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Merck Case Study


									Securing Merck`s worldwide supply of chemical
products –
Supply chain security versus trade facilitation

                                                  Page 1
“Securing Merck`s worldwide supply of chemical
products – Supply chain security versus trade

         The aim of the case study is to show
         how new legal requirements can be
         implemented smoothly and put into
                practice appropriately.

                                                 Page 2
             Manufacture of Cocaine
Approximate Quantities Required for the Manufacture of
             100 kilograms Cocaine-hcl

     Coca Leaf
                                        Sulfuric Acid
                                        (100 to 400 liters)

    Coca Paste                         Potassium Permanganate
                                       20 kilograms

                                       Acetone/ Ethyl Ether/
   Cocaine Base                        Methyl Ethyl Ketone/
                                       (1500 to 2000 liters)

                                       Hydrochloric Acid
Cocaine Hydrochloride                  (30 liters)
   (100 kilograms)
                                                                Page 3
Dual-Use – Australia Group
BAFA Einschätzung Kampfstoffe.xls

No       Product Name                       Chemical Warfare/ Reason for Control
803273   Synthesis                          Production of VM and VG (both related to VX )
814310   for Synthesis                      Production of VM and VG (both related to VX )v
814553   for Synthesis                      Production of VM and VG (both related to VX )
         2-BROMACETOPHENON for
801658   Synthesis                          Related to Omega-Chloracetophenon (Teargas)
800945   2-CHLORETHANOL for Synthesis       Sulfuric Lost (Mustard Gas), Nitrogene Lost (N-Lost )
         3,3-DIMETHYL-2-BUTANON for
841645   Synthesis                     Soman
         AMMONIUMHYDROGENDIFLUORID     Sarin, Soman, Ethylsarin,
450182   GPR(TM)                       Methylphosphonsäurecyclohexylester
         AMMONIUMHYDROGENDI-           Sarin, Soman, Ethylsarin,
101160   FLUORIDE pure                 Methylphosphonsäurecyclohexylester
         AMMONIUMHYDROGENDIFLUORID     Sarin, Soman, Ethylsarin,
458027   TECHNICAL                     Methylphosphonsäurecyclohexylester
870348   ARSENTRICHLORID               In former times arsen was the basis for chem. warfare
         ATROPINSULFAT KRIST. PH       Atropine Sulfate is an Antidot against Sarin as well as
101575   EUR,BP,JP,USP                 against E 605 (=civil use)
                                       Atropine Sulfate is an Antidot against Sarin as well as
159508   ATROPINE SULFATE              against E 605 (=civil use)
800140   BENZILIC ACID FOR SYNTHESIS   Production of BZ ( Psychological warfare)
         DIETHYL-2,2-DIETHOXY-         Sarin, Soman, Ethylsarin,
841509   ETHANPHOSPHONAT for Synthesis Methylphosphonsäurecyclohexylester
800555   DIETHYLPHOSPHIT for Synthesis Sarin, Soman
803646   DIISOPROPYLAMINE              Production of VX

                                                                                                    Page 4

           Page 5
Research, Education,Training

                               Page 6
Products, Labels, Brand
Easy to recognize – it´s Merck
Subject to product piracy and imitation

                                          Page 7

           Page 8
Our Customers

                Page 9
Supply Chain

               Page 10
Partnership Programmes

Australia   1991 Frontline

Canada      1995 Partners in Protection

USA         November 2001
            Customs-Trade Partnership against Terrorism (C-TPAT)

Sweden      2002 Stairway und 2004 Stairsec

EU          2005 Authorized Economic Operator (AEO)

                                                                   Page 11

• World Customs Organization (WCO) June 2005
   – „Framework of Standards to Secure and Facilitate Global Trade“

• European Union May 2005
   – Regulation (EU) 648/2005 Community Customs Code

• Implementing Provisions (by end of 2006)

                                                                      Page 12
WCO - Framework of Standards to Secure and
Facilitate Global Trade -

Standard 1 – Partnership
  Authorized Economic Operators involved in the international trade
  supply chain will engage in a self – assessment process measured
  against pre-determined security standards and best practices to
  ensure that their internal policies and procedures proved adequate
  safeguards against the compromise of their shipments and containers
  until they are released from Customs control at destination.
Standard 2 – Security
  Authorized Economic Operators will incorporate pre-determined
  security best practices into their existing business practices.
Standard 3 – Authorization
  The Customs administration, together with representatives from the
  trade community, will design validation processes or quality
  accreditation procedures that offer incentives to businesses through
  their status as Authorized Economic Operators.

