It’s common practice for companies to review individuals, businesses, and transactions against international watchlists. Third-party vendors who violate U.S. trade laws can put your own business at risk of penalties and further scrutiny, including criminal charges. Identifying red flags in third-party vendors isn’t always easy. Learning how to identify those risks can help you avoid them and protect your supply chain, as well as your overall business.
Frequent Name or Entity Changes
Frequent name or entity changes are one of the simplest ways to identify a red flag in a third-party vendor. A supplier that frequently changes their name or re-brands may be doing so to intentionally bypass watchlist screening. Companies that screen manually are at higher risk of missing if that third-party vendor is on a watchlist, as they could just be using the current name to broad match the vendor. Trade compliance solutions use automated screening tools that will use all aliases associated with a vendor to get more accurate, narrowed down results.
Mismatched HTS Codes
Take two beverage shipments as an example. Both shipments contain the same exact beverages, so the HTS codes should be the same. However, the two shipments use two different HTS codes. This should raise concerns about the validity of the HTS codes being used and may require an audit to determine why the codes don’t match.
Discrepancies in shipment data should be corrected immediately to avoid delays in your supply chain. These discrepancies could also lead to further problems, such as loss of income due to delays in the supply chain.
Transshipment Through a Third Country
Be wary of vendors who try to hide a shipment’s country of origin. For example, say a shipment from China has a U.S. tariff rate of 35%. The shipment, originating from China, stops in Japan to dock, unload, and then reload. When the shipment arrives in New York, it is labeled as a “Product of Japan”. Illegal transshipments like this, in which the country of origin is misrepresented, occur when a vendor is trying to avoid active sanctions or high tariff rates because of the original country of origin.
Reluctance to Comply with Compliance Requirements
Examples of United States trade compliance laws and programs are:
- Customs Trade Partnership Against Terrorism (CTPAT): a voluntary U.S. Customs and Border Protection program in which an entity agrees to protect the supply chain from security gaps by following their best practices and security measures
- Uyghur Forced Labor Prevention Act (UFLPA): prevents goods made wholly or in part by China’s Xinjiang region from getting imported into the U.S. under the assumption of the use of forced labor
- California Transparency in Supply Chains Act: requires retail sellers and manufacturers to publicly disclose their efforts in preventing human trafficking and slavery in their supply chains
If a third-party vendor is reluctant to comply with any U.S. compliance laws or programs, it may be a warning red flag. A third party that partakes in practices that go against U.S. trade compliance could also put your business at risk. You do not want to face penalties or put your business operations at risk because of involvement with a third party practicing non-compliant activities.
Always ensure that you are maintaining compliance with all U.S. trade laws. Utilizing a trade compliance software can help you review and monitor your level of compliance across the supply chain, streamlining your involvement in global trade.
