Eliminate Compliance Concerns to Maximize Surplus Asset Recovery

June 18, 2015 By Jill Williamson

Jill Williamson

New developments in the energy sector are impacting organizations throughout the world. According to the US Energy Information Administration’s International Energy Outlook report, world markets for petroleum and other liquid fuels have entered a period of dynamic change — in both supply and demand. The potential for growth in demand for liquid fuels is focused on the emerging economies of China, India, and the Middle East, while liquid fuels demand in the United States, Europe and other regions with well-established oil markets seems to have peaked. These fluctuations, combined with recent tougher fuel regulations and new forms of alternative energy, are pushing energy industry leaders to strengthen their focus on the core business while diligently protecting the bottom line.

These changes are also impacting sellers and buyers of used energy equipment and capital assets — often referred to as the reverse supply chain. Organizations of all sizes have the ability to maximize value across the global supply chain by selling their used, idle and surplus assets. The secondary market has grown steadily over time, with companies becoming more comfortable selling their surplus and buyers readily purchasing used equipment. Business leaders have several options to manage their reverse supply chain, including maintaining an internal team or partnering with an expert provider. It’s important to keep in mind that with either method, it’s critical to manage risk and compliance issues through the entire process.

While the secondary market is an ideal way to maximize return for surplus assets, there are risks, and organizations must establish proper protocols when remarketing surplus equipment. A complex array of regulations may impact the management, valuation and sale of surplus, and without the right processes and expertise, the reverse supply chain can represent significant compliance challenges.

With the explosive globalization of the energy market, opportunities abound to buy and sell surplus capital assets, but international transactions also have their challenges. Comprehensive sanctions against Iran, Sudan, Cuba and Syria, and sectorial sanctions against the Russian petroleum industry have severely impacted the availability of upstream and downstream equipment. This increases the demand for such equipment and the risk that equipment is being purchased for illegal diversion for sanctioned uses. In addition to comprehensive and sectorial sanctions, the United State government, together with governments around the world, maintains lists of restricted parties — individuals and entities it is illegal to do business with unless government permission is obtained in advance. Governments and regulatory bodies maintain close watches on international trade and aggressively impose fines and pursue criminal prosecution against violators.

For example, just this March, Schlumberger was fined $232.7 million for activities violating the sanctions against Sudan and Iran. Situations like this can damage personal reputations and ruin companies. But fortunately, they can be avoided by focusing on several key compliance areas, including buyer vetting, trade regulations and proper training or trusted partnerships.

It’s important to always screen buyers before they can bid or purchase to ensure the surplus assets are never sold to the wrong individuals. Screening includes monitoring more than 200 global restricted-party lists that identify illicit buyers such as suspected terrorists, criminal enterprises, and targets of political and economic sanctions. Additional buyer vetting focuses on screening IP addresses (to block buyers in sanctioned countries), verifying identity and credit information (to confirm buyer identity and ability to pay), and requiring that buyers provide end-use certificate requirements for sensitive assets (this restricts buyers from transferring assets to illicit buyers or sanctioned countries). Each screening method further protects surplus assets — and business — from illegal parties.

Although most organizations are aware of compliance risk in the reverse supply chain, they may not know exactly what these risks are and how to address them. Their legal and compliance departments, focused on core business such as forward-flow risk analysis, may lack the resources to devote to this area. The recent $7.6 million fine levied against PayPal demonstrates the high price of inconsistent or inadequate implementation of existing compliance programs. Proper training is essential to avoid risk and compliance issues, and in many cases, businesses partner with skilled vendors who can provide extensive compliance services for their reverse supply chain activities.

These key areas — buyer vetting, trade regulations and training or trusted vendor partnerships — are vital first lines of defense against compliance issues in the reverse supply chain. With the right safeguards in place, energy industry leaders can successfully maximize surplus asset recovery and grow their businesses now and into the future.

Jill Williamson is the chief compliance officer at Liquidity Services, a global solution provider in the reverse supply chain. She leads the compliance and integrity efforts and facilitates efficient transactions with enhanced risk mitigation for clients around the disposal of their assets. Jill has specialization in the Foreign Corrupt Practices Act, the UK Bribery Act, global export control and privacy regulations. Jill holds her juris doctorate with honors from the University of Texas School of Law and graduated cum laude with her bachelor’s degree in management studies from the University of Maryland.

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