RESTRICTED PARTY SCREENING USING SOFTWARE TO MANAGE TRADE COMPLIANCE

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2 RESTRICTED PART Y SCREENING USING SOFTWARE TO MANAGE TRADE COMPLIANCE Today s complex supply chains place strong demands on companies and require the simultaneous management of many distinct and important areas, including keeping production in sync with customer orders, managing inventory and overseeing the movement of goods to their destination. It perhaps goes without saying that compliance is not the least of the supply chain issues requiring attention. MANAGING RISK Compliance generally needs to be incorporated into the business process at all relevant points. One specific area of compliance relates to laws and regulations that prohibit interaction with restricted or denied parties. Failure to comply with these laws and regulations, on even a single shipment or transaction, can carry significant consequences. By now, many in international trade have heard stories about a company that lost its import/export privileges, received a heavy fine, had employees sentenced to jail time (or some combination of these penalties) - all as a result of transacting business with, or transacting business involving, a restricted party. Generally speaking, a restricted party is any entity, person or vessel that a government puts on a restricted list. Often, those on such a list are deemed to have engaged in illegal activity of some kind. There are obvious restricted persons, like known terrorists or arms traffickers. The lists of restricted parties don t stop at the obvious, though; they also include, for example, entities that have illegally exported controlled commodities and financial institutions that are known as safe havens for money laundering. In order to manage the risk of interacting with or shipping to restricted parties, many companies screen both their customers and other parties to a transaction. Screening is the process of crossreferencing the parties involved in the transaction against the many (and ever-changing) lists of restricted parties published by different governments and governmental agencies. Many national governments (such as the U.S., Canada, Japan and Switzerland), as well as multinational groups (such as the World Bank and European Union), publish lists of parties they deem to be restricted. While some of these lists can be obtained directly from the government sources, it can be cumbersome to try and aggregate and maintain these lists. The information comes in different forms and is updated constantly. It can be time consuming at best to conduct accurate searching against all these lists without the use of search algorithms and a software system designed to manage everything. page 2/5

3 ESTABLISHING FRAMEWORK Screening software can help companies apply the oversight required to prevent transactions with restricted parties. Most screening software has a cost to implement and administer. Those companies that outlay resources relating to a screening solution, of both a financial and an employee-time nature, make a strategic cost-benefit decision. Along with the benefit of preventing government penalties, there is the benefit of preventing potential loss of sales - a company caught transacting business with a restricted party weakens its brand and may suffer a loss of goodwill with customers. Decisionmakers frequently determine these benefits far outweigh the cost of implementing a restricted party screening solution. Before a company embarks on implementing a particular screening solution, it is a good idea to spend time asking some preliminary questions, including: WHAT IS THE SCOPE OF TRADE PARTNERS TO BE SCREENED? Which types (consignee, vendor, manufacturer, etc.)? How many? DO YOU HAVE ALL OF YOUR TRADE PARTNER INFORMATION AVAILABLE IN A DATA FORM? If so, is it contained within a single system or several systems? DOES INTERNAL LEGAL COUNSEL OR ANOTHER COMPLIANCE GROUP ALSO NEED TO BE PART OF THE DISCUSSION? Aligning the operational activities of transportation and logistics personnel with the concerns and goals of the legal and trade compliance group(s) will often help the process be more successful. HOW DO YOU LOCK DOWN THE PROCESS TO ENSURE NOBODY SENDS OUT A SHIPMENT BEFORE THE PARTIES ARE SCREENED? It obviously does no good to invest resources in a screening solution if shipments are allowed to occur before the screening process has been completed. Know who you are as a company and what you want your screening solution to achieve. WHAT LEVEL OF DETAIL DO YOU WANT TO INCORPORATE INTO YOUR SCREENING PROCESS? For example, is the company name sufficient or is it important to check addresses, or individual person names at the companies? How fuzzy should the screening results be (that is, exact matches only, or more than that; do you want Beat Gruop to trigger a hit for Best Group?)? ULTIMATELY, WHO - EITHER WHICH PERSON(S) OR WHICH GROUP - WILL OWN THE SCREENING PROCESS AND ANY SUBSEQUENT REVIEW OF POTENTIAL MATCHES? Not clearly assigning ownership of the process can lead to a failed implementation of the process. WHAT IS THE ESCALATION SHOULD THERE BE A POTENTIAL MATCH TO A RESTRICTED PARTY AFTER A SCREENING OCCURS? Again, a legal and/or trade compliance group may want to weigh in here. It is in your interest to implement a quick but comprehensive way to review a potential match, balancing the understanding that a shipment should be on hold until the review is complete against the reality that a mistaken shipment to a restricted party likely carries serious consequences. These are just some examples of questions companies may want to consider and discuss internally before going down the path of evaluating possible screening options. To put it more bluntly: Know who you are as a company and what you want your screening solution to achieve. page 3/5