                                                                         Page 13
WCO - Framework of Standards to Secure and
Facilitate Global Trade -

Standard 4 – Technology
  All parties will maintain cargo and container integrity by facilitating the
  use of modern technology.
Standard 5 – Communication
  The Customs administration will regularly update Customs-Business
  partnership programs to promote minimum security standards and
  supply chain security best practices.
Standard 6 – Facilitation
  The Customs administration will work co-operatively with Authorized
  Economic Operators to maximize security and facilitation of the
  international trade supply chain originating in or moving through its
  Customs territory.

                                                                                Page 14
Required Standards

•   Use of international standards
•   Pre Arrival Clearance
•   Expedited Procedures for Express Shipment
•   Risk Management/Analysis, Authorized Traders
•   Post-Clearance Audits
•   Separating release from Clearance Procedures

                                                   Page 15
Required Standards

• Publication of Fees and Charges and Prohibition of
  Unpublished ones
• Periodic Review of Fees and Charges
• Limitation of Inspections and Controls as the result of risk
• Right of Appeal
• Use of Computerized systems to Reduce/Eliminate
• Elimination of Pre-Shipment Inspections

                                                                 Page 16
            New Customs Code

• Customs related security initiatives of the EU
• EC Regulation 648/2005 and its implementing provisions
• Customs Security Program (CSP)
• Authorized Economic Operator (AEO)
• Transport related security initiatives of the EU
• Security cooperation with third countries
• Agreement with the United States of America on intensified
  customs co-operation on Container Security
• EC-U.S. Expert groups
• Co-operation on supply chain security with China

                                                               Page 17
New Customs Code

                   Page 18
US Rules

• Security rules - US import

                               Page 19
US Rules

• Abriviations

                 Page 20
The Approach of Merck

• Trade Compliance and Export Control Policy
  – Clearly defined roles and responsibilities

• State of the Art IT-Support
  – Global Trade Services - GTS

                                                 Page 21
Merck Policy

•   National and international regulations restrict or prohibit the import, export or
    the domestic trade with goods, technology or services, the use of designated
    products as well as the movement of capital and payments. The restrictions
    and prohibitions may result from the character of the product, its country of
    origin or end use or from the identity of the business partner.
•   Trade and production control regimes are a key concern for globally operating
    companies given the serious implications non-compliance with the relevant
    regulations may have.
•   Penalties with significant economic impact, criminal sanctions, the suspension
    of privileges in legal trade and the loss of reputation may be the consequence
    as well as the debarment from governmental tenders.
•   Therefore it is of utmost importance to maintain a sophisticated control
    organization with clearly defined roles and responsibilities in every Company
    of the Merck Group (CMG).
•   Foreign trade activities as well as the domestic trade with critical products
    require extensive practical knowledge and operational excellence.
                                                                                        Page 22
Merck Policy

Relevant Legislation:
•   Drug Precursor legislation
•   Dual-use goods regulations
    (Australian Group, Nuclear Suppliers’ Group –NSG, Missile Technology
     Control Regime – MTCR)
•   Chemical Weapons Convention CWC
•   United Nations Actions Against Terrorism, Embargo Conventions
•   Single Convention on Narcotic Drugs
•   Rotterdam Convention – Import and Export of Dangerous Chemicals
•   Montreal Convention on Ozone Depleting Substances
•   US-Legislation with International Impact (Extraterritoriality principle, re-export
•   Additional national regulations

                                                                                    Page 23
Merck Policy

The Merck management will take all necessary measures to avoid legal
offences and bad publicity. This includes the policy that Merck will – if
there is any doubt – rather let a business deal go than to take the risk of
misuse and resulting liability.
All employees of the Merck Group are liable to comply with the relevant
legal regulations and the Merck guidelines. When evaluating the risk of a
not listed dual-use good not the good itself but the intended end use by
the customer is of relevance.
It is the goal of Merck to be the partner of control and not the target of
control. Therefore cooperation with competent authorities and the
awareness for active voluntary compliance are the key for success.
Export control is a management issue.

                                                                              Page 24
Merck Policy

Superior responsibility for legal compliance:

•   Assigning the right persons with control functions
•   Maintaining a proper and efficient organization
•   Providing necessary training and education
•   Reporting incidents immediately to Darmstadt Headquarters

                                                                Page 25
Merck Policy

Foreign trade activities as well as the domestic trade with critical products
require the nomination of a responsible person within the organization:

             The Trade and Export Compliance Manager.

