INTERNATIONAL TRANSPORTATION

EXPORTS

EXPORT SOPs
09/07
Looking for information to help you design SOPs for your export business? There is BIS’ Export Management System (EMS) which needs to be tweaked to include Dept. of State considerations. The EMS may be found at http://www.bis.doc.gov/ExportManagementSystems/EMSGuidelines.html. For a secondary source for details to include in your company’s SOPs, check the NASA website at: http://www.hq.nasa.gov/office/oer/nasaecp/eptannx.html

CHINA VEU UPDATE
09/07
Whereas a special comprehensive license allows one company to do business with multiple end users, the newly finalized Chinese Validated End-User (VEU) program allows one Chinese end user to do business with multiple U.S. suppliers.

If your Chinese buyer obtained a VEU, the shipment is designated NLR, unless, of course, it has a military end-use, in which case the usual military license requirement remains. If you sell through a distributor or a warehouse in China, that entity could obtain a VEU. At the same time, if the value of the shipment is less than $50,000, no VEU is required. Of course, at the same time, the standard record keeping requirements remain, including annual reports.

MORE POTENTIAL LIABLITY?
09/07
There is another Justice investigation worthy of note, this one involves Panalpina and claims it facilitated improper payments. The focus is alleged possible violations of the Foreign Corrupt Practices Act arising out of supposed bribes being paid to foreign customs officials in Nigeria, Saudi Arabia and Kazakhstan. This case presents a wake-up call for American freight intermediaries because it raises the question of under what circumstances could American executives end up in jail for actions taken in other countries?

Customs Update: Compliance? What compliance?
(Published in the JOURNAL of COMMERCE ONLINE May 21, 2007)
 to view article.

LOS ANGELES -- It is impossible to read the trade press, and sometimes even the general press, without thinking, where is that company’s compliance program?

In no particular order of significance, but certainly getting many headlines, there is the recent ITT Corp. settlement with the Department of Justice, for a staggering $100 million. The case involved military night vision equipment. ITT sent classified materials overseas without proper authority. Why? Because a few folks (okay, likely lots of individuals) ignored the rules. What happened?

The government charged ITT exported defense-related technical data to China, Singapore and the United Kingdom without first obtaining an appropriate license or written authorization from the State Department. ITT also omitted critical information from Arms Exports Required Reports. Finally, ITT failed to take significant and timely corrective action. Imagine how much worse would have been the outcome if the company had not self-reported to State? ITT pleads guilty to two violations of the 1976 Arms Export Control Act; pays a $2 million criminal fine; a $50 million deferred prosecution penalty and forfeits $28 million as the proceeds of its illegal actions. In addition, ITT pays a fine to State of $20 million.

The $50 million deferred penalty will be suspended for five years. ITT may reduce it on a dollar-for-dollar basis by investing toward the acceleration, development and fielding of the most advanced night vision technology. In other words, State assumes at least some of this technology fell into the wrong hands and is giving ITT the ability to make the existing technology obsolete. What is most intriguing about the settlement is that there was no debarment, or export ban. Typically with a case of this significance, State (and Commerce) would be expected to ban the company from exporting for a period of years. The thinking is this did not happen with ITT since it has such a prominent place in the night vision equipment field. Put another way, State thought its highest priority after punishing ITT was to get better night vision equipment.

Why did ITT send the written materials to others? Because it was outsourcing production of some components to a firm in Singapore in order to reduce cost and increase profit. In turn, that firm farmed work out to companies in China and Britain. As a result of this mess, federal enforcement officers are expanding their scrutiny of outsourcing by all defense contractors.

As the name implies, night vision technology enables our military (and others) to see clearly at night. The recent Hamas-Israeli conflict resulted in a sort of tie. Some have suggested that is because Hamas obtained night vision equipment, which is not to suggest it came from ITT. The Iraq war is another example where the military quite rightly wants to make sure the insurgents do not have access to our highly sophisticated equipment. Plus, of course, there are always concerns about the ever-growing Chinese military.

There was apparently some evidence that ITT internal compliance officials warned others not to violate the export regulations but were ignored. Justice clearly painted ITT as a company where some decision-makers put profits ahead of compliance and national security.

The night vision equipment is one of many examples that are causing a clash between military needs and export regulations. Recently, there have been reports the American military in Iraq is finding itself in the position that it cannot give certain equipment to coalition forces as U.S. export laws bar such action. As a result, American military personnel must continue to fight in areas where it wishes to turn over more responsibility to others.

We all heard about problems at Boeing springing from the jet maker improperly using information belonging to rival Lockheed to gain government procurement contracts. In the end, Boeing paid $615 million to settle criminal and civil charges. The company’s reputation took a severe hit, as senior executives were sentenced to federal prison, and the company lost $1 billion worth of aerospace launches, was denied certain export licenses, and faced other export bans.

Against that backdrop, one may ask, what was senior management at banana importer Chiquita Brands thinking?

