The Importance of Export Compliance & Procedures

Posted by Tina

The first rule to remember is that in the United States exporting is a privilege - and the privilege to export can be revoked if a person or company is found to be in violation of export laws and regulations.    The second rule to remember is that US Customs expects the use of "reasonable care" which is based on a policy of "informed compliance".

While it is not a requirement to have an export compliance program in place, written policies and procedures are not only a good idea, they could be a mitigating factor if export violations are found. 

Here is a sampling of issues that come up, but this is by no means an exhaustive list:

Denied Party Screenings - companies may not realize that they are required to screen their customer at time of quoting and again at time of shipment against the denied party lists. Dealing with entities on the denied party lists is prohibited!   Fortunately, the various US government agencies that maintain their own denied party lists, have recently combined efforts, which  makes screening a lot faster. The combined list can be accessed at the export.gov site, at the bottom of this screen.

Export Documentation - proper documentation starts with using the correct harmonized codes for your products and determining if the product is at all controlled (see below) and if there are any embargoes or sanctions in effect for the ultimate destination.  It also includes the mandatory AES filings, proper certificates of origin (especially important when claiming preferential tariff, such as in a NAFTA certificate of origin) and completing all required export documents. 

Under-reporting Value on the Commercial Invoice - we actually get this question ever so often:  "my customer asked us to report a different value on the commercial invoice than the actual amount, how much do companies usually reduce their amount by?"  Do NOT under-report!   The reason foreign buyers may ask for a lower value is to evade duties and taxes - remember, the value on the Commercial Invoice matches the value that the purchaser paid for the goods.

Proper Recordkeeping - generally all export records need to be kept for 5 years and US Customs may request to see your records at any time.

Foreign Corrupt Practices Act - the FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.  Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions. 

Anti Boycott Act - the antiboycott laws were adopted to encourage or require U.S. firms to refuse to participate in foreign boycotts that the United States does not sanction, basically preventing U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy. (an example of this would be the Arab League boycott of Israel)

Export Controls - controls are established to prevent the acquisition of technologies, technical data and information by parties hostile to the United States.  They also protect U.S. economic interests and foreign policy goals.  There are three federal agencies that administer the export control regulations in the United States:        

• Department of Commerce, Bureau of Industry and Security (BIS), which is responsible for Export Administration Regulations
• Department of State, Directorate of Defense Trade Controls (DDTC), which is responsible for International Traffic in Arms Regulations (ITAR)   
• U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), which is responsible for managing economic sanctions and embargoes.

Companies whose products are controlled need to get a license from the regulatory agency before even proceeding with sharing information.  The vast majority of all US exports (well over 90%) are shipped without special licenses, but for those companies whose products fall under the controls of the US Commerce Department, a great resource for developing and Export Management Program can be found on the BIS website. For products that fall under State Department controls, information on complying with ITAR are available here. 

Just in case you really wanted to know, Title 15 of the Code of Federal Regulations contains the export laws, and it can be accessed at the e-CFR site.

We have been conducting a very informal survey of freight forwarders, bankers, expediters and export control agencies over the last two years.  Basically, we ask them to estimate the number of export shipments that are NOT in compliance with US export laws.  Their general consensus is around 75% are not complying (some estimated this number as high as 90%).

Remember, violations and noncompliance penalties can carry significant civil fines, jail time and suspension or revocation of export privileges. By putting export policies and procedures in place, risks of noncompliance can be significantly reduced.