Trade Compliance: The Hidden Risk That Can Send Executives to Jail

Cesar Dongo-Soria joins Richard Lowe (The Writing King) on Leaders and Their Stories for a fascinating look at a hidden, high-stakes field most people never think about: trade compliance.

With more than 30 years in import-export across Latin America, the US, and Europe, Cesar explains why end-use liability can jail an executive, why a ten-million-dollar deal can be the wrong deal, and why you cannot outsource compliance to a customs broker.

Cesar Dongo-Soria is a trade compliance expert with more than 30 years in the import-export industry across Latin America, the United States, and Europe. He helps companies build compliant trade functions and pursue ISO 9001 certification.

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DISCUSS YOUR BOOK

Full transcript of the interview follows.

Richard Lowe: Hello, I’m Richard Lowe and this is the Leaders and Their Stories podcast. I’m here with Cesar Dongo and we’re here to talk. Cesar, go ahead and take it away.

Thirty Years in Trade Compliance

Cesar Dongo-Soria: Okay, hi Richard. My name is Esaadongo Soria. I’m regular guy with a lot of trade compliance expertise behind me. I’ve been working on import-export industry for 30 plus years, which makes me like an old guy, you know, working on that field. But it’s been a very challenging role.

I had the opportunity to work on different places with big companies. in different countries. You know, I’ve been located in Latin America. I’ve been dealing pretty much with every single country in Latin America. I’ve been based also in the US for tons of years. I was living in Europe, also managing the European, Middle East and Asian countries.

Basically, all of them were related to trade compliance. What does trade compliance means? It’s basically all the requirements that you have to fulfill in order to be legal, you know, when you’re doing import and export processes. Whenever, you know, you’re moving cargo from one country to another, sometimes you’re, you know, forced to comply with regulations aside from paying taxes, because people think that by paying taxes, they’re okay.

No, they’re not. You are not, you know, you are not able to shift to embargo countries, for example, you cannot ship to Cuba or Russia or Belarus or Iran. You cannot ship to specific people. You cannot ship to, I don’t know, or Samaritlal. You cannot ship to Pablo Escobar.

There are a lot of lists from the US government, from good guys, bad guys, countries, and countries that you can and you cannot ship. There are products also that you cannot ship. You can ship commodities without any issue, but you cannot ship any missile drawings, for example, because they are heavily controlled products.

There are a lot of regulations that you have to comply. And the thing is that I noticed that a lot of executives don’t know, or are not familiar, or they don’t want to know that they are liable for their shipments.

When a Semiconductor Ends Up in a Missile

Cesar: If a good from a company, let’s say in the US, let’s say it’s a semiconductor, ends up in a missile in North Korea, the executive of the company that produces semiconductor in the US may go to jail. Even if he sold that product to a distributor in Panama, it doesn’t matter because that what matters is the end use of the product.

Who’s going to be the end user of the product? So they say, well, but you know, we have been shipping these products to the UK or Panama or whatever, where they were not controlled or bangle countries. And then after that, they were reshipped to another country. But look, because you are still liable.

So in order for you to avoid that, it’s better to start asking for permission. Contact a CBP, contact the Department of State, ask for a license. If a license is not required, they’re going to tell you the license is not required. If it’s required, you’re on the safe side.

I think that sometimes by being overprotective, it’s much more safer than try to be cool and say, now, you know, we’re going to make the sale. I’ve been in companies when you are familiar When they are on a quarter end or year end, they have to close the deal. Regardless, they have to make the sale. The sales teams, they don’t care who they are selling to. right.

Cesar: If they are selling for them, it’s the same thing if they are selling to a nice guy in Oklahoma or if they are selling to a terrorist guy in Afghanistan. Because the money is the same. Right. So they want to close the business. But the thing is that you on the trade compliance team, you have to beat sometimes the bad guys.

said, listen, I don’t care if you’re closing a business or we’re risking a business of 10 million dollars. Right.

Cesar: if it’s going to be against the law, right? Because at the end, it’s not that you are going to get 10 million bucks. It’s that you’re going to go to jail, and then you’re going to penalize, and then you are not going to charge those 10 million bucks.

And everybody’s going to be on the street looking for a job. So that’s something that is very, very important. And that I’ve seen that a lot of companies, don’t realize how important they They rely on assistants or interns that are working with customs brokers. The customs brokers are not the liable guys.

They the exporters and the exporters are the company, not the customs broker. The customs broker is the facilitator, but the company is really the liable guy. So that’s something that my company does. worked on that. We go into company and say, okay, show me what you have. Do you have processes?

Fine. Who owns them? How accurate they are? Who are you shipping to? What are your products? What are the countries that you’re shipping to? Right? Who’s doing the Right. So you do an audit.

Auditing Your Compliance Processes

Cesar: Exactly. You have to go to do like a detail audit. At the beginning, you have to do like a high level audit to see if you have processes. Fine. Where are the indicators of the processes? Because I’ve seen thousands of processes without KPIs. So how can you have a process if you don’t have any measure associated to it?

