Consultant: Exporters Increasingly Being Held Accountable by Business Partners

Lakova said at the EU’s Export Control Forum in Brussels last week that questions from financial institutions and forwarders are “happening more and more.” Those shipping and banking providers are looking to be assured that any exporters they deal with have thorough compliance programs in place, she said, which can help minimize their own liability under export control laws.

Although banks and logistics companies are also responsible for complying with export controls, they don’t “necessarily have the [same] visibility on the products as the exporters themselves or as the producers,” Lakova said. “So they have the responsibility, but they also need to kind of shift that liability as much as possible to the exporters who have the visibility of the product,” which can include requiring exporters to sign export compliance certifications.

“So they will put these clauses in your contracts, and then if they get in trouble, they can sue you,” she said.

Lakova said this is part of a broader trend in which exporters are increasingly being held liable for export compliance by their business partners instead of only government enforcement agencies. Along with logistics companies, suppliers are also asking exporters probing questions about where their products are going, and customers are asking for more detailed information about exactly what's in the product. Some customers and suppliers are even adding “small print” in their contract terms and conditions allowing them to visit and audit the exporter.

“I think executives will care if you tell them my biggest customer can come and audit me,” Lakova said. “If you're not afraid of the authorities that much, be afraid of your biggest customers.”

Other companies, especially larger ones, are also increasingly being held accountable for export controls by their investors, she said. During public earnings calls, Lakova noted, investors are commonly asking for information that may indirectly shed light on the company’s export compliance efforts, such as whether new trade restrictions could lead to a dip in profits or shipping delays. “What your executives are answering to these questions makes them liable in front of the investors.”

Lakova said she often gives these examples to companies to stress the importance of export compliance to senior executives. Lower-level compliance officials are constantly faced with “fire after fire after fire,” and more resources and attention from senior management would help them.

“When I speak to the executives, what they're telling me is like, ‘Oh, but we don't ship anymore directly to Russia. So I don't want to know anymore about export controls. We have solved that. We have solved that problem,’” Lakova said. “And they mean well. They don't really want to intentionally disregard those regulations. They just don't see them as something that is structural, as something that is there to stay. Because in their mind, it is crisis after crisis as well.”

Export compliance departments, which consist of just one or two people in some companies, are “pushing and pushing and pushing” for more resources, but Lakova said it’s challenging for them to prove why they need more help, especially if their company has never come under scrutiny for an export violation.

“It's very difficult to show the value of something that did not happen. It's like proving to somebody that you didn't receive a package,” she said. “It's like, nobody went to jail this year, so we won.”