Picking through the regulatory jungle makes risk-based assessment to avoid legal snags necessary
 Perhaps it is a sad inevitability that the only palliative to ease the pain of a lawyer-infested world is to hire more lawyers - as the only way to minimise harm done by the growth the regulatory state.
Such an inference can be drawn from an article by Munich-based Aneta Klosek, director, trade compliance, LexisNexis Risk Solutions of Atlanta.
Her article, Preventing Sanctions from Slowing Global Trade, recalls how Honore de Balzac famously mused that “laws are spider webs through which the big flies pass, and the little ones are caught.”
As long as regulatory reach continues to extend and enforcement action stiffens, this is a reminder that those most at risk are small and medium-sized enterprises for whom violation of sanctions and export controls pose a proportionally greater threat to their futures.
What Balzac noted in the growth of the expanding French regulatory state of the first half of the 19th century, which was only surpassed by Germany in this regard 50 years later, is a problem that has grown worldwide and exponentially since.
What has happened is that the regulatory state, its high church being nations what venerate the Hammer and Sickle, but whose practices have spread down to socialist and social-democratic states until it has become a global pandemic.
"In the US, the Department of Commerce, Bureau of Industry and Security (BIS) manage laws relating to the control of certain exports, re-exports, transshipments and other activities. The regulations, including Export Administration Regulations (EAR), stem the proliferation of weapons of mass destruction and limit the military and terrorism support capability of certain countries," Ms Klosek notes.
What she doesn't say is now the applications of sanctions against such activities have widened in scope and definition to cover activities that were legal and are now illegal. Definitions of terrorism and terrorist can now be said to apply to parents making vociferous complaints as school board meetings in the US.
In terms of shipping, tangential to Export Administration Regulations are Directorate of Defense Trade Controls (DTC) International Traffic in Arms Regulations (ITAR). The DTC enforces the Arms Export Control Act and the ITAR through licensing, assurance of proper end-use of licensed exports and implementation of regulatory policies.
In addition, the US Treasury’s Office of Foreign Asset Controls (OFAC) acts under presidential wartime and national emergency powers and has authority granted by specific legislation to impose controls on transactions and freeze foreign assets under US jurisdiction. In Canada, this has been extended, under the Emergencies Act - the renamed War Measures Act, to seizing donations to causes of which the government disapproves.
"The list could go on," she says, "but what is important is that nearly every cargo shipment will be subject to controls and sanctions rules under at least one of these agencies. Each of these agencies has increased threats of enforcement and enforcement actions over the last few years. Today it’s not just those directly involved in transactions and the physical movement of goods that violate regulations who attract regulatory attention, but also those who indirectly facilitate these."
This should concern all legitimate firms involved in global trade especially because regulators, such as OFAC, enjoy expanded jurisdictional reach. For example, in 2020 OFAC fined a Europe-based specialist in air transport communications and information technology company US$7.8 million for 9,256 violations of the Global Terrorism Sanctions Regulations. The firm provided commercial telecommunications network and information technology services to airlines on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list," Ms Klosek said.
Fines are the least of OFAC’s enforcement tools; it also has the power to withdraw licences, which can damage profitable lines of business, as well as administer criminal penalties including jail time.
As sanctions and export controls have increased exponentially over the years, often driven by politically charged sanctions and tariffs such as those arising from the US-China trade conflict, so too has the reach of sanctions and export controls.
Another spectre looms via insurance claims and premiums. If one's views are such as to provoke attacks on one's family or property, thus increasing the risk of violence, insurance premiums can be made prohibitively high, especially if backed by regulations that keep them that way. One's gun can pose a similar risk to others, perhaps if stolen, even in jurisdictions where it is perfectly legal to possess and carry firearms. It soon becomes advisable not to express such views or possess firearms even when it's is one constitutional right to hold them.
To address such big problems, requires a big political solutions with corresponding big political risks and possible, if not probable, serious negative outcomes. No pain, no gain, as they say.
Less eye-catchiing and more prosaic is dealing with the day-to-day bureaucratic realities that face shippers and shipping in the here and now. These pressures have been exacerbated by the Covid crisis has seen the cargo industry expand and adapt to ensure the flow of global trade in the face of rolling lockdowns across the globe.
This means those involved need to become much savvier when it comes to risk management and due diligence, Ms Klosek said.
Taking a risk based approach operators must study commercial bills carefully to ensure completeness and accuracy. Companies must make their own risk-based decisions using up-to-date insights for each shipment based on the goods and their destination. Some items might need additional licences. Some destinations such as France and other EU member states are very low risk, but Turkey, for example, may be more complex due to its proximity to sanctioned countries.
Completing these risk-based assessments takes time. Checks should start from the point of booking a shipment rather than the point of embarkation when the shipment is already loaded. This has an additional logistical benefit, by commencing checks at this stage operators can prioritise less risky shipments to consignees that have been cleared and hold back high-risk ones to send them later after they complete manifest checks. This avoids delays or missing out on other cargo that could have gone in its place.
As Balzac said little flies are more easily caught and damaged in the regulatory web. As long as regulatory reach continues to extend and enforcement actions stiffen, those most at risk are small and medium-sized enterprises for whom violation of sanctions and export controls pose proportionally greater risks. |