                                                                           Page 26
 Merck Policy

The CMGs executive body appoints the Trade and Export Compliance Manager

• He or she is responsible for all organizational measures to ensure the company’s
  compliance with the relevant regimes
• He or she is the responsible contact person regarding all questions originating
  internally and externally
• He or she is in particular in charge to create and update the CMG control
  procedures with regard to the control regimes.
• As far as the control subject is affected, the manager is even outside his own
  hierarchic structure authorized to execute the necessary measures.
• He or she is allowed to delegate particularized tasks. This delegation is
  continuously reviewed and subject to audits.
• Adequate management level
• Meeting the general acceptance of the management

                                                                                    Page 27
Merck Policy

Within Merck KGaA executive board ……… is the appointed person for
Trade Compliance. He is personally responsible for the compliance with the
export control regulations. He has delegated particularized tasks to the
export control unit within the central function …………of Merck KGaA in
Darmstadt: Export Control & Customs Regulations ECR.

ECR has a corporate control function regarding trade and production control
regimes. ECR has also the duty to support the entire organization. ECR
cannot substitute internal control systems or management responsibilities,
but it can give consulting services and training to the operative business
concerning the improvement of process efficiency and effectiveness. All
topics concerning trade and production control can be raised with ECR.

                                                                        Page 28
Organizational requirements

• Buildup of a Virtual Organisation

                       Global Function Export Control
                       & Customs Regulations (Headquaters)

 Trade Compliance           Trade Compliance   Trade Compliance
 & Export Control           & Export Control   & Export Control
 Manager                    Manager            Manager

country 1/CMG*               country 2/CMG*    country 3/CMG*

*CMG = Company of the Merck Group

                                                                      Page 29
The role of the Trade Compliance and
Export Control Manager

• Aligning the general control policy – deducted from the company’s
   General Code of Conduct
• Establishing a proper general control programme
• Laying down rules and guidelines for education and training
• Laying down the organizational structure
• Fixing the binding process organization
• Selecting of proper staff
• Performing internal audits
• Interface to the competent authorities
• Cooperation with industry councils

                                                                      Page 30
Rules and Responsibilities

•   Raising awareness for active voluntary compliance
       – Internal rules and guidelines how to deal with suspicious
         enquiries and how to report suspicious facts to the
         competent authorities

                                                                     Page 31
Rules and Responsibilities

•   Rules for the role out of new products
       – Network plan technique
               Customs tariff classification
               (export) control classification
               Only authorized staff may update the relevant master data
               New products are blocked until the control classification is done
       – Cross check of all existing products in the case of legal changes/
         updates of the control lists
•   New customers
       – Maintaining a screening system regarding the restricted person lists
         “Know your Customer”

                                                                                Page 32
Detailed topics

• Order processing
   – How to recognize that a licence is obligatory
   – Regulatory holds, red flags
   – Only well trained and authorized staff shall release blocked orders
     for delivery (IT-authorization concept )
   – Even shipments of samples (new business) are subject to control

• Quality management system – documentation
   – Rules/Guidelines
   – Standard operating procedures
   – Interface documents

                                                                           Page 33
Main Tasks

• Education and training
   – Tailor made training programmes for
      • Management
      • Order processing
      • Customer service units
      • Product managers
      • Research and development units
   – Documentation
      • Annual compliance report

                                           Page 34
Main Tasks

 • IT-Support
    – General rules for customizing

    – Archiving rules for relevant transactions

    – Authorization concepts

    – Approval of User Requirement Specification

 • Documentation
    - Record keeping, periodic reports to competent

 • External Audits
    – Support service for external auditors and inspectors   Page 35
State of the Art IT-Support
Global Trade Services - GTS

• In global business there is the need to
   – comply with local and global laws
   – satisfy trade security measures
   – meet documentation requirements
   – understand complicated tariffs
• This cannot be handled manually anymore as the risk of
  failure can be very costly
• The functionality of the ERP system is not sufficient
• The GTS Software Application offers this functionality

                                                           Page 36
What is in the scope of GTS?

