What is Trade Compliance?

Trade compliance comprises two general operating practices:

​

1.  Customer due diligence (CDD) and supplier and buyer vetting, using sanctions lists or restricted or denied parties lists to ensure that your trade transaction is not destined for a sanctioned individual, company, or country. There are several lists published by the Office of Foreign Assets Control (OFAC) and others that must be factored into the overall due diligence process, but also more nuanced control and 50% ownership evaluations will be required depending upon the types of products being exported, such as dual-use goods.

2. Managing commodity-based import and export controls in a compliant manner across the global supply chain, not just for dual-use goods but also for any products going to high-risk jurisdictions. 

 

At its most basic, trade compliance is an aspect of corporate compliance that ensures that all import and export transactions are in conformance with the laws and regulations of the countries involved.

​

Adherence to trade compliance best practices is also important for in-country transfers of goods manufactured aboard. However international trade compliance is quite complex. Companies that export and import internationally, need to comply with a complex regulatory framework imposed by multiple governing bodies within even the same country. Regulations are often not harmonized across trading nations and navigating these requirements amid a volatile global trade environment is increasingly challenging. Trade compliance teams face internal challenges as well.

 

Oftentimes pressured to minimize any shipping impacts for interconnected global supply chains with expectations for faster shipping at the same time there is an increased burden of trade compliance and heightened due diligence which is also expected by governmental authorities.

As if that was not enough, the regulatory and enforcement climate of export and import controls changes rapidly and in some cases with little warning. As nations change their sanctions policies to address the current state of foreign affairs, so too do the national regulations that companies must follow in their global trade compliance processes.

​​

​

The Financing of Trade

Financial institutions play an important role in international commerce but failure to comply with these complex and numerous regulations can result in crippling enforcement, fines, damaged reputations, and lost customers and revenues.

​

Recently, regulators have turned their focus to the maritime trade and shipping sectors, including the banks that finance world trade and the insurers that insure cargoes. In turn, trade finance and compliance teams have long recognized that import and export control risk can be associated with various aspects of a trade transaction: the goods being traded, the buyers and sellers, the cities and ports along the shipping route, and the shipping vessels themselves.

​

Regulations and guidance are increasingly calling for greater due diligence by financial services firms and multinational companies when it comes to the shipping, insuring, and financing of international trade. When applied judiciously, additional help mitigate risk for corporations and banks from financial sanctions risks (most notably from U.S. regulators). Further, these efforts also can help prevent operational disruptions, custom audits and seizures, and reputational damage.