Recently, Cincinnati-based Chiquita agreed to pay a $25 million fine to settle a long-standing Justice investigation into whether it knowingly paid protection money to Colombian paramilitary and rebel groups designated as terrorists by the United States. The company’s explanation was it paid the money in order to protect its people and facilities in volatile parts of the country. That defense makes sense and was valid when the payments started in 1997. It was not until 2001 the recipient was declared a foreign terrorist organization and a specifically designated national. Management did not learn this fact until 2003 (which begs the question -- why not?), and following a board meeting, it disclosed the payments to Justice. Executives came away from that meeting feeling Chiquita would not be pursued for prior payments, but its Colombian entity continued making those payments. It was sold in June, 2004. In an ironic twist, Colombian authorities mentioned the possibility of seeking criminal charges against senior executives for approximately $1.7 million in payments.

Clearly one can sympathize with Chiquita wanting to protect its people and facilities, but was this the right way to do it? What did its compliance program require? Did its compliance program even cover this topic?

Next, let’s turn to the False Claims Act. In United States v. Merck-Medco Managed Care. L.L.C., 336, F.Supp.2d 430, E.D.Pa. 2004, a federal court held the failure to have a proper compliance and ethics program which is effective under applicable legal standards and industry practices can be the basis for a False Claims Act claim. This approach was based on the concept that the failure to have such a plan in place can lead to the filing of claims paid by the federal government which are “knowingly” false.

In order to prove top management knew or should have known what was going on, Justice had to establish a level of intent. Since there was no paper trail, Justice ticked off the elements of an effective compliance plan as articulated in the Sentencing Guidelines:

- establish an effective code of ethics;
- designate specific high-level personnel with direct responsibility for overseeing compliance who have direct access to top management and the board of directors;
- appoint a compliance officer with responsibility for independent investigation and the power to act on matters related to compliance;
- inform employees of the existence and details of the company’s compliance program;
- establish a procedure of regular reports to the board concerning internal investigations;
- put in place effective means to monitor, audit and report on compliance, including an anonymous hotline and protection for whistleblowers;
- implement systems to assure reasonable steps are taken to respond to or investigate reported offenses; and
- regularly enforce the company’s policies and procedures through corrective action.
 

Justice successfully argued that since Medco did not have such a compliance program in place, it acted in reckless disregard of the truth or falsity of the claims made to the government and so was liable for their falsity.

Finally, for purposes of this column, there is the Foreign Corrupt Practices Act. It applies to publicly traded companies only. In its simplest terms, FCPA bars bribes, i.e., payments made by companies to government officials to get deals or favorable treatment. There is a huge difference between presenting a token gift and one which is clearly intended to “grease the wheels” to get a desired deal. We are already beginning to hear stories of prosecutions against American nationals for bribery actions which occurred in Iraq. For those of us old enough, we recall the bribery acts which impacted the aircraft manufacturers some 30 or so years ago.

In each of these cases, one has to ask the question: where was the company’s compliance program? Was it robust enough to identify the problem and head it off before it became something that could be called “betting the company?” How did management respond when faced with the actions on which Justice relied? What remedial action was put in place? Did the company disclose its violations to the relevant agencies?

True, each of the situations discussed involves large multi-national companies. Equally true is the fact that when dealing with international trade issues, none of the agencies with jurisdiction make a distinction between large and small companies. Compliance is compliance and if you do not have an adequate program in place, you will get nailed! The federal government will find out, even if it comes from one of your competitors, and your competitors reporting your transgressions is a procedure recognized in the law as a qui tam action. Maybe we’ll talk about that basis for action in another column. For now, just how good is your compliance program? When was it last tested by you? When was it last updated?

SPECIAL UK EXPORT RULES
07/07

The U.K. and U.S. have signed a Defense Trade Cooperation Treaty which, if ratified by the U.S. Senate, would enable the U.K. to buy U.S. defense products without obtaining export licenses.  Currently Canada is the only country with an ITAR waiver. If the treaty is ratified, the U.K. would become the second, while discussion continues about also granting Australia a waiver.

TRUSTED CUSTOMERS
05/07
As with so many other agencies, Commerce is now exploring a trusted customer program, but focused on validated end-users in China, specifically those trading in dual-use technology and products. 

BIS CHANGES ITS TUNE
04/07
Joining  other federal agencies which rely on risk management, BIS is working on a Trusted Customer program. At the same time, the trade has long lamented BIS’ policy of ”piling on,” meaning one set of missteps was routinely claimed as multiple violations of the export laws. BIS justified its actions because the  maximum fine was only $11,000 and it needed to get the attention of traders.  ThePATRIOT  Act increased the maximum penalty to 20 years imprisonment for criminal offenses and $50,000 per violation in civil matters. In the face of these greater fines,  BIS has changed course. Now, it will only pursue one violation, provided the alleged violator settles prior to the issuance of a charging letter. If not, we  can expect BIS to go back to piling on! That having been said, the Dept. of  Justice recently formed a National Security Division. Its top counterintelligence and counterespionage prosecutorial priority is stated to be  pursuing export control and technology violations, with these efforts expected to involve OEE, DHS, the FBI and other federal enforcement  agencies.

EXPORT ENFORCEMENT ACT OF 2007
04/07
Aimed  at addressing the issues BIS defines as most in need of legislative action, the Bush Administration has proposed the Export Enforcement Act of 2007. It would:  1) Renew the now-lapsed EAA of 1979 for five (5) years; 2) Further increase civil and criminal penalties; 3) Provide OEE agents with statutory overseas investigatory authority and expanded undercover authority; 4) Make permanent provisions protecting confidential business information; and 5) Expand the list  of criminal violations upon which a denial order is based. As we go to press, the bill has not yet been introduced in Congress. 

