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>>