Now that we’ve talked about improving compliance culture, let’s move to the nitty-gritty. U.S. export laws cover a broad variety of topics and span a range of government agencies, and creating a complete export compliance program can be a daunting task.
Let’s break it down into digestible pieces and give you a good framework from which you can build your program or evaluate what you have. Of course, every business is unique and requires that its corporate compliance program be tailored to meet its specific needs, so this is only an overview of topics you should consider. Always seek the advice of counsel to assure that your program is appropriate for your business to protect your company and officers.
The U.S. government has extraterritorial reach to control U.S. exports, and to make it even more fun, the governing legal framework falls under the jurisdiction of multiple government agencies. U.S. law requires companies to obtain information on foreign parties and adhere to changing U.S. regulations. Ignorance of the law is no defense, and U.S. businesses can be subject to penalties for actions committed by foreign third parties acting on their behalf.
Because the stakes are so high, a good compliance program is essential and must be comprehensive. Obviously, this type of program protects you by helping to avoid potential violations, but it also serves as a mitigating circumstance to reduce penalties if a violation does occur. The best compliance programs and procedures are narrowly tailored for each type of risk and focus separately on specific groups or categories of employees.
Topics that should be included in your export compliance manual include:
1. Exporting commercial and dual-use items: The Export Administration Regulations (EAR), administered by the Department of Commerce’s Bureau of Industry and Security (BIS), regulate the export (and re-export from third countries) of commercial goods and some items that also have military uses. The EAR can require exporters to obtain a license before exporting controlled items to specific destinations.
2. Exporting items specifically designed, developed, configured, adapted or modified for military use: The Department of State’s Directorate of Defense Trade Control (DDTC) regulates the export and re-export of military use items, which are classified on the United States Munitions List (USML), through the International Traffic in Arms Regulations (ITAR). U.S. manufacturers, brokers and exporters of USML items must register with DDTC. The Department of State also maintains lists of prohibited parties.
3. Sanctioned and embargoed country restrictions: The Department of Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions to further foreign policy and national security aims. These sanctions can be against countries, individuals, organizations or actions and can prohibit U.S. persons from exporting, importing, financing and facilitating transactions.
4. Denied persons lists: The government has many lists of individuals, organizations and businesses with which U.S. persons cannot export to or do business.
5. Anti-boycott regulations: These regulations forbid exporters from participating in boycotts against certain countries (namely Israel) and also require a company to report any and all boycott requests to the U.S. government.
6. Foreign Corrupt Practices Act (FCPA): This statute inflicts civil and criminal penalties for bribing or intending to bribe foreign officials or members of political parties.
7. Recordkeeping: Export regulations require that complete and accurate records are kept for a period of at least five years from the date of export.
8. Export compliance policy and officer: Companies should have a senior management-approved export policy along with a designated compliance officer. The buck stops and starts with this person.
9. Red flags: U.S. law requires you to conduct due diligence and ask a number of questions to avoid engaging is business with prohibited persons or places. Consider what you are shipping, who you are shipping to, where you are shipping, who the end-user will be, and what the end-use will be when determining whether the transaction is authorized by U.S. law. Avoid the red flags.
10. Destination control statement: This statement is required on controlled export shipping documents. It is used to notify the carrier and foreign parties that the shipment has only been licensed for particular destinations.
11. Electronic Export Information (EEI): This form, required by the U.S. Census Bureau, must be filed for all U.S. shipments to foreign countries and is used for statistical and export control purposes.
12. Deemed exports and the I-129 Form: In hiring foreign nationals and bringing them to work in the U.S., the visa process requires that companies certify that they will not allow the foreigner access to controlled items without a license. This type of transfer to a foreign national on domestic soil is known as a deemed export. Compliance procedures must include this issue and the corresponding documentation requirements. Ensure your human resources department is aware of this new requirement in Part 6 of the U.S. Citizen and Immigration Services (USCIS) I-129 Form.
13. Procedures: You must have procedures for each topic that work to ensure your company’s compliance. Who will have ownership of each requirement and when in the sales/export process will it be evaluated? How will it be documented? Who will sign off on the compliance? When will the procedures be reviewed/audited internally?
14. Contract terms: When writing and negotiating contracts, make sure the contract terms factor in export licensing limitations.
In addition to having a compliance manual, your company will be best served by senior management creating a culture of compliance throughout all levels of the business, and regular substantive training for everyone. See Compliance Program Must Haves for Doing Business Abroad.
I hope the above list of topics help you feel confident that your compliance manual meets your needs. Even if some of this information does not apply to your company, it is advantageous for you to be aware of all of the potential issues that could affect your business both now and in the future so that you can be a resource for others in your company. If you believe that your manual is incomplete, use this list as a checklist for modifications and tailor the specifics to your company’s needs. Feel free to call with questions.
About the Author
Doreen M. Edelman is a shareholder at Baker Donelson Bearman Caldwell & Berkowitz, P.C., in Washington, DC, where she helps clients create business solutions for international trade compliance. She has more than 20 years of experience developing compliance programs, and counseling clients on export licensing, export controls, FCPA, and Office of Foreign Assets Control (OFAC) sanction laws. Ms. Edelman also helps companies prepare global business plans and work through foreign government market regulations.