A Vital Link to Any International Trade Compliance Program: The Human Resource Manager

by Snell & Wilmer

Governments in every country are taking international trade compliance seriously. Unlike other company departments that heavily rely on automation to track supply chain compliance, those departments responsible for international trade compliance must rely on human interaction to ensure laws, regulations and company policies are followed. Thus, the human resource department is a vital link to ensuring compliance with a company’s international trade policies and procedures and those human resource managers should not shirk from such responsibility.

There is a myriad of international trade laws and regulations that a company must adhere to if it decides to enter the global marketplace. In the United States, the most notorious laws include the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Foreign Corrupt Practices Act (FCPA) and those regulations enforced by the Office of Foreign Asset Controls (OFAC). To ensure proper compliance with these laws, among others, a company must rely on several different departments, including accounting, operations, sales, marketing, legal, and human resources.

In many companies, a trade compliance manager is directly responsible for coordinating these departments to ensure compliance. Other companies rely on their legal departments. But, some companies still have trade compliance as a collateral duty for an individual in one of the several departments listed above, usually operations – which has its own pitfalls. Outside the trade compliance and legal departments, the human resources department should rightfully be empowered to ensure compliance amongst a company’s employees, independent contractors, sales representatives, foreign and domestic staffing agencies, and, most importantly, senior management.

The primary reason a human resources department should have vital involvement in international trade compliance is that it is usually responsible for the employee handbook drafting, revisions and enforcement. The employee handbook should have sections on, among others, international trade compliance, political donations, ethics and gift policies. In addition, the human resources department is responsible for drafting and maintaining “silo” policies and procedures that may impact compliance by the several departments referenced above and essentially supplement the employee handbook. Further, the human resources manager is usually responsible for explaining to senior management the importance of the various company compliance policies and the impact such compliance has on individual employees in carrying out their job responsibilities. As the protector of what is acceptable employee behavior, the human resources department plays a vital role in ensuring such conduct complies with all laws.

Obviously, a fundamental responsibility of the human resources department is the hiring and termination of employees and even temporary staffing positions within the United States and globally. Therefore, in regard to export compliance, the human resources department acts as a firewall against unauthorized “deemed exports,” in addition to the required screening of the potential employee against the various prohibited lists maintained by the governmental agencies. It is vital that a record of the screen be placed into the potential employee’s file—even if not hired—and maintained for five years. Simply, a screening should become a standard practice that includes a background check and e-verification, where required.

A little bit more tricky for the human resources department that is removed from the technological side of business operation is the concept of “deemed exports.” A deemed export occurs when a foreign national is exposed to controlled technical data, items or services while in the United States. Thus, when a human resource manager hires an individual, the company should have a policy that references the “do’s and don’ts” related to hiring foreign nationals for domestic positions and ensuring a deemed export does not occur. This is sometimes a tricky proposition due to the various employment laws that prohibit discrimination based on national origin, race or ethnicity. A well-developed policy will assist in walking the fine line between international trade compliance and adhering to the employment laws.

The flipside to the deemed export concern is when a company decides to open operations in a foreign country and the need to develop firewalls to avoid unauthorized exports of technical data, items, and services to foreign employees or independent contractors. If the individual is not a direct employee, the human resources department will need to work directly with the independent contractor or staffing company to ensure that the company is in compliance with the various international trade laws from both the United States and the foreign jurisdiction. The most important responsibility is to ensure that such mandatory compliance is written into any agreements.

This is also a serious concern for human resource managers when a company’s United States assets and operations are acquired by a foreign entity. Thus, the importance of senior management in addressing such human resource issues in regard to any expansion or merger. Such matters must be handled delicately and cannot simply be one more issue to pushoff until the “deal is done.”

Once the employees are hired, the human resources department is responsible for initial training and orientation. Even if specific “job” training is conducted by the individual department for whom the employee will work, the human resources department is responsible for ensuring and tracking such training. Therefore, just as discrimination, harassment, drug policies, etc., are addressed upon hiring, so should international trade compliance, specifically in regard to international trade and standards of conduct issues (i.e., domestic and foreign bribery).

In several recent cases, employees who were caught violating international trade laws (and related company policies) have attempted to argue as a defense that the company had minimal, negligible or no training on international trade compliance or even a company’s ethics policies. Although such defenses have been unilaterally rejected, the companies at issue have faced significant criticism by the judicial system and the media. This has led to judges taking a proactive involvement in any settlement by companies for international trade violations.

The human resources department also plays a vital role during any internal, external, or governmental investigation. First, one of the initial inquiries from investigators (or a due diligence team from an acquiring company) is to review the policies, procedures, employment agreements, and training discussed above to see what foundational compliance occurred and if there were gaps in the established system. Thus, this request reflects the importance of maintaining good records for a minimum of five years.

Second, although there is a rush to interview employees about a possible violation, the employee may be entitled to certain rights pursuant to an employment agreement, union agreement (regardless of whether the employee at issue is actually union) and applicable law. With the assistance of counsel, the various “privileges,” including the attorney client and attorney work product privileges should be preserved. There has been a trend in recent years to utilize non-attorney consultants to perform internal investigations. But, consultants may not be able to maintain the various privileges, and any investigative results could be subject to mandatory disclosure during judicial proceedings (or in due diligence activities during a merger or acquisition).

Third, to the extent that an employee refuses to cooperate with an investigation or is implicated in wrongdoing – regardless of whether the wrongdoing is negligent, reckless, willful or intentional, the human resources department will be responsible for documenting the issue and possibly implementing employee corrective action or discipline, to include employment termination.

Finally, it is standard practice for human resources departments to conduct exit interviews for terminated or resigning employees. Although many issues are addressed in such interviews, the human resources manager should specifically inquire about any ethics and legal compliance concerns that the employee may have about a company. In some cases, the employees are voluntarily resigning their positions because of unethical conduct for which they can no longer be a part. For those companies that are public, government contractors or otherwise receive government funding, the employee may be developing a “whistleblower” action or qui tam suit associated with False Claims Act violations.

A human resource manager misses out on a key opportunity (and possible defense) by failing to inquire about such concerns. For example, imagine the scenario when the human resources manager does inquire about ethical lapses, the departing employee answers that he or she has no concerns, and then six months later brings a qui tam lawsuit against the company. Such an admission could lead to a viable factual defense for the company in any post-employment investigation or judicial proceedings.

In conclusion, there is not “one” department that is solely responsible for international trade compliance. Although, it may be convenient to rely on the trade compliance manager or the legal department (when they exist in a company) to ensure compliance, the human resources department actually plays a vital role. When necessary, the human resources managers should request that the company seek knowledgeable legal counsel to assist in the execution of a compliance program, including training, or addressing potential violations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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