NEW EXPORT COALITION
03/07
The Coalition for Security and Competitiveness announced its presence on March 6, 2007 by forwarding to the President its proposals for revamping U.S. export licensing policies. In separate papers, the Coalition made recommendations about goods subject to munitions controls and those which are dual use.
The Coalition is a consortium of eight (8) prominent trade associations and in its own words “seeks to modernize the export control system so that America is prepared to meet the security and economic challenges of the 21st century.”  Given the complications the current ITAR controls are causing in Canada alone, there can be no doubt about the urgent need for reform. For more details visit:
http://www.securityandcompetitiveness.org/

BIS PROPOSAL
03/07
In the February 26, 2007 Federal Register, BIS announced it is considering amendments to the Export Administration Regulations by designating Country Group C for countries that are destinations of diversion concern. Separate license requirements for exports and re-exports would be established for those destinations thought to be high risk for diversion of goods. BIS stated the countries named would be based on criteria such as transit and transshipment volume, inadequate export/reexport controls, demonstrated inability to control diversion activities, and the host government is not directly involved in diversion activities but is unwilling or unable to cooperate with U.S. interdiction efforts.
Comments are due no later than March 12, 2007. The relevant notice can be found at
http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/E7-325 2.htm

DDTC IMPLEMENTS NEW D-TRADE SOFTWARE
02/07
Check the DDTC website for details about new software. Its use becomes mandatory around February 12th. One of the reasons DDTC will insist this software be used is because it will automatically check applicant names against DDTC’s existing records. If there is no match, the application will be refused.

FRAUD NETWORK BUSTED
09/06
U.S. and Brazilian authorities have cooperated to break up an alleged scheme whereby traders undervalued U.S. exports to Brazil allowing for the evasion of millions of dollars in duty payments. ICE worked with its counterparts leading to 182 arrests of Brazilian business leaders plus several federal and state government officials. While most of the enforcement activity took place in Brazil, ICE also took action in the Miami area where it aided the effort by searching, with the Brazilians, two warehouse and a residence.

These efforts were part of the Trade Transparency Unit which was formed in March to combat trade-based money laundering and other finance-related crimes in Argentina, Brazil, Columbia, Paraguay and the U.S. ICE and law enforcement agencies in each of these nations have formed dedicated units and joint computer databases to facilitate the exchange of import and export data and financial information. Using shared data, these units are able to detect and investigate anomalies which could be evidence of criminal activity.

CENSUS v STATE
08/06
We are taking this opportunity to remind filers that when it comes to AES, the terms of State’s license govern. So, when AES asks for the identity of the intermediate consignee, the party named as the foreign consignee on State’s license should be listed. Similarly, the end user listed on State’s license should be reported as the ultimate consignee. This is true even if the foreign consignee is further processing whatever it receives before delivery to the end user.
In this particular instance, Census must defer to State, which is not always the case with other federal agencies.


BIS PENALTIES
08/06
In the August 4th Federal Register,  BIS published information clarifying the application of civil monetary penalties in specified circumstances. For more details: http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/E6-126 53.htm

REVISED ANTIBOYCOTT GUIDELINES
06/06
For more details about the latest mitigation guidelines see -  http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=37517&dbname=2006_r egister

EXPORT ISSUES
05/06
Looking for current information about export licensing? Check out the BIS FAQs posted at http://www.bis.doc.gov/ExportLicensingQandA.htm. They are not just for novices!

Often when exporting, a company will not have ready access to the Schedule B (export tariff), and so may seek to rely on the Harmonized Tariff Schedule (for imports) (HTS). Below is a link to the Census website which lists the HTS numbers not valid for AES or other export purposes:
http://www.census.gov/foreign-trade/aes/documentlibrary/hts-not-for-aes.txt.

It is also worth watching the progress of H.R. 4572, yet another attempt to renew the Export Administration Act.
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.4572:
 

CONFIDENTIALITY REVISITED
05/06
We have previously mentioned the disagreement between Customs and Census about keeping export data confidential. Now, the International Trade Administration has announced that it is soliciting comments about the Privacy Framework being considered by the Asia Pacific Economic Cooperation. For more details about the public meeting on June 13, 2006 and the June 14, 2006 written comments deadline, see the May 22nd Federal Register notice at http://frwebgate2.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=947055439426+19+0+0&WA ISaction=retrieve

It also contains a link to the APEC website for the Privacy Framework itself.

EXPORT RULES CHANGE
04/06
In a March 29, 2006 Federal Register notice, DDTC announced a new policy for approving exports to the Indonesian military for lethal defense articles. License approvals are now determined on a case-by-case basis, ending the policy of blanket denials.

BOEING CHIP CASE SETTLED
04/06
After agreeing to pay a $15 million penalty and appoint a special compliance officer, Boeing has settled its long-running dispute with DDTC regarding whether or not its exports of multi-million dollar aircraft containing certain gyro chips (worth a couple of thousand dollars) were a violation of State’s export license regulations.  Roughly a fourth of those planes were sold to China. Complicating matters was Boeing continued to sell these planes to China even after State told them it was asserting jurisdiction, as Boeing concluded differently.


