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Author's profile photo Trond Rovang

How to comply with embargo, sanctioned party lists and export control in SAP

Companies trading internationally face severe risks if they fail to comply with relevant and fast-changing legal regulations. Risks include massive fines and even possible incarceration if failure is due to neglect. Companies may also be banned from market access in certain countries and regions if failing to adhere to regulations.

SAP offers support for legal compliance both in S/4HANA for international trade and with SAP Global Trade Services (SAP GTS). This post will explain the different legal regulations companies must adhere to and how S/4HANA for international trade and SAP GTS support them.

Embargo

An embargo is an official ban on all trade or other commercial activity with a particular country or region of a country. For embargo situations, we are concerned about the transaction’s departure country (or region) and arrival country (region).

An embargo can be full or partial. A full embargo means we can never ship to any of the embargoed countries independent of the departure country. Typical examples include countries such as Iran, Sudan, North Korea and Syria. Full embargoes are supported both in S/4HANA for International Trade and SAP Global Trade Services.

For partial embargos, the departure country and even region and products may come into play. For country-specific embargoes, such as between US and Cuba, we need to define country groups to indicate illegal to and from country-pair. This functionality is not available in S/4HANA for international trade, so country-specific embargoes require support from SAP Global Trade Services.

For region-specific embargoes,  we need to rely on functionality that exists in Legal Control. In conclusion, we may therefore say that S/4HANA for international trade only supports full embargoes, whereas any other embargo types require the usage of SAP GTS.

Overview%20Embargo

Overview Embargo

Sanctioned Party List Screening – SPL

A sanctioned party list contains a list of persons and companies with whom trade is prohibited by law. Sanctioned party lists are issued by government agencies and can be obtained from data providers.

Sanctioned party lists are binding for all traders. Business partner names and addresses are compared with the name and addresses on the relevant sanctioned party lists during the screening process. When goods are sold, for example, through a sales order, the system automatically compares the consignees’ names and addresses with the sanctioned party list.

For SPL to work properly, we need the name and addresses of all involved business partners, such as ship-to, sold-to, bill-to and more.

SPL is not supported in S/4HANA for international trade unless integrated with SAP Watch List Screening.

SPL%20Overview

SPL Overview

Export Legal Control

Export control is legislation that regulates the export of goods, software and technology.

Many governments implement export controls. Typically, legislation lists and classifies the controlled items, classifies the destinations, and requires exporters to apply for a license from a local government department.

Due to the complexity of export controls, the information needed may be quite extensive:  Classified Product, (Bill of Material), Value, Quantity (Finished products and components), All Involved Business Partners (Ship-to, Sold-to, Payer, Bill-to-party, Bank, Carrier, etc., Departure Country (& Region), Arrival Country (& Region)

Some export control regulations are only concerned about the finished product; other regulations also control the individual components, their origin and their value. In the latter case, we also need to store the bill of material of the controlled product. Since we can’t keep external BOMs in S/4HANA, we would generally say that S/4HANA for international trade only supports export controls on finished items. The more complex regulations such as ITAR and US-re-export require the usage of SAP Global Trade Services.

Export%20Control%20Overview

Export Control Overview

The strategic value of SAP Global Trade Services is the tight process integration and comprehensive resolution options, and audit trail provided.

Compliance%20Process%20Overview

Compliance Process Overview

 Conclusion

SAP Global Trade Services is the obvious choice for customers facing medium to complex trade regulations. Companies with minor and basic requirements may, however, manage with the core functionalities provided S/4HANA for international trade, supplemented by the SPL-functionality in SAP Watch List Screening. Hopefully, this overview will be of help when making the decision on which solution to rely on for trade compliance.

Please follow me for future posts on Global Trade Services and S/4HANA for international trade.

Please share your feedback or thoughts in a comment.

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      3 Comments
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      Author's profile photo Jelena Perfiljeva
      Jelena Perfiljeva

      Thanks for sharing, Trond!

      I feel like this post is missing the part about what is actually available at no additional cost in SAP S/4HANA. SAP GTS is a separate product and WLS is a SaaS service, so both are not free. Obvious question, what does "S/4HANA for international trade" do then if the customers still have to pay for additional solutions and services to get the global trade functionality?

      I found an older blog post covering transition from ECC (where some foreign trade elements were included in standard) to S/4HANA: https://blogs.sap.com/2018/12/20/sap-s4hana-for-international-trade/

      According to that post, "S/4HANA for international trade" (which is, by the way, a super confusing name because it sounds like a separate product but the same blog says it's just included in S/4HANA; so, like a module?) does have some international trade functionality, including embargo-related, for example.

      I'm guessing your goal might have been to talk specifically about two paid solutions but I feel it would be very beneficial to mention what comes "out of the box" with "S/4HANA for international trade" and then what would require additional solutions (at additional cost). Something like the free / premium / pro tier explanations we can find on many websites these days. I think this would be very helpful.

      Thank you.

       

       

      Author's profile photo Trond Rovang
      Trond Rovang
      Blog Post Author

      Thanks for the valuable feedback, Jelena. I will come back with a complete comparison of international trade capabilities in the core of S/4HANA vs capabilities in GTS in a separate blog and will bring your feedback with me into this. The main goal of this blog was to focus on embargoes, SPL and legal control only. A small "fun fact" maybe: As you can see, international trade is written without capital letters (not International Trade). This is how you see if a functionality in S/4HANA is an internal module name and not a separate product. Internal modules are all lower caps. I will spare the rest for the upcoming complete comparison. In short, we offer basic features in the core and more complex scenarios with GTS.

      Author's profile photo Jelena Perfiljeva
      Jelena Perfiljeva

      Good tip, thank you! Many people are taking liberties with lower/upper case in their writing these days, so I wasn't paying much attention to that. 🙂 Good to know it means something.