If you are new to this, welcome to the ever-evolving landscape of trade sanctions compliance. If you are an old hand in this game, you’ll know that this is the latest chapter of an ongoing story about how businesses have been navigating an increasingly complex set of rules and regulations governing international trade.
It’s a narrative that reshapes itself with burgeoning regulatory requirements that take into account compliance objectives, enforcement issues, geopolitical shifts, and technology. With that frame in mind, this article outlines the top five trade sanctions compliance trends to watch for in 2024.
- Stay in sync with geopolitical shifts and update trade sanction knowledge regularly to sidestep compliance pitfalls.
- Understand supply chain intricacies, screen all partners for denied parties and forced labor.
- Make sure to be equipped to navigate directional guidance, such as those covered in sanctioned ownership rules.
- Develop strong ESG strategies and integrate them into compliance efforts to secure investor confidence.
- Embrace AI-enabled compliance tools to minimize errors and optimize time for corrective actions.
Trend 1: Continued impact of Interconnected Geopolitical Tensions
Picture a global chessboard with pieces constantly moving in an attempt to gain / maintain strategic advantages, the dynamism of these game pieces mirror the current shifting realities of geopolitics. Geopolitical tensions have been on the rise, sparking a flurry of trade sanctions and counter actions. From Russian sanctions, competition between global superpowers, and conflicts in the Middle East, these events intricately weave into complex compliance obligations for businesses worldwide. For instance, the Office of Foreign Assets Control (OFAC) recently cracked down on entities related to Iran and Hamas, urging businesses to ramp up denied party screenings.
Bottomline: Inadvertently engaging with sanctioned entities can result in hefty fines, business interruption, and tarnished reputation. Building resilience into your trade compliance strategy is vital for 2024. A proactive approach with integrated automated compliance tools that can quickly identify risks and bad actors from current or potential sanctions will make a critical difference in overcoming the business threats posed by geopolitical tensions.
Trend 2: UFLPA Compliance and The Global Anti-Forced Labor Enforcement Efforts
The war against forced labor intensifies with the Uyghur Forced Labor Prevention Act (UFLPA). Enforcing stringent laws, particularly regarding Xinjiang, businesses now carry the burden of proof to ensure compliance. Since CBP's enforcement of UFLPA in June 2022, nearly 2,600 shipments worth $561 million have been barred from entering the U.S., read more about UFLPA compliance here.
Similarly, Canada has taken a strong stance against forced labor with its ‘Fighting Against Forced Labor and Child Labor in Supply Chains Act’ which goes into effect in May 2024. The Canadian law requires that certain entities submit annual reports with evidence that the company has effectively mapped its supply chain and removed any risk of forced labor. Mexico has also initiated efforts to intensify the elimination of forced labor conditions within its jurisdiction.
Bottomline: Forced labor prevention is a top priority for the U.S. and other world governments. Wider U.S. engagement along with international collaboration on enforcement action is predicted. The financial consequences of disrupted supply chains caused by detained / denied imports and potential damage to reputation due to forced labor associations will continue to rise. Organizations should take note of this in the development of supply chain strategies and sanctions compliance programs.
Global trade data, supply chain visibility, and denied party screening stand out as the capabilities needed to address the challenges and opportunities in this area.
Trend 3: Rise in Directional Compliance Requirements like Sanction Ownership
The compliance maze gets trickier with directional guidance as opposed to explicit instructions on sanctioned parties. Regulatory agencies are increasingly enforcing directional guidance such as the OFAC 50 Percent Rule, the UFLPA rules, and military end-use export control laws, which shift the responsibility of identifying sanctioned parties to businesses.
Instructional guidance offered detailed step-by-step instructions for compliance, including specific screening lists to use, while directional guidance focuses on broader principles, prioritizing the end goal of compliance over specific steps. This shift increases the sanctions compliance burden and risks that businesses face. As seen in the case of the Israel-Hamas conflict, companies connected to sanctioned parties are exposed to compliance risks.
Bottomline: Regulatory guidance is evolving from explicit instructions via sanctions lists to broader directives. This change in the compliance responsibilities of an organization emphasizes the need for robust technology combined with up-to-date data to unravel ownership structures and strengthen due diligence and trade compliance efforts.
Trend 4: The Growing Influence of ESG Regulations on Trade Compliance
As the trade compliance landscape continues to expand, it now encompasses Environmental, Social, and Governance (ESG) policies and broader sustainability initiatives. From sourcing materials to business partners, ESG has far-reaching impact on global trade and the supply chain. Investors increasingly favor ESG-centric organizations. To maintain a high ESG rating, companies need robust compliance strategies covering everything from trade to ESG considerations.
Bottomline: Businesses involved in international trade must include ESG aspects in their trade compliance frameworks to address evolving regulations and reputational concerns. Enhanced due diligence with end-to-end visibility of trade partners and the supply chain are at the forefront of ESG compliance requirements.
Trend 5: The AI Evolution
The rise of Artificial Intelligence (AI) and Machine Learning (ML) offer competitive advantages in compliance and risk management. AI streamlines denied party screenings, notifies about regulatory changes, and prioritizes compliance workflows. The ever-growing investments in AI signal its indispensability in managing complex obligations. According to the latest Accenture Compliance Risk Study, 93% of surveyed respondents agree that AI-enabled compliance tools remove human error, automate manual tasks, and make processes more effective and efficient.
Bottomline: AI-enabled solutions are essential to navigate the complexities of trade sanctions compliance. Leverage solutions from leading industry vendors to drive efficiencies particularly in eliminating manual labor, increasing screening accuracy, consistently monitoring, and identifying risks, and reducing cost.
Partner with Descartes to Stay Ahead of Compliance Obligations in 2024
As we venture into 2024, and new trends in trade sanctions compliance unfold, it is critical for your organization to take a proactive and strategic approach to addressing compliance challenges and opportunities.
Our suite of trade compliance and denied party screening solutions, combined with our broad industry knowledge and expertise will guide you on the journey to optimal compliance and sustainable business growth. Reach out or book a demo today!
See also what our customers are saying about our range of denied party screening solutions on G2, a third-party business software review website.
Additionally, you can read this essential buyer’s guide to denied party screening to help you select a solution that fits your needs.