for Strategic Trade Control Compliance

There are several factors that may necessitate an ICP within your enterprise. Generally speaking, the need for an ICP depends on the types of products your enterprise deals in and to whom you sell them. In some cases the decision to establish an ICP may be “triggered” through a legal requirement, license condition, qualifying for trade facilitation or expedited customs clearance programs (e.g. Authorized Economic Operator (AEO) program), or other external and internal business objectives.

Any enterprise that deals in strategic goods, technologies, or services should consider establishing an ICP. Even those enterprises that do not deal in strategic items should consider adopting an ICP. An ICP demonstrates a corporate philosophy that is dedicated to abiding by all government laws and regulations and the standards set forth by global industry. An ICP also shows that your enterprise has instituted safeguards at key points in the order processing system, in an effort to secure the supply chain and ensure that strategic items are only used for civil end-uses, by authorized end-users.

An ICP is highly-recommended for an enterprise that conducts any of the following activities:

  • Manufactures and/or deals in (includes trade facilitation/brokering activities) dual-use goods and technologies - those items with civilian applications that can also be used or adapted for use in WMD or conventional weapons systems;
  • Manufactures and/or deals in (includes trade facilitation/brokering activities) munitions or military-related goods and technologies;
  • Conducts regular trade with entities operating in countries that are under UN sanctions/embargoes or subject to other restrictions related to trade in certain types of strategic items (e.g. the export of machine tools to destinations under international or national restrictive measures such as embargoes, sanctions, boycotts); and
  • Re-exports or re-transfers of items which are subject to extra-territorial controls maintained by the country of origin (e.g. U.S. extra-territorial re-export controls).

If your enterprise does not deal in strategic items or conduct these types of activities, it may still be worthwhile to take a proactive approach and adopt an internal compliance program. By establishing an ICP, your enterprise will be less likely to:

  1. Sell a product or provide a service to a foreign entity without knowledge of the intended end-use;
  2. Sell a product to a foreign entity without knowledge of whether or not the entity is designated as a restricted party by the UN or other national authorities;
  3. Ship a product or transfer technology out of the country, without first determining its technical specifications, its commodity classification, and whether it is subject to any type of regulatory controls or STC licensing requirements; and
  4. Exchange controlled information or technology with colleagues/associates/visitors/others located elsewhere in the world without the appropriate authorizations.

In some cases, an enterprise’s decision to adopt an ICP is a reactive measure that is “triggered” by certain external or internal factors. Some of the potential “triggers” that might prompt an enterprise to institute an ICP are as follows:

  • Recurring import or export delays at the border – Enterprises that are not well-versed in STC can potentially face delays in countries that have comprehensive STC systems in place. These enterprises often fail to obtain the necessary paperwork or licenses, and as a result, these shipments are more closely scrutinized which can delay the entry or exit of the goods from the point of egress (POE). As a result, some enterprises will establish an ICP to mitigate the possibility of such issues. Additionally, in some countries, the presence of an ICP enables the enterprise to receive exemptions from undergoing certain, standard customs procedures – resulting in expedited customs clearance.
  • Desire to enhance business efficiencies - An ICP can help to streamline business processes and lend predictability, consistency, and security to transactions. Having defined processes and procedures in place ensures that employees ask the right questions (What is the item? Where is it going? Who is it going to? What will it be used for?), and are therefore more likely to make consistent decisions that serve the enterprise’s best interests.
  • Cost concerns – Sometimes the adoption of an ICP is the result of a simple cost-benefit analysis within the enterprise. Firms must weigh the costs of establishing an ICP versus the long term costs of being found non-compliant (e.g. administrative, civil, and criminal penalties and reputational damage).
    • The presence of an ICP can increase the likelihood that a transaction will be authorized by the licensing authorities and limits the probability of a license denial or shipment disruption.
    • An ICP can enable enterprises to avoid investing time and money into transactions that most likely will not be authorized by the national licensing authorities.
  • Relationship with foreign MNC suppliers – Many enterprises will adopt an ICP as part of a broader effort to establish or deepen their engagement with foreign suppliers of strategic items. By instituting an ICP, an SME can potentially achieve greater access to high-technology and ATP, because the MNC supplier is more confident that their products will be adequately safeguarded and there is less risk of diversion.
  • Entry into new markets – In certain countries, enterprises that deal in strategic items are legally required or actively encouraged to establish an ICP. In other jurisdictions, an ICP is a pre-requisite to obtaining a bulk/general license, which enables the enterprise to conduct multiple shipments under a single license application. Enterprises that wish to be competitive in these markets will often develop an ICP so that they can also take advantage of such trade compliance incentives.
  • Mergers and Acquisitions (M&A) - When mergers or acquisitions occur, the parent firm is often required to conduct due diligence measures in order to certify that the entity being acquired has not committed previous STC violations that the parent would subsequently be responsible for in the aftermath of the acquisition. As a result, enterprises that are the target of M&A may be expected to adopt an ICP at the behest of the acquiring entity or parent company.
  • License condition – In some countries, enterprises must have a government-approved ICP in order to be eligible to utilize a bulk/general license (enables multiple shipments under one license authorization).
  • Periodic audits - Internal or external audits can reveal vulnerabilities and risks within the enterprise or expose past STC violations that necessitate adopting an ICP.
  • STC violations – Unfortunately, some enterprises only establish an ICP after they have already violated the law. In the event that an enterprise is found liable for an STC violation, the government may require (as part of a settlement agreement or penalty provisions) the entity to establish an ICP. In other cases, the enterprise might choose to voluntarily institute an ICP in an effort to demonstrate a strict commitment to STC compliance to the national authorities and other external parties.

In the future, internal compliance programs will likely become necessary for an increasing number of enterprises. The growing collaboration between global SMEs and traditional suppliers of strategic items as well as the emergence of new, “dual-use” technologies (3-D printing, intrusion software, etc.) will necessitate that more and more enterprises develop an ICP in order to ensure that strategic items are only used for legitimate end-uses and acquired by credible end-users