MORE EXPORT WOES
04/06
On top of the fine collected from Boeing, DDTC also collected $1.25 million from Goodrich Corp. and $2 million L-3 Communications Avionics, Inc. (formerly a division of Goodrich). The total fine was $7 million, but the balance is to be used by the companies to implement remedial measures. Here again, special compliance officers must be put in place but additionally, outside auditors must also be employed.

DHS GUMS UP AES REGS.
03/06

DHS  has informed Census that it will not sign off on the proposed regulations to make AES mandatory for all exports because it wants substantial changes. One such change is not altogether surprising. It focuses on security and involves the elimination of post-departure filing, or perhaps substantial changes in eligibility for any new participants, at least that companies not be automatically grandfathered into the program.

Of serious concern is the second proposal. DHS wants Census to allow the sharing of confidential export data with foreign governments. DHS has been under pressure to provide more shipment data to those countries which are partnering in various security programs. Census believes any such change would undermine its statutory obligation to safeguard business confidential information. 

Given the lack of international rules about confidentiality, it is easy to see why American industry is squarely opposed to this idea. What happens if the data is used to solicit bribes? What about if it is disclosed to the competition? Can the right to such data be cut off if a recipient country is found to have improperly or illegally shared it? Does local law protect business confidential information or allow its disclosure under their version of our Freedom of Information Act?

Customs Update: Export compliance ratchets up
(As published in the Journal of Commerce Online December 28, 2005)
to view document in printable format

Whether in the context of the annual update program in D.C., or in presentations and discussions taking place elsewhere, it has become crystal clear that the Bureau of Industry and Security (BIS) is focused on export compliance in a much more serious way than most of us considered.

The areas considered to be of the highest threat level are proliferation of weapons of mass destruction, terrorism, terrorist support and diversion of dual use items to military uses. BIS is clearly interested in preventing illegal exports, but is not at all shy about prosecuting those who participate in those exports.

The statistics for fiscal year 2005 show 31 criminal convictions, $7.7 million collected in criminal fines, 69 administrative or civil penalties, and $6.8 million collected for those violations. When you look at the various cases, it is clear BIS is expanding enforcement to include conspirator liability, including foreign corporations that aid in re-exports, transporters, those who store goods and those who facilitate their export, such as freight forwarders.

The sister agency to BIS, the Office of Export Enforcement, continues to push Project Guardian, where companies that ship goods high on the list of products likely to be misused or misrouted are being visited and asked to report any unusual orders. Evidencing the fact the various parts of the government are doing a much better job of coordinating their efforts, OEE is now reviewing licenses and comparing the representations made in them to visa applications filed with the State Department. Are foreign nationals going where they say they will and doing what is authorized?

At the same time, it appears the anxiety over changes to the deemed export rule may be lessening. Several BIS executives have spoken publicly and conceded the rule is likely to remain based on country of citizenship, not birth. It also appears BIS and OEE are working more closely with the Office of Foreign Assets Control, especially where Cuba and Iran are concerned.

As to voluntary disclosures, they remain an option, but their weight is has been lessened considerably. Until recently, it was not often that a disclosure resulted in a penalty, unless the violation was significant. Now, it seems to be routine for the penalty to result and the disclosure to halve the fine.

Exporters are cautioned to keep the existing red flags in mind, but consider, too, the following cautionary issues BIS is considering adding to its red flags list:
-- Requests for equipment configuration incompatible with the stated destination;
-- The address of the ultimate consignee is listed in a free trade zone;
-- The customer's use of an address that is inconsistent with standard business practices, such as a post office box;
-- The customer's facilities are inappropriate for the goods ordered or the intended end-use(s);
-- The customer orders inappropriate parts or there appears to be no legitimate need for those parts, perhaps because the underlying equipment was not sold to that customer or cannot be obtained from other legitimate sources;
-- The customer is suspected or is known to deal with embargoed countries;
-- The transaction involves a party on the Unverified List BIS publishes in the Federal Register;
-- The product into which the exported good will be incorporated bears information indicating the final destination is an embargoed destination or a destination other than the one reflected on the exporter's documentation;
-- The customer uses different spellings of its name for different shipments;
-- The requested terms of sale (for the good or its financing) suggest an end-use or destination other than what is claimed; and
-- The customer provides information or documentation which is suspected of being false or requests false documents from its vendor (producer or service provider).

One thing is clear, whether you call it "Do Not Self Blind" on the export side, or "reasonable care" on the import side, adequate internal controls and documentation that have been followed will clearly continue to be the expected norm from all government agencies, whether you are a Fortune 50 corporation or a mom-and-pop operation.

BIS EXPORT FORUM
02/06
BIS will present an Export Control Forum on March 13, 2006 in Newport Beach, CA. Modeled on the ever popular Update presented yearly in Washington, D.C., this one day program will be held at the Radisson Hotel.  Topics to be addressed include changes to the EAR and Foreign Trade Regulations; Encryption; Evolving Country Policies and Licensing Issues; Deemed Exports; and Recent Enforcement Actions.
For more details or to register on line, http://www.bis.doc.gov/seminarsandtraining/Newport_Beach_Mar_13_06.htm#agenda

OOPS
10/05
 The Australian Broadcasting Co. has reported an Australian communications technology company unwittingly sold its equipment to an al Qa'ida operative in 2001. The product was remote area long-distance communications equipment. The buyer is suspected of having been a contact for the Hamburg cell which carried out the 9/11 attacks. The equipment is alleged to have been diverted from Mauritania to Afghanistan and is reported to have been used by Osama bin Laden to narrowly escape a missile strike in late 2001. The Australian government stated it had no evidence the seller knew the goods would be diverted.  How good is your screening program? Try explaining this one to top management in the U.S.!

