The risk from regulatory agencies governing international trade is increasing and the food import-er’s exposure to CBP, FDA, USDA and others is rising. This risk exposure is not only directed at the company but to corporate executives as well.
This is not some far-off threat. Regulatory risk for the food importer and the “C” suite is the new reality brought about by the significant changes with CBP, Commerce, ICE, IRS, FDA, Fisheries and Wildlife, TTB and every other agency that is linked to activity at the border. It is the conse-quence of ACE and its capabilities to support massive data collection, predictive analytics and artificial intelligence.
"I just got a call the Department of Commerce and they are coming for a visit - help!!"
In March 2018 at the International Compliance Professional Association conference in San Die-go, I met a prospective trade compliance client who has been trying to get budget to improve her company's trade compliance capability. Over the years she has been getting “push back” from her “C” level superiors. Then, several weeks prior to our discussion, one of the senior executives in the company got a call from the Department of Commerce to advise that they were coming for a visit - in the next few days - and wanted to see some very specific information related to its in-ternational transactions. The senior executive put out an urgent call for help to our prospective trade compliance client. She worked diligently and quickly to get the needed information to the executive so that he was prepared for the meeting.
This scenario is now playing out with more frequency because all the regulatory partners and CBP are sharing information. With this vast source of data these agencies more effectively pro-file and target suspected abusers.
The Changing Risk Profile for Food Importers
The entire compliance environment is turned upside down. With the roll-out of CBP’s $4.5B ACE environment the entire regime at the border has changed. ACE is now the clearing-house for all import related data - regardless of the regulatory agency. Whereas, several years ago, im-port information was held in regulatory agency silos, ACE now provides cross-department gath-ering and centralized access to importers declaration at any border point. With this incredible da-ta pool CBP, FDA, UDA, FSW and other agencies are cross-referencing food importer declara-tions and determining accuracy and consistency of entries. With this data mining capability, these agencies are creating profiles and determining a food importer’s risk level.
The other critical factor affecting how food importers are impacted is the creation of the Centers of Excellence and Expertise. The CEE centralizes within CBP all related regulatory expertise dealing with an area of responsibility. On the plus side, an importer has one access point within CBP to go for information, clarification or a final ruling on a product or a protest. If there is a dispute with CBP or another agency the food importer should have a much higher degree of con-fidence that it will be treated with consistency, which is the foundation for establishing proper trade practices. On the downside, the CEE has unprecedented access to an importer’s past histo-ry, current practices at the ports and beyond. This means that a food importer has much less wig-gle room when interacting to CBP and other agencies.
From Informed Compliance (ModAct) to Enforced Compliance (TFTEA)
CBP has moved significantly from focusing on informed compliance (under the Mod Act) to en-forced compliance (under TFTEA - Trade Facilitation Trade Enforcement Act).
This will evidence itself in three (3) fundamental ways:
1. Detection - more exams, inspections and reviews for those food importers with suspect profiles. These actions are possible because of the centralization of exper-tise in the CEEs, the ability to mine the vast amounts of data and use predictive analytics and the ability to leverage industry intelligence and industry collabora-tion (read whistleblowers).
2. Deterrence - CBP and regulatory agencies are more aggressive in the use of penal-ties and fines to change importer behavior. They are increasing “bond” require-ments as another lever to influence poor food importer actions and they will be more aggressive in fine collections than they have been in the past. In some in-stances they will use publicity (directed both at individuals and companies) to de-ter future negative practices.
3. Disruption - CBP is using the full range of enforcement tools to disrupt import activity of poor actors to ensure compliance.
What this means for Trade Compliance and the “C” Suite in a Food Importer
As with all things there are positives and negatives. With the new regime of TFTEA and ACE there is much greater emphasis placed on the importer and its management to ensure its own compliance. To ignore this fact places the organization and its management at potential risk.
An example of how things are changing: Historically an importer would/could depend on the Customs broker to classify products with little fear of serious consequences of misclassification. Recent studies have shown that Customs brokers “too often” misclassify products due to unfa-miliarity with a product, lack of time, typing errors, etc. With the changes in focus of CBP to en-forcement, the practice of outsourcing product classification is much more risky because product misclassification is a serious red flag for to an importer's Reasonable Care practices.
Food Importers with suspect compliance profiles can expect their shipments to incur delays due to greater scrutiny - with the intent to disrupt at the time of entry. However, even after the ship-ments have cleared the border, suspect importers can expect to receive a greater number of CF28s and 29s, Single Issue Audits and Focused Assessments. The involvement of government auditors in a company is very time consuming, invasive and invariably leads to some penalties, or fines. In a worst-case scenario, audits can lead to negative publicity for the organization and/or its management.
On the positive - food importers who have strong records of compliance will be given preferential treatment at the border and subsequently in the frequency of post entry auditing.
4 Takeaways to Reduce Trade Compliance Risk
1. Ensure product master and account records are centralized, accurate, and up to date. Best practices strongly suggest the importer take responsibility to classify its products to the 10 digit HS code and properly profile products for associated government agencies. Similarly, all relevant account details should be maintained and all registration codes controlled.
2. Have well-documented standard operating procedures in place. These SOPs must reflect internal practices and external relationships. Best practices require manuals governing im-port processes and record management, Customs broker responsibilities and review me-chanics, supplier facility management and review procedures and carrier oversight proce-dures.
◦ Systematize processes to reflect SOPs.
◦ Have clear import processes to govern practices with suppliers, customs brokers, carriers, 3PLS, warehouses.
◦ Have processes to audit entries and ensure accuracy of the information submitted to customs and PGAs.
3. Have record and document management systems to support all import activity.
4. Understand how dramatically the rules governing importing have changed and that CBP is focusing more on enforcement and penalties.
The risk to food importers has risen with the completed implementation of ACE and the CEEs because the data is more accessible to government agencies.
With increased visibility to food importer data, regulators now profile a food importer and target its activity appropriately and proportionately. To reduce the risk to the organization and its man-agement a food importer must take greater responsibility for its trade compliance practices and ensure that it can conform to the new import regimen. Conformance means ensuring data accura-cy, comprehensive record management and enforceable SOPs. Failure to act appropriately expos-es the importer to significantly greater organizational and personal risk. Management that is un-aware of the problems that are brewing at the border is potentially exposed to personal sanctions and penalties. As CBP frequently points out in virtually every discussion - “Importing is a privi-lege. Ignorance of the import rules is no excuse. The organization and its management is re-sponsible for the declarations made to Customs on its behalf.”
3rdwave simplifies global trade through automation. 3rdwave is a GTM platform that delivers to-tal global supply chain visibility, minimizes manual data entry, streamlines business process and provides contextual information enabling its users to make informed decisions to reduce global supply chain risk. It's a cloud-based platform that requires minimal IT resources for quick imple-mentation.
Ned Blinick is chief product officer of 3rdwave.co. He has been involved in global trade for too many decades. Ned loves making the global supply chain simpler for everyone. He can be reached at (416) 510 8800 ext 234 or at firstname.lastname@example.org