Truth About Trade Compliance Failures

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Truth About Trade Compliance Failures (and How to Avoid Them)

Don’t let compliance failures derail your global business. Trade compliance expert Kyle Grobler shares insider strategies to navigate the complexities of international trade and avoid devastating penalties. Discover practical tips to build a culture of compliance, audit your processes, and keep your operations running smoothly. Whether you’re a seasoned professional or new to the field, this is a must-watch for any business involved in global trade.

SHOW REFERENCES
  • Kyle Grobler

Host: Andy Shiles

Host/Producer: Lalo Solorzano

Co-Producer: Mara Marquez

Machine Automated Transcript:

Andy  00:33

We are going to have a great discussion here with Kyle Grobler, as I’ve said that correctly, and Kyle is that the way you pronounce that? So forgive me if I butchered that one,

kyle grobler  00:47

that’s okay. I lived in America for nine years, and you said it perfectly, but it’s actually pronounced problem. Tell

Andy  00:54

us a little bit of what you’re, what you’re you’re doing now today, and we’re going to get into a good discussion about trade, obviously, and along the lines of keeping, you know, crossing the T’s and dotting the I’s and doing it the right way, versus, you know, what happens when you do it the wrong way? Right?

kyle grobler  01:14

Yeah, no. Thank you. Thank you both for having me. I’m excited to have this conversation with you guys. And without further ado, let’s get the ball rolling first and foremost. You know, currently, like most people, I would say, I stumbled into trade. I quickly realized the massive impact that global trade has on businesses, and I made it my passion, and I feel privileged to help businesses navigate this complexities. I think again, the biggest mistake, you know, traders make is overlooking compliance.

01:48

Yeah, I agree. There isn’t a lot of money and profit in compliance. That’s what I found in my practitioner career. So it’s hard to sell

Andy  01:59

when we talk about compliance. So here’s, here’s something that we probably need to say about it is in looking at, if you just focus on compliance, it’s a cost center. It’s a cost of doing business. And a lot of times people are looking at, I need to improve the margins here. And the unfortunate is can be very quickly cutting corners. From a compliance standpoint, is a lot of people will think that’s the way to to improve your margins. And the scenario there is, yeah, you might get away with something for just a little bit, but, man, the risk is astronomical. And with that, then the other scenario here comes into play, and I’ll give you, when you’re looking at compliance, I relate it to the same thing as quality control when you’re a manufacturer. And I’ll tell you right now, Boeing is one that was just, it’s on the news constantly, and the FAA just recently announced that they’re continuing their focused efforts and involvement with Boeing regarding their manufacturing process. So they’re constantly, you know, more intense inspections all that well. Where did that come from? From looking at ways to, if you will, cutting corners here or there in from a quality perspective.

03:34

Yeah, you know, I was gonna say Kyle. Posted on Kyle, I was looking through your LinkedIn, the I love all your posts, by the way, they’re so informative, and you can tell the passion. But one that was awesome was the guy that was wearing that hat and said compliance, because you won’t make it in prison. Yeah,

kyle grobler  03:51

actually, that was actually, that was actually one of my, my colleagues, friends in the industry. Her name’s Benita. She that was actually her post on my own, my post, okay, oh my gosh, it was you can’t afford non compliance because we want to make it in prison. I mean, some of the biggest mistakes you know, companies make is overlooking compliance, right? It’s the most significant mistake companies can make an international trade and like Andy alluded to, like, when you start to purchase from and let’s divulge from Boeing Boeing is, and also other serious troubles when it comes to customers. Can customs compliance and things of that nature. When it comes to setting up a contract, people don’t companies and individuals often overlook the compliance aspect in a contract. For example, change of ownership by change of ownership isn’t dictated by the Incoterms. Change of ownership is dictated in the contract. So this is often overlooked, you know. And I’ve had, you know, lots of, you know, meetings with lawyers that were new to, let’s say the customs world. They say, Well, no, isn’t in crypto terms deciding. I said, No, no, hang on a second. You should probably know better, that Incoterms do not decide where change of ownership happens. Yeah.

