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January 31, 2012

Addressing Barriers to International Trade Compliance

James Giese UWEBC Communications Director

Barbara Heil, International Compliance Manager, Johnson Controls, Inc. was the featured guest speaker at the UWEBC's joint Supply Chain Management and General Counsel Peer Group Meeting on January 28, 2013.

Current global economic trends are leading companies to integrate global trade management best practices within broader supply chain management operations, rather than leaving it as a separate step at the end of procurement cycle. This UWEBC Peer Group Meeting explored best practices among member companies and their approach to optimizing international trade compliance.

Heil charted the course and development of international trade compliance at Johnson Controls. Starting in 1985, the company was operating in 21 countries with six plants in North America and a centralized import/export function. In contrast, by 2011 the company was operating in more than 150 countries, with 275 plants, 500 branch offices, and 162,000 employees. Having decentralized their compliance function over the years to meet the needs of the company based on organizational structure, Johnson Controls is now developing a hybrid centralized approach in some key control areas.

“In a perfect world, we’d have the right people, in the right places, with the right resources, doing the right things to manage a global trade compliance program,” says Heil. However, their current compliance program is a constant work in progress and, as Heil relates, it is an ongoing journey to reach perfection in their current state. In seeking the best in compliance practices and to keep on target, Heil says that the group should ask: “Are we there yet?”

Heil posed a central question for many UWEBC member companies, “What functions are primarily responsible for trade compliance in your organization?” Some companies struggle with answering that question. Is it compliance, legal, finance, customer service, transportation, procurement, logistics, or manufacturing operations? Global trade processes are critical to many different functional areas – engineering, manufacturing, finance, legal, and customer service. And, according to Heil, understanding what organizational functions have responsibility for trade compliance is a major part of the challenge.

Many companies face a complicated and constant changing compliance environment. The regulatory environment is connected to the speed and configuration of the supply chain, particularly with the reach into new markets, shorter service cycles and ship times, and increasing sourcing and product complexity.

According to Heil, some of the business risks in this changing compliance environment include civil or criminal fines and penalties; revocation of export/import privileges; debarment (U.S. federal contracting); financial loss through fraud/theft and/or shipping delays; reputational damage through adverse publicity; costly and time consuming administrative inquires and audits; and multiple system platforms impacting the means of identifying risk and the means of implementation and monitoring necessary changes and enhancements.

In describing current compliance programs, Heil said that it is helpful to understand your company’s current and future states: centralized or decentralized. Then you should determine if your company’s approach to compliance programs function is based on business units, centers of excellence, region-based, or a hybrid approach. 

 Heil says getting started in international trade compliance includes:

  • Identifying the footprint of sourcing, manufacturing, and distribution; and key controls for import and export transactions
  • Understanding International Standards of Control informed by WTO and WCO data, and the U.S. FCPA
  • Ensuring understanding of commodity classification among companies
  • Determining valuation methods used globally; and understanding the company’s transfer pricing policy
  • Evaluating operational understanding and economic benefits of preference programs and Country of Origin regulations
  • Performing the systematic review of export transactions to assure compliance with anti-boycott laws
  • Performing due diligence on high risk vendors to ensure adherence with anti-bribery and anti-corruption standards
  • Confirming leadership and tone-at-the-top messaging from business unit executive teams
  • Ensuring adequate global staffing at business units for international compliance
  • Providing the proper central corporate program and central business unit oversight

International trade compliance links global trade management and the supply chain reflecting the broader, enterprise global trade management solution. Trade compliance is built on an understanding of the interdependencies and data flows that make up a company’s global supply chain as well as its compliance activities and strategies.

According to Heil, trade compliance program key focus areas and issues related to them are:

  • Licensing – how is licensing performed; who is responsible for tracking and ensuring licensing
  • Embargoes – maintaining global screening capability for embargoes
  • Recordkeeping – validating compliance with existing global record retention policy
  • Government Agency Interfaces – ensuring that subject matter experts manage interfaces
  • Risk Mitigation – monitoring compliance risks – develop action plans -- centralize management of implementation -- audit to effectiveness

In conclusion, companies that fail to implement an enterprise trade compliance strategy put their business at risk and struggle to compete.

According to Heil, the ultimate structure of international compliance should be tailored to the company. She explained that while some may find it worthwhile to invest in centralizing, or decentralizing, their program, or in shifting reporting lines of a Chief Compliance Officer, research doesn’t link those factors to higher program effectiveness. Instead, the research found that alignment with business leaders—building consensus around program goals and senior management support for initiatives—does lead to higher program effectiveness.

Heil says, ”Partnering with the business, staff training, engaged leaders are key to improving your program.”  

Member companies can access rich-media Mediasite recording and other meeting materials>>

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