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Export Logistics - FCPA enforcement and compliance

Ed Marsh | Apr 20, 2012
This post was contributed by Michael Volkov of LeClairRyan and first appeared on Volkov's Corruption, Crime & Compliance Blog (regarding FCPA compliance and current reform initiatives)

Companies often focus on transactional details of early export - including logistics and customs challenges.  But they may fail to anticipate how susceptible these areas are to FCPA challenges and corruption.  What's a company to do in order to avoid FCPA enforcement hassles?

Navigating the Corruption Risks of Foreign Customs Clearance

If you look closely at the list of FCPA enforcement actions, a large percentage of FCPA violations have focused on illegal payments made to secure customs clearance.  This is not surprising.  The equities facing a company can be very risky – customs clearance is a bottleneck critical to the company; and foreign customs officials know that they have leverage to extract illegal payments from a company or a company’s agent.

Companies usually rely on a customs clearance company or a third-party agent to assist them in this process.  This makes sense because it is onerous to navigate the local laws, regulations and practices used in various countries.  Companies need to make sure that the customs clearance company or third-party agent is subject to a thorough due diligence review.  Once approved, monitoring is a must and it is critical to respond to any potential red flags or suspicions is critical.

In establishing this relationship, the billing and documentation must be detailed and specific to each transaction.  Even if there are a large number of deliveries, there must be a detailed accounting of each payment made by the customs clearance company or the third party agent.  Without detailed billing information, it is impossible to monitor the customs clearance company or third party agent, and prevent the reimbursement of an illegal payment.

One of the more difficult issues in this area is the application of the FCPA’s “facilitation payment” exception which authorizes a payment to foreign government officials for non-discretionary (“routine”) decisions in the customs clearance process.  The line between proper and improper facilitation payments is difficult.  The risks are even more complicated by the fact that the customs clearance company or the third party agent may be faced with a decision to pay such an expediting fee which may be ratified by reimbursement of the fee.

As an example, if a shipment is delayed at a border because of a minor paperwork error, would the payment of an expediting fee to the customs official to clear the shipment despite the error be considered a nondiscretionary action or a discretionary action outside the facilitation payment exception?

It is also difficult to rely on the facilitation payment exception because of the fact that such payments are now prohibited by the UK Bribery Act and other foreign countries.  The global anti-corruption trend is to prohibit such payments because of the risk for misconduct that they create.

How should a company respond to these risks?
  1. Ensure that all customs paperwork is prepared correctly and in conformance with local law and regulations for the destination.  The risk of bribes increases when a company’s shipment is delayed or seized at the foreign country’s border.  If the paperwork is correct in every detail, the risk of such a delay or seizure is reduced.
  2. Select a customs clearance company or third party agent which has robust anti-corruption compliance procedures.  The due diligence process for selecting a vendor to assist in customs clearance should be comprehensive.  If the vendor has a good compliance program and operates in a number of countries or regions in the world, it would be a good idea to use this company for customs services in a number of countries.
  3. Communicate your company’s compliance expectations to the customs clearance company or third-party agent.
  4. Review in detail all customs clearance invoices and demand detail on each payment.  It is important to avoid ambiguous terms for payments which may cloak illegal bribes.  This may require modification of the accounts payable process to conduct a detailed review of every invoice.  If a red flag is identified, the reviewer must respond and elevate the issue for resolution.

Ready to take the simple and prudent steps required to create the building blocks required for a comprehensive compliance program?  Tired of worrying about your exposure to FCPA enforcement actions?


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Original version is located here - http://corruptioncrimecompliance.com/2012/04/navigating-the-corruption-risks-of-foreign-customs-clearance.html

Michael Volkov FCPA compliance expertMichael Volkov is a former federal prosecutor with almost 30 years’ experience in a variety of government positions and private practice. Michael’s practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters.

Michael has experience in the Foreign Corrupt Practices Act, compliance counseling, special committee representations, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and other regulatory enforcement issues.