COMPLIANCE PROGRAMS
09/05
BIS has made it know that it is looking at freight forwarders as the "last line of defense" regarding exports, meaning, it is up to them to assure customer exports are compliant. As such, knowing the rules and regulations has become even more critical. Therefore, attendance at a BIS program tailored for forwarders would seem advisable. One such program is scheduled for Sunnyvale, CA on November 8, 2005 and a second in Costa Mesa, CA on November 9, 2005. For more details check the BIS website - www.bis.doc.gov

STATE DEPT. CHANGES RULES
08/05
Without notice, the Dept. of State has changed policy so that freight forwarders may no longer obtain ITAR licenses under their own names to facilitate customer exports. In recently rejecting one license application, State took the position the applicant must be the "seller" of the defense article. What this may force foreign buyers (on whose behalf the forwarders most often act) to do is work through their Washington, D.C. based embassies to obtain the needed licenses.
What this action also does is raise the question of why would State want to decrease the security information it has about parties by eliminating its last line of defense - the forwarder?
Another unannounced change is the rejection of many license applications due to the expansion of the definition of what constitutes brokering and when registration is required. 

DEEMED EXPORTS AND FREIGHT FORWARDERS
08/05
As BIS looks at further tightening the rule by virtue of basing the deemed export determination on a foreign national's country of birth, the question has to asked - what are freight forwarders and other service providers doing to make sure they themselves do not run afoul of the deemed export rule? If your customer's goods are subject to an export license, how do you make sure your non-American citizen staff members do not have access to the very information which triggers the need for the customer to obtain an export license?
Want to increase your compliance even further? Check out the DDTC posting about compliance guidelines at:
http://www.pmdtc.org/compliance.htm

FORWARDERS ARE KEY
08/05
Anyone who thinks U.S. export authorities are not watching the actions of freight forwarders and other transportation intermediaries should keep in mind the recent testimony of an OEE agent in a criminal trial. When asked who is responsible for the accuracy of the SED, the agent responded: "The freight forwarder. The exporter... [T]hey are both equally responsible. "
It is the norm for OEE agents to refer to freight forwarders as their "last line of defense." 

DEEMED EXPORT
06/05

The comment period has closed for filing remarks regarding BIS’ proposal to alter the deemed export rule so an employee’s birth country becomes a factor in whether a deemed export occurs.  Whether or not the definition changes, it’s a dicey issue. How many service providers, e.g. lawyers, CPAs, customs brokers, forwarders, etc., employ foreign nationals who may be exposed to information/documentation constituting a deemed  export, whether for Commerce, State or another agency, but none is obtained? Has that been factored into your company’s due diligence program?

NEW EXPORT RESOURCES
02/05

The Excluded Party List System website is now available to exporters. EPLS is an effort on the part of the government to provide one website for exporters to screen against all excluded parties lists. While a step in the right direction, testing leads us to conclude – the lists are not complete, or perhaps just not up-to-date.

Another new source of information is Export Control and Related Border Security Assistance (EXBS), an effort by the U.S. government to assist other countries in improving their export control systems. It does, however, contain some interesting resources for American traders.

EMS PROGRAM
7/04

Wondering what you need to accomplish for compliance on the export side? If so, join the Foreign Trade Assn. on August 12, 2004 in Torrance, CA to learn about Export Management Systems and their benefits to your bottom line.  For more details, call the FTA at 323-730-1011.

EXPORT DATA CONFIDENTIAL
7/04

Settling the issue with Costa Rica and making clear Shippers Export Declarations (SED) may not be given to anyone but the exporter, Census issued a July 5, 2004 letter stating SEDs copies could be given to the U.S. Principal Party in Interest or its agent only when needed for legal and/or regulatory export control requirements. Nonetheless, Census acknowledges the need to give Mexican authorities the ITN number.
At the same time, under the smart border accord, it has been agreed that Census will confirm to Mexican authorities whether or not the quantity or value of a Mexican import matches the related U.S. export data on a yes/no - match/no match basis only.

AES LICENSE ON HOLD
5/04

Now that mandatory SED filing through AES is expected in the near future, Census has put its license and permit program on further hold. It was already in suspense out of concern whether Census had the legal authority to require licensing. The latest hurdle is the realization that if a filer's AES license was revoked, that could mean a company's export privileges are also revoked, something the agency clearly does not have the legal authority to do. 

SED FILING MANDATORY
9/03

Filing of Shippers Export Declarations through the Automated Export System will become mandatory for shipments involving Commerce and State licenses effective October 18, 2003.

BIS/OEE AND JUSTICE GET THEIR FORWARDER
7/03

DSV Samson Transport has just pled guilty for shipping 30 illegal shipments to India. The company was given repeated warnings by OEE but still shipped goods to India in violation of the then existing India-Pakistan sanctions.  The company was immediately sentenced to five (5) years probation and a $250,000 fine.

