Let’s talk about US Export Controls

There used to be a time when any discussion on Export controls was by default a discussion on US export controls. However, in today’s world many other countries have also implemented export control laws, also called strategic control regulations. In this article we are looking at US Export controls.

There isn’t just one, but three regulatory agencies that take care of export compliance in the US. These 3 agencies are responsible for the core sets of regulations that control exports and they are:

• The Foreign Trade Regulations (FTR).
• Export Administration Regulations (EAR), and
• International Traffic in Arms Regulation (ITAR).

It is mandatory that companies identify which of the above regulations apply to their export and further adhere to all the guidelines set by the regulatory agency.

There are some fundamental steps that most exporters take in order to ensure compliance with export regulations. The steps as listed below help provide companies with a view point on how to implement an export compliance plan.

1. Classify your products properly.
2. Ascertain if the destination country needs an export license.
3. Ensure that all parties in your export transaction are screened properly.
4. Be on the lookout for red flags, make sure you find out how your product will be used.
5. Be mindful of deemed exports.
6. All your compliance efforts should be documented.

EAR99 – What is it all about?

Step one and step two from the above list are used to verify if you need a license to export your products. If your goods fall under the administration of the Commerce Department’s EAR, and you have evaluated the Commerce Control List as well as ascertained that your products do not have an Export Commodity Control Number (ECCN), then they classified as EAR99.

The part of the Commerce Department that regulates Exports under the EAR is the Bureau of Industry and Security (BIS).

Restricted Party Screenings

The following three government agencies; U.S Department of Commerce, State and Treasury are the ones responsible for publishing one or more lists of people, companies and other establishments that have restrictions on exporting, re-exporting or goods transfer. Although there are a lot of different lists like – restricted party or denied party lists, all of which can be updated at any time.

It is a breach of export rules and guidelines to carry out business transactions with people or organizations on these lists.

The International Trade Administration’s Consolidated List

The U.S ITA puts out a consolidated screening list that comprises of 10 different denied parties form the Commerce, State and Treasury departments. This helps to take away the huge burden of having to manually check all the restricted party list from each of these departments, and in my opinion other companies should adopt this method.

The consolidated list contains some and not all of the biggest lists published by Commerce, State and Treasury. However it doesn’t include the lists published by other U.S agencies, individual U.S states, or even lists from international organizations like the United Nations, and lists published by other countries. Depending on the location of your company, the area in which your business is being conducted, and the type of products you are exporting, these other lists might be of importance to you.

Embargoed Countries

To add to the restricting exports to specific people and organizations, certain destinations without an export licence or a distinct license exception have been restricted from exports by the United States. These restrictions are otherwise known as embargoes and these are the destinations; Cuba, North Korea, Syria and Iran. Furthermore, there are also meticulous restrictions like the ones against Russian industries and the Crimean region of Ukraine.

It is essential to check the Treasury Department’s Office of Asset Control (OFAC) website regularly for an updated information.

Illegal End Use of Your Products

Some end users require and export license and some others are completely restricted. It is your legal duty to be aware of what your products will be used for once they leave the country and be on the lookout for any Red Flags as to whether they might be used them for illegal purposes.

Recognizing Red Flags

According to EAR, red flags are defined as any abnormal circumstances in a transaction that indicate that the export may be bound for an inappropriate end-use, end-user or destination. If you have a bad feeling, a hunch or you are having second thoughts, it is most likely a sign that you should compel you to follow your suspicion and see what turns up.

There really is no complete list of red flags, however, BIS has identified the following as red flag indicators:

• If the customer of address of the customer is almost identical to one of the parties found on the Commerce Department’s list of denied individuals.
• If the product’s capabilities are not relevant to the buyer’s line of business, for example, an order for state of the art computers for a small bakery.
• If the customer of agent that is buying doesn’t feel comfortable giving out the information about what the product will be used for.
• If what was ordered is not compatible with the technical level of the country where it is being sent, like when a semiconductor manufacturing equipment is being shipped to country that doesn’t have any electronics industry.
• When the customer is ready to pay cash for a very costly item even when the terms of sale would call for financing.
• If a customer has little or no background in business.
• If the customer refuses standard procedure of installation or maintenance services.
• If the customer is not familiar with the features of the product’s performance but is still interested in the product.
• If delivery dates are unknown, or the deliveries are planned for out of the way destinations.
• If the shipping route is not normal for the product and destination.
• If the packaging is in conflict with the stipulated method of shipment or packaging.
• If the buyer is unclear or evasive when asked about whether the purchased product is to for export, re-export or domestic use.
• If a delivery forwarding firm is the address given as the product’s last destination.

Creating an Export Compliance Program

It is customary and highly recommended for successful export companies to have a written Export Compliance Program (ECP).

The procedures involved in creating and ECP needs company personnel to know the steps their export process comprises of and how these steps are related to the present export regulations. This shows a checklist of procedures that should be abided by for every export. This also offers necessary training tools for new employees.

A written ECP equips relevant government agencies with proof that your company is abiding to the rules that govern export control and are committed to following those rules to the latter. In a case where there is a violation of export regulations, it might show that your company is doing its due diligence and might just serve as a solid vindicating factor from outrageous fines or punishment.

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