If you have visited Niagara Falls, you might have noticed a warning sign on a pedestrian walkway just before the Welland River empties into the Niagara. The sign is for boaters and reads: "Do you have an anchor? ... Do you know how to use it?"
Similar questions could be asked of businesses with import or export operations: “Do you have a compliance program? And do you know how to use it?" The latter question is much more complex, and you could be thinking, “Why do I need a trade compliance program?” A recent enforcement action provides at least one good reason.
Otterbox, a Colorado-based manufacturer of protective products for handheld devices, recently reached a settlement with the U.S. Department of Justice and U.S. Customs and Border Protection (CBP) for $4.3 million over allegations that the company knowingly underpaid Customs duties by omitting the value of engineering, development and design work completed in China from the dutiable value of its imports. Under U.S. Customs regulations, the value of these services must be included in the declared value of imported goods.
The settlement arose from a complaint filed under the qui tam provisions of the False Claims Act by a former employee in the company’s trade compliance department. In her complaint, she alleged that she had warned Otterbox management that they were undervaluing imported products and was ignored. Of the $4.3 million settlement paid by Otterbox, the former employee received $830,000. The company reached the settlement despite having voluntarily disclosed the same violations to CBP one year before the whistleblower suit was filed.
If companies do not have robust trade compliance programs in place that identify and immediately address potential violations, they run the risk that employees or outside parties will become whistleblowers, which can lead to litigation, bad publicity, and substantial fines and penalties. Companies should take the following actions as part of their trade compliance programs:
- Create an effective international trade/anti-corruption (e.g., export, import, FCPA, and ethics) compliance program.
- Modify, enhance, or consolidate existing compliance programs.
- Conduct periodic assessments of existing compliance programs.
- Train employees on compliance.
- Provide in-depth training for key and high-risk employees.
- Create a method for internal communication (employee ethics hotline) and periodically monitor its effectiveness.
Having a compliance program in place and knowing how to use it can anchor your company’s ship to prevent potentially disastrous results.