Supply Chain: Compliance Corner

Denied Party Screening — Make sure you comply … comprehensively and timely
By Neil LENOK, American River International

If you are a principal exporter, importer, or involved in any aspect of providing international transportation services (i.e. freight forwarder, NVOCC, steamship line, etc.) you need to be conscious of the government’s requirements to check a number of “lists” prior to exporting.

The primary “list” to be aware of is the Denied Party List (DPL) which is controlled by the Bureau of Industry & Security (BIS). The BIS reports to the Department of Commerce. This list identifies individuals and companies both in the U.S. and abroad that we (American citizens) are not allowed to do business with. A U.S. citizen or company may make this list by being involved in transshipments of products that were destined for an acceptable country (or end user) but somehow ended up in the hands of an entity that was on the DPL. Or perhaps this U.S.-based individual or company was involved in shipping goods to a banned country through another intermediary (such as N. Korea, Sudan, Iran, etc.).

Whenever an export is arranged, it is part of best practices to check the names of all parties involved in the transaction on the DPL, which is available online. There are a number of software solutions that permit instantaneous scanning of all government lists (OFAC, Department of State List, European Sanctions List, Entity List, Unverified List, Terrorist List and others) to expedite screening and ensure the meeting of compliance regulations.

The BIS also controls something called the “Unverified List ,” which identifies parties that the BIS was not able to acquire enough evidence on to put on the DPL; but has enough evidence to require due diligence before an export is facilitated.

To get an idea of the potential fines and loss of export privileges that companies have endured by not following these standard operating procedures, just visit the Web site for the BIS at www.bis.doc.gov.

Another list the government controls that has been getting much attention is the OFAC (Office of Foreign Assets Controls) list, which is part of the Department of Treasury. This department controls the money transfer that is involved in export/import transactions. An example of potential problems if this list is not checked is if a U.S. exporter’s overseas customer (who may or may not be on the DPL) is making payment through a letter of credit. If the letter of credit is issued through a bank that is on the OFAC list, the electronic payment can be confiscated by the U.S. government. If this were to happen, not only would the money for the transaction be lost, but the government can also issue fines and penalties.

One potential penalty can be the loss of export privileges. If exports represent a significant amount of business to your company, the loss of this privilege for months can be devastating (especially given the current difficult economic situation most companies
are facing).

Checking the OFAC list is particularly important for all NVOCCs and steamship lines. As part of the supply chain, they are required to ensure they are not carrying products from companies involved in transactions that may have OFAC exposure. These providers must be very diligent about checking the OFAC list.

In our consulting practice we are seeing more and more steamship lines looking to be proactive about performing a “scrubbing” for the OFAC list on all companies and banks they deal with to take proactive approach in this regard.

Being proactive allows a fixed cost to control a potential unknown expense associated with a fine, penalty and legal expenses that could be astronomical.

Exporters and Importers must exercise due diligence, reasonable care and supervision and control in their global supply chain. DPL governance is an integral component of that business process.

SOPs (standard operating procedures) must be created by all companies engaged in international trade to assure trade compliance. This ties into training and education and the development of trade compliance skill sets that are taught at a number of schools, such as The World Academy (www.theworldacademy.com) and the American Management Association … (www.amanet.org).

Companies can budget for these software solutions that may mitigate many potential problems. One can’t budget for the unknown fines, penalties, bad public relations, and loss of export privileges.

Feel free to contact the author if you have any questions. 1-908-354-7746 x 120 or nlenok@americanriverintl.com.

In This Issue

Up Front

News, Trends & Analysis
New Items

Trade Tools: How Uncle Sam helps exporters

Capital Watch: Larger issues loom behind federal transport agendas

Supply Chain
Chris Steele: Development opportunities north and south of the border

Compliance Corner: Denied Party Screening – Make sure you comply...
comprehensively and timely

Tech Trends

Product Review: Invoicing and Auditing solutions

Commentary
David Bennett: Early signs of trouble

Gateway Glance
Panama

China

The Port Community
Game Changer: Expansion of the Panama Canal will reshape global trade patterns

All-weather ports are “all-in”

Breakbulk Quarterly: East Coast - Thinking outside the box

Breakbulk Quarterly: Brighter outlook for West Coast breakbulk in 2010

The Shipping Environment

Casualties
Navy tanker breaks loose, container crane topples,
longshoreman dies at Virginia port ... and much more

Final Say
Getting TIGER by the tail