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Building a Strong Export Compliance Plan

posted by Jennifer Diaz February 23, 2021 0 comments

Co-Authored by Sharath Patil

Exporting is a Privilege, Not a Right

Over 95% of the world’s consumers are outside of the United States. Opportunities abound for U.S. companies that export. However, exporting is a privilege and not a right. U.S. exporters have an important responsibility to adhere to U.S. export control laws, including the Export Administration Regulations (“EAR”), the International Traffic in Arms Regulations (“ITAR”) the Office of Foreign Assets Control (“OFAC”) sanctions laws, and the Foreign Corrupt Practices Act (“FCPA”). Violations of export control laws carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars in penalties, lose export privileges, and even be imprisoned for violations of U.S. export control laws.

The EAR is a set of regulations which governs whether U.S. persons may export or transfer goods, software, and technology outside of the United States or to non-U.S. citizens. The ITAR, on the other hand, is a set of regulations which governs whether defense or military-related technologies may be exported or transferred to non-U.S. citizens. The purpose of both the EAR and the ITAR is to safeguard U.S. national security interests by ensuring that critical technology does not fall into the wrong hands. The EAR is administered by the Commerce Department’s Bureau of Industry & Security (“BIS”) while the ITAR is administered by the State Department’s Directorate of Defense Trade Controls (“DDTC”).

OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United​ States. U.S. persons are generally prohibited from engaging in transactions, directly or indirectly, with individuals or entities (“persons”) on OFAC’s Specially Designated Nationals and Blocked Persons List, other blocked persons, and those covered by comprehensive country or region embargoes (e.g., Cuba, the Crimea region of Ukraine, Iran, North Korea, and Syria).

The FCPA was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.  The anti-bribery provisions of the FCPA have applied to all U.S. persons and certain foreign issuers of securities. The anti-bribery provisions also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.

Developing or Enhancing Your Export Compliance Plan

A key foundation of proactive and effective export compliance requires the development of an export compliance plan which establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing export compliance plans for organizations without plans.

Why is Developing a Strong Export Compliance Plan Important?

A strong export compliance plan is beneficial to your business because it:

  • Ensures that all employees understand the export regulations and reinforces internal policies and procedures. Many businesses don’t realize the export control concerns many of their employees, not just the export department. This is because the scope of the term “export” is broad in the EAR and the ITAR. For example, “deemed exports” refer to the release of controlled technology to a foreign person, including within the territory of the United States. Therefore, employees that have little to do with a business’ export activities (e.g. accountants, information technology, customer service) can inadvertently cause your business to violate U.S. export control laws (e.g. by sharing information to non-U.S. persons, by failing to secure data on a cloud server, etc.).
  • Demonstrates to federal government agencies that your business is proactive about export compliance. An effective export compliance plan is a great way to demonstrate to BIS and DDTC that you are on top of your export compliance obligations.
  • Avoids your business from being subject to costly penalties and even criminal liability. Many U.S. businesses have paid hefty civil penalties for violating U.S. export control laws. L3Harris Technologies, for example, was fined $13 million for illicitly exporting defense technology and software. For more examples of costly civil and criminal penalties, check out BIS’ latest Don’t Let This Happen to You!

U.S. Government Guidance on Compliance Plans

According to the Bureau of Industry & Security, developing an effective export compliance program is “an invaluable way a company can contribute to U.S. national security and nonproliferation priorities while protecting vital company interests.”

BIS identifies the following key factors of an effective export compliance plan:

  • Management commitment
  • Risk assessment
  • Export authorization
  • Recordkeeping
  • Training
  • Audits
  • Handling export violations and taking corrective actions
  • Building and maintaining your export compliance manual

Similarly, DDTC identifies the following key factors:

  • A clear description of organizational structure
  • Corporate commitment
  • A methodology for identifying, receiving, and tracking ITAR-controlled items or data
  • A procedure for handling re-exports and re-transfers and restricted exports
  • Recordkeeping
  • Internal monitoring
  • Training
  • A system for proactively handling violations

The U.S. government has published similar guidance for OFAC and FCPA compliance. While having an export compliance plan is not a guarantee that an export violation will not occur, a coherent export compliance program can minimize the risk of non-compliance.

Contact Us

Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape or building an effective plan from scratch. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

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