Navigating bans and restrictions
The Chinese philosopher and founder of Taoism, Lao Tzu, once said: “The more laws and restrictions there are, the poorer people become!” And he did have a point: global bans and restrictions can grow into serious trade barriers unless businesses keep track of them and efficiently integrate them into their business processes.
Bans and restrictions are legal regulations that ban or restrict the trade in goods with non-EU nations ('third countries'). In addition to political actions (embargoes against countries and individuals, foreign trade regulations on dual-use goods and munitions) and sector-specific import restrictions (e.g. for iron and steel products), a plethora of laws and regulations ban or restrict the import, export, or transit of many goods. This includes provisions of laws governing animal disease control, genetic engineering, guns, narcotics, pharmaceuticals, trademark rights, waste management, and wildlife protection.
Depending on the respective country, the sheer volume of legislation involving bans and restrictions can be difficult to account for. Take Germany, whose Central Customs Authority distinguishes eight categories for classifying the various bans and restrictions, including protecting public order and security, the environment, human health, and cultural heritage.
Then there are sector-specific restrictions: in April 2016, for example, the European Union resumed monitoring imports of certain iron and steel products originating in non-EU countries, prompted by the precarious economic state of the EU’s steel industry amid worldwide overcapacities in the steel sector. Importers planning to import steel products must request a monitoring document, which must be presented when the import clears customs.
In addition to the bans and restrictions monitored by the customs authorities, businesses face many other restrictions in their day-to-day operations, including regulations that fall under the purview of other government agencies, as well as company-specific restrictions. An example: company A instructs its shipping department not to supply hydraulic pumps to customers in Japan, even though that would not be a problem under foreign trade regulations. The reason: company A has signed an exclusivity agreement with a Japanese company that includes territorial protections in this area.
Violations of bans and restrictions
The consequences of violating bans and restrictions depend on the underlying laws of the respective country. Criminal or regulatory penalties are possible, depending on the violation, and civil action such as damage claims cannot be ruled out. Exporters risk losing customs and foreign trade privileges. Such privileges depend on a company’s trustworthiness, which is generally called into question if the company violates foreign trade restrictions. As a result, privileges are either revoked or not granted in the first place, severely impairing the company’s competitiveness. In addition, the reputational damage if news of the violations leaks to the media should not be underestimated.
Companies are responsible for taking the necessary precautions to comply with bans and restrictions. In practice, different companies take different approaches to fulfilling this responsibility. Some use written operational and organisational procedures, while others might hold employee workshops, make a note of bans and restrictions in the master product data or decentralise responsibility for individual bans and restrictions. Many companies now have a Compliance Officer, whose responsibilities include centrally monitoring bans and restrictions and the precautions taken at the departmental level.
The conventional wisdom, especially in large enterprises with a broad spectrum of goods and a large customer base, is that manual processes alone are neither adequate nor efficient for complying with what are sometimes very complex regulations. That explains the rise in IT-based export control solutions, which screen business transactions against restricted party lists and check for embargoes, critical goods, and critical end-uses.
Software solutions not only streamline export controls, they also provide an option for monitoring compliance with all in-house bans and restrictions, which may affect imports as well as exports. An IT solution can even be configured to automatically check in-house specifications or legal requirements from non-EU countries. The company itself can decide what the software should display if a check identifies one of the defined restrictions: 'prohibited', 'licence required', or just a warning. Users have almost unlimited flexibility in configuring their processes in such software solutions.
Automatic monitoring of business transactions for compliance with bans and restrictions enhances both the quality and the efficiency of the screening process. A manual check of the various screening lists, which are also periodically updated, just is not manageable. Any compliance screening software should at least be capable of handling standard processes, including integrated screening against restricted party lists, embargo lists (country lists), product lists, and critical end-uses. Software solutions from the leading providers include not only the core screening logic but also a data service that imports the latest versions of the various lists into the screening software.
Obviously, compliance with complex national and international rules and regulations is a basic prerequisite for long-term success. Few businesses can achieve the necessary efficiency in dealing with bans and restrictions without any IT support whatsoever. The broader the product portfolio and the more international the sales markets, the more complex the task of screening business transactions becomes.
Thankfully there are IT solutions that manage the screening processes automatically in the background. Many exporters now deploy export control solutions that screen all ongoing business transactions against restricted party lists, national embargoes, restricted product lists, and designated use definitions. Also, the same software can be used to reliably screen against bans and restrictions from other jurisdictions and countries – and even define in-house restrictions.
These functions can be programmed to run as manual restrictions alongside the software’s standard screening processes. Using IT to support the monitoring of these manual restrictions offers many benefits, such as lower processing times and staff costs, streamlined processes, and greater transparency and legal protections in the screening process. All of which will help to make a business more competitive – a vital advantage in today’s global marketplace.
