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The path to successful cross-border eCommerce – Why compliance is crucial and how you can protect your business.

Compliance has always been a requirement for any business, but in recent years the Bureau of Industry and Security (BIS) and Office of Foreign Assets Control (OFAC) have started actively monitoring the compliance of businesses trading in the US.

Businesses that have been found to have compliancy violations have their cases made public, to deter others from falling foul of the rules. In fact, recent statistics showed that Denied Parties violations accounted for 66% of fines given out.

No business is too big for compliance

Denied Party screening must be done by every business, regardless of your size, location or which process of the transaction you are involved in.

Most recently, Apple fell foul of the rules and were found to have violated the Foreign Narcotics Kingpin Sanctions regulations by entering an applications development agreement with a Slovenian company whose director and majority owner were designated under the Foreign Narcotics Kingpin Designation Act.

They were ordered to pay US$476,000 for this infringement, in which their screening systems failed to match ‘SIS DOO’ and ‘Sis d.o.o’(D.o.o is a standard corporate suffix in Slovenia identifying a limited liability company), showing that even the top companies struggle with screenings.

Marketplaces at fault

Also guilty of Denied Party failures were Amazon, who admitted to selling goods to individuals in Crimea, Iran and Syria between 2011 and 2018. Although the violations were viewed as ‘non-egregious’ by OFAC, they were still fined $134,523 which amounted to half the value of the transactions.

Small failings in the ability of the screening process to identify spelling mistakes such as ‘Krimea’ in place of Crimea led to further violations and low-value goods being sent to Cuba, North Korea, and Sudan. By admitting to these failings, Amazon were subject to lighter penalties than would normally be given for such large violations.

Individuals are just as responsible as businesses

Although Denied Party screening can be considered more important as the penalties are more severe, a lady attempting to import a crocodile skin handbag into Australia found out the hard way that certain restrictions apply to goods being imported when her handbag was destroyed.

Worth $19,000 the owner did not pay a $70 licence to import it, and although not illegal, crocodile products are controlled under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) to ensure they are not linked to the illegal wildlife trade.

The above examples show that compliance is not an option, and even the biggest companies in the world can fall foul of the rules.

Having an effective screening process in place can minimise the risks associated with cross-border eCommerce.

Hurricane’s Denied Party and Prohibited and Restricted Goods screenings ensure businesses know what they are selling to who and where maintaining compliance and reducing the risk of fines and severe penalties.

Hurricane is quickly becoming the go to data partner for cross-border eCommerce by providing cost-effective solutions that have been built to provide the ultimate customer browse, checkout cost transparency and cross-border delivery experience.

UK and EU flag over London

Cross-border trade operators need to get Brexit-ready or face severe delays at customs

Planning for Brexit Day ranges from “excellent” to “chaotic”, according to a cross-border eCommerce specialist.

Hurricane Commerce says the discrepancy between those who have put in place robust plans and those who haven’t is huge – and time is running out to get Brexit-ready.

Postal authorities, carriers, eCommerce merchants and marketplaces all face severe impact on their businesses if they are not able to provide complete and valid data on parcels from January 1.

Martin Palmer, Hurricane Commerce’s Chief Content and Compliance Officer, said: “This is not just about the UK and trading into the EU; it is also about the remaining 27 EU member countries and their cross-border trade into the UK.

“The phrase ‘My shipment is stuck in customs’ is often used by businesses and the ever-growing number of private citizens using international eCommerce retailers.

“The perception is that customs officers and their bureaucratic requirements are bringing the world to a grinding halt. The reality is quite different. Most customs authorities operate sophisticated, automated clearance facilities taking just a few moments for a shipment with the correct data to clear customs.

“The real problem is usually that the exporter or importer has not complied with the requirements to import a shipment into a country and have failed to supply full and accurate data and documentation.

“The problem is only going to be exacerbated by Brexit. We know that while some postal operators, carriers and eCommerce merchants are ready for the changes, many more are a long way from being prepared. The state of readiness ranges from the excellent to the chaotic.”

Some of the main reasons for delays in Customs clearance include:

  • Missing or incomplete data – Customs clearance in most countries is automated. Missing or incomplete data will result in an automatic failure.
  • Vague or misleading descriptions of contents – Product descriptions need to be accurate and detailed.
  • Missing and incorrect HS 6 codes – The World Customs Organisation Harmonised System that uses code numbers to define products. Many Logistics Service Providers (LSPs) will refuse to accept shipments without provision of this information.
  • Incomplete shipper and consignee data – Ensuring full details of shipper and consignee name and address data, including collection and importer details if relevant, is essential.
  • Contents require licences or other specialised paperwork for import – Every country has unique requirements, practices and restrictions for international shipping and determining which commodities can be shipped into and out of a country.
  • Unrealistic valuation of contents – One of the most common duty and tax disputes is an incorrectly declared value. Values should represent the actual transaction value or a realistic market value. An error in value can cost you considerably in import delays and fines.
  • Missing Country of Origin (COO) – Customs require to know where the commodity was manufactured in addition to where it was exported from. The COO may influence the amount of duty and tax that may be applicable to be paid.
  • Denied Parties (DPs) – Denied parties are individuals, organisations and entities that have been placed on a governmental list that limits the ability to do business with them. Most governments have DP lists as well as international organisations such as the United Nations, and the EU. Shipments originating from or destined to an individual, organisation or entity appearing on a DP list can result in clearance delays, substantial financial penalties or even jail time.

