December 20, 2017 - Freight forwarders are the world’s facilitators of exports, but many of these firms may not be using that same level of expertise internally to facilitate export regulatory compliance across their own organizations.
The results of this lack of commitment to export compliance could result in Commerce Department enforcement agents eventually knocking on the door, and the imposition of significant fines and penalties for wrongdoing.
Michael Ford, Chief Compliance Officer for Philadelphia-based forwarder BDP International, said his company was proactive in establishing a top-down mandate for export compliance about 25 years ago.
“It wasn’t the jolt of a penalty that mandated us to do so,” he said.
Ford, who joined BDP’s export operations in 1979, was appointed by CEO Richard Bolte Jr. as vice president of compliance and quality to put a razor focus on export compliance within the company. This move was at the behest of BDP’s numerous, already highly regulated chemical shipper customers.
“We had customers that knew the regulations inside and out, and they’d push back on BDP by stating, ‘You should know what you’re doing,’” Ford said. “That’s where the need for dedicated export compliance got started for us.”
Bolte also made it clear to Ford that export compliance was to be the primary driver of his new position with BDP.
“He said, ‘I want you to be one of the best in the industry.’ I still remember those words and that’s what drove me,” Ford said.
The United States has some of the strictest, most complex export control regulations in the world. A handful of federal agencies have chief responsibility over the industry’s compliance with these regulations. The Commerce Department’s Bureau of Industry and Security (BIS), for example, requires companies to secure licenses to export certain goods with “dual use” applications, or cross-over between civilian and military use, while the State Department has rigorous export controls over goods subject to the U.S. Munitions List.
While it’s ultimately the exporter’s responsibility to ensure it is in compliance with the country’s myriad export control regulations, anyone who comes in contact with these exports in the United States or abroad—including the forwarders—could be held accountable when violations occur.
Inside Out. Establishing an export compliance program inside a large, far-flung forwarding operation is no easy task, especially when the front-line managers and their employees are under extreme pressure to move cargo as expeditiously as possible, not to mention having to manage a web of demanding exporters and carriers as the middleman. It can be tempting for a forwarder to throw compliance to the wind for the sake of generating profits.
“When you start an export compliance program, you’re going to get some pushback in operations,” Ford said. “It’s about knowledge and educating in how you successfully spread the importance of compliance throughout the organization.”
Ford said his first objective when placed in charge of export compliance at BDP was to thoroughly familiarize himself with the regulations, often reading and rereading them multiple times. He also reached out to certain compliance officers among BDP’s customer base for advice and guidance.
Many of those with whom Ford spoke strongly recommended he develop a U.S. export control manual for BDP’s corporate officers. A summarized version of the manual was also made available to managers and rank-and-file employees, who must read the document and sign off to indicate that they are familiar with its policies.
BDP’s export compliance training for new and current employees has also evolved over the years. Today, this training is performed online through what the company calls its BDP University program. While the overall training program covers a vast array of compliance topics, including imports and hazardous materials transport, it’s automatically refined to the specific role of the individual within the company. For example, an individual involved with forwarding operations will take export compliance courses, whereas someone hired for customs brokerage will be more focused on import regulations. In the United States, BDP’s nearly 1,000 employees are just about evenly split between export and import operations.
There are roughly 20 courses dedicated to export compliance, each of which generally take 20 to 30 minutes to complete and are followed by a test. They cover such topics as foreign principal party in interest (FPPI) roles and responsibilities; free trade agreements from an export perspective; filing electronic export information (EEI) in the Automated Export System (AES); export classifications, recordkeeping requirements and documentation; and red flags. All courses must be completed by the employee within a year of coming on board at BDP.
Ford explained that some of BDP’s online export compliance courses are taken by specific employees, such those focused on the U.S. Justice Department’s Drug Enforcement Administration (DEA) export regulations or the handling of State Department export licenses.
Export compliance training also includes BDP’s approximately 3,500 non-U.S. employees that are spread across 104 overseas offices.
“We’ve taken the best practices here and applied them to our operations abroad,” Ford said.
What started out in the early 1990s with Ford and two others has grown into a global team of about 10 compliance managers that now report to him.
“We were instructed as a compliance team to be outward focused, and be a positive force in the operation,” he said. “If we give the staff the right tools and knowledge about export compliance—no matter where they are in the world—they should be able to do it. If they have a problem, they can certainly come to the compliance team. We don’t want to be the police in the company. Instead, we want to enhance revenue opportunities, while at the same time reduce compliance risks.”
For example, BDP has automated the export regulatory requirement of screening transactions against various Commerce, State and Treasury department lists of entities and individuals who are prohibited from receiving certain U.S.-made products based on past transgressions or for national security reasons.
“When a potential match pauses the shipment, operations should have a level of knowledge to approve it and move it, if it’s a false hit,” Ford said. “An exact match, however, locks the transaction, and that’s when we at the corporate compliance level take over.”
Data Hunting. In May 2015, Ford was named BDP’s Chief Compliance Officer, a recognition of the important role compliance plays within the forwarding operation. He provides monthly reports to the CEO about any compliance risks facing the company. In addition, he presents his latest findings, as well as regulatory updates, to the corporate board on a quarterly basis.
