An insightful interview with Mr. Lloyd E.A. Porter, Senior Director of Global Trade Compliance at Cook Group, where he shares his expertise on navigating the landscape of sanctions and export compliance. Reflecting on the dynamic shifts in trade regulations, particularly concerning Russia and Belarus, Lloyd provides valuable perspectives on the challenges faced by companies in the life sciences sector. From the complexities of commodity classification to the evolving role of technology in enhancing compliance, Lloyd offers practical strategies for mitigating risks and seizing opportunities in an ever-changing regulatory environment.
Nielsonsmith: Lloyd, it’s lovely speaking with you today. You joined us last year for our Sanctions and Export Compliance in Life Sciences Conference, and you’re back with us this year too. It’s great to see you again, and I’m looking forward to your presentation.
Lloyd: Sure, looking forward to being there. It was a great inaugural event in Boston. I thoroughly enjoyed it and am really looking forward to seeing some new participants joining and engaging in discussions. Now, a year out, there have been a lot of changes in the trade space.
Lloyd Porter is a speaker at our Sanctions and Export Compliance Conference in Life Sciences Conference, Boson, MA, 2024
Nielsonsmith: Yes, so much has happened in a year. Why don’t we dive into it? We’ve got a few questions for you regarding your presentation, a little sneak peek, prior to the event.
Lloyd: That’s great.
Nielsonsmith: So, the first question would be: could you provide a brief overview of the current sanctions imposed on Russia and Belarus, particularly in the life science industry?
Lloyd: Yes, it’s really significant, isn’t it? Here’s what I would say. From the US and EU perspective, the pre-February 2022 sanctions environment was comparatively limited compared to what we’re experiencing now. Obviously, after the Russian invasion in 2022, there was a massive expansion of sanctions. In the pre-2022 environment, there were a lot of limitations on interactions in the Crimea region. Those had been in force since 2014 as a reaction to the Russian movement into the Crimea Peninsula. But the post-2022 environment changed drastically. What exists today has no comparison to what we were dealing with in the pre-2022 environment. We now have extensive sanctions impacting Russian participation in the international financial system, various targeted individuals, focused sanctions on oligarchs and other private and government officials, and sanctions importantly impacting a broader array of different types of business service activities, whether that’s legal services or other kinds of services, which previously were not restricted. But the really significant change, which impacted life sciences and in addition to a whole range of industries and sectors outside of life science, was the introduction and expansion of various HS list controls. When we say HS list controls, we’re referring to the harmonised system, which historically was created and has been used for tariff and customs classification purposes. It really did not have a role with respect to sanctions or export controls. But that’s really changed because the United States, United Kingdom, European Union, and Japan, in particular, formed a working consortium, if you will, to take a coordinated approach in implementing sanctions against Russia and Belarus. And one of the tools became the HS list controls. So that’s a really new thing for us and has really presented challenges in this export control environment.
Nielsonsmith: Thank you, Lloyd. Now, the next question I’ve got for you is, what specific changes do companies in life sciences face regarding compliance with sanctions?
Lloyd: To build on what I was just remarking about HS controls, one specific challenge is that there’s now an increased importance of ensuring that all the commodities that enterprises trading in Russia and Belarus are accurately classified. You obviously can’t make a good decision as to whether you need a license or an authorisation or not if the license control is tied to a proper HS classification of your commodity. This wasn’t as important from a trade control perspective. So let’s say if a business centre in Europe, pick a country, Germany, was using a different tariff classification than their business in the United States, it wouldn’t have had an impact from an export control standpoint. But now that becomes an increasing focal point for us.
I’d say a second challenge, which relates to that, is the alignment of HS classification across all these different jurisdictions. And it’s not only a factor for distribution of product into Russia; it now becomes a factor with respect to importing raw materials and supply chain inbound out of Russia and Belarus, as more and more different types of commodities cannot be imported and consumed in other countries, again, based on their respective HS classification.
