Trade Compliance: Still Think It’s Just Paperwork?

Still think trade compliance is just paperwork? Still managing it with Excel spreadsheets?

An article in the Wall Street Journal last week by Henry Cutter (Whistleblower Lawyers See a Growth Area: Customs Fraud) is another reminder of why trade compliance is not just paperwork or a low-priority cost center hidden in the basement of your company — it’s a high-risk, strategic business process that is only getting riskier and more complicated.

Lawyers Chasing Trade Compliance Cases

“Whistleblower lawyers see room for extra business on a new front: chasing customs-linked wrongdoing ranging from failing to label imported goods to shipping rhinoceros horn across the border,” writes Cutter.

Here are some excerpts from the article:

The case [against Victaulic Co., which the Supreme Court declined to hear its appeal], now being reconsidered in district court, centers on whether Victaulic avoided an obligation to the government by failing to label pipe fittings it imported with the country of origin, and by not disclosing that the fittings weren’t marked. Customs Fraud Investigations alleges that Victaulic evaded 10% duties that accrue when unmarked goods enter the country; Victaulic denies the allegations.

[In another case], American Dawn Inc., a textile importer, agreed to pay $2.3 million to settle a whistleblower’s complaint that it mislabeled towels as polishing cloths in order to pay lower tariff rates, the Justice Department said Jan. 11.

Notations Inc., a garment wholesaler, admitted it failed to take notice of multiple signs that suppliers were avoiding duties by submitting fake invoices to customs officials. Prosecutors targeted Notations’ supplier as well as the company itself.

The Notations Inc. case underscores a growing risk and reality: your trade compliance responsibility doesn’t end within your four walls; it extends to your suppliers and trading partners too, and claiming “I didn’t know” or “That was my supplier’s responsibility, not mine” is not a valid defense.

(For related commentary, see Made in “I Really Don’t Know”)

Managing Trade Compliance with Excel Spreadsheets

Several years ago, I attended a conference where a young professional from a medical device company gave a great presentation about free trade agreements — what they are, why they are important, and how to use them effectively as part of your global trade operations.

During the Q&A session afterwards, a young professional seated next to me asked the presenter if she was using any type of software at her company to manage free trade agreements. “No, we use Excel,” she said. “We bring in attorneys and trade experts to help us understand the regulations and develop the formulas, and we just enter everything into Excel. I wish we had some software designed specifically for trade, but it’s not something our company has decided to invest in yet.”

The young professional who asked the question, who worked at a leading toy company, replied back, “Yeah, we use Excel too.”

So, two leading companies in their respective industries, managing a highly strategic and risky supply chain process with Excel spreadsheets. Fast forward to today and it wouldn’t surprise me if those two companies (and many others) are still using spreadsheets to manage their trade compliance processes.

Why? Because despite so many case studies and news stories over the past twenty years, global trade compliance still remains at the bottom of the priority list for many companies, even though the risks for hefty fines and even imprisonment are well known. It’s like telling a kid over and over again about the dangers of playing with fire, yet they continue to light matches anyway. Unfortunately, the only way that some companies finally learn their lesson is when they get burned.

Still think trade compliance is just paperwork? Still managing it with Excel spreadsheets? Post a comment and tell us why.

For related commentary, see The Growing Complexities and Requirements of Customs Management and A New Era for Global Trade Management Software?