Six Best Practices to Improve Compliance with a Restricted Party Screening Solution A critical first step to building an export compliance program Management Dynamics, Inc. One Meadowlands Plaza East Rutherford, NJ 07073 (201) 935-8588 Solutions@ManagementDynamics.com www.managementdynamics.com
Executive Summary What is RPS? Restricted party screening (RPS) is the process that a company goes through to ensure that they are not engaging in trade with a government sanctioned party. Why do exporters need to do RPS? Screening for sanctioned parties is the foundation of an export management program. Failure to screen can results in sanctions or fines. Customs & Border Protection (CBP) is cracking down on ALL exporters. Exporting is a privilege and restricted party screening is the fastest way to start demonstrating reasonable care. What are the four largest challenges with keeping your company in compliance? Accurate & Up-to-date Content what lists, when do they change, who changes them? Advanced Screening Methods how do I compare names and addresses, how do I account for data entry mistakes, how can I screen partial names? Real-time Screening as Lists Change how do I keep up with screening mass volumes against continuously changing content? Workflow when matches occur, how do I manage them or know to manage them? How do companies manage this today? Many companies have elected to embrace technology and acquire a solution to help them manage screening. Given the sheer volume of restricted party entities coupled with the fast paced logistics process most companies have, screening your customer base manually is not only inefficient, but in many cases impossible. The solution itself can vary greatly depending on the requirements you have, as well as the vendor you choose. Here are some critical criteria to look for when searching for an optimal RPS solution. The six best screening practices to implement when updating your export compliance program: 1. Expand screening scope with additional sanctioned party lists 2. Fully automated screening process 3. Support multiple integration methods 4. Use advanced word matching technologies 5. Use an on-demand solution 6. Manage your resolution process with workflow and escalations This white paper is organized by best practice area and is written to provide the reader with a better understanding of how to select and get the fastest return from your screening investment. Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 2
1. Expand Screening Scope with Additional Sanctioned Party Lists The single most important aspect of a restricted party screening (RPS) solution is the ability to effectively screen trade parties against up-to-date denied party lists. It is imperative that these lists (also called trade content) are complete, accurately captured, and updated regularly so that your screening solution can accurately identify a potential restricted entity. The United States has eight different agencies and departments which issue lists, and other countries government agencies have the same. There are well over 90 global lists which are referenced regularly by exporters today when conducting international business. The average US exporter must screen against at least 12 different government lists to stay compliant, however, if the company does business in other countries, there are often additional screening requirements to maintain compliance. With the proliferation of government agencies and lists and the frequency of which these lists are updated, companies can experience a significant productivity drain if their compliance team is attempting to manage this process manually. Often there are major changes to lists and significant updates that can take several days to note the changes and manually update. This is not the type of response time that supports the business when an order has to be shipped the same day. Third party providers aggregate and maintain these lists to allow companies to focus on more strategic compliance activities. Look for an information service that provides accurate and complete content updates with automated list loaders and managed by trade specialists to ensure the quality of these lists. Also, look for a vendor that can provide the data in an electronic format which can be automatically updated with your RPS solution according to a subscription so that you only process against the lists of your choice. Of course, this entire process should execute without any list integration issues or IT involvement required. The United States has eight different agencies and departments which issue lists, and other countries government agencies have the same. There are well over 90 global lists which are referenced regularly by exporters today when conducting international business. Best Practice 1: Expand screening scope with additional sanctioned party lists Minimize integration issues by using a solution that offers both software for screening and the trade content (sanctioned party lists) that you require Realize productivity gains by outsourcing the manual, data intensive tasks of collecting and maintaining sanctioned party lists Use an information service that has highly accurate trade content, updated with a 24 hour turn-time, and developed by automated information feeds and managed by trade specialists Look for an information service that gives you the scope of content you need (e.g. number of lists) to adequately support your business Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 3
2. Fully Automate the Screening Process The key questions that you need to ask to effectively design your new screening process include: How many trading partners do you need to screen? How often will you need to screen them? Are there variations in your process? Volume, timing and control are the key factors to consider when developing requirements for your RPS solution. Most RPS solutions provide the option to manually enter trade party details through a Web-based form. The user inputs trade partner details, clicks the screening button and can then view the results of the screening. This process is manageable for exporters who have low volume; however for exporters with anticipated volumes of over 4,000 screenings a year, this can become quite tedious. Best-of-breed solutions provide both a manual screening method as well as the option to screen, in batch, hundreds of thousands of partners at one time. The ability to batch screen customers is critical, especially if you subscribe to additional sanctioned party lists, have a webbased business, or have recently acquired a new business. Another key factor is the flexibility of the system to set the screening frequency. Look for solutions that support screening at three different points: 1. When the trade partner is created 2. When the trade partner information is modified (drop ships) 