4 Sample Screening Workflow SCREENING SOFTWARE Once you arrive at the point where you know what you want to achieve, you can start evaluating your options. Any screening software provider should be able to give you a system demonstration and perhaps even a limited-time trial usage of its system. If you take advantage of a trial usage period, make sure you have time available to actually evaluate the product. Involve anyone who would use the system if you bought it. YES USER LOGS IN TO REVIEW POSSIBLE MATCHES Compare Trade Partner to Denied Party results Review source citations if necessary for further details MATCH FOUND? YES PERMANENT HOLD AUTOMATED SCREENING OF TRADE PARTNERS HUMAN REVIEW REQUIRED? MAYBE CONDITIONAL HOLD User fills out comments to c la r if y resoning NO NO TRADE PARTNER CLEAR Here are some questions that you may want to consider as you evaluate screening solutions: HOW OFTEN DOES THE SOFTWARE PROVIDER UPDATE ITS LISTS OF RESTRICTED PARTIES? As noted, these lists change frequently, so it is important to acquire a screening solution that is refreshed whenever there is a change to a relevant list. WHAT RESTRICTED PARTY LISTS ARE INCLUDED IN THE SCREENING SOFTWARE? Many countries have lists of restricted parties, but not all will be relevant to your business. For example, if you don t do business with or involving a particular country, you may not need to screen against that country s list of restricted parties. Screening against lists that are not relevant to your business will likely increase the number of false positives that have to be resolved by your review team. HOW EARLY IN THE SHIPMENT/ORDER PROCESS CAN YOU SCREEN? It s better to know a customer is (or has become) a restricted party when the order is placed than when its order is ready to ship. CAN YOU RESCREEN TRADE PARTNERS REGULARLY? A screening at the time of the order may not be enough. Even a second screening at the time of shipment may not do it. In some situations, it can be months from the time an order is placed until it is filled, making multiple screening opportunities important in those instances in particular. A robust screening solution will keep up with new restricted parties added to the government lists during that time and ensure you do not miss them. CAN YOU CONFIRM THE IDENTITY OF THE COMPANY OR PERSON BEING SCREENED? Does the option being considered help you do that in any way? Remember that restricted parties are motivated to circumvent the restrictions; they may misrepresent their identity or seek to create and exploit situations in which they go unrecognized. When entering new trade partners into a system, make sure to use your available resources (such as a Tax ID) to confirm they are who they say they are. page 4/5

5 ARE THE PEOPLE ENTRUSTED WITH DETERMINING WHETHER A POSSIBLE MATCH IS AN ACTUAL RESTRICTED PARTY OR A FALSE POSITIVE PROPERLY TRAINED? Do not consider the review and determination process an entry-level, administrative-type task. Whoever is making the match/no-match decision needs to be very familiar with company policy and risk sensitivity, among other things. CAN YOU ENSURE THAT SYSTEM USERS WITH CONFLICTING BUSINESS MOTIVATIONS ARE NOT IN A POSITION TO SUBVERT THE POLICY? For example, a customer service representative who gets a commission for making a sale likely should not be able to bypass the screening of a new customer or override a match and permit the transaction to go forward. HOW CAN YOU USE SCREENING ALONGSIDE OTHER KNOW YOUR TRADING PARTNER PROGRAMS TO BUILD A BETTER OVERALL COMPLIANCE PROGRAM? Programs such as Customs-Trade Partnership Against Terrorism (C-TPAT) in the U.S. and Authorized Economic Operator (AEO) in the European Union help foster a deeper compliance relationship with your trade partners. Consider how programs like these work together with a screening process. The ultimate goal is to implement a screening process that works for your company, one that provides the desired level of diligence with the least incidental friction on operational execution. To get there, first have a discussion internally with all relevant stakeholders. Then, evaluate your options compared to your goals. These steps will better position you for success. Expeditors provides open solutions for managing restricted party screening, through the use of Tradeflow, a global trade management software system. Tradeflow offers several methods for screening the trade partners involved in your international shipping transactions. Whether you need a secure web-portal for customer service representatives to screen new customers, or a fully integrated and automated connection to your Enterprise Resource Planning (ERP) systems, the Tradeflow screening software provides solutions. For more information, visit expeditors.com, or contact us. page 5/5