“Data is really important in corporate compliance,” Ford said, adding that he can pull this information from both the company’s system and U.S. Customs and Border Protection’s (CBP) Automated Commercial Environment (ACE), in which BDP files its export information to the government.
This past September, Ford and his compliance team pulled a year’s worth of export transaction data for analysis.
“We went data hunting,” he said.
In this particular instance, they were comparing the export license values with the reported shipment values in order to verify whether they were correct. When an exporter applies for an export license, it lists the items with their commercial values, without including the freight costs from plant to port, which is known as the shipment value. Ford said it’s important to double-check the data when the license values repeatedly match the shipment values, because in most cases those two reported values should be different.
“You’re always going to find something,” Ford said. “Most of the time it’s just simple clerical errors, but you may see a pattern where the license value reported in the Automated Export System is also the same as the shipment value.
“When indeed there’s an error in the data, the specific office needs to take immediate corrective action,” he said. “The U.S. Census Bureau has always been fair to trade, but we want it done right, and we will notify the agency if there are changes to be made to the data.”
Ford said he also receives a monthly “embargoed country report” based on data gathered from BDP’s global information technology system. The report offers him a worldwide view of all high-risk shipments moving under the company’s name.
Another invaluable tool BDP uses to stay on the forefront of export compliance is Ford’s active involvement in various trade associations and government advisory groups.
At the encouragement of its customers, BDP has long been a member of the export-oriented National Council on International Trade Development (NCITD). Export compliance officers of 40-plus companies in the group attempt to meet monthly at the Sidley Austin law office in Washington, D.C.
“The NCITD is not really for forwarders, but rather exporters,” Ford said. “In fact, I’m the only forwarder representative in the group. But you get a good idea of what’s coming in the export world—it’s advanced. It has served me well.”
Ford’s export compliance focus also landed him a spot on the Customs Operations Advisory Committee (COAC) from 2008 to 2012, and since 2002 he has served as co-chairman of CBP’s Trade Support Network (TSN), which works with the agency on the development of ACE applications.
“At TSN, I had to represent not only the forwarders, but the exporters,” he said. “We developed the user requirements for the export side of ACE. As a company, it’s been a great way to stay current on what’s going on with the system.”
This level of engagement with CBP has also allowed BDP to be on the forefront of various ACE pilot tests. In November 2016, BDP became the first forwarder to send CBP air manifest data electronically.
“We’ve been working closely with Customs, since this is new to them, as well as to us,” Ford said.
Ford said he prefers this method of testing new applications with CBP to previous regimes that would roll out regulations prior to making sure everything worked properly.
“Under the old school way, a new regulation would be issued before the application was created in the system. CBP now wants to test the system before it writes the regulation,” he added.
However, Ford must present a strong case for BDP to commit its limited IT dollars to participate in these government pilot programs.
When the DEA wanted to work with the industry to test a new export permit for controlled substances and precursor chemicals, which included eight additional data elements, in ACE, Ford could not internally obtain the resources. Fortunately, CBP facilitated the test through the online AESDirect, which BDP uses whenever its direct link to AES goes down.
“We tested it in AESDirect,” Ford said. “It was extra work for us, but we learned some things and DEA learned some things. That’s the idea. We were able to document the process for an SOP (standard operating procedure) in our company, and when the new DEA permit went live a few months ago, we were ready internally.”
Compliance To Compliance. In Ford’s view, the objective for a sound export compliance program is not only to protect the forwarder but to work in concert with those compliance programs of the export customers that it serves, or what he refers to as “compliance to compliance.”
Ford has made it his personal goal to establish contact with each and every compliance officer for BDP’s top 50 accounts.
“I try to make that connection. It’s important to have a compliance relationship with the other side,” he said. “We go out of our way as a company to do that.”
These relationships allow BDP to share export compliance knowledge and experiences with those companies that also place a high priority on ensuring they follow the rules.
The dynamic changes when BDP works with the multitude of small to mid-sized exporters among its customer base. Ford said it’s not uncommon for small to mid-sized exporters to lack even a general awareness of export regulations and those resources necessary to conduct basic restricted party screenings of their customers.
“You may find a lack of knowledge in many areas of compliance, and they will expect us as the forwarder to make the government data filings for them,” he said. “Many times we have to tell them what denied party screening is.”
When a compliance issue with an exporter occurs, BDP will offer its advice to the company on how to best address the problem.
“Together, we can work through the issue. I will bring together the resources, even the government, but not without the customer involved,” Ford said. “At the end of the day, it’s up to that company to follow through.”
Other ways that BDP educates its customers on export compliance are through routine 30 to 45 minute online webinars and individual face-to-face meetings upon request. In addition, twice a year it holds one-day seminars on regulatory topics in Houston in February and Philadelphia in May. BDP holds similar seminars in Asia and Europe on an annual basis.
“I think it speaks to who we are,” Ford said. “We’re about sharing knowledge. We want people to know about the importance of compliance.”
Outside of BDP, Ford has spent the past 15 years promoting the importance of export compliance to businesspeople participating in the U.S. Commercial Service’s District Export Council program. Ford is chairman of the mid-Atlantic council, which meets once a quarter. About 40 people attend the meetings.
“It’s my way to give back to companies and let them know that they should pay attention to export compliance,” he said. “You may influence someone to do the right thing.”
Source: American Shipper