The increasing importance of trade compliance in Asia Pacific

With every new geopolitical development, changes in sanctions and export control regulations are to be expected. In early 2023, for example, in response to the “surveillance balloon incident”, the US accused six Chinese companies of involvement and added them to the US Entity List governed by the US Department of Commerce, Bureau of Industry and Security.

There are many more examples – from Russia and Xinjiang-Uyghur to Myanmar, Sudan, Iran, and Cuba. While certain alignments across jurisdictions can be observed, independent sanctions and export control regimes reflect various differences that complicate compliance efforts especially for businesses that may be affected by more than one jurisdiction.

As the regulatory landscape tightens on a global level, companies in Asia Pacific increasingly recognize the necessity of trade compliance as an essential foundation for global trade success. Countries such as Singapore, Japan, Korea, New Zealand, Malaysia, and the Philippines are leading the effort.

The consequences of violating sanctions and export control regulations include financial penalties and criminal prosecution. Examples from April 2023 alone, as published in the media, include but are not limited to:

• British American Tobacco reached a US$635 million settlement with the US Department of Justice (DOJ) for breaching US sanctions against North Korea. The settlement amount is the largest ever in the DOJ’s history.
• The US Department of Commerce’s Bureau of Industry and Security announced a US$300 million settlement with Seagate for export violations relating to the sale of hard disk drives to Huawei Technologies.
• Directors at two Singapore-registered companies – 123 Holdings and 123 Duty Free – were jailed for eight weeks and four weeks respectively for selling alcoholic and non-alcoholic beverages to North Korea, in breach of US sanctions. They were also fined SG$60,000 and SG$30,000 respectively.

The latter case above is also a timely reminder that the CEO or other key executives of a company must bear the repercussions of a transgression, even if they had no prior knowledge of it.

Media reports about regulatory compliance violations also highlight that the consequences of transgressions go far beyond financial penalties and criminal prosecution. Publications of this kind, especially in the mainstream media, can lead to serious reputational damage. 

The impact on shareholder value and repercussions from losing customers, partners, potential buyers, and even suppliers who don’t want to be associated with or investigated for potential breaches can be significantly higher than the actual monetary fine. And unlike payment of penalties, reputational damage is not a one-off incident – word gets around and its after-effects can last a very long time, regardless of the severity of punishment.

As due diligence requirements on a global scale continue to increase, all supply chains partners are being scrutinized more closely and more and more companies nowadays also include adverse media checks in their business partner screening processes.

Components of internal compliance programs range from management commitment, training, and written policies to self-audits, record-keeping, and managing change. As part of an ICP, software automation is considered an essential tool for ensuring legal compliance without slowing down business processes.

Manual compliance checks are not only cumbersome but also error-prone. Implementing trade compliance software comes with costs, but the return on investment is undeniable – considering savings and benefits from accelerated processes, replaced manual efforts, and risk mitigation.

Trade compliance solutions automatically screen applicable records against the latest sanctions lists and perform export control checks for relevant jurisdictions. These checks take place in the background of business transactions from offer to delivery – providing revisions-safe archiving of results that is readily at hand for audits.

Businesses in the Asia Pacific region and beyond that are looking to attract investments or are the targets of acquisitions stand higher chances if they have a software-supported internal compliance program in place. A company that invests in or acquires an organization can face liabilities even if a transgression has occurred before the deal.

Penalties for compliance violations can vary depending not only on the scale of a transgression but also in view of the measures a company has put in place to avoid it. It is also far better to identify problems and violations before the authorities do so – voluntary self-disclosures and demonstrating existing measures and tools to prevent future breaches can often result in reduced penalties.