Trade compliance is responsible for many aspects of cross border procedures such as Customs clearance, Incoterms®, HS code classification, strategic goods controls, import valuation, and licensing concerns.
However, in many companies, the trade compliance function is often seen as a block to business growth. Unfortunately, the behavior of trade compliance professionals causes this perception which is not always unfounded in truth. Trade compliance teams have to work towards being perceived as a business partner instead of a necessary evil within the company.
Let’s look at some ways in which compliance professionals really do block businesses from growing to their full potential.
1. Imaginary regulations
Compliance professionals often develop their knowledge and understanding of the compliance environment based on hearsay information that they never verified.
For example, a compliance manager may rely on advice from an incompetent Customs declarant he or she had worked within the past. This may result in the compliance manager insisting that the company provide unnecessary documentation for import, creating delays in Customs clearance lead times. For example, the compliance manager may insist that the company apply for an unwanted license for imports, thereby driving up costs and wasting time.
2. Punishing instead of helping the business
Some trade compliance managers think of themselves as disciplinarians and behave as the organization owes them a living. For example, a trade compliance manager may prevent business units from enjoying duty relief from the use of Free Trade Agreements due to business teams not understanding how to properly apply for concessions. Instead of adopting this approach, the trade compliance manager could have chosen to provide training to the business units involved and audit their activities to maintain compliance.
3. Over-emphasizing the importance of self-audits
It is possible for compliance to be over-done.
Self-audits are important to any internal compliance program. However, some of these audits are poorly designed resulting in excessive checks of documentation and procedures. This will drain the resources of the organization.
Trade compliance professionals should make it a point to carefully think through all the audits they want to implement and make sure there is a good business case to do them that goes beyond simple compliance and transparency.
4. Making mountains out of molehills.
Trade compliance professionals in all companies almost make it a habit to market the worst-case scenario every time there is a Customs issue. Many do this to protect themselves, and to make the organization take compliance more seriously. However, if this is overdone, the compliance function will start to lose credibility in the company.
How is this usually done? For example, a Customs officer may ask the importer a simple clarification or question about the product. The query need not necessarily be arising from a compliance concern, it may very well be the Customs officer trying to resolve a point of curiosity, or the officer exercising due diligence on his/her part. However, the compliance manager may choose to frame the query from Customs as a red flag that signals an impending Customs audit is on the way.
Some companies have so many bureaucratic levels that in order to provide a simple one-line response to a Customs query, several meeting, and rounds of alignment needs to be documented. Such a culture combined with a trade compliance manager that cries wolf at all Customs issues will create a lot of unnecessary work for a lot of people in the organization.
5. Following hearsay “good practices”
Compliance professionals often perpetuate some beliefs as good practices.
· Best not to talk to Customs for any reason
· Cannot use DDP or EXW Incoterms
· Using the supplier’s tariff classification as absolute sources of truth
Some of these beliefs may actually hold some truth in some situations. But they should not be cast in stone in any organization. The nature of the logistics and supply chain industry is that things are always changing and creating these imaginary rules is not helpful for business growth. There are many cases where using DDP or EXW makes perfect sense, suppliers classify their products wrongly and there is a legitimate need to talk to Customs.
A final word…
Trade compliance teams need to constantly explore ways to improve their contributions to the businesses they support. Within the confines of the law and operating within the culture of the company, trade compliance professionals have to find a way to balance the compliance focus with business needs. Taking an ultra-conservative approach by default is not the best way for a compliance function to operate.