04:57

And in that same vein, I think Kyle’s really. Skilled at talking about non compliance and the you know, what type of additional severe consequences that exist? You know, I know you mentioned there’s legal and financial consequences. Maybe you can tell us a little bit about the other consequences. Kyle in your practitioner career,

kyle grobler  05:18

the implications that non compliance has is massive, right? We’re talking from fines to imprisonment to penalties, in addition to reputational risk, right? Reputational risk, loss of customers, export bans. Then this goes on and on. Then you’re also affecting your operational efficiency, you know, am I able to get my goods to my customer at the same price, right? And then, you know, the customs compliance aspect, it’s so often overlooked. And I still sit here and I ask myself, Why, so I try fill in the why, and try educate individuals organizations on saying, hey, look, I understand. It’s a very nuanced, complex subject. But if you just look at one, two and three, auditing your processes, your classification, communicating with exports, you cannot fall victim, maybe victims wrong word, you can mitigate being at the forefront of the hammer, for lack of better terms, by being proactive, by starting today, looking at your classification, looking at your valuation, looking at your suppliers you’re looking making sure you’re not purchasing goods from a section in China that has forced labor, right? These are all due diligence and compliance is the responsibility of absolutely everyone. It’s not just me as the trade professional. It’s my purchasing team, it’s my buying team, it’s my supply chain team, it’s my logistics team, it’s my inventory team. So really, we need to have a compliance culture in order to maintain compliance.

Andy  06:48

What happens in non compliance situations? And it may be simplistic, somebody cut the corner here or there, or it would may have been, you know, somebody changed roles, and you have new staff that comes in, regardless of the root cause, something went awry, and the checks and balances were not there. So what do you have here? Where’s you? You give some really good examples of this, because this is, again, one of those things where and folks to the listeners, if you were down in the front lines, middle management or whatever, and you see some issues that you feel like you need to inform upper management about. These types of examples are paramount to give you interest now, once you create the interest in upper management, say, okay, you’ve got my ear. You need to have your message ready. Don’t say, Well, let me come back and work on it and come now before you go down that road, but we’ll talk about that in a minute. So you give some good examples and some of your posts, of some things to say, You know what went wrong, or somebody did something wrong, and it was some pretty expensive, I guess, problem there, yeah.

kyle grobler  08:10

I mean, if we look at just Titan, right? Titan, for example, they got fined 284,000 for for incorrect classification. That that’s, that’s in my in my book, that’s a very small penalty. We can look at, you know, data storage, you’ve got find 300 million for neglecting the export controls, and track for about 2.4 million just for undeclared in values. So the financial impact can be as small as 500 to 500 million. And then, in addition to just

08:39

not to interrupt. But you also mentioned track had a civil penalty, which I think our audience would be interesting to explain.

kyle grobler  08:49

Yeah, yeah. So you know, depending on the nature of the penalty, and you could probably have some of your expertise in here, but people can go to jail, right? Business can go under, and it’s very serious. I mean, I believe the USA released a document the other day that said, Don’t let this happen to you. And in there, there was a list of companies, and there’s also a list of individuals that had to face, you know, legal action. So there was cases taken to individuals like myself, for example, if I signed an export declaration, or was part of this export process, I can legally be prosecuted. So next time, when you’re signing a document, when you’re when you’re classifying something you are part of parcel, taking ownership, elite in legally binding actions that can take place against you. So just be super mindful, and if you’re unaware, there is absolutely nothing wrong with saying, Hey, I’m unaware. First and foremost, right? We need, we need to create a culture where it’s okay to say, I don’t understand. But just asking the question, getting second advice, looking at legal information, speaking to professionals, execs, people who have or engrossed in the industry. I’m a firm believer. Do that by opening yourself up to saying that I’m not I don’t understand something is the first place we need to do in order to make the change, especially when it comes to compliance. The cost of compliance is a non negotiable. If you’re unsure, ask,

Andy  10:19

okay with that, let me ask this question. Is in in what you’re a lot of these organizations you’ve mentioned, are fairly large companies, do you see an issue where larger companies can get themselves into trouble easier than smaller companies because there’s too many silos or what? Yeah, that’s

kyle grobler  10:42

a that’s a great point. So I was very called it naive. When I first started out in my career, I wanted to work for the big companies, the Dells, the Googles, and I was like, you know, when I get there, I’m going to work for these companies that have amazing processes that have kind of laid the foundation for other organizations and made the blueprints.

