Global Trade Santosh Iyer, Kuehne + Nagel TEID, Ethics and - PowerPoint PPT Presentation

Managing Trade Compliance risk in Global Trade Santosh Iyer, Kuehne + Nagel TEID, Ethics and Reputation Society Hidiv Kasrı, Istanbul, February 20, 2018

Agenda for our discussion 1. What is Trade Compliance? 2. Understanding the risk! 3. How are Sanctions enforced? 4. Why are we concerned? 5. Current updates 6. How do we manage the risk? 7. Trade Compliance at K ühne+ Nagel

Important Announcement Caution Discussion held in this forums should not be considered as professional or qualified advise. Participants are requested to seek professional support when required from qualified practitioners. 4 Santosh Iyer, Kuehne + Nagel

What is Trade Compliance?

International trade Complex chain of process with Domino effect 1 2 3 4 Pre-shipment Origin Post-shipment Destination Supply chain planning Export documentation VAT refund Import Licence Packaging Quality control Original Documents Valuation Contract & LC HS Classification Pre-Advice to customer Free Trade Agreement Incoterms Customs Clearance Payment Rules of Origin Export Licence Customs Inspections Duty & Taxes Logistics supplier Customs Clearance Delivery 6 Santosh Iyer, Kuehne + Nagel

Trade Compliance Complex web of regulations applies to goods in International trade Customs Compliance Tariff and Non Tariff barrier • HS Code classification • Anti dumping duties • Customs valuation • Safe guard duties • Transit & transshipment procedures • Sanitary and phytosanitary measures • Rules of Origin • Free & Preferential Trade Agreements Export Controls Sanctions, Boycott, Embargo • • Dual use goods Iran, Syria, Russia, North Korea Sanctions • • Arms & Ammunition Israel Boycott & Qatar Boycott • • Sensitive goods and materials UN Sanctions list • • High tech goods Specially designated persons list 7 Santosh Iyer, Kuehne + Nagel

Understanding the risk

Important Announcement Caution Sanctions, Embargoes and Boycott are used as foreign policy tools and it is acceptable to not agree with the objectives, reasons and principles behind their usage. The objective of this forum is to understand the risks in global trade resulting from Sanctions, Embargoes, and Boycott and exchange ideas to manage the risk. 9 Santosh Iyer, Kuehne + Nagel

Generally imposed by developed nations 10 Santosh Iyer, Kuehne + Nagel

Understanding Sanctions Can be explained in various ways, easily defined as ▪ Sanctions defined – Deliberate government inspired withdrawal Or – Threat of withdrawal of customary trade, financial relationship or seizure of assets ▪ Sanctions defined – Economic tool to force a change in foreign policy of a target country Or – To bring about a general change in its behaviour 11 Santosh Iyer, Kuehne + Nagel

Understanding Sanctions History of Sanctions  Old history : first known example is in 432 BC, when Athens sought to choke the economy of the city-state of Megara by excluding its merchants from Athenian controlled territories – Back then sanctions contributed to war (in that case, the Peloponnesian War) rather than averting hostility  Recent history: – South Africa ( Success) – Burma ( Success, time will tell the complete story) – Iran ( Partial success) – Sudan ( Partial success) – North Korea ( Failure) – Syria ( Failure) – Cuba ( Failure) 12 Santosh Iyer, Kuehne + Nagel

Understanding Sanctions Stated objectives Human Rights Counterterrorism Regime change Non proliferation ( Myanmar) (ISIS / Al Qaida) (Syria) (Iran / North Korea) Conflict resolution Cybersecurity ( Crimea / DRC) (Russia) 13 Santosh Iyer, Kuehne + Nagel

Geopolitical Risk 14 Santosh Iyer, Kuehne + Nagel

Understanding Sanctions Embargo vs Sanctions Embargo Sanctions • Full or complete import prohibition. No • Restrictions on dealings with countries, good is allowed to be imported from the persons or entities & prohibition of certain embargoed country. Also called an “absolute types of goods. Also called an “partial embargo”. embargo”. • Example: The US has an import embargo against • Example: The EU has an import / export sanction Cuba and Syria. No good can be imported from Cuba against North Korea for arms and related material or Syria. and for items that can contribute to North Korea’s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programs . 15 Santosh Iyer, Kuehne + Nagel

Understanding Sanctions Types of Sanctions Comprehensive List based • Similar to complete Embargo • Prohibits from engaging in activities with persons and entities who are listed on • Blocks all trade with sanctioned countries. Specially Designated Nationals and Blocked unless licensed Persons list, unless licensed • Iran • Iraq • Syria • DRC • North Korea • Lebanon • Cuba • Sudan 16 Santosh Iyer, Kuehne + Nagel

How are Sanctions enforced?

