Merging Trade Compliance and Ethics and Compliance Silos

Michael Volkov
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Business operations can be riddled with inefficiencies.  It is easy to spot them inside a company.  The same rule applies to ethics and compliance programs. 

Given a specific global business configuration, ethics and compliance programs have to be designed efficiently to support the business.  For some reason, a number of compliance programs have been built with two separate silos – one for trade compliance and one for other risks.

From my perspective, such an organization makes no sense whatsoever.  An ethics and compliance program should include as part of its overall responsibilities a trade compliance program.  

Depending on a company’s business (e.g. ITAR/military items, EAR/dual use, and/or sanctions), the extent of a trade compliance program can vary significantly.  Whatever scope is required, a trade compliance program should sit within the company’s ethics and compliance program so that it is part of the overall risk assessment, policies and procedures, training, auditing, and monitoring functions.  By definition, separation of these operations contains duplicative functions that are bettered addressed through a “single” and larger ethics and compliance program.

A trade compliance program includes specific policies and procedures that are employed to address anti-boycott, licensing, export control, sanctions and other risks.   All of these issues have to be addressed as part of the overall company culture of compliance.  To separate the two functions into separate silos is difficult to justify.

The US State Department, Treasury Department, Commerce Department, and Justice Department expect companies to design and implement effective compliance programs in response to a company’s risk profile.  Such programs are essential for companies to maximize the potential benefits from a voluntary disclosure program. 

The elements of trade compliance programs are the same as compliance programs keyed to anti-corruption, anti-money laundering, and other risks.  As a result, a company can achieve basic economies of scope and scale by conducting a risk assessment to address trade compliance and implementing a compliance program in response to a risk-ranking analysis. 

The Treasury Department’s Office of Foreign Asset Control intends to issue updated guidance on compliance program expectations.  As OFAC’s sanctions enforcement program matures, companies should be mindful of addressing trade compliance risks.  A paper or non-existent trade compliance program will only exacerbate a potential enforcement action or voluntary disclosure by inviting government enforcement agencies to mandate specific remediation and guarantee some form of ongoing monitoring of a company’s compliance efforts.

To gain efficiencies and ensure proactive compliance, companies have to break down the two silos into a single – ethics and compliance program.  There is no rational justification for continuing the separate treatment of company risks and it is important to address legal and compliance risks with a holistic approach. 

If the compliance profession is truly committed to the creation and promotion of a specific expertise, then it is time for companies to recognize this fact.  Compliance professionals have a unique perspective as subject matter experts, and there is nothing so unique or special about trade compliance that could justify continued separation of trade compliance from other significant risks.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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