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The Government Takes Export Compliance Seriously. Do You? By David Noah Export compliance regulations don't just apply to the big guys. Even the smallest U.S. businesses that send their products to customers outside the country are subject to a variety of export regulations and could face substantial penalties for violating these rules. Unfortunately for many small and medium-sized businesses, company personnel may not know these requirements until it's too late. According to the U.S. Department of Commerce's Bureau of Industry and Security (BIS), fines for export violations can reach up to $1 million per violation in criminal cases, $50,000 per violation in most administrative cases, and $120,000 per violation in cases of national security. In addition, criminal violators may be sentenced to prison time, and administrative penalties may include denial of export privileges. Businesses that are already exporting or are planning to start exporting need to follow some basic steps to ensure they are compliant with U.S. export regulations. While the following steps are by no means all inclusive, they should provide companies with a starting point for implementing an export compliance plan. 1. Properly classify your products Most exporters are familiar with the Harmonized System (HS) or Schedule B codes used to classify products for duty, quota and statistical purposes. However, exporters are often less familiar with the requirement that they determine whether or not their products are "controlled" for export by the Department of Commerce or the Department of State. The Department of Commerce's Bureau of Industry and Security (BIS) controls the export of most commercial products. While only a small percentage of exports under BIS's jurisdiction require an export license, it's a product's technical characteristics, the destination country, the end user, and a product's end use that factor into this determination. (Products under State Department control are typically products or services specifically related to defense and are outside the scope of this article.) The first step for deciding whether or not a product requires an export license is determining if it has a specific Export Control Classification Number (ECCN) by checking the U.S. Export Administration Regulations (EAR). If it does, the EAR will also list one or more reasons why it is controlled. Products that do not have an ECCN code may still require export licenses. 2. Determine if the destination country requires an export license There are several reasons the U.S. government prevents exports to certain countries without an export license. In the most extreme cases, the U.S. has placed embargoes on countries like Iran and Syria for supporting terrorist activities. In other cases, it's for reasons of national security, nuclear nonproliferation, chemical and biological weapons, or several other reasons outlined in the EAR. Companies must use the ECCN codes and reasons for control to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required. If indicated, companies must apply to BIS for an export license before they can export their products. 3. Screen all parties in your export transaction The U.S. government, as well as several other governments and organizations like the United Nations and the European Union, publish lists of restricted parties to whom you can't export without a license. That includes items that otherwise don't require an export license based on the country of import. These restricted parties are individuals, businesses and other organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction, known to be involved in terrorism or drug trafficking, or who have had their export privileges suspended. These individuals, businesses or organizations could be located within the U.S. 4. Know how your product will be used Even products that seem harmless can sometimes be used in ways not intended. Companies are responsible for knowing how their products will be used once they leave the country. Some of these end uses are prohibited, while others may require an export license. For example, companies may not export to certain entities involved in the proliferation of weapons of mass destruction (e.g., nuclear, biological, chemical) and the missiles to deliver them without specific authorization, no matter what the items are. BIS publishes a list of "Red Flags" that may be indications that the use of a product may be prohibited. If suspicion has been raised, a company should refrain from the transaction until an export license application has been submitted to and issued by BIS. 5. Document compliance When businesses become aware of their legal obligations as exporters, they often try to avoid these responsibilities by hiring a freight forwarder or another party to handle their exports. While there is absolutely nothing wrong with outsourcing the export functions, companies must realize that they cannot outsource their responsibilities. Companies that hire third parties to manage their exports should require documentation that all export regulations are being followed, and they should retain copies of this documentation – as well as the actual export forms that must be generated for each shipment – onsite for at least five years. Companies of all sizes need to be aware of their responsibilities as exporters. It can save them thousands if not hundreds of thousands or even millions of dollars in fines, prevent restrictions on exporting that can cost companies millions of dollars in lost revenue, and keep company personnel out of jail. |
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