Trust is the foundation of any successful relationship. In a business context, trust is the confidence one entity places in the reliability, integrity, and conduct of another. Yet, in an environment where commercial crime continues to rise, trust has become a commodity with a very real financial value. Entering into a business relationship with an entity that merely appears trustworthy can expose a business to significant financial, regulatory, and reputational risk. It is therefore imperative that you ensure, to the best of your ability, that each participant in your supply chain is legally compliant. If they allege they are licensed and/or registered with SARS, request a copy of the license or proof of registration.

One of the core functions of the South African Revenue Service ("SARS") is to secure revenue for the fiscus. As it is impractical for SARS to perform every function within the customs and excise value chain itself, so SARS relies on various industry participants to fulfil key roles. These include clearing agents, warehouse operators, licensed removers of goods in bond, shipping lines, and other licensed and/or registered entities. However, where something goes wrong, it is often these licensed and registered entities that SARS will hold accountable.

Consider the following example. Entity A is licensed and registered with SARS under the Customs and Excise Act, 1964 ("the Act"). Entity B, which is neither licensed nor registered with SARS, approaches Entity A to perform customs-related services. In an effort to secure a new client, Entity A agrees to act as both clearing agent and importer of record for Entity B. Entity B completes the relevant documentation and Entity A proceeds with the customs clearance process.

When the goods arrive in South Africa, SARS detains the shipment. Initially, Entity A assumes the detention forms part of a routine customs inspection. However, SARS subsequently advises that the goods contained in the shipment are materially different from those declared on the bill of entry. At this point, Entity A, as the importer and agent reflected on the customs documentation, faces exposure to customs duties, VAT, penalties, interest, forfeiture and potentially having its licenses and/or registrations cancelled as well as potential prosecution. Entity B, meanwhile, may simply disappear, leaving Entity A to bear the consequences.

In an increasingly competitive commercial environment, it is more important than ever for businesses to assess the reliability, legitimacy, and compliance history of their trading partners. The risks associated with dealing with the wrong entity can far outweigh any short-term commercial benefits.

Entities that are licensed or registered with SARS must clearly understand the extent of their legal obligations and potential liabilities. Equally important is ensuring that staff members are properly trained, understand the risks inherent in customs-related transactions, and appreciate the consequences of non-compliance. Sound risk management practices are essential.

Appropriate checks and balances should be implemented throughout the business transaction. Documentation received from seemingly reputable clients should not simply be accepted at face value but should be carefully reviewed and verified. Where circumstances warrant, entities assuming potential customs liability should request a copy of their trading partners' customs license and/or proof of customs registration; where necessary, advance payment could be requested to cover any possible exposure arising from the transaction.

Particular caution should be exercised in industries traditionally regarded as high-risk, including clothing, textiles and excisable products. These sectors often attract criminal activity due to the high customs and excise duties applicable to the products concerned. As a result, both SARS and criminal syndicates frequently focus their attention on these industries, with unsuspecting intermediaries often becoming caught in the middle.

As a general principle, SARS-licensed and registered entities should transact only with other appropriately licensed or registered parties. For example, where an entry for removal in bond is processed, the remover reflected on the customs documentation should be a licensed remover of goods in bond as required by the Act. Similarly, if that licensed remover subcontracts the transportation function, the subcontractor should also hold the requisite SARS license.

Perhaps the most important rule of all is one that is frequently overlooked: never allow another entity to make use of your customs code, license, registration, or financial security. Every licensed and registered entity must take reasonable steps to secure its position within the supply chain and to protect itself from avoidable risk. Exercising caution, conducting proper due diligence, and ensuring that employees understand the risks of dealing with unlicensed, unregistered, or unknown parties can significantly reduce exposure to costly disputes and regulatory action.

In customs and excise matters, trust should never replace verification. Businesses that take the time to know their customers, understand their supply chains, and implement robust compliance controls are far less likely to find themselves liable for someone else's misconduct.