You have to control it. You know, I’ve seen also a lot of processes that were, I know, written. Right.

Cesar: in 19, I know in 2021. That’s totally out of it. You have to have processes and they have to be reviewed at least every six months. Right? Or they were owned by a guy who left the company, I know, five years ago. Right? And there are no liabilities whatsoever by anybody.

So that’s a huge risk. Huge. Right. So bye. So by ownership you mean the person who’s responsible for it.

Cesar: Right, usually it’s like the executive team. Right, okay, that makes sense. Yeah, I was in charge of cybersecurity trader Joe’s and we had similar audits once a year for credit card data and they got pretty rigorous. They came in and made sure we were protecting the data and not giving it away, know, not having hackers and stuff like that. Similar in concept, I guess. You’re protecting against the bad guys, basically.

Cesar: Exactly. The thing is that you are like the goalkeeper, You are trying to protect the company from any goal that is going to get you out of guard. You have to be aware that there may be some balls coming from here or there. So you have to be there waiting for them. So the more protected you are, I think the more confident you can be. Right.

Cesar: Right? So it is very important to start measuring everything. I am kind of a measure freak. I like to have like dashboards with ongoing KPIs. I need to know exactly who they own them, how accurate they are, know, who’s reviewing them really. Great.

Measure Everything

Cesar: You know, and the thing is that there are some tools, you know, aside from the regulations that are, you know, black and white, there are some tools that can help you to be more professional in that sense. For example, if you use the methodology used or recommended by ISO 9001, you know, it provides you all the guidelines that you can provide. You know, if you have a process, put it in there. Right. Mm-hmm.

How ISO 9001 Helps

Cesar: If you have a trade compliance organization, you can audit and you can make that organization certified by an ISO 9001 certifier. And if something goes wrong, because usually in every single company, something falls through the cracks. If you have a policy that has been certified as an ISO 9001, CBP is more flexible with you. That is, don’t have anything. Right. Of Of course. You’re at least trying.

Cesar: Exactly. And they are very flexible and say, okay, you ship to these guys, you know, it’s like you shouldn’t do it. Right. But if they see that you don’t have anything that, that, that, I don’t know, an assistant from, I don’t know, from what department is taking care of that.

And she hasn’t, she hasn’t have any kind of formal training. She doesn’t own anything. She’s not liable for anything. they are not going to look that way. Yep. Now I, this is back in the 1990s when we were having the war with Iraq. And I was quite surprised to find out that PlayStation consoles were a problem because the chips in those were used in the missiles.

So sometimes it’s a little indirect, I gather that you have to kind of widen your view. Sometimes even a toy can be used, um, incorrectly or for, for malicious purposes. And I gather that you’re, what you’re talking about would hope to protect against that kind of thing too.

The PlayStation Problem and Dual-Use Goods

Cesar: Exactly. Unfortunately, I believe that a lot of companies are more concerned about lowering import costs. They say, OK, if we import from this country or we ship to this country or we use this vendor, we are going to reduce our shipping costs by this much or our logistics costs by this much.

But they don’t see the big pictures of the liability. Because if you are not, if you don’t not compliant with the liability risk, your whole logistics organization will fall. And you’re going to get sued or worse. Yep. Yeah. I gather this is being a real problem now with some of the sanctions that are going in place against Russia and Iran and stuff like that.

I’ve been reading about the Russian shadow fleets that kind of bypass all this stuff, including, they, so they, anyway, I’m sure that they don’t have, they don’t go through customs at all because they’re, that’s why they’re called shadow fleets.

Cost Savings Versus Liability

Cesar: There are some, it is funny because I’ve seen some examples of companies in Finland, for example. They have some distribution of XY and Z products. And after the Russian embargo, the shipment to these companies, they multiply by 100. And the demand in Finland is, it didn’t increase that much. So it’s obvious that they are reshipping everything to Russia. Right.

Sanctions and Reshipping Through Border Countries

Cesar: right, because they are like border countries. So although the company say, but we are shipping to, and we are selling to Finland and we are shipping to Finland and we have all the contracts with them saying that they’re not going to ship, the numbers and the logic doesn’t show that way.

It proves something different. So sometimes, you know, common sense is the lost common of the senses. Great. Right. Yeah, I know what you mean. know what you mean. If common sense was common, everybody would have it and they don’t, obviously.

Cesar: Yeah, exactly. It’s least common of the sets. And that’s why you need standards. you said, I saw, what is it? You said 9,001 so that it helps enforce your common sense.

Cesar: Yeah, the ISO 9001 provides you with some structure that you can follow in order to organize, I think, that processes. So it’s like, OK, you know if you’re compliant, if you’re not compliant, if there’s a rejection, who owns them, where is the information, how accurate it is, when was it updated, blah, blah, blah.

So there are a lot of guidelines. It provides all the guidelines, a lot of valuable ones that you can follow. That doesn’t mean that if you follow it, you’re going to be efficient. No, you are not going to be compliant, but not efficient. So there is always have to be like a marriage between efficiency and compliance. Right, right. I take it that customs is part of this, going through customs.