Andy  11:01

And I was working because blueprints. Because even I’m going to hear, I want to hear Rene’s feedback on this one, because she’s had the opportunity to look at work for some big companies herself, but I’ve had the the opportunity to work with, if you will, from in my FedEx days and other companies, with some very large companies. And so to your point, I’m like, I’m listening,

kyle grobler  11:25

yes, I guess the key there. I was very naive, you know? I was like, I want to work for these companies that are amazing. And obviously, along my journey, I was working for the mom and pops, you know, the freight forwarding agents. And we had some big customers, some very well renowned brands and helping with their you know, import, export, customs compliance and trade compliance matters. And without layering the points, yes, when you go to these massive organizations, I believe that there’s a ton of silos, there’s a ton of we used to do it this way. There’s a ton of old knowledge. There is the inability to adjust and adapt to new legislation, new laws, new software, new technologies, new best spoke practices. And then if you put all of that together, it’s almost a recipe for disaster. And I would say, the bigger the company, the bigger the issues, the worse the processes are

12:18

see. And I would say I worked for a small, privately held company. I was their customs manager, and I worked for a very large multinational defense contractor. I was their director of Global customs. And I found that the larger companies have the ability to implement software, very expensive software, which helps, and then I also found the negative, in my opinion, was too many decision makers in a large multinational company, right? So you’ve got to please everyone. So when I worked for the privately held company, I worked for the owners, I told them the story when we made a call three people, right? But I didn’t have the money, I didn’t have the backing, I didn’t have all the knowledge that I had with a large multinational company. So, I mean, that’s just my humble practitioner opinion, but I found, I found the larger companies more compliant, if I’m being honest.

kyle grobler  13:19

Yeah, I guess I, I, I don’t know, the smaller companies that I work for, we, they couldn’t afford not to be compliant. That means, if we’re not compliant, and we lose this customer, means we have to close shop. I have to let go of Kyle so they upheld compliance at the most. And whether that was manual, paperwork, checks and balances, audit orders up and down, you know, making sure that everything was was good. When an organization is so massive, when it’s so big, there’s so many potential gaps where things can fall through. So I build the process right, and I I’m confident that my subordinates and my analysts and my controllers are going to adhere to that. Jonathan’s not in, and all of a sudden there’s a buyer or salesman saying, this needs to go, this needs to go. Then, sandy or Kyle was like, Okay, I’m sending it. And then all of a sudden, there’s no export license. It’s under declared. It’s the wrong currency, the wrong value, it gets to import it. Next thing you know, you have fines, right? So it’s great to have processes. It’s great to have money to back up tech. It’ll only get you so far. You need to educate your staff to understand what gaps to look for, and the only way you really understand to look for what gaps is by having that on hands operational experience and by building a team that is okay. By saying, Hey, let me, let me get stuck in, let me understand the nuances to be able to navigate this complexity. And also okay say, Hey, by the way, I don’t want to do anything with licenses, so fine, Carl, we’re not going to put you on licenses. We’ll put you on making sure commercial documents or other things of the business is correct, transactional value, valuation methods and Renee, we’re going to put you on licensing now you slowly license. Now we’re building a team. You’re an expert in licensing. I’m an expert. I’m an expert in import, exports, and he’s an expert at his field. We come together, we build a formidable team. So the the. Then the the occurrence of non compliance is far less, even with all your great tech. Because, I mean, I’ve seen some great technology out there, and still non compliance happens.

15:08

Yeah, I think what you said in the beginning is your culture of compliance. You know that you can get that at a large, multinational company or a small, privately held firm. That’s one of the keys to success. You know the culture of compliance. I think

Andy  15:22

that’s paramount. If you’re going to be effective, you’ve got to have your staff develop and become that expert in that that particular part of the field,

kyle grobler  15:33

training, training and on training, training, training, training.

Andy  15:37

Just so happen to have a company called Global training center that is absolutely phenomenal.

kyle grobler  15:45

We say training, training, training, training, but like we need to training that’s going to resonate with the individual. So there’s no point sending Kyle on a classification training if he if he has no intentions or want to do it. So how do you build a great team? Right? We build a great team by letting people do things that they’re passionate about, you know? So what you leave to it? Yes, there might be someone that’s responsible for it, but let’s, let’s, let’s really get the best out of people. So you love classification Kyle, you get off of that classification course, right? And I think some training to at least have an understanding is definitely beneficial. But I’m a big advocate for two or three things, auditing, auditing, auditing communication and education, communication and education. So it’s auditing communication and education. Bit of a tongue twister.

