corporate compliance managers will need to widen their scope and become experts in the trade requirements of other nations.
4. Government Increasingly Monitors Corporate Behavior
With regulations like the Sarbanes Oxley Act, companies are being forced to improve their systems and controls for providing investors and regulators a timely, accurate, and complete picture of financial performance. Briefly stated, compliance with Sarbanes Oxley cannot be fully achieved without implementing a well-focused supply chain security strategy, and the government has high expectations that such standards will be met.
The bottom line: For companies whose global trade activities greatly affect the financial bottom line, the government will continue to scrutinize export activities. Companies must be able to demonstrate that internal controls and standards have been adopted company-wide, with the involvement of senior management and the board of directors.
5. Corporate Compliance Programs Dictated by Government?
Will government agencies start to dictate, by regulation, what an effective compliance program must look like? That's where it seams to be heading. The U.S. Government has now defined an effective ethics and compliance program for all obligations of the corporation.
Each member of the board of directors has three clear obligations that are new under the Sentencing Guides. You heard me correctly, members of the board are called out in the Sentencing Guides for corporations. He or she must be knowledgeable about the content of the compliance program, exercise reasonable oversight, and give compliance officers direct access to the Board.
6. Are You Prepared to Operate in a Paperless World?
The good news: Companies have significant opportunities to save time and become more efficient as the export compliance world continues to grow increasingly paperless. The bad news: Not all companies are prepared to reap these rewards.
More and more trade compliance transactions with government agencies are being conducted via the Internet, and we only see this trend proliferating. Among the tasks that have gone paperless are licensing, export declarations, recordkeeping, online updates on policies and procedures, and online training.
The bottom line: Update and automate your systems and processes.
7. No Sleep for the Weary
In the near future, we fear that there will be no restful sleep for the typical corporate compliance manager. Moving goods across international borders has become increasingly challenging and we do not see this trend weakening any time soon.
Exporters are burdened to remain current with U.S. and international trade regulations and to know exactly how to comply with them. A solid trade compliance program helps companies avoid the potential pains of conducting global business, such as fines, penalties, loss of trade privileges and bad publicity.
The bottom line: Corporate compliance managers must ask themselves this question: Is maintaining an effective global trade compliance program a core competency that justifies a continuous investment in people, technology, and resources or is it a process best managed by a partner whose primary focus and business is achieving operational excellence in global trade management?
