The supply chain compliance agenda

A version of this article was first published by The DCN in April 2024.

In a recent Customs & Trade alert titled Modernising the trade system, we wrote about some prospective measures which would assist to facilitate and modernise trade. In the article, it was noted one of the areas in which the modernisation was required was in the form of the regulation applying at the border as the compliance burden has continued to increase for those involved in the international supply chain.

In our latest Customs & Trade alert, Andrew Hudson comments on the current compliance burden operating at the border and the measures which are due to be introduced soon, specifically the revised conditions applying to licensed customs brokers (LCB) and operators of premises and businesses otherwise licensed government agencies at the border.

The Goods Compliance Update

The Australian Border Force (ABF) publishes a semi-regular Goods Compliance Update (GCU) which sets out compliance focuses of the ABF. It also provides a useful summary of the infringement notices issued by ABF in lieu of prosecutions for certain strict liability offences in the Customs Act 1901. Other agencies, such as the Australian Securities and Investments Commission and the Department of Agriculture, Fisheries and Forestry, also issue infringement notices and are increasingly used to enforce compliance.

The GCU is an important document as it provides details on events which are of concern to the ABF. In theory, the GCU is issued four times a year, but for various reasons that publication timetable is rarely achieved and the most recent GCU (entitled 2023 Wrap Up) was only issued in January 2024, some six months after the previous GCU.

The most recent GCU includes updates on ABF activities other than those focused on compliance, including an industry engagement update and details on Free Trade Agreements (FTA) including changes to import procedures associated with existing FTAs, progress on new FTA negotiations and implementation as well as attendance at meetings and conferences attended by industry such as the National Committee on Trade Facilitation, its advisory groups and events conducted by the Simplified Trade System Taskforce. The GCU also identifies recent Australian Customs Notices.

Some areas of specific compliance interest include:

• a trade compliance update;
• a broker compliance article including an article on the differences on brioche (for which GST is payable) and bread (on which GST is not payable);
• a trade risk and enforcement update including problems of proper declarations of value and duty and GST on gold and jewellery imports;
• a trade services update including extensive reference to a revised process for voluntary disclosure;
• a customs licensing update including Continuing Professional Development (CPD) audits, numbers of failures to comply and numbers of LCBs;
• a customs licensing compliance report including details of cancellation of an LCB licence, suspension of another and cancellation of a warehouse licence;
• details of Operation Jardena including the Jardena team working with industry to ‘harden’ the supply chain against ‘criminal infiltration’;
• an ATO update regarding the payment of GST on low value transactions; and
• results of the Compliance Program for the financial year ending 30 June 2023, and the results for the first quarter of the 2024 financial year (1 July to 30 September).

Special focus on LCBs

The GCU does include details on some items which are of specific interest to LCBs, and those operating premises licensed by the ABF or other border agencies. This includes LCBs handing in their licences due to not having completed CPD requirements, and LCBs and warehouse operators either being suspended or having their licences cancelled.

The GCU is, however, not the sole repository of information regarding the regulation of parties licensed by the ABF and other agencies.

There are other relevant considerations, such as the introduction of new conditions and ‘additional conditions’ into the licences of LCBs following extensive discussion with industry representatives. These include specific obligations regarding the due diligence required of LCBs regarding their clients and the goods being moved, provision of more information on staff working in the operation and management of a brokerage, compliance with the ICS User Agreement and expansion of the ‘fit and proper’ requirement for those in the business of the LCB to align with the requirements of those operating premises licensed by the ABF. Those new conditions and additional conditions are to be included in the licence renewals to be issued by the ABF to LCBs in April 2024 for the next three-year term.

There has also been reported action by the Department of Home Affairs to revoke the Regulated Air Cargo Agent status of a freight forwarder for alleged failure by the freight forwarder to meet status requirements. That revocation is now the subject of review by the Administrative Appeals Tribunal (AAT). The affected freight forwarder sought a ‘stay order’ in the AAT against the revocation pending the full AAT hearing. That stay-order application was rejected by the AAT and was then subject to Federal Court review which granted the stay order subject to several conditions.

The ABF has taken to terminating the membership of several parties in the Australian Trusted Trader Program (ATTP) for alleged breaches of the rule applying to those who have membership of the ATTP. This often relates to failures to meet certain standards of reporting accuracy or due diligence. This represents another compliance pressure point to those seeking to maintain ATTP status. The performance review of the member by the ABF can also be used in suspension/termination proceedings against licences held by the LCB or operators of licensed premises.

Several LCBs have received infringement notices and fines, even for alleged breaches which did not lead to an underpayment of customs duty (the ABF using section 243U of the Customs Act 1901). The fines have been paid by those LCBs rather than engaging in litigation where the ABF has the advantage that the relevant offences are strict liability offences with fewer defences.

Further, there is evidence that the ABF is imposing more interim suspensions on LCBs with referral of issues of concern to the National Customs Brokers Licensing Advisory Committee for investigation and recommendation on further action by the ABF. Often those suspensions arise from suggestions that the LCBs are not undertaking adequate due diligence on importers, allowing ‘piggybacking’ of illicit substances. The obligation to undertake adequate due diligence has been actively pursued by the ABF and other agencies even though the term does not apply in the LCB conditions currently in place. Even so, the ABF and other agencies including the AFP and state police forces have continually provided additional education on what may be used by importers of illicit goods (tobacco, vapes and drugs) to try to import the illicit goods so that such imports can be identified and reported to the relevant agencies.

Where to from here in the compliance regime?

From recent experience, those in the supply chain who are licensed or otherwise accredited will face a higher standard of due diligence in dealing with customers – especially new customers – which goes beyond current standards of due diligence. That may require those in the supply chain to independently verify customers by way of the use of video calls, closer review of credentials provided by customers, retaining the services of credit reporting businesses specialising in finding information on companies, their directors, and shareholders. That due diligence would include seeking details of related and parent companies, checking customer references, checking the location of customer premises to verify that they appear to be businesses (by Google Maps or other means) and checking ‘open source’ material on proposed customers.

They will also face a higher standard of proof as to the identity of employees involved in the management and control of a licensed business, and provision of more information on suspicions of customers and others in the supply chain to relevant agencies at an earlier stage.

All of this is admirable from the perspective of a perfect supply chain. Perfection is difficult to achieve and not even the border and other government agencies are perfect. However, some argue it makes licensed parties de facto ‘intelligence officers’, creates significant costs for smaller members of the supply chain (who do not receive high payments for their services) and creates problems on how to store all the confidential information they secure lest they are subject to ‘hacks’ where the information is the subject of a claim by the hackers and where insurance is expensive. It also raises a question in the context of falling numbers of LCBs and other licensed parties who now face higher obligations for less return. Why would they enter or stay in an industry where there could be liabilities from every action they undertake? The happy intent of ‘collaboration’ between government and private sector members of the supply chain may be under some strain which is likely to increase.

Contact us

If you are an individual or Australian business and would like to discuss any current trade or supply chain issues your business is facing, please contact a member of our Customs & Trade team.