Andy  16:29

Well. And here’s something else. And you talk about audit a lot of times, people look at audits as a negative just the thought of it. It’s like, all right, you know? It’s like, Ooh, you know. However, the one thing that I learned again was FedEx, but then other companies have it in the in the quality assurance realm, whether you’re in a service industry, whether you’re in a manufacturing industry, whatever you have your primary, your secondary and Treasury levels of checks. So you know, the primary is actually production of the service or the product. Your secondary is going to be some kind of a check, hence audit, if you will, in that realm, or a third level could be an audit, but your checks and balances people looking at things. Here’s an exception. Let’s deal with it. You’re going to have exceptions. The issue is you don’t want your exception to become the norm in one respect, but on the same token that when you’re dealing with an exception, here’s where I always look at it. Is, what do you need to do to get that issue back into the normal flow, so you deal with whatever caused the exception, and then get it back into the normal flow of things, and you can turn loose of it and let it finish itself out. You don’t want to have exceptions. And then you have to ride that thing out on its own, because that’s going to cost you a boatload of money. And I’m talking as far as processes go and things of that nature, but all said and done. I mean, we’re even talking about, you know, we’re talking about classification. That’s a key thing. There are so often companies that have so many parts classifying those items up front, they get overwhelmed with it. Well, if you’re trying to do it all in house, you may not necessarily be the right one for it. You can outsource that functionality to a service provider and have oversight of that so you can spot check, are they doing the job for you or not. Other things are, are things, as far as the paperwork and the training and all those kinds of things, where you are you going to take a hands on approach where you’re operational in your compliance role, or are you an advisor role and have oversight and you act as an internal consultant? Those are two key business models in compliance that you’ve got to decide how to handle

18:56

internal audit. You know, you audit your you have an audit program right internally in your compliance department. But then the corporation I’m in this is maybe larger corporations, they have internal audit, right? So we did a lot of training of our internal audit staff, because they tend to be, you know, understand, corporate finance audit versus customs compliance. So we invested in training our internal audit team as a second layer, right? So we had our own audits, then we had the internal audit. So just something to throw in there regarding auditing, because I think that was one of your three. Kyle,

kyle grobler  19:34

yeah, definitely. And you know, to Andy’s point earlier about classification, the I think where classification without getting into like the fine arts of classification, and the difficulties that that presents in and itself. You know, especially complex items, when engineering teams are starting to talk about the product, that’s when they need to bring compliance in, not when the products should. From China or South Africa or the USA. 999 times out of, you know, 10,000 It’s always, it’s always happening when the shipments being shipped, and they’re like, Oh, hang on. Can you classify this? I’m like, Well, hang on a second. We don’t know nothing about this spot. What’s it made of? How does it work? Where’s it used? How is it used? It doesn’t need a license. Where is it going, right? So, so I believe, by, again, the communication piece and the communication piece, also you have to obviously establish relationships with engineering, with finance, with management, with supply chain. By establishing these relationships, by opening up clear and effective communication, not just talking for the sake of talking, we’re able to then identify some of the pain points. We’re able then to drill down in the pain, pain points and again, then we’ll uphold compliance by making sure we’re giving adequate attention to our classification. And Andy, to your point, I think we have some databases in some of our business units that are 8000 parts, you know. So when I look at that, I’m like, Oh my gosh. Like, how do you do that? And how I did that was, I said, Okay, let me look at my four costs of my top runners, and let me stop there. And that’s how I did. And that’s food for thought. Anyone else out there that’s stuck in classification and has a bunch of skews, I would recommend, if you’re overwhelmed, get with your supply chain team, your planning team, and say, Hey, give me the forecast. Let’s look at the high runners with regards to value, with regards to whatever your business model is, whether it’s licensing, etc, and however you navigate that, whether it’s value, gain complexity, and you put a pants again, you say, these are the 10, 1500 SKUs we’re going to get off the first because these have the biggest impact on the business currently.

