Customs Update: Export compliance ratchets up
(As published in the Journal of Commerce Online December 28, 2005)
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.