The More Things Change – The More They Stay The Same

By Susan Kohn Ross

Originally published by the Journal of Commerce in January 2016

In writing this article, it was interesting to look back and see whether the old crystal ball was accurate in its predictions in earlier years. Truthfully, the expectation was the old themes were similar over time, and that turned out to be the case. Those earlier articles made clear, the challenges facing businesses in the context of import and export remain complex. By way of example, one constant theme is the rising cost of compliance. A related theme has to do with the expanding complexity of issues demanding compliance efforts. We said previously …” [in the past] companies could expect the rules surrounding import/export compliance were limited to the movement of a given shipment. That has changed dramatically in recent years. It has mushroomed to include a host of worthwhile social accountability concerns which are typically uncoordinated between countries. “

This attempt to prognosticate included mention of the Foreign Corrupt Practices Act (and the closely related U.K. Bribery Act of 2010 and the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions), along with the expanding demand for social accountability, e.g., California’s Transparency in the Supply Chain Act; Global Reporting Initiative – Social Accountability International (SA8000); Extractive Transparency Initiative; EU’s Business Transparency in Trafficking & Slavery Act; France’s Grenelle II Act, Article 225; India’s SEBI Regulation 7A; China’s SASAC Guide; the U.S. Executive Order on human trafficking and government suppliers; and the SEC’s Conflict Minerals regulations.

The outcome of these efforts was described as “companies are faced with inconsistent rules and regulations, some totally transparent and others terribly opaque. The result is more challenges, higher cost and higher risk to companies which will be forced to add a host of additional complex considerations to evaluating where to do business, where to expand and what to value for each merger or acquisition. Add to that the current penchant in the U.S. to criminalize trading violations, and you have significant challenges for companies of all sizes in the immediate future.”

These themes sound both intimately familiar and, at the same time, somewhat bleak. They do present significant challenges, and frankly, it does not look like good news is in the cards for 2016, at least not if the definition of goods news is things can be expected to get less complex or costly. If anything, quite the opposite seems likely.

Let’s start with Customs and Border Protection’s (CBP) efforts. The brain drain hampering most companies, i.e., the loss of institutional knowledge, is the same for the government. CBP seeks to retain and maximize its knowledge through the Centers for Excellence and Expertise (CEE). All the CEEs have all now been rolled out and are in varying stages of full operation. Each Center brings together a virtual group within the agency that works together and thereby the institutional knowledge is retained. Since each CEE is focused on one industry, the members of that CBP get to know the industry and the players, and industry gets to know CBP, better.

Next, the U.S. government as a whole is getting close to the full roll-out of the Automated Commercial Environment (ACE). For any trader who has had his or her head under a rock, ACE is the new computer platform through which all imports and exports will be reported. December 2016 remains the deadline for full implementation of the “Single Window via ACE” system, meaning all agencies and all users must by then be able to process all the required data for their imports and exports through ACE.   A more immediate deadline is February 28, 2016, the date by which use of ACE becomes mandatory for all CBP transactions, plus for all Food and Drug Administration, National Highway Transportation Safety Administration and Animal and Plant Health Inspection Service (APHIS) (Lacey Act) data. Between February and December, all the remaining functions and agencies must join the program and become fully operational.

To this sequence of events, we add the holding in the Trek Leather case, wherein the Court of Appeals for the Federal Circuit held a corporate officer liable for his own acts of gross negligence even while he was an agent of the corporation. If you have not already read that decision, it can be found at:http://www.msk.com/images/ps_attachment/attachment257.pdf. So, now we know a corporate officer may be held liable both for aiding and abetting a violation of the Customs laws by his company, but is also directly liable for his own actions under the same 19 U.S.C. 1592 statute.

Combining these factors, Industry now finds itself in a position where CBP will be able to rely on the most current computer system and, in working with its sister agencies, more easily identify anomalies. This is real cause for concern. With CBP, there is a long history of dealing with detentions and seizures and a robust legal framework in which such cases are resolved. The same ability to resolve discrepancies in such a well-defined legal framework is not necessarily true for most other agencies. CBP, along with Census (via AES or Automated Export System) and the Food and Drug Administration (and its OASIS or Operational and Administrative System for Import Support ) are the only agencies with jurisdiction over imported and exported goods which have a history of receiving real time shipment data. The remaining agencies joining ACE have always relied on paper, and that paper was typically received long after the shipment moved. Now, those agencies will receive that data in real time. Will they know what to do with it? Will they be able to distinguish the minor discrepancy from the significant misdeclaration? If history is any indicator, the odds are not good this will go smoothly.

Every few years we have an indicator of how messed up things get with an agency without the knowledge or experience messes with imported and exported goods. Most recently, we pointed to the U.S. Secret Service totally misunderstanding how motor vehicles are purchased and exported. It took costly legal action to get the Secret Service to understand how badly it stepped on its pepperoni! It is only a matter of time before we have the next illustration (supported by data in ACE)!

To this must, of course, be added the recently issued Yates memo. The memo was issued on September 9th by the Department of Justice’s Deputy Attorney General Sally Yates. Entitled Individual Accountability for Corporate Wrongdoing, DAG Yates’ goal was to make clear to the entire Department, any activity involving the potential for liability on the part of a corporation can and must also focus on the potentially culpable individuals. Put another way, if a corporation comes to the attention of the Department for any reason, civil or criminal, for the business to get credit for cooperation, it must be prepared to turn over information condemning its employees. Many individuals who lived through the 2008/2009 financial meltdown, can be heard saying what took so long? But, in the business environment, we have to be concerned that government agents who do not clearly understand the import/export process (and maybe some who should) will get worked up over relatively insignificant keying errors and turn those cases into major enforcement actions. Then what?

On the export side, the significant challenges remain the value of the U.S. dollar against other currencies, the ever-more complicated nature of the U.S. export controls and economic sanctions, and increasing competition in the marketplace. While these are only partially regulatory in nature, increased compliance costs are apparent.

There are two other significant challenges to mention. One is cybersecurity – and there are really only two types of companies – those which have been hacked and know it, and those which have been hacked and do not know it! Trying to stay ahead of the hackers and protect a company’s most precious assets – its information (employee, business and customer related) – is perhaps the single biggest challenge at the moment. At the same time, leaving aside any surprises yet to be provided by legislators (federal, state or local), the other major cause for consternation is the Trans-Pacific Partnership (TPP). Admittedly as we go to press, it has not yet been ratified by Congress, but there is much for companies to do to get ready to implement it, and the text is long and complicated.

Truthfully, there are other overarching issues being faced by every company, regardless of size or industry – meeting/besting the competition, staying at relevant in the company’s industry and figuring out where trained and competent staff will come from – and these topics require much more thought and consideration than the space allotted.

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