Finally, one real challenge for us in life sciences, medical devices, healthcare – doing business in Russia under these new controls, we’ve never had a need to perform end-user due diligence to the extent we have to now. So let’s say, for example, a company’s model of distribution and their sales channel was through a third-party distributor. Well, the company might have a good and close relationship with that distributor, but beyond the distributor located in the country, they might not know the specific end users, the specific hospitals, the specific universities, whatever that were consuming their products. And now, with the advent of all these new licensing requirements, it becomes imperative. If you’re having to go in and ask for a license authorisation, you need a lot more due diligence, background information about the actual end users of products. So, at least at a hospital or an institutional level. And that’s not a process or an infrastructure that a lot of companies have had to develop to the extent that is now required. So that’s a big challenge for life sciences companies, basically not having intrinsic information about their end users, not knowing their customers well in some cases.
Nielsonsmith: Thank you. Now, moving on to licensing, could you outline some of the key licensing challenges that arise for companies dealing with these sanctions?
Lloyd: Yeah, for sure. Again, with all the changes in sanctions, one of the big things that has come along for many companies is that they’re unfamiliar with the licensing processes. Because in the past, pre-2022, medical devices, life sciences, a lot of commodities never would have required any form of authorisation or an export license to be transferred, sold, or otherwise distributed into Russia or Belarus. And with all the new sanctions and controls and restrictions, especially when they begin to expand and encompass and hit the life sciences commodities, everyone has had to react to that and try to figure out ‘how do I do the licensing process?’ So, for example, in other types of sectors like the aerospace sector or military defence sectors, those industries would be very familiar with export licenses, so they have established processes, they have established departments in some cases that focus on export controls and export licensing in particular. But that’s relatively unknown in the life sciences sector. So what happens is you have a lot of folks trying to sort out ‘what are the licensing requirements?’, ‘how do I go about this?’, and it even gets down to basic things, such as ‘what systems do I need to use?’, ‘how do I get an account set up to apply for a license?’ and so on and so forth. So it is a really big factor there and a significant challenge.
The second side of the equation is the licensing regulators, and here we’re referring specifically to the US Bureau of Industry and Security (BIS), which is part of the US Department of Commerce. They are not acquainted or accustomed to seeing our types of commodities come through their systems. So if you were trying to license an aircraft part to an end user in Russia, they would have institutional knowledge about how that’s used, what type of aircraft that part is used in, they’d know the end users in Russia. But when it comes to a medical device, this is all a whole new arena. And historically, medical devices, as a rule, I mean there are obviously exceptions, but as a rule, they’ve not been subject to export control intrinsically as dual-use goods or military goods. Therefore, we have licensing officers and agencies attempting to grapple with and process these different types of license applications. And they’re not familiar with the products, and they’re not familiar with the end users receiving the products, so it makes their job hard, as well as the job of industry becomes difficult to try to figure out just how to negotiate and navigate that new process.
Nielsonsmith: Thank you, Lloyd. Now, moving on to the next question, what would you say are some common misconceptions and pitfalls that companies encounter when navigating the licensing requirements?
Lloyd: There are a couple of important things here that I think would stand out. One pitfall would just be assuming that the licensing review officers understand what you’re asking, and in particular, understanding your product and how it’s used. So, to mitigate that risk, it’s important that when you’re making a license application, you’re outlining the function, the capability, and the end use of your particular commodities in a very accessible way. Because again, you’re not dealing with people who necessarily have healthcare or life sciences backgrounds who are going to be processing these. They have deep knowledge in other areas; there are a lot of engineers and technical folks in the agency, but this is not their home base in terms of a commodity to be understanding. So, it really is important that you do a great job with your presentation and your application.
Another pitfall would be assuming that all elements of the licensing forms are of equal importance or thinking that ‘if I just write an explanatory letter and accompany that with the electronic form, that’ll be sufficient’. There’s not a single formula or recipe that is going to work for all requests, but what you have to do is find a balance point of clarity when you’re explaining in your application what your product is and then couple it with appropriate supplemental documentation. That is really important to success in trying to help them move your application through the process as expeditiously as possible.