Cesar: Mm-hmm. Yeah. Cause when I get some, some stuff from Italy once in a while, model kits and things, and they always have to go through customs and they sometimes rip open the boxes and see what’s in it. It’s quite amusing to me. Like it’s a model kit people, but, so I’m sure that’s, that’s an, micro level, the same kind of thing. There’s some controls on that from this company and they have to make sure that it’s valid. Even

Cesar: I do remember years ago, just after the Iran-Iraq, the war with Iran-Iraq, I met a guy from the government. He was working from the Department of State. It was like a control, shipment control conference in London. So I was in London. He was one of the speakers. So, you know, after the presentation, we met at the bar. Mm-hmm. Mm-hmm.

Cesar: the best place to meet, right? And we were talking and I said, listen, but how do you know if there are like briefcase atomic bombs that they’re going to be shipped? Because everybody was concerned about the bomb, right? I said, well, the thing is that the story, because I think that Larry King had an interview with somebody from KGB. Mm-hmm.

Briefcase Bombs and the Limits of Inspection

Cesar: I said that, you know, once that the USSR split, there were a lot of concerns of a briefcase atomic bombs, you know, there were some big bombs, like on a very small size and they didn’t know where they were. Right. Once they separated on this Republic’s another, so they had no account.

I can’t do it for you. So the guy said, well, you know, that information was not too out of scope. It was kind of accurate. The thing is that it’s not like a small briefcase. They were like a big backpack. Okay, that’s fine. It made me feel better now.

They hid it, right? And the thing was that they know that if they wanted to ship something like it, they are not going to ship from Osama Bin Laden to Donald Trump, you know, on the box. It’s not going to show that way, right? Right.

Cesar: It’s going to be smuggled in a box of soda from Coca-Cola shipped to, I don’t know, to any other company. And then they are going to be routed, right? So there was like a big concern about the importance of the physical inspections. And the containers, usually they are inspected in a big container, three to five percent. Right. Right.

Cesar: That’s it. So you have 95 % chance of getting through Costa. Yeah, they can’t, they can’t, they can’t inspect them all. No, no.

Cesar: Ha! No, so they have profile inspections and all that stuff, but physical inspections, 5%. And even those aren’t thorough, I’m sure.

Cesar: Yeah, they usually use these huge scanners. But due to the volume of the containers, it’s pretty much impossible to do it. All right. So I guess the takeaway is make sure that you’re legal in the area of customs and whatever, trading and so forth. Make sure your Europe’s a snuff because otherwise you could get into some serious trouble. Why don’t you give a little short synopsis on the whole thing for the listeners.

Cesar: Yeah, definitely you can be legal, so you can be compliant up to a certain point. But it is critical that you have your own controls. Because if you rely on a custom broker, the custom broker doesn’t know your product. He just moves cargo. He’s not familiar with any other characteristics.

He doesn’t know if this bunch of wires can be used on a missile. And they are controlled by ITAR. Right. Right.

Cesar: They have no idea of that. The company does. So if they find something wrong with that, the custom broker is going to play dumb and the exporter is going to take the bite. the thing is, and basically what I want to mention is make your compliance department compliant. Make sure Right. course.

Why You Cannot Rely on a Customs Broker

Cesar: you Great. Right, of course.

Cesar: The first thing is who manages it? This guy. What is the team? We have no team. What other resources are you using? We have no resources. We have either you have like a system in order to do the compliance tracking. You know, you can have SAP, you’re going to have, you know, there are some filters that can run all your orders through all the government lists.

So if you don’t have that. Trust me, you’re going to be in really, really deep trouble. So my recommendation is be compliant and be sure that you are compliant. Audit your company once in a while. It can be once a year, once every six months if you want to be more protective.

Train your people. Be sure that you have all the KPIs in place and you have like a legal team. Gotcha. and check it once in a while.

Cesar: providing you with all the new regulations because all the regulations are coming every single day. You know, today you are not able to ship to Russia, but you know, three years ago you were, you were able to. Right? So on one day, I know there are some companies that you cannot ship to in China, for example, Huawei. Huawei is a huge telephone company in China and you cannot ship anything to them. Right. Right.

Building a Real Compliance Function

Cesar: Although the country is not bad, the company is bad. Right. Right. Sometimes the individuals are banned too. my understanding. Well,

Cesar: Exactly. So you have companies, individuals, money laundering, know, terrorism. There are a lot of reasons why they’re burning a lot of people. Yep. Yep. So, well, thank you for coming on. How can people reach you?

Cesar: Well, my phone number, you have my phone number is 928-988-3301 or they can go to my website, which is www.beckham.com. all the contact information is there. And I’ll be more than glad I can go in and do like a free initial assessment of what they have. And they can tell you and then, okay, listen, you have to do this, this, this. Okay, okay.

Where to Find Cesar

Cesar: And if you want to become ISO 9001 certified on the trade compliance part, I can walk you through. So that’s Nice. Nice. Well, thank you for coming

Cesar: Okay, Richard, I really appreciate.

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