At one of the conference receptions I attended this fall, I heard an interesting story about a Global Trade Management (GTM) system implementation.
At one level, the business case was focused on fine mitigation. US Customs had warned this company several times about shipments lacking the proper licenses, permits, and classifications. Finally, customs lost its patience and fined the company more than $50 million. Part of the business case for implementing a GTM system was so that the company could argue to customs, “We have a system with the proper controls, and we won’t do it again.” The argument worked and the fine was reduced to less than $5 million. That is a solid Return on Investment!
But there was a second part to the business case: It was about keeping the company’s CEO out of jail. Now that is a project almost guaranteed to get the green light!
The company’s foreign sales executives were modifying trade classifications to win business. In some countries, multiple layers of licenses and import duties can add another 75 percent to the base price. In some of these countries the sales force was dealing with customers who were saying in effect, “If you can manage to get this tax lower, we will do business with you.” The sales force would then print out the trade document prepared by the compliance department, modify values or classifications on those documents without letting the compliance department know, and complete the sales transaction.
The company thought this form of corruption was only happening in Latin America. But after implementing the GTM, it locked down the Adobe application so that users could not modify values and fields in the trade documents without the proper password. Sales people from all regions of the world called and asked for the password; corruption was endemic! It goes without saying that this permission was not granted.
Another control exists in the GTM itself. Once a shipment is confirmed by the company’s ERP system, the GTM trade documentation associated with the shipment is locked down and cannot be changed. In response to these changes, the sales force began to make angry and even threatening calls to the compliance department.
Obviously, this company’s culture needed to change as well. A system, even one with good controls, will be hard pressed to keep up with the ingenuity of users seeking to subvert those controls.
The trade compliance group now has the executive support it needed all along. The entire sales force knows that trade corruption will lead to a reprimand on the first occurrence, and if it happens again, they will be fired. Recalcitrant sales executives are now told, “Go back to the customer and tell them the true value. You know the policy and you know the consequences.” The compliance expert thought that two sales people were very likely to be terminated within the next few days.
These types of situations, cases and examples are becoming too frequent and will only pick up in pace. With export compliance, we have not even hit the tip of the iceberg. Few companies know the actual ramifications from doing it wrong. Combined with this is the US Government’s now very aggressive enforcement mode.