Nielsonsmith: Thank you, Lloyd. Now, what strategies, in your opinion, can companies employ to effectively mitigate and navigate the complexities of compliance within sanctions while maintaining their business operations?
Lloyd: As we’ve discussed here today, the compliance requirements are now so complex and dynamic, they’re changing frequently, that many organisations, if they have the resources, need to consider dedicated and focused team assignments to manage these processes. In other words, maybe they didn’t have a licensing team or licensing personnel, and now it’s important that they get some people equipped and positioned with training and/or outside counsel resources so that they have an organised point of contact to manage requests through the process.
The second need, I think, will be increases in due diligence. A lot of organisations have governance components or compliance components that do the due diligence processes, but the challenges are very great in Russia. You have the language challenge, you have simply the alphabet challenge – it’s not a Western alphabet when you’re doing keyword searches, or you’re doing restricted party screening searches. You’re going to need to implement more tools in those spaces and try to seek out screening support and solutions, which are going to help you more effectively screen end users and complete due diligence with all your business partners. It’s not just end users; it could be the bank your customer or your partner is using in Russia. And if the bank is on a restriction list, they may not be able to transfer funds to pay you for your products. Getting paid is still a fundamental. There are ongoing concerns to have viable methods of receiving and transmitting finance. I think those are important points.
Another important focal area to mitigate compliance risks is developing a sufficient understanding of your distribution and supply chains. A lot of companies, their map for distributing into Russia would have gone from, say, their European Distribution Center to the Russian distributor and that was the end of it. They don’t know what happens, or they don’t know the steps in between, or they don’t understand logistically – is it an air freight environment? Is it over the road? Because there are restrictions on certain Russian-owned trucking operations, certain Russian carriers are not allowed to operate in Europe, or not allowed to fly into various airports in the European Union and so on and so forth. So understanding your supply chain in a detailed way, not only where things are going and through which countries or ports things may be transiting, but also understanding that big picture in bringing it together is absolutely critical to mitigate risks and to understand what your licensing obligations may be. I certainly am acquainted with our company having to make adjustments in distribution from different points because certain carriers were no longer available to us.
Nielsonsmith: Building on that, you mentioned the tools that companies can use. Could you discuss the role of technology and data analytics in enhancing sanctions compliance?
Lloyd: Well, we talked a little bit about end-user screening and due diligence, not only for reasons surrounding Russia and Belarus, but also other countries where tensions have been increasing now for some years. There’s been a real evolution in the availability of solutions and platforms that help companies perform due diligence. I don’t want to mention specific names because I’m not here to provide an endorsement, but there are a number of platforms that can help companies go to a deeper level of due diligence. It’s no longer just a watch list screening. It’s still important that you know that your customers, your end user, your business partner, your bank are not on a restriction list, but now understanding more in-depth ownership structures becomes important. There are several Marquee platforms that can help map out various ownership structures when you’re performing due diligence processes. I think those are very important and have a high degree of utility to those who are doing business in these areas. We’re so far beyond just doing a keyword search of a PDF list that was posted on a government website. There are too many ways that can go wrong now. Obviously, it’s a risk-based approach; obviously, companies have to scale their level of engagement here proportional to their level of business, to their value of business, to all these different factors, their range of customers in Russia or Belarus. There are really good due diligence platforms now available that are accessible and, I would say, affordable at different scales. Not everyone needs the million-dollar-a-year solution, so people could be well-served by a lesser level of access that’s appropriate to their level of engagement. So that’s one.
