Trade Compliance in the Organization

Who should Trade Compliance report to?

A question that gets asked quite often is to whom the international trade compliance function should report to and where should the office be located? There are many departments within any given company and trade compliance officers have to deal with multiple departments in order to ensure the company stays trade compliant. The compliance team’s formal relationship with other functions and their position in both the informal and formal organizational structure become very important when dealing with complex situations where multiple stakeholders have different priorities.

Hence the question of to whom they should report to? Sales? Accounting? Legal? Supply Chain? Shipping? Let’s see if we can find a suitable answer.

First of all, a company is already doing one thing right by having an international trade compliance officer or department and in day to day operations, it does not really matter which department the compliance team sits in or reports to. The first priority is that they are empowered to properly do their job.

Many companies that have had a trade compliance team for a long time know that there are certain areas within an organization where such a team can perform to the best of its abilities. They also know that is almost impossible to have a trade compliance team that operates in silo and still be successful. Trade compliance is about constant communication between multiple departments and it is sometimes the case that the trade compliance responsibility is carefully divided between multiple departments so that they can work independently to some extent in order to ensure the smooth running of the company.

Logistics / Supply chain

This department carries out direct interactions with Customs authorities. It, therefore, manages most of the logistics operations of the company. Placing a trade compliance team in this department makes sense to most companies because handling Customs and preparing shipment documentation is a major part of trade compliance. By being placed here, the compliance team can respond quickly to any shipment issues as and when they arise.

Problems in the above case arises when the logistics department tries its best to speed up shipments but is stopped or hindered by the trade compliance team due to compliance issues. This can be a serious and common issue for companies so it is vital that they sit together and come up with ways that avoid conflict and makes the process easier and smoother.

Sales and Customer Service

Sometimes, the compliance team can be located in the sales and customer service department. The biggest advantage of this is that it offers the sales team great insight into how the end-user receives the product and any potential issues that may arise later can be addressed at an early stage. This can save a lot of money that would otherwise have been spent on solving compliance issues, leading to better profits overall.

The biggest problem that can arise here is the same as previously mentioned – conflict. Sales teams can have short term goals that they driven to achieve. Their approach to these goals can sometimes ignore compliance matters. Any company where the sales team has a longer-term target can work fine with the compliance team. However, short term targets are potential problems.

It is important for the company to train non compliance functions appropriately, for example within certain sections of the sales team, so that any conflicts arising can be mitigated as soon as possible.

Product Management, Inventory Management, Purchasing

Some people are of the opinion that placing the trade compliance right at the start of the supply chain gives them the best chance to positively influence trade compliance. Since the purchasing department usually has advance knowledge of new products that the company will order, knowing the details of these products at an early stage greatly helps the compliance department. However, the purchasing department also strives to minimize costs and duties, so the potential for conflict is still there.

Another problem for companies is that their export and import offices within departments are often separated from logistics which makes it hard for them to ensure compliant import/export operations. This, in turn, means that in emergency cases, these offices may have limited time to react, resulting in compliance issues for the company.

Accounting Department

The accounting department has a lot of control over the operations of the company because that is usually where new customers and vendors get approved. They not only approve new vendors but also regulate the purchases, sales, and similar operations. Having a trade compliance officer monitoring all this at this stage can be really beneficial for the company.

It is also true that the accounting department holds alot of influence over decisions made in a company. But this can also be a problem as accounting people may not have an idea of supply chain requirements and therefore may not be able to consider compliance. That is why a trade compliance office in the department can really complement their overall work.

Regulatory Compliance or Legal Department

The legal department has to deal with problems when non-compliance issues arise. Compliance officers usually always need to consult the legal department to ensure their intended methods are both legal and effective. That is why having a compliance officer close to the legal department is an important part of every company and can be a good place for the compliance team to sit in.

Independent Trade Compliance Office

To meet all the trade compliance requirements, some companies opt to make an organizational structure where the trade compliance function sits independently. These structures are liable for taking care of trade compliance associated with operations, purchasing, finance, and legal issues. Such a structure may be ideal in theory but there is a tendency for the team to stay disconnected from the main stakeholders dealing with compliance issues at the operational level.

Centralized Vs. Decentralized Supply Chain

The location of trade compliance offices is widely dependent upon the structure of the organization. Some companies work under one central command, whereas companies having many different businesses have different organizational structures. These organizations are sometimes independent of the central team and are empowered to make most decisions on their own. However it is also possible that the central team maintains a tight control of the local or regional compliance teams.

Generally, trade compliance is a function that works well under central control or guidance. Such a structure ensures that compliance policies are operationalized across the company in a structured and uniform way.

It is generally difficult for the trade compliance office to work effectively when there is decentralized control arising due to complex structure and diversity in command and process. Hence, some companies have invented new hybrid methods that vary the level of corporate influence.

What is the Centralized Compliance Model?

Centralized compliance teams are empowered with control over the following:

• To implement a specific regulation for corporate compliance.
• Setting minimum standards relating to areas like (1) record-keeping,( 2) product screening, (3) product classification,( 4) valuation, and (5) screening parties.
• Writing guidelines for import-export operations.
• Establishing and managing relations with third parties like brokers, vendors, etc.
• Ensuring training for building corporate skills.
• Spreading news about any reforms or changes in regulations
• Playing a vital role during any communication with legal bodies.
• Availing supporting management services.
• Performing audits to ensure trade compliance requirements are being followed.

In a centralized model, every region or country will have a compliance resource dedicated to managing the following:

• HS Classification
• Managing reports according to business policies
• Maintaining a compliance manual
• Assistance over compliance-related problems
• Managing & controlling daily shipments
• Changing methods as per deviation in supply chain

The Challenges of the Decentralized Compliance Model

Trade compliance offices under a decentralized control have to generally work harder to achieve their goals by:

• Frequently calling meetings for resolving coming problems
• Maintaining strong communication channels with subsidiary offices
• Always needing to a discuss and align actions multi functional teams
• Conducting Audits of subsidiary organizations

Trade compliance of decentralized companies will face the problem of un-equal focus on international trade across different regions, as one part of the organization may be a distribution centre with a lot of import-export activities, while another part of the organization may do only a small amount of cross border trade.

Acknowledging Trade-Offs

Trade-offs are inevitable in either a centralized or decentralized trade compliance model. These trades-offs also play a crucial role in determining the placement of trade compliance offices inside organizations.