Most chilling about the press release is some of the language from the U.S. Attorney: "... freight forwarders are the last link in the export chain and must not knowingly make shipments... that do not comply with the export laws for the safety and protection of our national interests... [forwarders] hold a unique opportunity to ensure export compliance. Freight forwarders, and anyone else with responsibility for compliance with U.S. export laws, will be held responsible for such compliance, particularly when our national security is at issue."  BIS was also quoted as stated forwarders will be held accountable!
 

AES Certification
5/03

The Census Bureau wants AES program filers to be licensed. In a recent presentation, Census explained it intends to require exporters, USPPIs, and intermediaries like nvoccs, freight forwarders and consolidators to be subject to these regulations. To qualify an individual must pass a license exam, be a U.S. citizen or a green card holder, have a Social Security number, be at least 21 years of age and pass a background check.

The examination will apparently require knowledge about such topics as AES filing, Foreign Trade Statistics, Export Administration Regulations, International Traffic in Arms Regulations and Office of Foreign Assets Control regulations. Current thinking involves a five (5) year license which in order to remain valid requires forty (40) hours of continuing education during the license period. Census expects to publish a program notice this Spring.

Outbound Prior Notices
4/03

Right now, the focus of government and industry is on prior notice for inbound shipments. Exporters - don’t forget the Trade Act of 2002 requires prior notification for outbound shipments as well! The current outbound advance notification proposal is minimum 72 hours prior to departure. The deadline to have the system operational is October 1, 2003. Can the chaos which hit inbound be far behind for outbound cargo?

AES Update
7/02

Census has posted a new version of the Automated Export System software to its website at www.aesdirect.gov. Look for Version 3.1 of AESPcLink.

Commerce Provides Notification of Foreign Law Changes
6/02

Export Alert! is a program developed by the Commerce Dept. which notifies interested business when foreign government propose regulations which might influence treatment of U.S. exports. Those interested in receiving notices should sign up on line at

BXA Imposes $496,000 Civil Fine
6/02

Fluroware, Inc. (now owned by Entegris, Inc.) agreed to pay a $496,000 fine for 124 instances of exporting diaphragm valves and components to Taiwan and Israel without the required license. $96,000 will be waived if the remaining $400,000 is paid no later than October 2002.

Export Double Invoicing Leads To Criminal Conviction
3/02
At one point or another, most American exporters have been asked by their foreign buyers to double invoice. In other words, they have been asked to issue one invoice at a reduced value to minimize the buyer’s taxes and then issue the real invoice which the buyer pays. Advanced Computer complied with that request over a year’s period of time and that acquiescence led to their downfall. Advanced Computer was selling computer components to ZTR in Ireland. It issued one invoice for $892.50 which was declared to Irish authorities. The real price was $89,250. British authorities became suspicious, sought the aid of U.S. Customs which, in turn, worked with the U.S. Attorney’s Office. As a result of its misadventures, the company is out of business. It also pled guilt to one count of wire fraud, agreed to pay a $140,000 fine and forfeit $1.1 million in assets! The company laid off its employees when the scheme came to light and will now cease operations altogether.

Notice of Foreign Regulatory Changes
1/02
The U.S. Department of Commerce's National Institute of Standards and Technology and International Trade Administration has announced the launch of a free Internet­based service called Export Alert! which automatically notifies interested businesses when foreign governments propose regulations that might influence the treatment of U.S. exports. Announcements from the 142 WTO members are included. When registering, a company can receive notices focused on 41 different industry sections The notices describe the proposed regulation, the issuing country and the time limit to respond. Interested parties can register for Export Alert! at http//ts.nist.gov/htdocs/210/217/export­alert.htm.

WTO AGAIN RULES AGAINST FOREIGN SALES CORPS
11/01
Despite having changed the law once, the U.S. replacement law, called the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, was again found to be WTO violative, as an illegal subsidy. FSCs involve establishing companies in selected jurisdictions, exporting goods through those off-shore companies with the resulting profits eligible for partial tax refunds from the I.R.S. The U.S. and EU are in negotiations to settle their differences but those negotiations seem to be lengthy.

FORWARDER INTERACTIVE DATABASE
8/01
The U.S. Department of Agriculture has created an online system to provide agricultural exporters with efficient access to information about freight forwarders that specialize in the field. The Directory of Freight Forwarders Serving Agricultural Shippers is available at http//www.ams.usda.gov/tmd/freight

MANDATORY AES FILING
8/01
The required AES Certification Report was submitted to Congress in June 2001, so the 270 day time limit contained in the Proliferation Prevention Enhancement Act of 1999 has been triggered. Therefore, the mandatory transmission of information through AES for shipments subject to the jurisdiction of BXA and State will commence in March 2002.

STATE REVISES ITAR
3/01
Canada and the U.S. have completed negotiations changing the rules regarding munitions export licenses.

EXPORTERS MUST CHECK FOR DENIED END USERS
3/01
Looking for information about denied persons? The Bureau of Export Administration, Dept. of Commerce has added information to its web site to assist exporters: www.bxa.gov/DPL.

BXA IMPOSES LARGE FINES
12/00
A $174,000 civil penalty was imposed on Hua Ko Electronics Co.. Ltd of Hong Kong. The company had previously been denied export privileges. This fine was for ordering and receiving U.S. origin goods in violation of the denial order. Similarly Macosia International was hit with a seven year denial of export privileges. It exported handcuffs and leg irons to Mexico without a validated export license.

