Report says government should leverage businesses to combat security threats.
The U.S. government must take greater advantage of private sector capabilities in order to better deal with transnational threats such as terrorism, climate change, nuclear proliferation and cyber disruptions, according to a new report from the Stimson Center.
Among its recommendations is a call for greater use of trusted trader programs under which companies receive bottom-line incentives for voluntarily upping security within their own organizations and helping achieve government goals for security and safety.
“The key to mutually beneficial collaboration is a flexible process and incentive structure that satisfies the economic concerns of industry and the regulatory concerns of government,” the report said. “That does not mean handouts to industry. To the contrary, it means aligning security strategies with industry value drivers in sustainable fashion allowing a greater ‘return on investment’ for all.”
A 14-member task force that included John Clancy, chairman of freight management company Livingston International; trade attorney Ashley Craig of Venable LLP; and Express Association of America Executive Director Michael Mullen, developed the ideas for making public-private security cooperation more efficient, effective and sustainable.
Globalized trade and ubiquitous digital technology have provided huge economic and societal benefits to nations, physically and virtually connecting people around the world. But the same production networks, supply chains and communication tools that enable global commerce have also made it easier for criminals, terrorists and rogue states to smuggle and sell narcotics, arms, sensitive technology and counterfeit goods; hack government and industry computer systems; engage human trafficking; and otherwise undermine international order.
Industry needs to play a role in enforcement because today’s threats are too big for governments to manage through law and regulation, especially when there are fewer available resources, the task force said.
It identified three key elements of public-private partnerships: stakeholder engagement; risk management; and information sharing.
The government should include private-sector stakeholders in defining the policies and rules for enforcement and create a regulatory environment that promotes innovation for economic gain and security requirements, the group added. The third-party logistics sector is a candidate for more outreach efforts because much expertise resides within companies involved in international trade, the task force said.
One of the leaders in implementing the concept of co-creation is U.S. Customs and Border Protection, which during the past four years has strategized on a new trade facilitation paradigm with the active participation of the Commercial Operations Advisory Committee and other industry representatives. Together, they have developed or are crafting new initiatives such as:
Centers of Excellence and Expertise—virtual offices for consolidated processing of post-release customs documents staffed by multi-disciplinary specialists organized by industry verticals to ensure consistent and predictable treatment.
Air Cargo Advanced Screening program—express carriers, airlines and freight forwarders providing upfront shipment details for pre-departure risk analysis in a way that doesn’t hamper normal business operations. ACAS is widely viewed as the poster-child for good public-private partnership because the government after the attempted 2010 terror attack with parcel bombs in cargo planes collaborated with the express delivery companies on a solution rather than immediately taking regulatory action.
Updated customs broker regulations that in part would tap brokers as intermediaries to help vet smaller shippers, who otherwise wouldn’t join trusted trader programs such as the Customs-Trade Partnership Against Terrorism, as low risk.
Simplification and shortening of the customs entry process.
“One Government at the Border” to be achieved through the Border Interagency Executive Council, which is designed to get primary agencies responsible for the safety of commercial imports and exports to follow the same risk segmentation strategy for cargo used by CBP.
Underpinning such partnerships must be trust, experts agreed during a public discussion at Stimson’s office in Washington. Trust is created when businesses agree to step up compliance and record-keeping and government rewards that behavior with expedited import and export procedures.
“Without trust there is not going to be any information sharing,” Bill Reinsch, president of the National Foreign Trade Council, said.
The task force and other experts stressed that information sharing has to be two-way, not just from industry to government. The government needs to provide properly sanitized intelligence that indicates what types of information companies should be on the lookout for that could help identify threats.
Reinsch noted companies throw away a lot of data that could be useful to the government. An exporter, for example, might ignore an e-mail request for a controlled item from a potential overseas customer because it would be violation of export regulations. “But if eight companies are getting the same inquiry for the same item, for the same quantity with the same specifications at the same time even though they appear to be from eight different buyers” government regulators might notice a pattern that could constitute a threat, he said.