21:34

That’s a great glimpses of wisdom. What do you have for us? Andy shiles,

Andy  21:40

well, I would just say that it is paramount to pull people together, develop relationships in your different departments. Again, one of the best things would be reaching out to your sourcing group or your Purchasing Group, because that’s where a lot of this comes from. The other thing is you were talking about when they are designing a part or a product, that’s when compliance needs to be pulled in. Well, the compliance area, you need to reach out and develop that relationship and make those connections. But the other thing is, if you are in leadership of a company, you need to be looking at some ways to, I guess, pull people together. Sometimes, a lot of areas don’t necessarily work together because they don’t, you know, either one the the department heads don’t feel like they need to work together, or they are doing different things, and it doesn’t. One doesn’t really affect the other. The unfortunate about that is, in this case, compliance is kind of in the background and can be treated like a stepchild or overworked, underpaid or understaffed, or whatever the case may be, and and all that. But you can’t always go in there, and woe is me, and then you can’t always be a jerk about, well, you can’t do this after the fact. You got to figure out it’s like, Well, I wish I’d been involved in the early side. Here’s our options now, saying all that I would say, in pulling people together, if you’re in leadership, one of the best ways that I suggest that people to do some things is pull in your transportation folks and logistics, pull in your compliance, pull in your it, and pull in your purchasing, just those four right there, and possibly even your customer service. So you could look at that as well and give them all the same goal that in looking at so in other words, they have shared goals that are, you know, I say give them the same goal. What I’m saying is that the compliance person needs to have a part of their bonus tied to the purchasing person, and the purchasing needs to be tied into the logistics and all that. And I’ll give you a good example. You’re looking at cycle times from the manufacturer to the distribution warehouse and things of that nature. Okay, so purchasing is focused on bigger, better, faster, cheaper, and the transportation looking at, you know transit times? Well, part of that transit time is the customs clearance piece of it. Hence the compliance people. So you’ve got both logistics and compliance that are tied into if there is a customs delay that increases your cycle time, doesn’t it? And the purchasing folks is like, hey, when we issue a purchase order, where am I going with this? You issue a purchase order. We want to buy 10,000 widgets from you. And you know, here’s the product and all that. Well, what needs to be in there is when they are able to ship it. Here’s how to describe this shipment. Here’s the Harmonized Tariff number on this shipment. Here. Here’s the country of manufacture that should be utilized. Here’s any special declarations, so that all of that information goes in there. Keep in mind on those purchase orders, they also have to have on there, whatever the accounting codes should be and all that, so that when the vendor issues the invoice, they get paid right? Well, along that same lines they go through. So I’m just saying. What I would say is, I’m getting a little detailed in that, but it develop those relationships. But if you’re in management, set the goals that they have, shared goals. It forces them where you don’t have to babysit them if they want to get paid on their bonuses or their bonuses, is finding out what’s going on in somebody else’s department that I in the past think, you know, there you go. She

25:47

talks, yeah, that’s good. You know what? I think, too. And when I in my career, we did a compliance Council Task Force. That’s how we we were able to group all those teams together, so that might be another way for our audience to to engage with that. But I think our takeaways are, you know, shared goals across departments, maybe a task force or compliance Council, communication, auditing, education, training. What else did I miss? Anything Kyle or Andy?

kyle grobler  26:21

No, I think that’s a fantastic wrap. There you got it again. It’s just for us to, you know, create a community where trade can be very scary to some right and kind of want to do the whole ostrich and put our head in the sand and hoping that, you know, these kinds of talks and communication can really shed some light on some of these complex topics that can make it a little bit more easier for some for lack of better terms, for some of our listeners, organizations, people to incorporate in their day to day operations. Because, again, I believe we share the same goal. We just want to uphold compliance and help each other get

26:56

awesome. Thank you. Kyle, no, I think you guys covered it. It’s been a great discussion, and I think our listeners have some good calls to action or glimpses of wisdom, so we look forward to the next conversation. Thank you, Kyle, thank

Lalo  27:11

you very much for joining us. Simply trade is brought to you by the generous contributions of global Training Center. You can follow the show and GTC on LinkedIn or Twitter and other social networks. Make sure you check out the show notes in the description for a full rundown of today’s show with all the important links. Also make sure that you share this with a friend and subscribe on your favorite streaming platform. We really like hearing from you. If you enjoyed the show, make sure to rate and review wherever you listen to this podcast. If you or someone you know would like to be a guest in the show or would like to sponsor, simply trade or suggest any topic you would like for us to discuss. Please contact us via email at simply trade@globaltrainingcenter.com or you can DM us on Twitter at simply trade pod. Thank you again for the privilege of your time. Happy trading. Simply trade is not a law firm or an advisor. The topics and discussions conducted by simply trade hosts and guests should not be considered and is not intended to substitute legal advice. You should seek appropriate counsel for your own situation. These conversations and information are directed towards listeners in the United States for informational, educational, entertainment purposes only, and should not be substituted for legal advice. No listener or viewer of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal advice from Council. Information on this podcast may not be up to date, depending on the time of publishing and the time of viewership. The content of this posting is provided as is, no representations are made that the content is error free. The views expressed in or through this podcast are those of the individual speakers, not those of their respective employers or global Training Center as a whole, all liability with respect to actions taken or not taken based on the contents of this podcast are hereby expressly disclaimed you.


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