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If there is any doubt that export control should be a major concern for exporters, re-exporters, and anyone else in the exporting community, one only has to look at recent civil settlement, and the increase in prison time individuals are receiving for violating export control regulations.
The U.S. Department of State Directorate of Defense Trade Controls, the Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control will consider mitigating factors and assess penalties below the maximum. However, the damage to the company’s reputation can have a long-lasting impact.
As a former Special Agent with the U.S. Department of Commerce Office of Export Enforcement, I have seen several issues arise indicating a company will likely have export related problems.
What can companies involved in the exporting, re-exporting, freight forwarding, or other related businesses do to protect themselves before Special Agents or other government regulators and investigators come knocking on their door? The government’s strategy and its immediate implementation should be considered clear notice for companies to conduct a self-assessment of their export compliance program. This includes:
1. Targeted Training:
A company’s export training program should focus on two high risk areas, sales and customer service. Employees in these two areas deal directly with the customers. They know their customers’ needs; where the goods are going; where the goods will be used; and how customers intend to use the goods.
Salespeople need to be trained in export compliance regulations and include export compliance in their sales pitches. They can utilize the Red Flag Indicators as a checklist to discover possible violations before they occur. They can also reference the questions found in the Know Your Customer Guidance to determine whether or not customers are buying the most efficient or beneficial product for their needs. Export compliance needs to be as important a part of a salesperson’s performance plan as making the numbers. In the long run, an informed and knowledgeable salesperson can save a company money from fines and loss of its good name.
A well-informed customer service representative (CSR) can also play a crucial part in a company’s ability to self-police. CSRs are a company’s connection to the product’s end user. If an end user contacts the CSR for assistance with trouble shooting, or installing and maintaining a controlled commodity, the CSR should engage the customer/end user in conversation. Employing techniques similar to those the salesperson uses from the Know Your Customer Guidance, the CSR can determine whether the end user is the same person listed on the BIS-711, export license, sales contract, invoice, or other export-related record. If he or she is not the appropriate end user, the educated CSR will alert the export compliance officer
Training material containing the latest guidance and document versions, should be disseminated to all employees dealing with customers. They are the first to know if a transaction does not “feel right” or if a commodity scheduled to be shipped to Singapore is being used by an end user in Iran. Some training materials can be found on the BIS website.
Monthly or quarterly training sessions with export compliance as a focal point, can alert employees of new potential schemes to avoid EAR requirements or share lessons learned from near misses or mistakes competitors have made.
These training sessions will help ensure the company is implementing best practices for export compliance. While the EAR requires some mandatory actions, such as maintaining records and complying with license conditions and riders, there are several other best practices to further enhance export compliance programs. These include:
2. Dedicated Full-time Employees
Employees dedicated to export compliance, familiar with the Export Administration Regulations (EAR) and other export-related regulations, knowledgeable of terms of art related to export compliance, able to educate employees, and who can monitor export activity and ensure accurate and complete record keeping, are sure-fire signs a company’s management takes export compliance seriously.
The world of export compliance is complicated. Where a company conducts a substantial amount of business through exporting, is exporting to high-risk countries, or dealing with sensitive commodities or technologies, export compliance cannot generally be handled on a part-time basis. For example: a manufacturer of controlled commodities whose export compliance manager is also the shipping manager or is handling export compliance as a collateral duty. A dual role often suggests that the company:
a) Does not take export compliance seriously; and
b) Is looking to save money by overloading its employees.
By having the shipping manager also serve as the export compliance officer, the company could be perceived by regulators as having an “I don’t care” attitude with regard to where their products are sold, who is buying their goods, or how their goods are being used.
3. Periodic Auditing:
Reviewing export compliance records is critical. A yearly independent third-party review helps ensure the appropriate records are being maintained; allows for a review of the classification of the commodities, software, technology, or services being exported; and presents an opportunity to file a voluntary self-disclosure if a violation is found. Timely and diligent reviews of these records on a regular basis may give the investigative agency the sense that the company takes its export compliance issues seriously. Not being timely and/or diligent may give rise to the implication of “willful blindness”, which can be an aggravating factor in civil cases or prove the intent element of a criminal case.
By not implementing these strategies to address export control issues proactively, businesses will face serious consequences. The reputational and brand damage a company may suffer from failing to comply with any export control regime can be detrimental and costly. In addition to the hefty civil fines and/or criminal penalties incurred, companies may lose their export privileges completely.
This prophylactic approach can be done using an external consulting firm, law firm, or internal subject matter experts. Conducting an annual review or self-assessment may identify common errors. Focus on training staff, engaging full-time export compliance personnel, and maintaining all documentation required by law. In addition, engaging an independent third-party to conduct these reviews on a regular basis is the best way to ensure internal experts are fully trained and do not inadvertently overlook errors.
Richard P. Jereski
Richard P. Jereski is a managing director in the Washington, D.C. office of Guidepost Solutions. Most recently, he was a Senior Special Agent with the U.S. Department of Commerce Office of Export Enforcement where he investigated numerous complex criminal and civil cases related to violations of the International Economic Emergency Powers Act, Foreign Corrupt Practices Act, Office of Foreign Assets Control, and other sanctions. He worked closely with corporate sector stakeholders and representatives on criminal and civil issues pertinent to their business and served as a project manager for the voluntary disclosure program that included revamping the process for handling cases and developing procedures for maintaining the consistent management of such matters.