Export Risks and Controls – Why You Need to Care
By Margaret Lange
Whether you are just thinking about becoming an exporter, have a few exports a year, or exporting is a significant component of your sales, you will want to incorporate good internal controls to ensure compliance with export regulations. Although it is important to develop policies and procedures around every aspect of your export transactions, first and foremost, make sure you understand the risks and the export controls related to your product. Export controls are complicated and failure to understand your responsibility can result in significant monetary penalties.
Understand Export Regulations and Controls Related to Your Product
Exports of munitions, defense and military related articles, services and technology are strictly controlled by the International Traffic in Arms Regulations (ITAR) of the U.S. State Department; U.S. Department Directorate of Defense Trade Controls (DDTC). Exporters of ITAR goods must be registered with the U.S. Department of State and must obtain authorization before an export can take place.
The Export Administration Regulations (EAR) are a set of regulations administered by the Bureau of Industry and Security of the US Department of Commerce. The EAR control exports of dual-use goods and goods that are not controlled by other regulations. Dual-use includes products that are manufactured for civilian use but which could be used, or modified, for military purposes.
Screen Your Customers and End Users
To avoid penalties for shipping to an entity that cannot receive U.S. exports, exporters are required to screen all parties in the transaction against the most recent Denied Parties Lists. Screening includes your customers and end-users, and should be done when a new customer is being set up, before sales orders are accepted, and before shipments are released. The International Trade Administration provides a Consolidated Screening List (CSL), which is a list of parties for which the U.S. Government maintains restrictions on certain exports, reexports or transfers of goods or technology. The denied parties listed may be persons, companies or countries.
Classify Your Merchandise and Determine if a License is Required
In order to determine if your product requires a license for export, you must first classify your product. Exporters must determine the applicable product Export Control Classification Number (ECCN). The ECCN is an alphanumeric code that describes the item and indicates licensing requirements. The ECCN is determined by accessing the Commerce Control List (CCL). Once the ECCN is known, licensing will be determined by the Commerce Country List and the Reasons for Control. It is critical to conduct this due diligence before product is exported. Most products do not require a license; however, if a license is required, the license must be requested, and the BIS must issues the license before an export can occur. Significant penalties result for exporting before a license is obtained.
Watch for Red Flags and Identify Non-Compliance
Don’t self-blind. Employees need to know how to identify and report Red Flags at all points in an export transaction. Sales orders and shipments should be able to be placed on hold until red flags or non-compliances are reviewed and resolved. Checks and balances must be in place to identify and disclose non-compliances to the government.
Exporters are ultimately responsible for complying with Export regulations and ensuring that U.S. goods do not end up in the hands of any individual or company that is restricted or embargoed by the U.S. Government. Fines and penalties for non-compliance can be significant, and may even result in civil and criminal penalties; including imprisonment. A clearly developed and managed Export Compliance program is a critical mitigating factor in any violation.
You can find out more about the devastating consequences of violating export compliance regulations in the BIS’ publication, Don’t Let This Happen To You.