EXPORT CONTROLS
10/00
On August 3, 2000, The White House issued a fact sheet updating U.S. export controls on computers. While the prohibitions on trading with unlawful end users or for unlawful end uses remains, the new rules generally lessen the computers subject to a validated license by placing the speed controlled at a level up to 28,000 MTOPS, subject to further review in six (6) months.

AES AND EXPORTS
8/00

Carriers are now required to file original export declarations unless they have signed a cooperation agreement with Census. If they have signed, carriers will have until November 1, 2000 to comply with the new AES rules and their cooperation is conditioned upon them providing to Census the names of their customers who prepare paper SEDs. Census is anxious to convert everyone to the use of AES.

Similarly, the new exporter of record rules have now been published in final form. The big area of contention remains for ex-works or ex-factory transactions. Under the relevant INCOterm of sale, in an ex-works or ex-factory transaction, as soon as the exporter makes the shipment available to his buyer at his factory door, his responsibility for the shipment ends. However, under the new exporter of record rules, the seller's responsibility continues. These rules require the principal party in interest to provide information about the goods to the buyer's forwarder. The stated purpose of the new rules is to protect the seller from unknown export violations. In fact, what has happened is the seller is put in the position of providing details to the forwarder, the buyer's agent, without any assurance the forwarder will use it correctly. For example, suppose the seller reports the shipment was sold for $100,000. However, because the buyer wants to avoid graft in his home country, he instructs the forwarder to declare the value at $50,000 plus misdescribe the goods. Supposed the U.S. forwarder is unscrupulous enough to agree. Where is the protection for the seller? There is a question as to whether the forwarder has a legal obligation to provide copies of any of the export documents to the seller. In fact, he could breach his obligations to his customer - the buyer - by doing so!

Under these new rules, in a routed transaction, the seller is required to provide the buyer's forwarder with such information as name, address, point of origin, FMS code, the ECCN number and related commodity description, I.R.S. number, and any other information which could affect the export license designation. Interestingly, if the buyer has assumed licensing responsibility, the exporter does not have to report the ultimate consignee or port of destination, but, of course, the seller cannot turn a blind eye to the end user and end uses prohibitions in U.S. export laws.

Look for forwarders to make sure they have a proper power of attorney from their customers. Look also for more and more forwarders and shippers to implement transmission of export related data through AES. The program itself is available on the Internet free of charge at http://www.aesdirect.gov/ <http://www.aesdirect.gov/>

Further pushing towards the mandatory use of AES is a long-anticipated report recently issued by Census to Congress with input from many other federal agencies. The report was required under the 2000 Consolidated Appropriations Act (P.L. 106-113) to address the feasibility of requiring the use of AES for all shipments which require an export license. Not surprisingly, Census recommended the use of AES for all export transactions and that its information be made available to all interested agencies, e.g. State, Commerce, Defense, Energy, Treasury and the CIA.

WHO IS THE EXPORTER?
5/00
The disagreement between the trade and Census continues as revisions of the exporter of record rule remain under discussion. Census states it does not intend to change commercial relationships yet it also insists that the U.S. seller must participate in the export process by providing information for the Shippers' Export Declaration. The problem is particularly complex for those exporters selling on an ex-factory term of sale as their buyers are responsible for arranging export. In the most recent regulatory revisions, Census established a box labeled "Exporter (U.S. Principal Party in Interest)." In so doing, it arguably required U.S. sellers to assume certain liabilities if their goods are exported in reliance on incorrect information coming from their buyers.

The trade community and Census continue their dialog but in the meantime, the Office of Management and Budget has now directed Census to relabel the box to refer only to the U.S. Principal Party in Interest. The final rules regarding who in the commercial transaction is responsible for providing what information remains under review. The final rules are still expected in mid-June 2000 and would become effective 90 days thereafter.

CREDIT CHECKS ON OVERSEAS BUYERS
5/00
A major concern for exporters is how to get paid by their overseas buyers. Often a letter of credit is used to finance the transaction. However, this approach is not always popular or well-received. In the May 3, 2000 Journal of Commerce, a column written by Frank Reynolds entitled Savvy exporters do credit checks listed a number of entities which can assist exporters in providing credit and collection services overseas. See the Journal of Commerce web site for more details - www.joc.com

EXPORT CONTROL VIOLATIONS LEAD TO GUILTY PLEA
5/00
A&C International Trade Inc. recently pled guilty in New York to one felony count for exporting a police riot control vehicle to China without the required export license. Alan Wang, its President, pled guilty to a misdemeanor for filing false documents in conjunction with the same export.

Recently International High Tech Marketing also entered a guilty plea in Miami to an export control violation. IHTM pled to three felony counts for under-valuing its shipments thereby evading the reporting requirements. It exported computers and related products to Libya and Sudan. A $250,000 fine was also imposed.

AES MANDATORY WITH GOODS SUBJECT TO AN EXPORT LICENSE
5/00
When enacted, HR 3194 required the use of the Automated Export System if the goods being exported are subject to a validated export license, see sections 1252 and 3154 and 13 U.S.C. 301. Before this section of the law takes effect, however, a feasibility report must be filed by Census with Congress. That report is expected shortly. It awaited feasibility studies from the licensing agencies: Commerce, State, Defense, Treasury, Energy and CIA which have now been completed. There have also been certain operational problems with AES which Census and Customs continue to address.