3. When the restricted party content is updated by the government The rules for when to perform a screening should be automated and not require any user interaction unless a match occurs. Any new trade party adds or changes should initiate a rescreening of that customer, while any change to the restricted party lists should automatically induce a rescreening of all partners against the net change of the list. This level of screening automation takes the burden off of your team and also keeps the customer database up-to-date and compliant so business can run efficiently and on-time when orders are placed. New Customers Frequent (100 s per day) Order Book RPL Content Update Daily (Multiple Lists) Partner Screening Order Life Cycle Best Practice 2: Fully automate the screening process Customer Updates Regular Multiple Content Updates can occur during a single Order Cycle which requires a rescreening of Customer Data Ship Confirm Fully automate the screening process based on changes to Trade Parties or lists Use technology especially if you need to process high volumes that efficiently screens based on net changes to the sanctioned party lists Have control over the screening rules for special cases like related parties or one time customers Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 4
3. Support Multiple Integration Methods Look for an RPS solution that provides multiple ways to integrate and return status to your enterprise systems and key users. Many RPS solutions today provide the capability to electronically interface data from an ERP system via XML. This real-time integration of data eliminates the re-keying of data and reduces errors associated with typos and misspellings when information is re-keyed. A key element of electronic integration is that it should be bidirectional. Many RPS solutions do not send status back to your enterprise system. The return of status for a dispositioned trade party must be propagated back to your order management system so that the order is put on hold. Manually updating order status in ERP systems fails without user intervention and is error-prone. If you have low volumes, or can t secure the technical resources to integrate in real-time with your ERP, look for a solution that also supports data transfer by uploading a spreadsheet. By performing this type of batch integration from an existing data source, you can significantly reduce the amount of work associated with screening in a high volume environment. Integration Data Flow Order Placed Partner Data ERP Partner Results RPS Lists Finally, users should be able to log-in and screen directly from any Web-browser. Look for solutions that provide simple, ad-hoc screening capabilities that allow you to distribute this capability to your Human Resources, Reception and Sales organizations. Best Practice 3: Support multiple integration methods Look for solutions that supports bidirectional XML integration with your ERP. Automating the hold process is critical to consistently implement your export compliance program You should also be able to batch upload Trade Parties via spreadsheet uploads when real-time integration is not available. This is an effective, low-cost alternative for high-volume screening exercises Make sure that your solution can be deployed across the enterprise to support adhoc screening in organizations that interact with customers, prospects, contractors, employees and visitors to your corporate site. Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 5
4. Use Advanced Word Matching Technologies One foolproof method of screening is to do an exact match on a name. For example when John Smith matches John Smith, you have a match. Unfortunately in the real world, sanctioned parties aren t this easy to catch. They will order under an alias or purposefully change the spelling of their name or address to avoid detection. If your screening solution is exact match, one transposed character could potentially allow a sanctioned trade party to slip through the cracks. Is that reasonable care? Look for a screening solution that supports single word and phrase-matching analyses to score trade party names and addresses based on how similar they are to a sanctioned party. Also, by evaluating each word in a phrase, you can develop strategies to exclude common words, apply synonyms, or weight special industry-related terms. This leads to a much more compliant and accurate screening solution. Leading solutions have the ability to tune the engine to achieve the highest levels of accuracy with the lowest number of false positive matches. In the absence of advanced word-matching technologies and tuning algorithms, many companies must increase false positives to get higher accuracy. Unfortunately, best practices research shows that productivity and the ability to make accurate decisions are inversely related to the percentage of false positive matches. Obviously, the more false positive matches a compliance user has to sift through, the lower their productivity will be. But what also needs to be considered is the decision making capacity of an over-loaded user when faced with a real denied party match. The more false matches that a person must sift through and clear, the less likely that the person will actually recognize a real match when it occurs. The repetitive task of clearing false matches can often cause a user to accidentally miss a real match. Technology is the key determinant here, and only those screening solutions that use advanced word and phrase matching can deliver higher accuracy with low false positive match rates often less than 1%. Many lower-end solutions have false positive rates from 5 to 25% which can significantly increase the cost of resolution (and headaches) for your business. Investing in the right screening technology can make the difference between two hours of work or three days of work. RPS On-Demand Offers the Highest Levels of Accuracy with the Lowest False Positive Rate 90% Typical Text Matching Algorithm Screening Accuracy (higher is better) 99.6% 11% Improvement 35% Computational Linguistics Matching False Positives (lower is better) <2% 94% Reduction Best Practice 4: Use Advanced Word Matching Technologies Exact word matching is not sufficient to demonstrate reasonable care; you need solutions that compare how similar a trade party is to a sanctioned party Look for high-end screening algorithms that can deliver high accuracy with false positive rates of less than 1% Investing to lower false positive rates can result in tremendous productivity gains and keep your staff fresh to accurately identify true sanctioned parties Source: Management Dynamics Testing Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 6
