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Internal Controls Key to Avoiding Stressful Trade Compliance Pitfalls

Posted October 17, 2014

The recent Federal Court of Appeals decision in US vs. Trek Leather, finding the president of the company criminally liable for gross negligence, has caused some to worry that it could have the effect of holding trade compliance professionals liable for acts of a corporate importer of record. One of them is international trade attorney Susan Kohn Ross, who has written an insightful article in The Journal of Commerce highlighting the troublesome dilemmas facing individuals trying to navigate a virtuous path through some of the treacherous moral hazards involved when things go wrong.

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The conundrum faced by all employees, but in particular by those dealing with compliance, “is what to do when you think something isn’t being done properly,” says Ross.

Opinion seems to be divided on whether documenting problematic compliance situations is an entirely advantageous CYA approach for the dutiful compliance person in situations where internal controls are seen to be failing, as too is the specific level and extent to which problems should be detailed. Ross considers some of the various difficulties associated with raising awareness of non-compliant practices in both closely held and larger companies, including the sort of pitfalls to be expected when possibly running into opposition from the conflicting priorities of others in corporate management.

If the company is large enough, there are other avenues to pursue, including legal and human resources. Eventually, you have to hope to find the right person to take your concerns to the CEO, unless you’re daring enough to do it yourself and have the needed access. What if the CEO does nothing? Does your view of options change if the controller is the CEO’s daughter-in-law?

According to Ross, the plight of the compliance professional dealing with systemic malpractice is very much a highly stressful, no-win situation in many respects, one that often requires having to confront the harsh possibility of being out of a job, whether voluntarily or otherwise.  In the end, however, Ross advocates the most obvious solution; namely, avoiding such perils from the outset by “having proper internal controls, which are correctly documented and truly followed. “

People not currently working in a company that has invested in the creation and effective implementation of serious internal controls because they see the integral value of being compliant should consider why they haven’t left already, Ross suggests, and perhaps even wonder about their own complicity and the extent to which they might be held liable by authorities in the event of an enforcement action against their employer.