Martin added: “Anyone who leaves their Brexit preparations until the last minute is asking for trouble. We are now less than 80 days away from this seismic change in the trading relationship between the UK and the EU.

“Customs authorities themselves are having to scale up massively to cope with the huge increase in requirement for customs declarations and there will inevitably be some major challenges as both sides get used to the new norm.

“It therefore means the more prepared those involved in cross-border eCommerce trade are, the more likely your parcels are to get to their destination as seamlessly as possible after January 1.”

Hurricane Commerce’s industry-leading solutions are helping customers, including postal operators, carriers, eCommerce merchants, marketplaces and platforms across the key areas of data enhancement, duty and tax calculation, prohibited and restricted goods screening and denied parties screening.

The company, founded in 2016, has brought together leading professionals from logistics, compliance and technology.

Compliance graphic

Denied Parties: Ignorance is not bliss

With the explosive growth of eCommerce and cross border trade showing no sign of abating, compliance and Denied Party screening have been thrust into the spotlight.

The era of the mega fine has emerged, with constantly changing international sanctions policies impacting unsuspecting companies in unwelcome ways.

In addition to the potential for reputational damage, penalties for non-compliance can include substantial fines – multimillions of dollars in some instances – revocation of export privileges and criminal charges, including prison time.

Do you really know who you are you doing business with? You need to be screening your customers, partners, and suppliers.

Screening for Denied and Restricted Parties, to ensure that goods are not destined for an individual, company or entity that appears on any one of the hundreds of different denied parties lists, should be an integral component of every company’s governance, risk and compliance strategy.

Due diligence is key and compliance is your responsibility. Below we answer some of the questions we are most often asked.

What is a Denied Party?

A Denied Party can be an individual, company or entity for which government authorities have imposed restrictions or bans on their right to trade.

This is often due to engagement in illegal activity of some kind.

Obvious restricted organisations include terrorism, organised crime, arms or drugs trafficking, human trafficking etc.

Denied Party lists are also known by different terms such as Restricted Party, Denial Lists, Specially Designated Nationals, Trade Party Screening and many more.

What are Denied Party lists?

Government agencies across the globe as well as international organisations such as the United Nations publish lists of individuals, companies and entities that are denied or restricted from doing business with.

What is Denied Party Screening?

Denied Party screening is a validation process for carrying out checks on individuals, companies or entities that are on a sanctioned list or watch list against any one of the hundreds of different Denied Parties lists to ensure that you are not involved in transactions that are being conducted with any potential Denied Party.

Denied Party screening demonstrates reasonable care and is part of your due diligence to comply with standards set by governments and agencies worldwide.

In the event an individual, company or entity on one such list appears to match a potential party in the sale of goods, additional due diligence is required before proceeding.

Typically, depending on which list the match was found, a match would indicate one of the following scenarios:

  1. A strict export prohibition
  2. A specific licence requirement
  3. A possible red flag in relation to the transaction

Why do I need to screen?

All businesses have an obligation to screen. Every time money changes hands, there is a responsibility to ensure that the goods are not destined for an individual, company or entity on a government watch list

Shouldn’t my Logistics Service Provider do this?

Many companies make the mistake of thinking that the burden of compliance rests with the shipping or freight forwarding company but this is not the case.

You are responsible to know your customers, suppliers and even third-party services providers.

What about exporting to countries under sanctions or embargoes?

Virtually every nation, on every continent, has debarred individuals, organisations and entities inside their borders—even Antarctica!

Given the ever-changing nature of international sanction regulations and policies, especially in the current political climate, companies are at risk of engaging with a denied or restricted person, company, or entity regardless of where they export to.

Can’t we just pay the fine?

Fines incurred because of an export violation should not be treated as an acceptable business expense.

Compliance is a legal requirement. In addition to fines, criminal penalties can include jail time and organisations can have their ability to export privileges revoked. Reputational damage and negative media attention are likely from any export violation. Ignorance is not bliss.

Ultimately, the decision to accept or decline a customer is totally at the discretion of the sender or retailer.

How can Hurricane help?

Denied Party screening is not an exact science and is subject to many factors that can influence the match. Names are not unique, neither are addresses to individuals or companies.

Hurricane Commerce can help you automate your screening program. We source current information on Denied Parties, accessing intelligence from over 90 key international and national lists.

Hurricane’s Denied Party software is accessed via our API service and provides real time, up-to-date information for review against Denied Parties lists to ensure your business is informed and compliant with global requirements.

 

Blog by Martin Palmer, Hurricane Commerce’s Chief Content and Compliance Officer