Legal Management of Trade Functions Helps Ease Tariff Volatility

The global trade landscape has become increasingly complex. Geopolitical tensions persist, and longstanding trade relationships have been disrupted.

For businesses, this environment increases the risk of noncompliance and intensifies the need for robust trade compliance oversight.

Failing to regularly update and monitor denied party lists, for example, exposes organizations to unacceptable third-party risks and potential violations.

Organizations must prioritize trade compliance programs and develop a strategy to navigate the volatile tariff environment. To do so, legal and compliance leaders should take the following steps.

Consider trade compliance structure, staff, and oversight. While legal and compliance leaders may not handle trade management tasks such as logistics, duties, import, and export, they’re instrumental to ensuring organizations adhere to applicable laws and regulations.

Legal and compliance departments should implement a strategy to evaluate the effect of new tariffs in key global markets. This includes identifying the company’s most important products, determining their country of origin and value, and considering that country’s supply chain profile and risks.

Enterprise risk exercises can help legal and compliance leaders answer these questions, but they may also need to involve the chief supply chain officer and the chief financial officer. Together, they can evaluate the potential effect of new tariffs in key markets and the cost and feasibility of various risk mitigation methods.

Assurance leaders must ensure relevant employees are trained to execute business-led trade management workstreams. This training may include best practices related to third-party due diligence, sanctions, and denied party screening.

Consider purchasing and implementing third-party risk management technology solutions to create semi-automated due diligence practices and continuous monitoring of third parties involved in trade-related activities (such as customs agents, logistics providers, and shippers).

Employees in various aspects of trade-related operations may need reminding of the importance of export controls and licenses, along with the requirement to maintain detailed records such as terms and expiration dates.

Legal and compliance functions often provide needed oversight of trade compliance workstreams and investigate escalated trade-related matters or allegations of noncompliance with export laws or rules of origin. They also determine and direct the company’s response and ensure recommended actions are implemented.

Legal and compliance staff must enhance due diligence for high-risk third parties involved in trade. They also must ensure that trade compliance technology platforms continuously check third parties against denied party lists, and ensure that sanctions screening is current with the Office of Foreign Assets Control’s public updates.

Address tariff volatility and act to mitigate its effects. Fifty-one percent of general counsel surveyed by Gartner said they’re working to understand the impact of US tariffs on the business to prepare their board and executive teams for trade policy changes.

General counsels, in collaboration with the supply chain team and the chief financial officer, can help organizations manage the associated trade risks and opportunities and develop a measured response strategy.

There is no right response to tariff volatility, so it’s critical not to react to every headline but instead try to determine which trade policy changes will endure.

GCs and other legal leaders can guide the next steps to ease the impact of increased tariffs by identifying contracts that could be renegotiated, drafting new supplier contract language, looking into new partnerships or alliances such as joint ventures, and considering legal options such as challenging tariffs in court.

Use best practices for global trade denied-party and sanctions screening. Rapid global developments require organizations to deploy robust denied-party and sanctions-screening capabilities to remain compliant with volatile regulations.

Legal and compliance leaders can implement two best practices and maximize the value of their screening technology.

• Implement a well-defined screening process to mitigate fines and penalties from poor compliance practices. Pay close attention to the timing of the screening and ensure all screening is being done against updated sanctions lists.
• Leverage specialized denied-party screening technology that assists automation and provides access to active sources of information and databases to increase efficiency and reduce risks during denied-party screening activities.

Strengthening trade and sanctions compliance improves business continuity and helps organizations fend off risk while maintaining a competitive edge.

Legal leaders who ensure comprehensive oversight of all business-led trade management activities and enhance compliance processes to better safeguard against tariff and denied party violations will help their organizations respond and comply with today’s fast-changing regulations, tariffs, and sanctions.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Antonia Donaldson is a director analyst in the Gartner assurance practice, focused on supporting legal and compliance leaders.

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