Alexandra Wrage, the president of TRACE an international non-profit membership association working with companies to raise their anti-bribery compliance standards recently asked Kate Cameron Atkinson of Miller & Chevalier to address the question of how companies using customs agents around the globe can minimize their risk under the Foreign Corrupt Practices Act (“FCPA”) and other applicable anti-corruption statutes. The answer, provided below, originally appeared in Ms. Wrage’s blog (https://wrageblog.wordpress.com).
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This is a perennial issue in anticorruption compliance getting lots of attention now thanks to the Vetco settlement, Panalpina and related investigations. How can companies minimize corruption risks in daily interactions with customs officials around the world? Working with our clients and their freight forwarders and brokers over the years has led us to some tried and true preventative measures companies can use to avoid trouble in this increasingly visible risk area:
Don’t Feed the Bears
This mantra I heard from an oil drilling manager in South America at the time, after a long tour in the Middle East. I haven’t heard any better way to sum up the medium and long term downside of making that first payment to speed things along, whether or not it technically qualifies under the FCPA as a facilitating payment. Once officials with a propensity for corruption know payments are available from a particular company, word will get out and they will all come looking for “a little taste of honey.”
Get It Right Before You Ship
A cardinal rule for many of our clients working in difficult customs environments. Implement controls on the outbound end of shipments, to make sure nothing appears in (or is missing from) the required paperwork, or in the shipping containers themselves, that will give an opportunistic official the opening he needs to hold up the clearance on the receiving end. This approach also makes business sense, as it reduces the likelihood of delay, additional costs, and corruption in the clearance process. The processes must be rigorous: veterans of the customs trenches can tell you that it takes just one mis-checked box to hold up millions of dollars of goods at a port. A parallel rule our clients employ is to have their brokers open the containers for review and confirmation that all is in order before attempting to clear the goods.
Anticipate Delay and Disruption
Companies working in countries in which labor strikes disrupt the ports anticipate these potential disruptions to minimize not only their potential impact on the business timelines, but the temptation to pay for speed. One client we work with incorporated preventive compliance measures in the early stages of planning a major project that would require significant imports of materials under a tight timeline. Working closely with their local brokers, the client identified alternative “Plan B” ports to which they reroute shipments to avoid strikes, which tended to be port specific, and met with officials at the port and national office level to ensure that everyone agreed how the clearance process would work. They then built extra lead time into shipment schedules, and chose to spend some additional dollars on warehousing costs, rather than face demurrage costs and delay penalties from their customer. They had many meetings with every person involved in the shipping process, start to finish, to make sure everyone understood the importance of communication and strict adherence to the process. Then, as an additional fallback, they identified their “Plan C” options to source materials locally or from within the region, should their careful planning fail. They worked to get their customer into this loop, as well as the regulating officials, to make sure everyone understood the plan.
“Know Your Partner” is a fundamental tenet of international regulatory compliance, but a significant practical challenge in the customs area. Customs clearance has been viewed as an administrative processing role, for which you hire a third party and move on. The current enforcement actions illustrate the importance of getting a little more familiar with your brokers and forwarders. First, look at your list of brokers if it’s long, shorten it to a number that your personnel in country can actually monitor effectively. If you have no personnel in country, then the list should be even shorter, since monitoring will happen from a distance. Second, in addition to your usual third party due diligence and contractual safeguards, go local. We helped a client develop a trickle-down process for the compliance expectations in their master services agreement with their freight forwarder, since we had seen that what headquarters agreed to hadn’t translated to the fellow at the port. For each country in which the freight forwarder provided services, the client’s local manager met with the forwarder’s local manager, the latter signed a certification regarding the specific compliance expectations, and also obtained signed copies from the personnel who would work on the account. They also attended training held by the company’s in-house counsel. No work could be done until these steps were completed.
Talk To Your Brokers
Finally, as with any other third party, there is no substitute for a periodic face-to-face. It reinforces the compliance message, and it is a valuable source of knowledge about your risks and ways to address them. One broker we met with as part of an assessment in Argentina explained that she knew from experience which customs officials would hold things up for a payment, and which would follow the rules. The rotation schedule for the officials was publicly available. So, she simply checked the schedule to see which official was managing which warehouse on a given day and then told her clients how to pace clearance efforts to avoid the troublesome ones. She didn’t let any of the junior people at her company venture out alone to the warehouses; they shadowed the senior folks until they knew the ropes, so they wouldn’t get into trouble.
For more information, please contact:
Kate Cameron Atkinson, firstname.lastname@example.org, 202-626-5957