5. Use an On-Demand Solution In today s world of ever-changing IT infrastructures and diminishing IT budgets, cost of ownership of an application is a critical point of consideration. Look for a screening solution that is delivered On- Demand and employs a rapid implementation methodology to get up and running. This combination offers the best bang for your buck. Numerous studies have highlighted the benefits of on-demand solutions. In short, on-demand allows you to focus on your core business and a) avoid investing in hardware; b) avoid investing in software; and c) eliminate the cost of additional IT resources and data centers to run the application. In fact, here s what the industry analysts have said about On-Demand or Software as a Service (SaaS): In the current economic climate, SaaS technologies will allow budget-conscious exporters to access all of the tools they need to establish a strong compliance program. Gartner, Inc. Companies using SaaS for supply chain report that they typically can get the system operational in under three months and achieve ROI in less than a year many times faster than with ordinary license and install software or homegrown projects. AberdeenGroup Also, look for a solution that can be deployed with a Rapid Implementation methodology. These methodologies are based on extensive XML integration experience with multiple back-end systems and can get your environment up with complete user training in a few short weeks. Ultimately, ondemand will get you up and running, and getting value, faster than any other deployment option. Companies using SaaS for supply chain report that they typically can get the system operational in under three months and achieve ROI in less than a year many times faster than with ordinary license and install software or homegrown projects. AberdeenGroup Best Practice 5: Use an On-demand Solution Avoid the cost and time to deploy a solution with your IT staff Get up and running quickly with a Rapid Implementation methodology Achieve faster time-to-benefit than any other deployment option Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 7
6. Manage your Resolution Process with Workflow and Escalations You have a potential match. Now it is time to manage your resolution process. Look for screening solutions that have workflow tools that provide users with event-driven notifications, task visibility, and hierarchical management so they can efficiently manage work and minimize risk. Also look for key features such as being able to assign work to different organizations and escalate screening issues as required. The first key capability is event driven notifications when certain pre-defined events occur. Notifications should alert compliance managers when a potential issue has occurred, or could potentially occur. This will help your team better manage their time, and improve response in case of an emergency, such as a massive list update on the same day (Note: the US government recently updated five of their lists on the same day). The second key area is task visibility. The most flexible solutions automate the resolution process with features such as task monitors, dashboards, and team based work queues that help users identify work and the volume of work at hand, and prepare accordingly. Hierarchical exception management should also be part of every compliance program. Global companies will often have more than one compliance expert for different business units or product lines. By properly allocating and escalating tasks, these experts are able to manage on an exception basis, improve overall accuracy and enhance compliance. Find a solution that addresses these workflow features in their blueprint. Many solutions today have been designed around the best practices of Global 1000 companies and already have these features incorporated in their standard solution. Manage Resolution Workflow RPS Engine No Match Proceed Shipping Trade Partner Information Match Assign to Queue Compliance Managers Dashboard Queue: Priority Queue: Normal Escalation OK Hold Metrics Best Practice 6: Manage your resolution process with workflow and escalations Use event-notifications to keep your team apprised of any potential issue Workflow tools that allocate tasks by organization provides users with the task visibility they need to efficiently resolve potential hits Look for workflow solutions that support escalations to experts that can be arrayed by business unit, geographic region or product line Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 8
Summary Restricted party screening is a must-have procedure for any company engaging in global trade. The risks associated with not having a system in place are becoming increasingly large when you consider the possible sanctions, fines, and penalties that are being dealt by the Department of Homeland Security (DHS). The responsibility to screen trading partners during the sales and distribution process has been clearly defined as the exporter s responsibility according to the DHS. The first step to achieving this is implementing a program focused on Trade Partner screening. The cornerstone of any compliance program is a software solution. Best of breed solutions: Manage restricted party lists Automate the screening process with scheduled and event driven screening procedures Utilize matching techniques that ensure 100% accuracy while minimizing false positive matches Enable the user to quickly perform their work with dashboards and workflow tools Incorporate SaaS delivery models with low cost of ownership and plug and play capabilities Please visit www.managementdynamics.com to learn more about restricted party screening and global trade management solutions. In the current economic climate, SaaS technologies will allow budgetconscious exporters to access all of the tools they need to establish a strong compliance program. Gartner, Inc. Six Best Practices to Improve Compliance with a Restricted Party Screening Solution - Page 9
About Management Dynamics Management Dynamics is setting the standard for on-demand Global Trade Management (GTM) solutions for Global 2000 importers and exporters and logistics service providers. Combining an expansive trading partner network, enterprise-class software and specialized trade content resources, we enable you to dramatically improve the performance of your global supply chain. Since 1990, Management Dynamics has been developing and delivering software and related content and services for GTM. We help our customers transform their business and gain market share by leveraging our industry and technology expertise. Our solutions are currently deployed to over 13,000 users in 70 countries and our customer base includes some of the world s leading retailers, manufacturers and logistics providers. Management Dynamics, Inc. One Meadowlands Plaza East Rutherford, NJ 07073 201.935.8588 Solutions@ManagementDynamics.com www.managementdynamics.com 2009 Management Dynamics, Inc. All rights reserved.