Customs compliance is different from Customs law. Compliance is, of course, built on Customs law, however it is more focused on the implementation than on the study of the law. So how should we define Customs Compliance?
Defining Customs Compliance
Defining Customs compliance is difficult, there is no consensus in the academic literature. I’ll make an attempt at framing a definition.
Legality is the foundation of compliance. Laws prescribe conduct, impose sanctions and prohibitions. There is a vertical relation with the law that applies to every individual and company. Breaching these rules will result in penalties and sentences from a judge, in a court of law. Customs compliance is therefore not just about adhering with the applicable law as we often read. This, because adhering with the rules of law is the very definition of law. There is more to it.
Customs Compliance is certainly grounded in the normative environment of Customs law. However, it is also concerned with prevention. It is visible in effective mechanisms and processes for preventing the risk of breaching these rules. It is a horizontal environment within a company that crosses departments and functions. It is organised to reduce the risk of infringements of the rules.
Companies are therefore not only responsible for meeting their legal obligations under the law. They are also responsible for putting in place these effective mechanisms designed to preventing the risk of breaching the rules.
Customs compliance can therefore be defined as a combination of the knowledge of the law and an internal process that ensure that businesses meet the legal obligations applicable to them. These preventive mechanisms take the form of compliance programme, compliance policies and procedures. Customs Compliance cannot therefore be outsourced.
I wrote in a Short Guide to Customs Risk the origin and introduction of compliance to Customs law. Customs controls used to take place at the border. Import or export formalities ended when the goods were released from Customs. With the increase in trade volumes from 1980’s, it became impossible to inspect every shipment, every transaction. The solution that emerged in 1990’s was to move the enforcement of the rules from Customs authorities to businesses. The controls were moved from checks at the borders to on-site Customs audits. That solution was welcomed both by the trade community and Customs authorities at the time. In some countries, checks at the borders are very much part of everyday Customs work. However, in many countries, border checks are based on risk management systems, focused targets and goods that present a risk such as food. It is left to traders to internalise these Customs checks.
Customs Law in Action
In practice, compliance means that companies must monitor the Customs code and other regulations applicable to them, train the staff, translate the legislations into their internal processes, check their application against the rules. They also need to identify and report breaches. They are encouraged to use voluntary disclosures and incriminate themselves by doing the work of the prosecuting authorities. Customs compliance therefore transfers the burden and cost of controls from Customs authorities to the companies themselves. For many companies, this is a change of culture.
For me, Customs Compliance is a set of procedures and processes aligned with the law. Therefore, there is a need for someone, either within the company or outsourced, monitoring the legislation and adapting internal processes when necessary. It is only a combination of both the law and the business processes that will deliver compliance.
There are plenty of examples of what Customs compliance is not. Some companies have internalised the compliance part of the combination but not the legal element. This comes as a shock for instance in case of dispute with the Customs authorities. In such a situation, the discussion with the authorities is focused the legislation and the relevant provisions. Suddenly, the business procedures look as if they were built on quicksand. Personally, I like to see a reference to the legislation and the applicable provisions in a compliance procedure. It gives me re-assurance that the process is grounded in the rules.
On the other hand, I also met clients where the legal department was well versed with the Customs code. They had impeccable internal compliance system. However, they had no idea of how it was implemented in the day-to-day operations across their different sites.
I also see policies and procedures that are rarely updated although Customs regulations are changing regularly. Particularly in the UK where the new UK Customs Code is a living thing constantly being updated. There are for instance in the UK, many companies that have not reviewed their compliance procedures considering the new post-Brexit UK Customs Code.
Customs compliance is a dual activity, partly legal analysis, partly business management. It requires an understanding of the legislation and a capacity to develop and implement effective processes across different departments sometime different entities and different countries. It therefore needs support from the company’s executive management and the board. Hopefully this article will help those in these positions to understand the nature of their Customs obligations.
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