On a related topic, Customs has announced that based upon instructions received from Census, effective August 4, 2000, facsimile copies of the Shippers’ Export Declaration will no longer be accepted.

AERP EXPIRES ON DECEMBER 31st
11/99
Exporters are reminded that at year end, AERP will expire. At that time, the only means for filing shippers export declarations will become AES. Check our web site for more details plus the location where the necessary software can be downloaded.

CENSUS BEGINS INTERNET OPERATION OF AES
10/99
Census has announced that starting September 27th, filers can register at http://www.AESDirect.gov to participate when AES becomes operational on the Internet on October 4, 1999.

SED EXCEPTIONS
10/99
In the paper world, exemptions from Shippers Export
Declaration (SED) filing are stated on the first page of the loading document. Such a requirement, of course, cannot apply in the electronic context. Therefore, with the advent of electronic SED filing (called AES), the Bureau of the Census, Dept. of Commerce, has issued a notice detailing the available exemptions. Census still prefers to receive the full exemption explanation on the loading document but when space prevents it, the listed exemptions are the recommended way of providing that information.


UNDERVALUATION ON SED YIELDS CRIMINAL CONVICTION
10/99
Immunostics, Inc. of New Jersey is reported to have been convicted of submitting false shippers export declarations. The company is reported to have pled guilty to under declaring the value of some of its export shipments on the Shippers Export Declarations it filed with Commerce and Customs. The company is expected to be fined $48,000.

BXA RULES CHANGE
9/99
As Commerce has begun to tighten the reins on exports, it has announced the License and Enforcement Action Program - LEAP. A rider will now be required for each export license requiring the exporter to notify all parties to a transaction of their responsibilities under the license conditions to make sure products reach their intended destinations and are used only for their intended purposes. Acknowledgments must be in writing and the exporter will be obligated to notify BXA of any missing acknowledgments.

The purpose of LEAP is to organize license conditions by category of party bound, e.g. forwarder, consignee, end-user, exporter; place a rider on each license requiring affirmative action by those affected; expand pre-license checks and post-shipment visits; and to allow annual reviews and spot-checks of license exceptions and holders of bulk export licenses.

CENSUS CHANGES SED FILING PROCEDURE
7/99
As the push continues towards the Automated Export System, Census has awarded a contract to Flagship Customs Services, Inc. to build a web-based system giving free access for users to AES. As a result, individual companies will not have to develop their own AES programs or links.

AUTOMATED EXPORT SYSTEM (AES) STATUS
In a recent announcement, Customs advised the results of the interest based negotiations which took place between Customs and the trade to resolve their differences about what had to be reported by exporters at time of exportation. The result is a series of four (4) options:

Option 1 - paper Shippers Export Declaration (SED) and pre-departure filing: this option has no AES electronic component to it and maintains the present practices regarding the information required;

Option 2 - AES Filing of all pre-departure information: all commodity information is filed electronically;

Option 3 - AES filing of partial pre-departure information: 14 data elements have been identified and must be filed prior to exportation with the remaining details transmitted within five (5) working days of the date of export. This option applies only to sea and air shipments.

Option 4 - AES filing of post-departure information: qualified exporters will be allowed to export approved commodities without filing any pre-departure data. Complete commodity information must, however, be filed within ten (10) days of exportation. A formal screening and approval process is required to qualify under this option.

As a result of these successful negotiations, AERP expires on December 31, 1999 and AES-PASS expires one year after full implementation of Option 4.


WHO IS THE EXPORTER?
11/98
As Customs and Census continue their focus on compliance with U.S. export laws, last August Census proposed U.S. manufacturers had to be listed as exporter of record even if their goods were sold on terms of sale which made the buyer responsible to export the goods from the U.S., e.g. ex-factory, ex-works or ex-dock. Industry complained loudly that the U.S. government should not have the power to change international trading rules about terms of sale. Census now appears to be heeding industry’s concerns. Census originally made the proposal because it thought the U.S. manufacturer was the only one who could provide the needed export documentation details. Now, however, Census seems to be willing to agree that the U.S. manufacturer would be listed as the seller only. If adopted, this change would require the U.S. company to provide the details to complete the Shippers Export Declaration but nothing more.

SED ELIMINATED FOR SMALL SHIPMENTS
8/98
Effective August 27, 1998, the Bureau of Census revised the Shipper's Export Declaration (SED) regulations. Except for shipments to Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria, if the transaction involves goods valued per classification line at $2,500 or less, no SED is required. The requirement regarding goods subject to an export license remains unchanged.

WORLDWIDE DETAILS ABOUT COMPUTERS
The U.S. Dept. Of Commerce recently released information about the tariffs and taxes on computer hardware and software imports in over 120 countries. There is also information available about U.S. government export related services and an announcement about Software ‘96, an international conference for software and related products. One goal of the conference is the formation of international and joint marketing alliances. For information about these announcements and others, call the Commerce Dept. Bulletin Board. The modem number is (202) 482-2584, Parity: None, Data Bits: 8, Stop Bits: 1.