Importers Now Must Go Beyond Just Reasonable Care, Risk Management Provider Says

"We're observing a shift from a stance of reasonable care to what might be called predictive due diligence, or at least proactive due diligence," Sayari's Colby Potter said during a Jan. 8 webinar on transshipping. "That means there's more expectation, I think, to conduct more thorough work in order to prepare for compliance."

Predictive due diligence means initiating and maintaining a number of activities to ensure import compliance, according to Potter. These activities include conducting a comprehensive audit and upgrade of trade compliance and supply chain programs, internally reassessing how an importer might make country of origin determinations, and determining how an importer makes decisions on Harmonized Tariff Schedule code classifications and valuations, he said.

To get started on these activities, companies must make sure they have an ACE account with CBP, Potter said. They also should develop an internal standards of procedure document to help the company respond to inquiries from regulators, as well as develop a system to track external legislative and regulatory developments via changes to the HTS and new notices in the Federal Register and through CBP's CSMS messages.

"That all just helps better understand enforcement priorities and trends," Potter said. "And not to sound like a broken record, but securing a specialized supply chain risk insight solution helps to move beyond surface-level determination -- surface-level documentation -- that also makes both screening and continuous monitoring easier, more standardized and more scalable, ultimately."

Companies also should screen their supply chains against not only published lists of high-risk countries and facilities, but also facilities that may be connected somehow to these high-risk entities, Potter said during the webinar's question-and-answer session. During the webinar, Potter had used examples of how companies comply with the Uyghur Forced Labor Prevention Act to demonstrate how companies might bolster their import compliance regimes.

"While the official high-risk facility list will be essential when they're released, they would only serve as a starting point. We've seen this every time compliance centers on some kind of restricted parties list," such as the UFLPA Entity List, the Bureau of Industry and Security entity list or sanctions lists, Potter said. "Companies can't rest on their laurels and screen just against those lists alone. They consistently have been required to go beyond to proactively identify related entities that share owners, operators, [or] locations with listed parties."

For transshipment, that means not only having supply chain visibility but also visibility into a company's broader networks, including networks that might be exposed to restricted regions, Potter continued.

"By implementing a solution that can bulk screen critical suppliers for things that might suggest obfuscation or other questionable activity, we can better detect risky partners before they appear on formal government watch lists," Potter said. Proactive vigilance also will involve monitoring entities that were recently registered or are co-located with non-violators, as these can sometimes signal newly formed shell companies intended for illegal transshipment, he said.

While ACE data is a vital and critical resource, importers should consider using companies that cull trade data from other sources, Potter said. This additional data can help importers make decisions about suppliers, and the companies can provide importers with visibility into the broader trade network. For example, the data can be used to detect patterns such as whether a supplier shares a physical address with a sanctioned entity, he said.

"It can be so difficult to distinguish standard legal transshipment from illicit transshipment, because both versions, legal and illegal, may use the same physical transit points, let's say Malaysia or Korea. So, detection requires sophisticated monitoring of commercial relationships and risks that aren't going to appear on a standard bill of lading," Potter said. Import compliance professionals should monitor transshipment points in their supply chains for a range of risk indicators, including the absence of substantial transformation, he said.