Understanding trade compliance is essential for businesses to navigate international regulations, minimize risks of penalties, and ensure smooth cross-border transactions.
The concepts of trade compliance are components of an organization’s overall regulatory compliance system. Trade compliance processes involve identifying, understanding, and applying trade-related laws and regulations.
Trade compliance means the identification, understanding, and application of trade-related laws and regulatory requirements that apply to an organization. Regulatory authorities issue frameworks, guidelines, instructions, circulars, notices, directives, etc., to help organizations involved in trade transactions to apply the required processes and controls to minimize the risk of violations, penalties, and other legal issues related to international trade and to ensure that, inter alia, money laundering, terrorist financing, and other risks are controlled.
For example, a company involved in trade has to ensure that its import and export activities comply with all relevant laws, regulations, and other policies applicable to a transaction. Depending on changing variables like different nationalities of importers and exporters, currencies, domestic and international taxation, etc. trade compliance may differ for each trade transaction.
Understanding Trade Compliance
Challenges of Trade Compliance
As trade compliance can be quite complex and every employee of the organization has the responsibility to comply, they must identify and understand the relevant and applicable trade-related regulatory requirements.
The management needs to hire an experienced and relevant Trade Compliance Officer, who may be designated as a Trade-Based Money Laundering Reporting Officer, or TBMLRO, to facilitate the employees in compliance with trade-related regulatory requirements.
TBMLRO provides advisory services to the employees involved in processing trade transactions on behalf of the organization’s customers. TBMLRO must be knowledgeable and understand the regulatory requirements.
They must be aware of different regulations for different trading sectors like, inter alia, varying export and import controls, multiple governing bodies and missing harmonization within different trading nations as well as regulations changing rapidly and in some cases with little warning.
Trade-Related Compliance Requirements
The following are some of the trade-related compliance requirements that are required as trade compliance controls to be implemented by organizations that onboard and provide trade services to customers:
Screening procedure of customers for trade transactions.
Procedure for identifying and monitoring trade transactions with a related party.
Procedure for complete risk profiling of customers in or intending to deal in trade.
Procedure for developing the organization’s risk profile.
Procedure for verifying underlying contracts’ prices related to importing or exporting goods or services.
Procedure for handling unclear, coded, or worded descriptions in a language other than English.
Screening procedure of goods being traded as per relevant Trade Policy.
Procedure for Identification of dual use of goods such as:
Import or export licensing requirement
Identification of end usage and end user.
Focus on counterparties.
Goods screening from UNSC Resolutions.
Final Thoughts
Trade compliance, an integral part of an organization’s regulatory system, emphasizes the imperative understanding and application of trade-related regulations and laws. This complex domain, influenced by dynamic factors like diverse trading nations and changing international taxations, necessitates robust procedures for customer screening, risk profiling, and transaction monitoring.
With trade-related laws altering frequently and sometimes abruptly, it is paramount for organizations to employ proficient Trade Compliance Officers, potentially designated as TBMLROs. Their expertise aids in navigating the multifaceted maze of regulatory requirements from varied governing bodies, ensuring that trade transactions not only adhere to laws but also minimize risks associated with legal violations, including those concerning money laundering and terrorist financing. As trade expands globally, its regulatory framework’s intricacy grows, underscoring the need for robust, adaptable compliance mechanisms within organizations.
