The China Question

www.worldecr.com 33 ThE ChInAquESTIOn INSIgHT to accommodate a new export control regime. e export compliance team should use the results of the root cause analysis to cra measures that will prevent future similar violations. is means understanding whether the violation occurred because of a systemic error that was the result of a key control failure, a third-party error, a systems-related flaw, or some other reason. Without identifying the underlying cause, the export compliance team may miss an opportunity to permanently remediate the problem. 7) Development and implementation of processes and procedures Regardless of whether violations are discovered, processes and procedures will likely need to be substantially revised or, potentially, completely changed to accommodate the ECL. As a first step, the export compliance team should confirm current processes. is should include assessing what third parties are involved (e.g., freight-forwarders or logistics providers) and how their activities will be monitored. In many cases, companies might consider conducting a risk assessment based on the ECL. e risk assessment’s results will help the compliance team understand how to prioritise programme modifications. It will be equally important to overlay the MOFCOM Internal Compliance Guidelines for Export of Dual-use Items with current compliance activities. While these guidelines are not mandatory, an effective export compliance programme will be considered a mitigating factor in the event of a violation. ese guidelines contain China-specific considerations and a close review should be taken, with the assistance of a local professional, to validate that compliance processes align with the MOFCOM’s expectations. At the conclusion of this step, the export compliance team should have documented processes and procedures to help support trade under the ECL. While some of the guidance may need to be revised once the implementing regulations are available, this step will be the foundation for managing China trade. 8) Development of a risk-based testing plan Once the new export compliance framework is in place, the team should shi its attention to developing a testing plan. Ideally, this testing plan will be based on the results of a risk assessment, which will also help determine testing frequency. If a comprehensive risk assessment was not completed earlier, the export compliance team should perform one prior to developing a testing plan. Of particular importance will be including key control assessments for new compliance activities. Building in key control validation will help the team monitor effectiveness, limiting the potential for long-term systemic errors. Further, it will help imprint the importance of key control maintenance into the organisation’s compliance culture. 9) Training Successfully adapting an organisation to new export control regulations, coupled with revised compliance processes, is best achieved through thoughtful change management supported by well-executed training. ere is likely to be a high degree of confusion about the ECL, how it impacts the business, and the effect of new procedures on the business. Training should address each of these areas at the level appropriate for the audience. is may mean developing introductory ECL training that is supplemented based on individuals’ roles and responsibilities. Additionally, the export compliance team should hold an over-view training on process changes but follow it with on-the- job training. Additionally, during this transition period, regular, mandatory trainings should be held to answer questions as issues arise. Depending on the export profile and the needs of the business, the export compliance team may consider setting up a helpdesk to coordinate assistance and track inquiries. Regardless of the approach taken, providing relevant, well-developed training will be important to sensitising stakeholders to new responsibilities. 10) Establishing export compliance as a key business stakeholder Although listed last, the export compliance team should approach the previous nine steps as opportunities to further integrate into the business. Export controls management is not simply the final task before a product ships but, rather, is closely tied into the entire supply chain. When the trade team is included in business planning meetings, it provides an early opportunity to identify and develop solutions for compliance challenges. Further, with the ECL’s emergence, the complexity of the trade environment increases the likelihood of possible violations. If the compliance and the business teams are not in sync, it is likely that violations will occur. Breaking down silos enhances visibility and enables the compliance team to provide guidance at critical decision-making points, instead of retroactively correcting errors. Although there is still much uncertainty around how the ECL will impact companies, exporters should not wait for the implementing regulations before taking action. In fact, following the proposed steps will help set companies up for success as they will be prepared to pivot in whatever direction necessary once more information becomes available. o Steven Brotherton (sbrotherton@kpmg.com ) is a principal in the Trade & Customs Services practice of KPMG LLP and leader of the Global Export Controls & Sanctions service line; he is based in San Francisco. Elizabeth Shingler (eshingler@kpmg.com ) is a manager in the Trade & Customs Services practice of KPMG LLP and a member of the Global Export Controls & Sanctions service line; she is based in Philadelphia. This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP. Building in key control validationwill help the teammonitor effectiveness, limiting the potential for long- termsystemic errors.