“Multiple layers of export controls and sanctions often leave even the best-intentioned company wondering whether it is living up to the letter of the law. In many cases, such ambivalence causes companies to pass on business opportunities they would have acted on in a less ambiguous regulatory environment. As such, a better two-way flow of information on issues related to trade and technology transfer could clarify ambiguities in current regulations and help firms avoid risky transactions that may harm their bottom line—either directly or through damage to their brands,” Ret. Adm. Jay Cohen, a principal at the Chertoff Group, and Stimson fellow Barry Blechman, wrote in a CNN.com
The military is much better than law enforcement agencies at developing innovative information exchanges, Reinsch added.
Trusted trader programs, which have not fully reached their potential, have focused so far on imports. They paved the way for trusted traveler programs, such as Global Entry and the Transportation Security Administration’s domestic Pre-Check under which passengers agree to pay a small fee and undergo a background check for the privilege of going through automated kiosks or express lines for Customs or security at U.S. airports.
The Stimson task force recommended the creation of a trusted trader program for dual-use goods and technologies with military applications. It said the departments of Commerce and State should take into account the strength of a company’s internal compliance program when assessing company applications for export licenses, just as it does when considering what type of enforcement action to take when a violation is discovered. Companies that adhere to government-recognized best practices established by industry for compliance and licensing would qualify for broader export authorizations.
“A properly crafted incentives regime for ‘compliance-plus’ company programs would enable government to target oversight resources more efficiently and identify problematic transactions more consistently. At the same time, it would raise the general level of diligence throughout the exporting community by rewarding those companies that voluntarily adopted more rigorous processes in key functional areas, such as end-user evaluation,” the report said.
The current reform effort to shift less-sensitive military equipment from the U.S. Munitions List to the Commerce Department’s Commerce Control List is good, but doesn’t apply risk management to the licensing process, it added.
Jeff Merrell, vice president for strategic export control at Rolls-Royce, strongly endorsed the idea of a trusted trader regime for exports, saying it’s inefficient to repeatedly go through the same licensing steps when a company has all the necessary compliance processes in place.
“I have to go through lots of hoops to get an export license to make sure the wrong thing doesn’t go to the wrong place” and the government doesn’t make any distinction between small, unsophisticated companies and large ones that closely follow export rules and screen end-users, he said in an interview.
Export regulation is less regularized than on the import side, so every license application has to be individually evaluated on its national security merits.
Having a trusted trader designation could make it easier for Rolls-Royce, for example, to ship goods to its overseas subsidiaries much more freely or to get an export license for the duration of an overseas contract rather than having to renew it whenever a time or value threshold is reached, he suggested.
Merrell, who wasn’t part of the task force, said during the panel discussion that the United Kingdom has an open register for general export licenses where companies with proven compliance records and capability are trusted to do the right thing and only subject to periodic audits. The European Union is working on creating a similar system.
Potential benefits for trusted exporters are still undefined, but could include fewer reporting requirements, or terms and conditions on particular licenses, he said.
Responding to the task force report at its public release, Jennifer Sanford, senior manager for international trade and energy policy at Cisco, suggested that government needs to develop a framework for information sharing and other public-private collaboration to replace ad-hoc interactions.
“Institutionalizing some of those best practices and testing them out with pilot programs to see if they scale could be very useful,” she said.
The report also called on Congress to extend and expand the Terrorism Risk Insurance Act. The legislation, which expires this year, was designed for the federal government to share the risk of loss from foreign terrorist attacks. Insurers must pay a deductible before federal assistance is available after a loss, but the program eliminates most terrorism exclusions so consumers can get compensated.
The Obama administration understands the imperative of involving the private sector in homeland security, especially since it owns and operates much of the nation’s critical infrastructure, Rand Beers, deputy assistant to the president for homeland security, said.
There are three priorities in the public-private partnership arena, he explained.
The administration is working to refine and clarify the functional roles within the federal government to eliminate jurisdictional stovepipes and ensure that consistent and clear messages are delivered to the private sector during disaster responses, he said. It is also trying to enable more effective information exchanges because of the multiplicity of data types, systems, and time frequencies for transmission. And it is trying through analytics to better harness the vast stores of data it captures and “predict cascading impacts in critical areas” to help decision makers, Beers said.
He promised the National Security Council and Department of Homeland Security would review the report, with a keen eye towards the idea of creating a trusted exporter system.
(Click here to read the Stimson report.
This article was published in the August 2014 issue of American Shipper.