Failure to comply with the EUDR can lead to significant legal and financial consequences for companies.
Non-compliance isn't just about fines—it's about losing access to markets, facing severe reputational damage, and the operational impacts of non-compliant goods being confiscated or delayed. We discussed all of these in detail in a recent Understanding EUDR Penalties: 10 Business Implications of Non-Compliance article.
Facing the risks of non-compliance can be daunting, but these risks can be managed with the right preventive measures. By building a robust compliance framework, you can protect your company from legal consequences while safeguarding your reputation. Let's dive in:
Ensuring Legal Protection Against Supplier Non-Compliance
Minimizing legal risks means ensuring that suppliers adhere to EUDR standards, this is why companies need to be proactive in enforcing compliance across their entire supply chain.
If a supplier fails to comply, the legal and financial ramifications can fall on the companies they supply.
Implementing regular third-party audits and providing for contractual obligations that suppliers agree to participate in those audits is a crucial measure for ensuring supplier compliance. These audits provide an unbiased evaluation of the supplier’s adherence to EUDR requirements.
Regular audits can identify gaps or issues early, allowing companies to work with suppliers to address them before they become a compliance risk. Including third-party audits in supplier agreements ensures an additional layer of verification and reduces the risk of non-compliance penalties falling back on the purchasing company.
This proactive approach also demonstrates a company's commitment to responsible sourcing, which can enhance credibility and strengthen business relationships.
Conducting Legal Audits and Verifications for EUDR Compliance
Ensuring that supply chains are compliant with the European Union Deforestation Regulation (EUDR) requires ongoing legal audits and verifications.
These processes ensure that all obligations are met, from due diligence to document retention, providing a robust mechanism for identifying and mitigating risks related to deforestation-free sourcing.
Periodic audits and continuous monitoring of compliance are essential, particularly in high-risk areas. Companies must employ risk-based assessments that account for country-specific deforestation risks and other factors that may affect compliance.
How to Legally Audit Your Supply Chain for EUDR
Conducting a legal audit of your supply chain is essential for confirming compliance with EUDR standards. Key steps involved in this process include:
- Information Gathering: Companies need to collect specific information about all commodities and products throughout the supply chain, including geographic coordinates for the plots of land where the commodities are produced. This is a fundamental step in establishing traceability and verifying that no deforestation has taken place on the production land after December 31, 2020. The geographic coordinates must cover all production areas and be verified through regular audits to ensure accuracy.
- Risk Assessment: Once information is gathered, a thorough risk assessment must be conducted. This includes evaluating the potential for non-compliance and identifying any areas that require additional monitoring or documentation. Risk assessments should be ongoing and adjusted based on country-specific risks and the complexity of the supply chain. Special attention should be given to high-risk regions where deforestation is more prevalent.
- Risk Mitigation: If a risk assessment reveals more than a negligible risk of non-compliance, operators must implement risk mitigation procedures that are adequate to reduce the risk to a negligible level before placing products on the market. According to Article 11, these measures can include obtaining additional documentation, conducting independent audits, and supporting suppliers—particularly smallholders—with capacity building and investments. Operators are also required to have internal compliance systems, including model risk management practices, and appoint a compliance officer for non-SME operators. The decisions and processes involved in risk mitigation must be documented, reviewed annually, and made available to competent authorities upon request.
- Verification and Compliance Checks: Legal tools such as third-party audits and supplier assessments are vital to verifying compliance. Independent audits help ensure that data on production origins, contracts, and other supplier information is accurate and reliable. The development of an ongoing due diligence system and regular auditing of suppliers are recommended best practices to minimize risk. These audits should not only validate geolocation data but also evaluate whether suppliers are consistently meeting EUDR standards.
After conducting thorough audits, it is critical for companies to properly manage and retain compliance documents. Let’s explore best practices for reviewing and storing these important records to ensure audit readiness and long-term compliance.
Reviewing and Storing Compliance Documents
Proper documentation and storage are not only crucial for compliance but also serve as a safeguard against legal risks.
