Trade compliance and export essentials are critical components for businesses engaging in international transactions. Navigating the intricate web of global regulations, these essentials ensure that companies operate within legal boundaries, avoiding potential fines or disruptions.
Moreover, a solid grasp of these principles promotes transparency, enhances trust between trading partners, and optimizes the flow of goods across borders. Thus, businesses must prioritize understanding and adhering to these guidelines to ensure smooth and lawful operations in the global marketplace.
Trading activities, including imports and exports, involve financial institutions as intermediaries to facilitate the importers and exporters.
Export transactions involve a letter of credit or L/C opened by the importer, documentary collection, advance payment import-export, export invoice discounting, financing for trade transactions, bank guarantee, packing credit, etc.
Exporters must ensure that they will trade only with legitimate importers, import houses, or companies, which is necessary to avoid the risk of providing goods or services to criminals, including money launderers. In addition to the export documentation, the exporters need to prove the legitimacy of the transactions and trade parties involved in performing an export activity and transactions.
The exporter or export company contacts the local bank and presents the relevant information and documentation, including the goods to be exported to the importer. The banks do not facilitate the exporters without complete export-related documentation or information. The exporter or export company maintains the following documents, although these may vary from country to country.
Trade Compliance and Export Essentials
Overview of the Most Important Export Documents
Export documents are the paperwork required for the export of goods. The purpose of export documentation is to provide information about the goods being exported, the parties involved, and the terms of the sale.
Commercial Invoice: It is issued by the exporter for the importer and includes a clear description of the goods as well as the value of the goods.
Pro forma Invoice: It is a preliminary document that outlines the terms of order. It gives the buyer a clear understanding of the terms of sale (it is not the same as a commercial invoice).
Packing List: The packing list provides details of the shipment like packages, weight and quantity, marks and numbers.
Export Licenses: They are issued by government bodies allowing registered companies or individuals to legally ship goods that are otherwise restricted.
Certificate of Origin: This certificate states where a product was produced, manufactured or processed.
Transportation Documents (Air Waybill, Bill of Landing): These documents outline the key details about the shipment such as the number of items, goods description and weight.
Overview of Export Documentation and Exporter CDD/KYC
Declaration: Exporters need to declare the goods to be exported to the relevant regulatory authorities, bank or other involved institutions, in the prescribed manner, as banks do not facilitate exports without complete export-related documentation or information. Exporters must declare that the exports’ payments shall be received through banks or authorized dealers.
Authorized Dealers: The declaration of goods may require certification by banks or other authorized dealers. They usually certify that exporters are known to them, that they are bona fide business persons in the country and have made arrangements with the bank or authorized dealer for the realization of the transaction. Financial institutions conduct due diligence on exporters by following a risk-based approach.
When onboarding an export customer, banks capture the relevant information about the trade-related activities of the customer and incorporate it in the exporter’s Risk Profile, giving due weightage to risks involved, including money laundering and terrorist financing, or ML/TF risks.
E-commerce Companies and Export
E-commerce companies buy and sell goods and services over the internet. When they are involved in the exports of goods they are also required to declare their goods, which are exported. They also need to ensure that payments are processed through banks or authorized dealers, considering applicable laws and regulations.
Broader Requirements that Banks or Authorized Dealers are required to ensure before processing Export Transactions
Banks or authorized dealers must also show their satisfaction with the export arrangements, including the importers or consignees abroad and their credentials etc.
Some of the broader requirements, which banks or authorized dealers are required to ensure before processing export transactions, include that:
Arrangements are made to realize the export proceeds of the goods covered by the respective export transaction
Arrangements are made for the receipt of documents of title to goods or other title documents of cargo like Bill of Lading, Airway Bill etc.
Genuineness and verification of the charter party where the shipment is to be made against a charter party Bill of Lading
Exporter Costumer Due Diligence and Know Your Costumer
The exporter has to comply with regulations related to customer due diligence (CDD) and know your customer (KYC). This involves verifying the identity of the customer and ensuring that they are not involved in illegal activities such as money laundering or terrorism financing.
To comply with CDD/KYC regulations, exporters must collect and verify information about their customers, such as their name, address, and business activities. They may also need to obtain supporting documents such as business licenses and certificates of incorporation.
Final Thoughts
The intricate process of international trading, encompassing imports and exports, demands the involvement of financial institutions as intermediaries, ensuring secure and smooth transactions between parties. Paramount to this mechanism are export documents, which serve as essential verifications of the goods in transit, the involved parties, and the agreed-upon terms. These range from commercial invoices detailing the nature of goods to export licenses authorized by governing bodies.
In addition to these, exporters are mandated to conduct due diligence through customer due diligence (CDD) and know your customer (KYC) processes, both pivotal in ascertaining the legitimacy of their counterparts and in thwarting illegal activities, including money laundering and terrorist financing. With the advent of E-commerce, digital trade platforms also find themselves subjected to these stringent regulations, further underscoring the universal importance of these measures in fostering a transparent and secure global trading environment.
