How well do you know your customers and employees?

The Australian Border Force (ABF) has introduced new customs broker licensing conditions effective from 1 July 2024. These new conditions placed upon licensed customs brokers (brokers) complement more stringent conditions previously imposed on bonded warehouse and depot licences introduced in November 2022.

Our previous articles below explain these changes in detail;

• Further tightening of the regime for licensed customs brokers
• Who goes there? ABF to tighten the ‘fit and proper’ regime further

While both licensing regimes may not necessarily affect all businesses involved in logistics, transport, and the broader supply chain, aspects of new due diligence practices being adopted by brokers and operators of licensed places should be considered more broadly by other businesses in the industry.

The ABF changes are designed to address increasing concerns about illegal activities in the supply chain and to ensure that all parties in the supply chain maintain high standards of integrity and compliance.

This article will present a high-level guide on how companies can enhance their due diligence practices to meet these new regulatory demands.

1. Understanding your partners and customers

Effective due diligence begins with a thorough understanding of your business partners and customers. Knowing who you are working with and verifying their legitimacy is crucial to mitigating risks associated with fraud, smuggling, and other illicit activities.

The below practices are essential in meeting more rigorous due diligence obligations in relation to vetting customers:

Verification procedures

Businesses should implement robust processes to verify the identity and legitimacy of business partners, third parties and customers. For corporate customers this includes checking the full name of the company, company registration details with the Australian Securities & Investments Commission (ASIC), as well as Australian Company Number (ACN) or Australian Registered Body Number (ARBN).

Further due diligence checks in certain circumstances can also include reviewing the Personal Property Securities Register or on occasion a visit to the physical premises of the customer.

For new customers that are individuals, their identity should also be verified including full name, date of birth, as well as physical and email addresses. Conducting a business name check with ASIC is also advised.

If possible, for both corporate and individual customers, verification should include reviewing their credit score and history through a credit reporting agency and reviewing any commercial documents provided to check for signs of falsification.

Businesses should ensure that all documentation is accurate and up-to-date, with any suspicious or inconsistent information subject to further internal review and investigation.

Other practices that businesses may wish to consider include asking for an upfront payment from new customers as well as ensuring the company’s standard terms and conditions make reference to customers’ obligations to comply with basic due diligence procedures.

Ideally, all of these background checks should be undertaken before providing the relevant services to the customer.

Risk assessment and ongoing review

Businesses must conduct regular risk assessments to identify potential vulnerabilities within their partner and customer base.

As part of this assessment, businesses should implement risk-based systems and controls to deal with discrepancies that may be noticed while verifying customer information. This could include instances where someone’s name on their passport doesn’t match the name they provided to the business, or the name of a director provided by a company doesn’t appear on the company search extract.

We recommend paying special attention to high-risk areas such as new markets, sensitive or regulated goods, high-value transactions, and customers operating in regions with a history of regulatory challenges.

Businesses should continuously monitor third-party partners and customers for any changes in their usual business practices, including changes in personnel and changes to contact details. We recommend updating your records and risk assessments as needed to reflect new information or changes in circumstances.

2. Ensuring employee integrity and compliance

Maintaining the integrity of your workforce is crucial for ensuring that business operations run smoothly and comply with regulatory standards. This is particularly important for employees involved in sensitive or regulated aspects of the supply chain.

The below practices are essential in meeting more rigorous due diligence obligations in relation to vetting employees:

Background checks

Businesses should implement thorough background checks for all new employees. This includes verifying criminal records through police checks, employment history, and legal eligibility to work (e.g. currency of visas). For high-risk positions, consider additional checks such as financial background or security clearances.

Documentation

Ensure all employees provide necessary identification and regulatory documents (such as ABF fit and proper check consent forms if required). This should include an employee’s full name, residential address and contact information. Staff lists containing this information should be securely stored and periodically reviewed to ensure they remain current and valid.

Please note that for both customers and employees, businesses may be subject to certain obligations under the Privacy Act 1988 when handling personal information. We recommend businesses obtain specific legal advice in relation to their requirements under Australian privacy law from our Privacy & Data Protection team.

Monitoring and compliance

Regularly review employee status and performance to ensure compliance with legal and regulatory requirements. Address any issues or discrepancies promptly to maintain compliance and operational integrity.

It should be mandatory for employees to inform businesses of significant changes that may affect their ‘fit and proper person’ status such as criminal conviction or bankruptcy.

3. Implementing effective due diligence practices

Develop comprehensive policies

Create and document detailed due diligence policies that cover both partner/customer verification and employee vetting. Ensure these policies are aligned with the latest regulatory requirements and industry best practices.

Train your workforce

Provide training for your employees on the importance of due diligence and the specific requirements they need to follow. Ensure they understand their roles and responsibilities in maintaining compliance and managing risks.

Conduct regular audits

Implement a schedule for regular audits of your due diligence practices. Audits will help identify any gaps or areas for improvement based on issues that may have occurred in day-to-day operations. This will ensure that your processes are effective and up-to-date.

Stay informed and adapt to changes

Keep up with regulatory changes and industry trends. Engage with professional associations and attend relevant training to stay informed about evolving requirements and best practices. Be prepared to adapt your policies and procedures as needed to meet new challenges.

Conclusion

The ABF’s new licensing conditions for brokers, as well as licensed warehouse and depot operators, highlight the importance of rigorous due diligence in the logistics, transport, and supply chain sectors.

By enhancing your practices for understanding business partners and customers, as well as ensuring employee integrity, businesses will not only better comply with regulatory requirements but also strengthen the overall security and efficiency of their operations.

Failing to undertake sufficient due diligence on customers and employees has the potential to lead to financial, regulatory and reputational risks for businesses which may not be covered by insurance policies.

Proactive due diligence will help mitigate risks, prevent illicit activities and minimise reputational, financial and legal harm to the company, thereby allowing businesses to be seen as trustworthy and compliant entities within the supply chain.

Contact us

If you are an individual or Australian business and would like to discuss how the new regulatory demands could affect you or your business, or how to comply with regulatory requirements, please contact a member of our Transport and Logistics team.