Category Archives: Trade Compliance

You may have heard about trade compliance before, but do you know its meaning? It’s an essential part of international trade, and it’s amongst the few things that will put your company at risk if you don’t abide by it. 

Here is everything you must know about trade compliance and why it matters so much these days with everything going on with Russia.

What Does Trade Compliance Cover?

In short, trade compliance requirements can impact your ability to import or export into foreign markets and effectively operate within your territory. Trade compliance applies to any company operating across borders; even if you plan on staying stateside and selling in only one jurisdiction, there is still a good chance that a local regulator will make contact at some point in your company’s life cycle. It isn’t always apparent whether a law requires you to comply with its provisions.

Trade compliance is defined as “an aspect of corporate compliance which ensures that all import and export transactions are in conformance with the laws and regulations of the countries involved,” according to Daw Jones Risk and Compliancy glossary.

What is the U.S. Department of Commerce Rules Regarding Export Control?

The U.S. Department of Commerce maintains a set of rules regarding export control that every business should know about—even if you don’t think your company is doing any business abroad. These rules include what products can be shipped outside of our borders and how they can be traded (and sometimes not traded).

These guidelines ensure we’re not selling or sending anything to countries we have sanctions against—like Iran or North Korea—or the newly star Russia.

What might surprise you is that there are particular nuances to how trade compliance works.

Russia made trade compliance a priority.

As part of Russia’s aggression and invading Ukraine, The U.S. has issued sanctions against Russia’s banks, business people, and other financial services to disrupt these funding sources. 

U.S. sanctions don’t apply to U.S. companies or people, but they impose restrictions on non-US persons’ dealings. The broad range of U.S. sanctions programs and rules means that almost any non-US citizen or entity doing business with a person on a sanctioned list violates U.S. law. This includes foreign subsidiaries of U.S. companies.

U.S. trade sanctions can have serious consequences, including fines and imprisonment. For that reason, it’s essential for firms operating internationally to make sure they have systems in place to comply with trade compliance laws. It’s also important to understand that these penalties are not just reserved for trade sanctions; sentences can be imposed against those who fail to take reasonable steps to ensure their trade partners are not violating trade compliance laws.

Businesses must understand trade compliance regulations so that they don’t run afoul of them or understand their risks to manage them appropriately.

There are four ways that trade compliance applies to you:

1) You might import goods into or export goods out of a sanctioned country

2) You might do business with someone who does

3) Your customer may purchase goods from someone who does

4) Your customer may sell goods to someone who does

Suppose you import goods into or export goods out of a sanctioned country. In that case, The Office of Foreign Assets Control (OFAC), which falls under the Treasury Department, administers and enforces trade sanctions against targeted countries. 

OFAC tracks all U.S.-based financial transactions and shipments leaving and entering U.S. ports via air freight or sea freight transport services. If you import goods into or export goods out of a sanctioned country, those goods will fall under trade compliance rules administered by OFAC.

You must file a report with OFAC before importing or exporting those goods to ensure that neither you nor your customers violate trade sanctions. 

For example, suppose one of your supplier’s purchases steel from Russia and ships it to China, where it is assembled into final products. In that case, Chinese importers have to comply with trade sanctions if they want to re-export those products back into the United States. This could also apply if you have manufacturing facilities in China since any imported raw materials would still fall under trade compliance rules administered by OFAC.

Risk Management – Effective Trade Compliance And Supply Chain Management 

CAATSA, or The Countering America’s Adversaries Through Sanctions Act, will profoundly impact global trade compliance. CAATSA was signed into law by President Trump in August 2017 and mandates sanctions against Iran, North Korea, Russia, and Venezuela. It also prohibits foreign entities from doing business with U.S. companies unless they are compliant with CAATSA. 

Many organizations also want to do business with sanctioned countries like Russia, Iran, and North Korea because they offer lower prices than other suppliers. However, before engaging in any trade activity involving these countries or individuals under U.S. sanctions laws, you must ensure that your organization has effective trade compliance programs. Otherwise, you risk facing severe penalties under CAATSA if you engage in transactions involving blocked persons without first obtaining authorization from OFAC (Office of Foreign Assets Control).

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