Under EUDR, operators are required to maintain extensive records to prove that their products are deforestation-free and comply with the legal requirements.
Key requirements for document retention
- Retention Period: All documents, including contracts, invoices, certifications, and geolocation data, must be kept for at least five years. This requirement applies to compliance checks and potential audits conducted by regulatory authorities, ensuring that all supply chain activities can be audited and traced if needed. Geolocation data, in particular, must be stored for the same five-year period to ensure that sourcing decisions can be verified at any time.
- Document Types: Companies should maintain comprehensive records that include product descriptions, trade names, scientific species names, and all transactions within the supply chain. Supporting documents such as shipping records, customs forms, and tax receipts are crucial in demonstrating compliance with EUDR standards. It is recommended that both physical and digital records be kept to meet EUDR requirements and facilitate audit readiness.
Best practices for document management
- Digital Storage Systems: Using digital document management systems can enhance document integrity and ensure that all records are easily accessible during regulatory inspections.
- Periodic Internal Reviews: Conducting regular internal reviews and updates to the documentation helps maintain compliance and ensures that records meet the latest EUDR requirements. Such reviews ensure that the latest updates to EUDR standards are integrated into the documentation process, reducing the risk of non-compliance.
By implementing robust auditing, verification, and documentation practices, companies can protect themselves against potential non-compliance risks and contribute to the broader goal of reducing global deforestation.
EUDR Compliance with TradeAware and CMS
The TradeAware solution provides advanced monitoring and helps companies meet their due diligence obligations under the EUDR. The partnership between CMS and LiveEO represents a comprehensive approach to EUDR compliance. By integrating legal expertise from CMS with the technological capabilities of LiveEO, companies can navigate complex regulatory requirements more efficiently and effectively.
Introduction to CMS
CMS is a leading global legal firm with extensive experience in environmental regulations, including EUDR. With over 100 professionals across multiple countries, CMS offers a robust support network to guide companies through their compliance challenges from a legal perspective.
Key Services of CMS:
- Supplier Checks: CMS reviews suppliers on their EUDR-compliance.This includes the assessment of documents and answers provided by suppliers, categorize suppliers into several risk categories and recommendations for action.
- Legal Training: The company provides webinars and client sessions to help companies understand their obligations and how to implement them effectively.
- Compliance Advisory: CMS advises companies on adapting their existing processes to meet EUDR standards.
- Due Diligence Implementation: CMS supports businesses in implementing effective due diligence processes that align with EUDR requirements.
Companies selecting TradeAware to meet EUDR requirements therefore benefit from:
- Geospatial Monitoring: Through LiveEO's satellite technology, TradeAware provides real-time geospatial data, which helps verify the deforestation status of production areas. This ensures that commodities comply with EUDR’s deforestation-free requirement.
- Legal Compliance Layer: CMS enhances the capability of TradeAware by conducting thorough legal reviews that ensure due diligence obligations are correctly adhered to. Drawing on extensive experience, CMS evaluates compliance with EUDR requirements, including information gathering, risk assessment, and risk mitigation. As part of the partnership with TradeAware, their services also involve assessing existing compliance strategies and recommending further actions where necessary. This legal support complements TradeAware’s platform, helping businesses streamline their processes to efficiently meet EUDR standards.
- Streamlined Compliance Process: TradeAware offers a user-friendly platform where businesses can upload geolocation data, assign suppliers to provide necessary documents, and generate compliance-ready due diligence statements. This system also allows companies to perform additional checks on samples of due diligence data, adding an extra layer of verification.
This integrated approach not only makes it easier for companies to comply with EUDR but also offers a streamlined process for ongoing monitoring and verification.
Ready to ensure your supply chain is EUDR compliant? Contact us today to learn how TradeAware can simplify your compliance process and optimize your compliance to secure your market position in the EU.
This article is Part 4 of the series. Be sure to explore the other articles for a complete understanding of the EUDR and how to ensure your supply chain meets its stringent standards:
