Thought Leadership

Christopher Salmon

Chief Executive

Brief Overview

AI is transforming global trade compliance by automating tariff classification, export-control research, and sanctions screening. Yet, AI outputs are not infallible: “hallucinations”, outdated information, and data privacy risks persist. Human oversight is therefore essential to verify outputs, interpret nuance, and safeguard sensitive information. Firms that embed AI governance alongside compliance strategies can harness efficiency and insight while avoiding regulatory missteps and protecting proprietary assets.

Key Insights

  • AI accelerates compliance — but doesn’t ensure accuracy
    AI can quickly analyse regulations, classify products, and screen counterparties, but its outputs may be incomplete, misleading, or outdated without warning.
  • “Hallucinations” pose real commercial and legal risk
    Plausible-sounding but incorrect advice on HS codes, export licensing, or sanctions can result in shipment delays, fines, or enforcement action.
  • Regulatory knowledge must be current and contextual
    Trade regulations change frequently and vary by jurisdiction. AI tools often lack real-time updates and cannot reliably interpret end-use, intent, or geopolitical nuance.
  • Data privacy is a hidden compliance exposure
    Feeding proprietary contracts, technical data, or supplier information into cloud-based AI tools can breach confidentiality and internal governance policies.
  • Human oversight is non-negotiable
    Experts are required to validate AI outputs, interpret regulatory nuance, assess edge cases, and ensure decisions are grounded in authoritative sources.
  • Governance turns AI into a strategic advantage
    Clear rules on AI usage, verification protocols, escalation thresholds, and data handling reduce risk while preserving efficiency gains.
  • Regulators expect human accountability
    Emerging frameworks (including AI-specific regulation) reinforce the need for explainability, auditability, and human responsibility in high-risk compliance decisions.
  • AI should augment judgement — not replace it
    The most resilient trade compliance models position AI as an analytical assistant, with humans retaining final decision-making authority.

Artificial intelligence is rapidly transforming how multinational companies navigate the complex terrain of global trade and borders.

From large language models like ChatGPT and Claude to more specialised AI tools used for regulatory research; AI is being deployed to accelerate tariff classification, customs compliance, export‑control checks, sanctions screening, and more. For boardrooms and compliance leaders, AI promises faster insights, scalable analysis, and reduced manual workload across classification, documentation, and due diligence processes. 

Yet this carries parallel risks. Generative AI can sometimes produce plausible but inaccurate outputs: a phenomenon widely documented as “AI hallucinations.” In regulatory and trade contexts, even small errors in classification, licensing advice, or restricted-party screening can have significant material consequences, from delayed shipments to negative reputational and legal exposure. Furthermore, the use of sensitive or proprietary information in AI prompts raises potential questions around data privacy and confidentiality.

These challenges only underscore the criticality of human oversight. While AI can process large volumes of information rapidly, nuanced judgment, contextual expertise, and knowledge of evolving regulations remain indispensable. Effective AI adoption in trade compliance depends on integrating humans in the loop, validating outputs, and enabling strategic decisions – using AI as a tool (not a substitute) for professional trade compliance judgement.

Why this matters

Trade leaders risk costly errors if AI outputs are treated as authoritative without verification. Human-in-the-loop oversight ensures classification, export-control, and sanctions decisions are accurate, compliant, and context-aware. Embedding AI governance alongside compliance strategies protects sensitive data, mitigates regulatory risk, and turns automation into a strategic advantage.

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How AI is being used in trade and compliance

Companies are increasingly leveraging AI across multiple touchpoints in cross-border trade operations. Some of the most prevalent applications include:

  • Automated tariff classification: AI tools are used to analyse product descriptions, specifications, and codes (such as HS or ECCN), in order to suggest classification for customs and export‑control purposes.
  • Document summarisation: AI can condense lengthy regulatory texts, trade agreements, and compliance bulletins, allowing teams to quickly identify relevant obligations.
  • Sanctions and restricted-party screening: machine learning models may be used to flag high-risk entities – reducing manual checks and enhancing monitoring of suppliers, intermediaries, and counterparties.
  • Predictive analytics for trade and logistics: AI models can forecast duties, tariffs, and potential bottlenecks in supply chains, thereby supporting more accurate cost planning and risk mitigation.
  • AI-assisted due diligence: generative and analytical AI tools can also support investigations into new trading partners or joint-venture opportunities.

These applications illustrate how AI is reshaping day-to-day trade and compliance workflows; however, as these capabilities expand, so too does the need for verification, governance, and human oversight.

Inaccuracies, hallucinations, and misleading results

AI tools – particularly large language models (LLMs), like ChatGPT or Claude – are increasingly used to support trade compliance, but their outputs are known to be unreliable, inaccurate, or totally incorrect at times. 

One of the most widely discussed phenomena is “hallucination”: where the model generates a response that initially appears plausible, but is factually incorrect or misleading. This happens because LLMs are designed to be statistically-driven text generators; not to actually “understand” the text they produce, or the nuanced relationships between words and contexts. 

Several factors can contribute to AI-embedded inaccuracies:

  • Training data limitations: AI models are only as current as the datasets they were trained on. LLMs may lack real-time access to constantly updated trade regulations, customs schedules, or sanctions lists.
  • “Black-box reasoning”: there is usually little-to-no user visibility into how deep learning systems arrive at decisions or conclusions, so outputs lack transparency. Users cannot always trace why a model assigned a particular classification or recommendation, for instance.
  • Biases and gaps: LLM models may reflect biases present in training data, potentially prioritising certain interpretations or patterns that do not match the guidance that would be offered by a human expert.
  • Data privacy risks: when proprietary or sensitive contractual information is input, it could be exposed to cloud AI systems in ways that breach confidentiality or internal data handling policies.

Examples of AI inaccuracies (and what they tell us)

Even the most capable AI models have the potential to produce outputs that look superficially correct, but are ultimately flawed – or even erroneous. The following examples illustrate how errors can occur, and why human oversight remains indispensable.

Example 1: AI tariff code misclassification

  • Prompt (input):

“Provide the HS code for a lithium-ion battery pack for a medium-sized electric vehicle.”

  • AI output:

“HS 8507.60 – Electric accumulators, including separators.”

  • Human-expert analysis:

The code suggested exists, but it does not fully capture the specific dual-use considerations for automotive battery modules and may not align with certain regional tariff schedules (e.g., EU Combined Nomenclature, or the US Harmonized Tax Schedule). AI has missed a nuance in the product description, failing to account for context such as application, component integration, or regulatory alerts.

→ Lesson: AI can accelerate progress, but cannot entirely replace domain expertise and verification against official schedules. Human review is essential to avoid misclassification penalties or duty miscalculations.

Example 2: AI export control query 

  • Prompt (input):

“Does exporting a 3D-printed UAV wing to Singapore require a UK export licence under current dual-use regulations?”

  • AI output:

“No licence is required as Singapore is not listed under restricted destinations for dual-use aerospace components.”

  • Human-expert analysis:

This advice is outdated and incomplete. UK dual-use regulations are updated frequently, and export control may depend on materials, technology level, or end-use restrictions. AI lacks real-time access to ECJU notices or UK Export Control Order amendments. Misinterpretation here would expose a company to compliance risk.

→ Lesson: while AI provides a starting point, up-to-date regulatory knowledge and contextual assessment are critical. Again, experts must validate outputs.

Example 3: Privacy risk / data leak 

Prompt (input):

“Summarise the export-control obligations from this internal supplier contract and provide licensing recommendations.” (Contract text pasted into AI prompt)

AI output:

Generates a summary highlighting a number of potential obligations and recommends licensing next steps.

Human-expert analysis:

Even though the summary appears useful, it is “a summary” – and clearly not a substitute for full knowledge and context. More pertinently, inputting proprietary contracts into a cloud AI service potentially exposes sensitive intellectual property. Data could be stored, used for model training, or shared inadvertently in the platform environment, creating privacy and confidentiality risks.

→ Lesson: AI can assist in summarisation, but enterprise data governance and human review are what prevent inadvertent breaches of internal or regulatory confidentiality policies.

Key takeaways 

  1. AI outputs are fallible; seemingly plausible answers can be misleading (or wrong).
  2. Misclassification, outdated guidance, or privacy exposure can have material compliance consequences.
  3. Human oversight is essential: experts must verify, contextualise, and make decisions based on accurate, authoritative sources.
  4. AI should be positioned as a tool to augment, not replace, professional judgment in global trade compliance.

The case for keeping a human in the loop

Regulatory compliance is rarely a matter of simple rule-matching; it depends on context, intent, interpretation, and judgement – areas where AI remains inherently limited. Human expertise is essential to interpret nuances it cannot reliably grasp. LLMs may misread commercial intent, overlook regulatory subtleties, or apply rules too broadly or too narrowly, for instance, producing outputs that appear credible but are materially incorrect. 

Moreover, AI models do not possess intrinsic awareness of legislative changes, jurisdictional interpretations, or enforcement priorities, and cannot independently validate the accuracy of their own responses. Outputs such as tariff classifications, ECCNs, export-control determinations, or restricted-party assessments must always be tested against authoritative, up-to-date regulatory sources. 

Human oversight also safeguards data governance. Trade teams routinely handle sensitive commercial information that should not be indiscriminately shared with third-party AI systems. Determining what data can be processed, how it is protected, and where liability sits should remain a governance decision, not an automated one.  

Finally, humans are uniquely, neurochemically equipped to recognise edge cases and geopolitical context. Supply-chain sensitivities, market access considerations, and evolving international relationships often shape compliance decisions in ways that cannot be reduced to training data or probabilistic, algorithmic outputs. 

  • → Emerging regulations reinforce this reality. The EU AI Act and similar initiatives explicitly require human involvement in high-risk AI applications, including those affecting trade compliance, sanctions, and safety-critical decisions, with clear expectations around explainability, accountability, and ethical use.

Risk categories for trade leaders

  • Accuracy: incorrect classification of goods, misinterpreted licensing requirements, or outdated regulatory guidance.
  • Data privacy: exposure of sensitive corporate or supplier data in cloud AI systems.
  • Regulatory compliance: misuse or over-reliance on AI outputs can result in violations of export control, customs, or sanctions regulations.
  • Decision transparency: lack of explainability in AI outputs might create auditability gaps, weakening compliance governance.

Human-in-the-loop approaches provide a structured way to mitigate these risks, ensuring AI does not simply replace professional judgement, but helps enhance. review, verification, and escalation protocols.

(Responsible) AI adoption creates an advantage – but trust needs structure

AI is, undeniably, a powerful accelerator for trade and compliance operations, delivering efficiency, rapid analysis, and predictive insight. Yet, false confidence in AI can produce serious consequences: misclassified goods, compliance failures, exposure of proprietary data, and regulatory penalties.

Leadership teams play a critical role in balancing innovation with robust governance. Human–AI partnership creates a more reliable, trustworthy compliance environment: by integrating expert oversight into AI-assisted workflows, organisations ensure that outputs are validated, contextualised, and aligned with strategic priorities. 

Ultimately, thoughtful adoption enables organisations to harness AI’s potential while safeguarding sensitive assets, maintaining regulatory compliance, and reinforcing trust with stakeholders. For boardrooms, developing AI governance alongside trade compliance strategy is a strategic imperative in a globalised, high-stakes trade environment.

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What is sovereign capability? A strategic guide for defence leaders and procurement teams
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Building commercial resilience with geopolitical risk forecasting
Thought Leadership

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In essence, trade ethics refers to the structured governance of how a company conducts cross-border business beyond minimum legal thresholds. It includes: Ethical supply chain management Anti-corruption controls across intermediaries Human rights due diligence Responsible sourcing and procurement standards Sanctions integrity and diversion prevention Transparent reporting of trade exposure Where compliance answers the question: Is this legal? Trade ethics asks: Is this defensible? That distinction matters. Many enforcement actions in recent years have not emerged from outright criminality, but from governance gaps: reliance on third-party assurances, insufficient supplier vetting, or failure to interrogate beneficial ownership structures. Trade ethics, therefore, sits squarely within corporate governance in global trade. It is not an add-on to compliance. It is its strategic extension. 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Applying correct tariff classification satisfies customs compliance. → Interrogating whether a supply chain relies on exploitative labour practices speaks to trade ethics. Ethics extends compliance from technical accuracy to strategic integrity, and a truly mature trade risk management framework integrates both. Core pillars of an ethical trade framework Implementing trade ethics policies requires structure. At a minimum, companies should consider five interlocking pillars. Ethical supply chain mapping Visibility is foundational. Companies should map suppliers beyond tier one, identify jurisdictional risk exposure, and assess vulnerability to sanctions, forced labour allegations, or corruption risk. Without supply chain transparency, ethics becomes little more than rhetoric. Robust sanctions and export control governance Sanctions compliance governance must extend beyond automated screening. Key elements include: Escalation pathways for high-risk matches Clear ownership of licensing decisions End-use and diversion risk analysis Oversight of re-exports and intermediary arrangements Ethical governance recognises that compliance failures often occur through complacency, not intent. Anti-corruption and intermediary controls Cross-border trade frequently relies on agents, distributors, and customs brokers. These intermediaries introduce bribery and facilitation risk. Implementing trade ethics policies, therefore, requires: Structured third-party due diligence Clear contractual anti-corruption clauses Payment transparency controls Periodic audit rights Ethical procurement policy must extend beyond price competitiveness to behavioural standards. Procurement-embedded classification discipline Ethical trade begins upstream. Product classification, origin determination, and ECCN identification should occur at procurement stage… not at shipment stage. ERP systems should record: Part-level classification Origin traceability Supplier validation records Licence inheritance risks When classification is embedded early, downstream compliance becomes defensible. Governance and accountability Trade ethics cannot function without ownership. Boardrooms should be asking: Who holds ultimate accountability for trade ethics? Is there a defined ethical trade risk appetite? How are ethical trade breaches escalated? Is ethical performance reported alongside financial risk metrics? Without governance clarity, policies are only ever aspirations. Implementing trade ethics policies: a practical framework Translating ethics into practice requires operational discipline. Step 1: Define your position Establish clear red lines: Jurisdictions where trade is restricted beyond legal minimums Categories of goods requiring enhanced scrutiny Counterparty risk thresholds This definition should align with corporate values and risk appetite. Step 2: Embed controls into systems Policies must be reflected in operational workflows. This includes: Integrated ERP controls linking procurement to export classification Automated but supervised sanctions screening Supplier onboarding protocols with documented due diligence Contractual safeguards addressing labour standards and diversion Systems create consistency. Consistency creates defensibility. Step 3: Align ethics with commercial incentives Ethical trade cannot sit in tension with commercial KPIs. If procurement is rewarded solely on cost reduction, ethical sourcing may erode under margin pressure. Governance structures ensure ethical metrics carry operational weight. Step 4: Monitor, audit, adapt Regulatory fragmentation ensures that today’s compliant structure may become tomorrow’s exposure. Continuous monitoring – including periodic internal audits, horizon scanning, and supplier reviews – is critical. Ethical trade governance is iterative, not static. The commercial case for trade ethics Among many firms, we see a persistent misconception that trade ethics slows growth. In reality, it is actually poorly governed trade that hinders business success. Firms without structured trade ethics may face: Shipment delays from sanctions misalignment Contract termination following reputational fallout Retrospective enforcement exposure Investor scepticism Market exclusion in high-standard jurisdictions By contrast, firms that implement trade ethics policies effectively unlock optionality. They can: Enter sensitive markets with confidence Engage in strategic sectors without governance blind spots Absorb regulatory shocks with less disruption Demonstrate resilience to investors and partners Ultimately, ethical trade governance reduces volatility, and reduced volatility enhances long-term value. Final thought: ethics is infrastructure Trade ethics should function much like customs infrastructure: largely invisible when designed correctly, but foundational to everything that moves across borders. In a fragmented global economy – where tariffs, sanctions, export controls, and ESG scrutiny evolve continuously – senior decision-makers must decide whether ethics will be inspected at the border… or engineered at source. The former invites exposure. The latter builds resilience. For boardrooms navigating geopolitical volatility, trade ethics has moved beyond moral aspiration towards structural commercial defence. And, in 2026 and beyond, defensibility is strategy. Contact clearBorder today for independent, expert governance advisory →

Implementing trade ethics in a fragmented global economy
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