Analyst Insight: In the midst of increasing geopolitical conflict, more severe Customs and Border Protection (CBP) enforcement, and an intensifying focus on environmental, social and corporate governance (ESG), trade compliance has been thrust into the spotlight. It becomes increasingly important to master internal governance and multi-stakeholder collaboration, to build a compliance strategy that mitigates regulatory, reputational and resiliency risk.  

Regulators and policy makers are recognizing that the only way to compel organizations to conduct the appropriate level of due diligence on import and export supply chains is to put real teeth behind the regulations. As a result, CBP enforcements are going to be increasingly severe moving forward, with greater penalties and repercussions.

For example, CBP enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) is novel — and costly for non-compliant companies — in its approach. CBP automatically holds shipments originating from the Xinjiang Uyghur Autonomous Region of China, placing the burden on importers to prove that the goods are free from forced labor. 

To avoid the severe penalties or withheld goods that accompany new regulatory instruments, companies must be prepared to answer detailed questions about their supply chains. While importers might instinctively want to throw technology at their supply chain transparency problem, the first step is not a digital one. 

On the contrary, the initial challenge that so many organizations face is a practical one, centering on the structural and capacity issues of internal governance and multi-stakeholder collaboration. 

Who is responsible for acquiring the supplier data needed to answer regulatory questions? Where does the data live within the organization? How does a company successfully bring together the different disciplines, expertise and systems, such as procurement, legal, IT, trade compliance, warehouse and inventory management? 

The first step to building a modern compliance program is to identify capacity, and find the constituents within the organization who have the necessary perspective and capabilities. Second, executive sponsorship, whether it be someone like a chief legal officer or chief compliance officer, is a prerequisite for establishing a common language, lens and framework to help break down discipline silos and facilitate productive collaboration.  

A three-dimensional risk approach is critical for executing a holistic compliance program that delivers cost benefits and strategic value within the evolving regulatory landscape. 

• Regulatory: ­Protecting the organization from global trade compliance risks to avoid fines, penalties, and withheld shipments. 
• Reputational: Protecting the organization’s reputation and image. Is the supplier or country associated with forced labor, environmental degradation, or political corruption? Are its actions aligned with the values of the organization and the commitments made to staff and stakeholders?
• Resilience: Ensuring a resilient relationship with a supplier. Will this relationship stand the test of time? While the supplier may meet standard due diligence, is it vulnerable to, for example, climate change disruptions or geopolitical instability that could impact the ability to meet obligations long-term? 

Outlook: As trade compliance regulations become more complex and nuanced, this is a pivotal moment for global organizations to build a more holistic framework of compliance risk mitigation. Early discussions and collaboration efforts will inevitably be bumpy. But a sustainable commitment at the governance level, with the appropriate level of executive sponsorship, will yield opportunities of better internal visibility and external transparency, all while mitigating regulatory, reputational and business resilience risks for the organization.  

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