Last week’s post emphasized the importance of an Export Compliance Program as a risk management tool. Unfortunately, most small/medium companies do not have full ECPs. Whether your company has a formal Export Compliance Program (ECP) or not, it is critical that you have procedures in place to screen orders for Red Flags.

Many companies rely on their busy shipping department to manage export compliance. I believe that this is a mistake because shippers are under time pressure to get shipments off the dock, they often don’t have training or expertise, and usually don’t have authority to stop shipments. In the absence of a formal Export Compliance Program, clear protocols for escalation and resolution must be in place when Red Flags appear.

Here is a list from the Bureau of Industry and Security (BIS) website of things to look for in an export transaction. Make sure you are not doing business with the bad guys. A little due diligence up front saves a lot of trouble later on.

The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’] list of denied persons.

The customer or purchasing agent is reluctant to offer information about the end-use of the item.

The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.

The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.

The customer has little or no business background.

The customer is unfamiliar with the product’s performance characteristics but still wants the product.

Routine installation, training, or maintenance services are declined by the customer.

Delivery dates are vague, or deliveries are planned for out of the way destinations.

A freight forwarding firm is listed as the product’s final destination.

The shipping route is abnormal for the product and destination.

Packaging is inconsistent with the stated method of shipment or destination.

When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

For help contact mitch@52.91.45.227

C-level executives all understand risk management and protect their organizations accordingly. They make sure insurance policies are in place for all possible contingencies and retain legal counsel for further protection. Unfortunately, export compliance is rarely treated as the risk that it represents. There are several reasons for this:

Inertia- initial steps are taken to develop an Export Compliance Plan but progress stalls as more urgent tasks need attention.

Management believes that company is too small or doesn‘t export enough to need a formal ECP.

Lack of upper management commitment and willingness to put in the time.

Management doesn’t want to spend the money or devote resources to create an ECP.

Compliance is managed at lower levels with limited authority to get the project done.

Reliance on Logistics Service Providers for compliance. While LSPs are valuable business partners, the exporter is ultimately responsible for compliance.

The best insurance against export fines and penalties is an up to date Export Compliance Program. Both upper management commitment and front line training are essential parts of an ECP.

Fines and penalties for violations should make export compliance a basic part of risk management. Best practices, including an ECP, will reduce exposure to steep fines and penalties as described by BIS (Bureau of Industry and Security) on their website https://www.bis.doc.gov/

Penalties- Violators of the Export Administration Act of 1979, may be subject to both criminal and administrative penalties. When the EAA is in effect, criminal penalties can reach 20 years imprisonment and $1 million per violation.

Privileges – A denial of export privileges prohibits a person from participation in any transaction subject to the EAR.

contact mitch@52.91.45.227 for assistance.