The second thing, which ties back to some of our earlier discussion around HS codes and other trade data, such as country of origin, HS, export control classification, is now large mid-sized and larger organisations in particular need to be thinking more about automating and managing commodity classification and trade data through purpose-built solutions. In the old days, they might have something in their ERP system that had to block for a tariff code, and maybe they still have this, and that’s still useful. But because of things becoming so dynamic, we now need to start linking trade data into screening and watchlist checks and into product databases. And companies need the ability to be able to automate this in ways that support getting classifications done and determinations made perhaps at a bill of material level within their products. So yeah, you have your end item, but if you have a complex machine with lots of different components, there may be components within your machine that are restricted or can’t go to certain customers. So it’s really important to leverage automated solutions to be able to help you with classification processes because the old manual ways may not be keeping up with the pace of changes and certainly not the pace of the changes in the control lists.
Nielsonsmith: Okay, thank you. Are there any notable case studies or examples of successful strategies implemented by companies to address the BIS licensing challenges you can recall?
Lloyd: Even though we’re a little less than two years into this heavy engagement with BIS licensing, I think everyone is still adjusting to the changes in controls. Companies are still educating BIS in terms of ‘here’s what’s going on’, ‘here’s how our products work’. Everyone is still figuring this out. It’s just now that there are beginning to be some industry working groups in this space. That’s a big contrast from certain industry sectors I mentioned earlier like aerospace and defence. They have had large industry groups and conferences that have been meeting for decades, probably at least 40 to 50 years of history, so they have events and they have ways to collaborate and calibrate, ‘what’s the agency’s expectation’, ‘how do I make a successful license application’. Well, all of this is really new to the life sciences sector. So some of those kinds of things are just starting.
I guess what I would encourage companies to do is to try to reach out and join some of these advocacy working groups in the life sciences space. There are several ones I can think of a few in the medical device sector like the Medical Device Manufacturers Association (MDMA), another one would be AdvaMed. Traditionally, those types of working and advocacy groups have worked on other types of governmental policies, so they’re also learning what it means to work in the export control sector, but I think they can be very useful working groups if you’re in the life sciences space. Also, I think there are various associations and organisations that address export controls and trade controls more broadly, but they’re beginning to have a focus in working groups in the life sciences sector because it really has become a new thing. So trying to find those and affiliate with those kinds of working groups will really begin to help accelerate what you can do more effectively, I think, when you’re trying to develop your licensing strategy to respond to the new requirements.
Nielsonsmith: Thank you, Lloyd. Now, the next question is, how effective do you personally think sanctions are?
Lloyd: Right, that’s a great question, and this has been much debated over the history of these types of programs, even pre-Russia. Politically speaking, there are two different perspectives: the Sanctions Hawks, who believe that these are very effective, that we must do them, and then those on the other side who say that sanctions just tend to hurt people who aren’t the targets. But more specifically to Russia and Belarus, I would say there are fundamentally two possible answers, which I think are a little different than what I just articulated.
One perspective is that Russia is still in Ukraine; they haven’t left, they haven’t ceased the war effort, they’re continuing to try to capture and increase their territorial holdings. So if you look at that, one can certainly conclude, ‘well, the sanctions aren’t working’. But I think that’s too simplistic. I think there’s a lot of evidence that the conflict might have proceeded to a much greater extent; perhaps Ukraine would already have fallen at this point if there had been a failure of the International Community to form a consensus in a coordinated sanctions response. So I think there’s definitely evidence that the sanctions have impeded and begun to have some negative impacts on Russia’s ability to move forward.
Here’s the other side of the sanctions program. There’s increasing evidence of changes and realignments in global supply chain patterns, such as increases in export activity to Russia from China. Trade statistics that different government regulators have been putting into their intelligence community clearly suggest that there are shifts in the supply patterns from China and other Russia-friendly partners. That’s widely understood to represent backfill activity, which is the term that gets thrown around a lot. So if Russia wasn’t able to get their usual commodities of supply from the United States or the European Union, now they’re trying to source those same commodities through different channels. That’s evidence of the impact of sanctions; it forces those kinds of realignments. Because generally, supply chains aren’t easy to quickly realign. We think about it from an individual consumer standpoint, ‘well, I’ll just order my product from a different supplier or a different e-commerce’. Well, that’s easy, but when you have an integrated supply chain, especially in an industrial way, those aren’t easy to just turn and flip; you may not be able to find the same exact specification of product, so it takes time.