                                 GTS is to ensure the smooth
                                 process of the flow of goods
                                 across borders

 Compliance Management
 …for the compliance of complex international regulations
 Customs Management
 …for the realization of an efficient customs handling
 Risk Management
 …for the usage of privileges and refunds in the international trading
                                                                         Page 37
System Landscape

• GTS is a central system
• It works on its own server
• All regional productive ERP* systems will be connected to
  one central, global productive GTS system
• It will fit into the Global Merck IT-Program TEMPO
• A 24 hours support from the technical side is guaranteed

*Enterprise Resource Planning

                                                              Page 38
 System Landscape

  Implementation of Global Trade Services (GTS) in order to use
  special functionalities for import and export control and to avoid
  gaps and modifications within existing ERP system.

Corporate                                 MDM
                                                                                Program functions:
    Global                        EH&S                                          • receive requests from ERP systems
                                                      GTS                         (e.g. customer order entry)
    (Data distribution,
                                                                                • check centrally
     data checking)                                                             • send back flag about checking result
                                                                                • maintain master and control data
                                                                                • customs notifications
                                                                                • reports
                                                                                •Interface to authorities
    (Operations)          ERP    ERP               ERP             ERP                           MDM = Master
                          Asia   Europe         Latin America   North America                    Data Management
                                                                                                 EH&S =
                                                                                                 Health & Safety

                                                                                                                   Page 39
What is in the scope of GTS

• Compliance Management:
  – The Sanctioned Party List (SPL) screening = Lists with persons,
    organizations and institutions with potentially terroristical
    background => business contacts are forbidden
  – The Export Control = products which require a license in order to
    be sold (e.g. Dual Use article, narcotic drugs etc.)
  – The Import Control = products which require a license in order to
    be purchased (e.g. Dual Use article, narcotic drugs etc.)

                                                                        Page 40
How does the Compliance
Management work?

• The GTS will be contacted during the creation or change
   – the customer master
   – the vendor master
   – the material master
   – a sales order
   – a delivery
   – a purchase order
• Plant Access
• If necessary the above described objects will be blocked
  for a further processing and can be released.
                                                             Page 41
Benefits of GTS

• Automated processes replace manual ones which are
  prone to error
• Better usability for the user
• Good data quality
• Efficient processes, as far as possible automated

           GTS will decrease the workload for the
                employees and guarantees the
  required             legal compliance

                                                      Page 42
• Automated processes replace manual ones which are
  fault-prone                         IT-Sytem Global
                                      Trade Services

• Better usability for the user
• Good data quality
• Efficient processes, as far as possible automated

            GTS will decrease the workload for the
                                        IT-Sytem the
                 employees and guarantees Environment
   required             legal compliance Health & Safety
 Dangerous Goods

                                                           Page 43
“Securing Merck`s worldwide supply of chemical
products – Supply chain security versus trade

Industry – in cooperation with national authorities – already provides a
high level of security. This is due to the natural self–interest of all
companies which want to get their services and products safely to their
destinations. Transport security is a key parameter for competitiveness
already being observed in a responsible manner and with comprehensive
measures by forwarding companies and the transport industry. In
particular the more stringent standards required by the insurance industry
in the aftermath of the terrorist attacks in Madrid and New York have
resulted in high standards being introduced.
For industry, effective terrorism protection means that measures must be
proportionate and based on a risk assessment taking into account market
realities of supply chains i.e. be geared to the potential level of risk
involved for an individual company of infrastructure.

                                                                             Page 44
New Challenges – Explosive Precursors
IB 2006-4 (Threat Card Bulletin).pdf
IB 2006-4-1 (Threat Card).pdf

                              The Brussels Conference on Explosives
                                       9 and 10 October 2006
     General background
The use of explosives has been the most common method used by terrorists. Recent
 terrorist attacks, and the recently foiled terrorist plot in London, confirm the need to do all
 that is necessary to prevent terrorists, or those who support them, from getting hold of
 such dangerous material.
The Commission considers that EU's policy approach must be extensive and one that
 involves, control of substances used for constructing Improvised Explosive Devices (IEDs),
 regulation of commercial explosives (including the reporting of suspicious transactions),
 marking of explosives, stronger security constraints for transport and storage, the use of
 technology to detect, tag and track explosive material, information sharing and
 investigative support.
The complementarity of public and private measures is crucial to a successful policy in
 this area. With the pooling of efforts by all concerned Commission aims at preparing a
 comprehensive EU-wide plan for the enhanced security of explosives in Europe in which
 industry and the research community become vital actors in the process.

                                                                                                   Page 45
“Securing Merck`s worldwide supply of chemical
products – Supply chain security versus trade

          Thank you for your attention!

Karlheinz Schnägelberger
Director Export Control
& Customs Regulations
                                                 Page 46

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