How are Sanctions enforced? Charter of the United Nations  CHAPTER VII, Article 41 – The Security Council may decide on measures, not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations  Despite inflicting intended human distress, sanctions are often justified as a more ‘ethical alternative to wa r’. 18 Santosh Iyer, Kuehne + Nagel

How are Sanctions enforced? Who enforces these regulations? UN Security Council EU External Action HM Treasury UK DFAT, Australia METI, Japan MAS, Singapore BIS, USA OFAC, USA DOJ, USA 19 Santosh Iyer, Kuehne + Nagel

Why are we concerned?

Why are we concerned Largest fines in recent years 21 Santosh Iyer, Kuehne + Nagel

Why are we concerned ZTE case, Chinese company MARCH 7, 2017 22 Santosh Iyer, Kuehne + Nagel

Why are we concerned Power of U.S. Dollar in capturing non US activities Seller Buyer Seller’s Buyer’s bank bank 23 Santosh Iyer, Kuehne + Nagel

Why are we concerned Banks may not support ! 24 Santosh Iyer, Kuehne + Nagel

Why are we concerned Authorities check End-Use and End-User 25 Santosh Iyer, Kuehne + Nagel

Why are we concerned Industries most affected Pharma & Life Energy (oil and Aerospace Defence sciences gas) Semiconductor & Chemica l Mining Nuclear Electronics 26 Santosh Iyer, Kuehne + Nagel

Why are we concerned What are the possible consequences? ▪ Immediate loss of customers if the violator is added to the very public restricted / blocked party list ▪ Inability to participate in RFPs/RFIs/RFQs ▪ De-risking / Blockage by banks ▪ Potential irreparable harm to a company’s reputation ▪ Being designated as a blocked or restricted party would immediately result in – Freezing of the funds or assets owned, held, or controlled by violator – Denying the violator export or import licenses and privileges – Denying or revoking the violator’ immigration privileges – e.g. revoking visas and excluding the violator’s employees from the country – Fines and/or imprisonment 27 Santosh Iyer, Kuehne + Nagel

Current updates

Current updates Sanctioned countries and applicable restrictions Currency US Flag Military Shipment Commodity Country Restrictions Restrictions Restrictions Restrictions Iran Yes Yes Yes Yes Sudan* Limited Limited Limited Limited Syria Yes Yes Yes Limited Crimea Yes Yes Yes Yes (Russia) Cuba Yes Yes Yes Limited North Korea Yes Yes Yes Yes *Most sanctions on Sudan have been lifted in October 2017 29 Santosh Iyer, Kuehne + Nagel

Current updates  Iran  Qatar  Sudan 30

Current updates Iran Sanctions Iran and P5 + 1 countries nuclear agreement in 2015, also called JCPOA 31 Santosh Iyer, Kuehne + Nagel

Current updates Iran Sanctions history  Pre 2012  2012 to 2015  Post 16 th Jan 2016    Iran announces nuclear Crippling sanctions Iran Implements ambition imposed by JCPOA agreed with P5 – UN + 1   Iran declares its – USA UN, EU and most other legitimate right to – EU countries lift sanctions  peaceful nuclear energy – Switzerland USA lifts only nuclear – Japan related sanctions   UNSC raises concerns on JCPOA has snap back  the intentions of Iranian Brought Iran to the provision  nuclear ambitions negotiating table JCPOA in force till 2025 32 Santosh Iyer, Kuehne + Nagel

Current updates Iran Primary sanctions still in place No US No USA No USA Flag Banks Dollars No USA No USA No Dual Use / Citizen Origin Military Goods Goods / Entity EU No Iran Origin sanctions SDN list goods to USA list 33 Santosh Iyer, Kuehne + Nagel

Current updates Iran: Significant changes in EU & UN sanctions Most Cargo Crude oil and Transport flights Petroleum sector Sanctions products IR ↔ EU lifted Insurance Transfers Financial support of funds Export Credit for trade EU ↔ IR Bank Guarantees Oil, Gas and Export key IRISL equipment Petrochemic Sanctions & lifted al sectors technology 34 Santosh Iyer, Kuehne + Nagel