The other thing we’re seeing, which I think is evidence of the chokehold of sanctions, is there are now increased cases of enforcement actions, where agencies are identifying ‘bad actors’ who are actively subverting sanctions controls, getting caught in the process of trying to supply computer chips, technology, tech services, or other industrial chemicals or products into Russia. And I’d say that is fairly evidentiary that sanctions are having a real impact because if you can buy it on the open marketplace easily, you wouldn’t have to be smuggling. We really do see the evidence that the sanctions are having effects.
Now, there’s a much larger question, and I think how I would answer is that sanctions aren’t necessarily the only and final solution. They are one component in international relations and trade, and certainly, they will have an influence in this conflict, but it’s not the only tool, and it can’t be the only approach to trying to deal with something like this by the International Community.
Nielsonsmith: Thank you for sharing your thoughts on this, Lloyd. And now, finally, looking ahead, what do you believe will be the most significant challenges and opportunities for companies operating in the life sciences sector in relation to sanctions and export compliance?
Lloyd: I think the most significant challenge is just keeping up with the pace of change. Prior to 2022, the sanctions environment evolved very slowly. When I started my career in international trade in 1997 up through 2022, the pace of change was very slow, and now Europe is getting ready to issue the 14th round of sanctions since this all began. Which is stunning; historically, that’s more change than has occurred in the last 50 years. So the pace of change is very intense, and it’s not only hard for us in the life sciences industry to keep up, but also for government agencies. So they are struggling to keep up, and our internal processes in a corporate sense. Inside the company, because the pace of change has been slow in the past, we don’t have good mechanisms internally, with our processing program updates to make changes quickly either. That has necessitated, at least where I’ve seen it and experienced it, some really unusual measures and steps we had to take, things that in a normal environment we might not choose to do, implementation of checkpoints and controls we wouldn’t have normally put into place in that way, but they were necessary, so we had to do something at a very quick pace. And now we’re working on starting to refine those so that they’re more business effective.
The other thing I would say, in terms of opportunity for us in life sciences, is to continue to press on, to find ways to support legitimate trade, remain compliant, and do the most good possible for the Russian and Belarusian people in a very difficult environment. I think all the nations involved in the sanctions effort have still found it important to try to preserve humanitarian support, humanitarian aid. We want the general citizenry to be able to have access to medical treatment, to medical care, and to other types of life sciences commodities that help and improve life. So that’s our opportunity, to patiently work through the process and try to continue to do business to the extent possible.
Nielsonsmith: Thank you for your input today, Lloyd. It was very interesting to hear your points of view and your expertise, and I’m hoping our readers found this useful and interesting. And I look forward to seeing you in Boston once again.
Lloyd: It’s going to be great. I’m really excited about the conference, and I look forward to participating. It’s such a great event with the size and the level of professionalism and engagement by the participants that is just outstanding. I feel I gained a lot from last year’s opportunities and really enjoyed it a lot, so I am really looking forward to joining together again.
Mr. Lloyd E.A. Porter,
Senior Director, Global Trade Compliance, Cook Group
Lloyd Porter joined Bloomington, Indiana-based Cook Group in 2015, and currently holds the position of Sr. Director, Global Trade Compliance. In this role, Lloyd supports Cook Group’s medical device, life sciences, services, aviation, and other group affiliate’s global operations. Lloyd has oversight and responsibility for all export, sanctions and import compliance programs in addition to Cook’s Anti-Boycott and Deemed Export programs. With over 25 years of background in international business and compliance, Lloyd’s trade career prior to joining Cook includes work in multiple manufacturing concerns additionally engaged in product development, global sales, distribution, logistics, and supply chain operations. His industry background includes medical device, life sciences equipment, aerospace, and military/defense sectors. Lloyd is a licensed United States Customs broker and Certified Customs Specialist (CCS), an ASQ Certified Quality Process Analyst (CQPA), and a trained ISO internal auditor.