The Importance of Compliance: A Case Study

“Do this, don’t do that, can’t you read the sign?”
– Five Man Electrical Band

“911, What’s Your Emergency?”

That Friday morning started as any other . . . get up, work out, head to the office, drink a couple (four) cups of coffee, prepare a triaged list of pressing items for the day, and then get going. About 45 minutes into the first task, that list was disrupted when I received a call from a frantic new client:

“Hey Chris, we just had an ICE agent show up at one of our facilities.”

“What happened?!!?”

“He said some of our product had been intercepted by CBP (Customs & Border Patrol) which contacted him to investigate further.”

“Did he tell you why the product had been intercepted?”

“He provided some paperwork detailing the issues and said he’d be back the following week.”

“Okay, please forward the paperwork and contact info and I’ll give him a call.”


I received the paperwork shortly afterward and noticed the issues centered around claims that the manufacturer had mislabeled its products in violation of applicable regulations.

We quickly advised the Asia-based manufacturer of the issue and instructed it to stop all shipments while we conducted our own investigation. This is when I discovered the company had only recently moved production to this new facility.

The manufacturer was incredulous, responding that it had produced the same product for numerous U.S.-based companies without any prior issues of non-compliance, further promising to provide copies of a third-party certification of compliance as well as the design drawings and product photos.

Meanwhile, at the Hall of Justice . . .

While waiting for the documentation, I enlisted a former federal prosecutor with significant customs experience to join our team and provide guidance as to the seriousness of the investigation. We then contacted the ICE agent together to get more background on CBP involvement and requested an extension to conduct our own internal investigation.

We established a good rapport with the agent and he graciously gave us the following week to learn more. He also provided the contact information for the CBP counsel directing the inquiry, as he himself had little information except for the paperwork initially provided.

Later in the afternoon, we received the design drawings, photos and certificate of compliance from the manufacturer. After reviewing the drawings and photos, I pulled the relevant regulations and discovered there was in fact labeling non-compliance. And the certificate? Hmm, where to begin? Unfortunately, it was: (1) replete with typos and grammar issues; (2) issued by an Illinois-based company that we discovered had been involuntarily dissolved five years earlier; and (3) using an address that was listed online as a residential condominium for sale. In other words, the certificate was not very credible.

I immediately notified the company of the findings, who in turn notified the manufacturer. The manufacturer remained incredulous, reiterating the claim of no prior compliance issues with other U.S.-based businesses. Notwithstanding, it promised to immediately prepare and forward compliant design drawings for the company’s approval . . . which we of course reviewed and ultimately approved.

I then contacted the ICE agent to explain everything, advising there should be no further issues but to let us know otherwise (as if they wouldn’t!). We received confirmation from the Department of Homeland Security, through the ICE agent, that they would no longer be investigating the labeling issue. We then followed up with CBP and confirmed all remaining issues had been resolved for the time being.

Since then, products with the new labeling in place have been passing customs with flying colors, and life is good.

Moral of the Story

Simply put, had the company initially understood the specific regulations governing the labeling of its product and then reviewed the design drawings to ensure compliance with these regulations—rather than simply rely on dubious certifications—all of this could have been avoided.

All businesses are required to adhere to some level of legal and regulatory compliance obligations. It is important to fully understand these obligations and the possible repercussions you could face if the requirements are not met. For example:

  • As the above example illustrates, failure to comply with import/export laws can lead to product seizures, investigations and sanctions.
  • Failure to comply with employment laws can lead to EEOC investigations, claims and lawsuits.
  • Failure to comply with product-based regulations could result in sanctions, including removal of your product from the market.
  • Failure to comply with cybersecurity laws could mean sanctions and other losses in the event of a data breach.
  • Failure to comply with environmental regulations could mean investigations and devastating remediation orders.
  • Failure to comply with antitrust, anti-corruption or securities laws could result in a visit from the Department of Justice.

Each year, non-compliance costs manufacturers billions of dollars in reputation, lost business and civil and criminal sanctions, among other things. To avoid these missteps, leading companies typically hire a Chief Compliance Officer (CCO) to oversee compliance activities and alert senior management of systemic non-compliance issues, major regulatory changes, and the impact those can have on both developing and marketing products. These officers serve as proactive “Doppler radars” for companies to ensure that senior managers know what is going on in order to make educated decisions.

Even small- and mid-size companies are increasingly engaging compliance resources such as Preventive Lawyers, who can provide guidance and oversight from the earliest research and development stages to the very end of the product lifecycle. This involves identifying relevant applicable laws and regulations, generating buy-in for compliance initiatives, developing written policies and then regularly training company personnel on these policies in order to convey specific requirements, updates and best practices.

All of this contributes to a culture of compliance, where legal and regulatory exposures are incorporated into day-to-day business decision-making. And when an investigation or lawsuit invariably commences, you can confidently demonstrate to that investigating body:

  • Our company has written policies governing such infractions;
  • We regularly educate our managers on these policies; and
  • We have a culture of compliance with the laws and regulations governing our industry.

It should go without saying that this can and does minimize exposure to worst-case outcomes.

As one of the nation’s only practices focused exclusively on Preventive Law, KEEFER is skilled at identifying compliance requirements and developing and implementing policies that are relevant to your business.

KEEFER is your ounce of prevention.

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