Managing Trade Compliance risk in Global Trade TEID, Ethics and Reputation Society Hidiv Kasrı, Istanbul, February 20, 2018
Agenda for our discussion 1. What is Trade Compliance? 2. Understanding the risk! 3. How are Sanctions enforced? 4. Why are we concerned? 5. Current updates 6. How do we manage the risk? 7. Trade Compliance at Kühne+Nagel
Important Announcement Caution Discussion held in this forums should not be considered as professional or qualified advise. Participants are requested to seek professional support when required from qualified practitioners. 4
What is Trade Compliance?
International trade Complex chain of process with Domino effect 1 2 3 4 Pre-shipment Origin Post-shipment Destination Supply chain planning Packaging Contract & LC Incoterms Export Licence Logistics supplier Export documentation Quality control HS Classification Customs Clearance Customs Inspections VAT refund Original Documents Pre-Advice to customer Payment Import Licence Valuation Free Trade Agreement Rules of Origin Duty & Taxes Customs Clearance Delivery 6
Trade Compliance Complex web of regulations applies to goods in International trade Customs Compliance HS Code classification Customs valuation Transit & transshipment procedures Rules of Origin Tariff and Non Tariff barrier Anti dumping duties Safe guard duties Sanitary and phytosanitary measures Free & Preferential Trade Agreements Export Controls Dual use goods Arms & Ammunition Sensitive goods and materials High tech goods Sanctions, Boycott, Embargo Iran, Syria, Russia, North Korea Sanctions Israel Boycott & Qatar Boycott UN Sanctions list Specially designated persons list 7
Understanding the risk
Important Announcement Caution Sanctions, Embargoes and Boycott are used as foreign policy tools and it is acceptable to not agree with the objectives, reasons and principles behind their usage. The objective of this forum is to understand the risks in global trade resulting from Sanctions, Embargoes, and Boycott and exchange ideas to manage the risk. 9
Generally imposed by developed nations 10
Understanding Sanctions Can be explained in various ways, easily defined as Sanctions defined Deliberate government inspired withdrawal Or Threat of withdrawal of customary trade, financial relationship or seizure of assets 11 Sanctions defined Economic tool to force a change in foreign policy of a target country Or To bring about a general change in its behaviour
Understanding Sanctions History of Sanctions Old history: first known example is in 432 BC, when Athens sought to choke the economy of the city-state of Megara by excluding its merchants from Athenian controlled territories Back then sanctions contributed to war (in that case, the Peloponnesian War) rather than averting hostility Recent history: South Africa ( Success) Burma ( Success, time will tell the complete story) Iran ( Partial success) Sudan ( Partial success) North Korea ( Failure) Syria ( Failure) Cuba ( Failure) 12
Understanding Sanctions Stated objectives Human Rights ( Myanmar) Counterterrorism (ISIS / Al Qaida) Regime change (Syria) Non proliferation (Iran / North Korea) Conflict resolution ( Crimea / DRC) Cybersecurity (Russia) 13
Geopolitical Risk 14
Understanding Sanctions Embargo vs Sanctions Embargo Sanctions Full or complete import prohibition. No good is allowed to be imported from the embargoed country. Also called an absolute embargo. Example: The US has an import embargo against Cuba and Syria. No good can be imported from Cuba or Syria. Restrictions on dealings with countries, persons or entities & prohibition of certain types of goods. Also called an partial embargo. Example: The EU has an import / export sanction against North Korea for arms and related material and for items that can contribute to North Korea s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programs. 15
Understanding Sanctions Types of Sanctions Comprehensive List based Similar to complete Embargo Blocks all trade with sanctioned countries. unless licensed Iran Syria North Korea Cuba Prohibits from engaging in activities with persons and entities who are listed on Specially Designated Nationals and Blocked Persons list, unless licensed Iraq DRC Lebanon Sudan 16
How are Sanctions enforced?
How are Sanctions enforced? Charter of the United Nations CHAPTER VII, Article 41 The Security Council may decide on measures, not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations Despite inflicting intended human distress, sanctions are often justified as a more ethical alternative to war. 18
How are Sanctions enforced? Who enforces these regulations? UN Security Council EU External Action HM Treasury UK DFAT, Australia METI, Japan MAS, Singapore BIS, USA OFAC, USA DOJ, USA 19
Why are we concerned?
Why are we concerned Largest fines in recent years 21
Why are we concerned ZTE case, Chinese company MARCH 7, 2017 22
Why are we concerned Power of U.S. Dollar in capturing non US activities Seller Buyer Seller s bank Buyer s bank 23
Why are we concerned Banks may not support! 24
Why are we concerned Authorities check End-Use and End-User 25
Why are we concerned Industries most affected Aerospace Pharma & Life sciences Energy (oil and gas) Defence Chemical Semiconductor & Electronics Mining Nuclear 26
Why are we concerned What are the possible consequences? 27 Immediate loss of customers if the violator is added to the very public restricted / blocked party list Inability to participate in RFPs/RFIs/RFQs De-risking / Blockage by banks Potential irreparable harm to a company s reputation Being designated as a blocked or restricted party would immediately result in Freezing of the funds or assets owned, held, or controlled by violator Denying the violator export or import licenses and privileges Denying or revoking the violator immigration privileges e.g. revoking visas and excluding the violator s employees from the country Fines and/or imprisonment
Current updates
Current updates Sanctioned countries and applicable restrictions Country Currency Restrictions US Flag Restrictions Military Shipment Restrictions Commodity Restrictions Iran Yes Yes Yes Yes Sudan* Limited Limited Limited Limited Syria Yes Yes Yes Limited Crimea (Russia) Yes Yes Yes Yes Cuba Yes Yes Yes Limited North Korea Yes Yes Yes Yes *Most sanctions on Sudan have been lifted in October 2017 29
Current updates Iran Qatar Sudan 30
Current updates Iran Sanctions Iran and P5 + 1 countries nuclear agreement in 2015, also called JCPOA 31
Current updates Iran Sanctions history Pre 2012 Iran announces nuclear ambition Iran declares its legitimate right to peaceful nuclear energy UNSC raises concerns on the intentions of Iranian nuclear ambitions 2012 to 2015 Crippling sanctions imposed by UN USA EU Switzerland Japan Brought Iran to the negotiating table Post 16 th Jan 2016 Iran Implements JCPOA agreed with P5 + 1 UN, EU and most other countries lift sanctions USA lifts only nuclear related sanctions JCPOA has snap back provision JCPOA in force till 2025 32
Current updates Iran Primary sanctions still in place No US Dollars No USA Banks No USA Flag No Dual Use / Military Goods No USA Origin Goods No USA Citizen / Entity EU sanctions list SDN list No Iran Origin goods to USA 33
Current updates Iran: Significant changes in EU & UN sanctions Cargo flights IR EU Most Transport sector Sanctions lifted Crude oil and Petroleum products Insurance Export Credit Bank Guarantees Financial support for trade Transfers of funds EU IR IRISL Sanctions lifted Export key equipment & technology Oil, Gas and Petrochemic al sectors 34
Current updates Iran: Ultimate Beneficial Owner 35
Current updates Iran Qatar Sudan 36
Current updates Qatar Boycott current status 1. Saudi Arabia 2. United Arab Emirates 3. Bahrain 4. Egypt 5. Maldives 6. Yemen 7. Mauritania 8. Senegal 9. Comoros 10. Libya 11. Somaliland 37
Current updates Qatar boycott Implementation Saudi Arabia Egypt Bahrain UAE Cargo to/ from Qatar Qatar flagged vessels Qatar owned vessel Qatari port last / next call Transiting Qatari waters 38
Current updates Iran Qatar Sudan 39
Current updates Sudan Sanctions Background Comprehensive sanctions imposed on Sudan in 1997 Embargo on all US origin goods US Dollar could not be used UN and EU sanctions we also in place Recent action President Trump has permanently lifted most sanctions Sudan still on the State sponsor of terror list There are parties on SDN list and list based sanctions continues. Future Business with Sudan is possible Check with banks beforehand, and avoid US Dollars US origin goods US banks Avoid parties linked to Sudanese Government, if possible 40
Current updates North Korea sanctions Complete embargo on North Korea, crisis on going. 41
How do we manage the risk?
How do we manage the risk? Identifying red-flags Knowing your products well is important The End Use of the product The End User of the product Whether the end user is controlled by an sanctioned entity. Whether is product is subjected to Export Control regulations both Turkish and Foreign Are any of the goods dual-use Are there any license required to export Are the goods restricted / licensed in the destination country Does the product contain components of foreign origin ( US or EU origin) Ultimate consignee address 43
How do we manage the risk? In practice Trade Compliance Risk-Assessment Due diligence on your third parties Negotiating Trade Compliance clauses while contracting Company wide policies, procedures and check-list Train employees on policies, procedures and check-list Periodic monitoring and audits Restricted party screening mandatory for all third parties Insurance coverage must be checked, if not covered under insurance, liability must be limited through contract clause Recusal policy for US Citizens / Residents, if employed. Stay updated on the latest developments and keep stakeholders informed Avoid nexus with US 44
How do we manage the risk? Why restricted party screening? Screening is a risk management process that prevents you organisation from engaging in activities with prohibited and restricted entities Restricted Party Lists change everyday Legal prohibitions apply differently depending on facts of a specific transaction Legal prohibitions differ for each list Remember it isn t just the law its Reputation! 45
How do we manage the risk? Who to screen Almost Everyone Clients, Suppliers, Contractors & Business Partners Contracted Employees, Potential New Employees End user, if known All parties to the supply chain Banks, Freight Forwarders, Agents, Distributors, Re-sellers, etc. 46
Trade Control @ Kuehne + Nagel
Trade Control at Kuehne + Nagel Program Implementation 48
Trade Control at Kuehne + Nagel Focus Areas Risk assessment Identifying risk Steps for managing risks Training & communication Workshops E-learnings Supporting stakeholders Subject matter expertise Engaging with customers Restricted party screening Automated screening Managing exceptions Procedures & work instructions Self-assessment Reporting Record keeping Complying with local regulation Minimum 5 years 49
Trade Control at Kuehne + Nagel Trade Compliance Manager, Pivot of Trade Compliance program 50
Thank you
hank ou Kuehne + Nagel 45 th Floor, Burj Al Salam Building Dubai U.A.E Telephone +971-42109748 www.kuehne-nagel.com Santosh Iyer Trade Control Telephone +971-543065783 santosh.iyer@kuehne-nagel.com