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BIS Officials Review Export Enforcement Activity, Recommend Compliance Measures

Tuesday, August 19, 2014
Sandler, Travis & Rosenberg Trade Report

Bureau of Industry and Security officials speaking at the recent Update Conference on Export Controls and Policy gave an update on the agency’s export enforcement actions and offered recommendations on the steps exporters should be taking to ensure compliance.

Enforcement Actions. David Mills, assistant secretary of commerce for export enforcement, highlighted the operation of the Information Triage Unit housed in the Office of Enforcement Analysis and the Export Enforcement Coordination Center (E2C2) housed at the Department of Homeland Security. The ITU went into operation in mid-2012 and has produced more than 2,100 reports on the bona fides of foreign parties to export license applications, which Mills said facilitates the processing of these applications and secures “the integrity of our export control system.” The ITU has also provided analysis to support Entity List nominations and to review appeals resulting from such designations.

The E2C2 has helped improve the coordination of export enforcement investigations by de-conflicting over 3,100 cases. De-confliction involves law enforcement agencies exchanging information about new cases to determine if any other U.S. government agency already has an investigation related to the same matter or possesses information that will aid in the investigation. White House Chief of Staff Denis McDonough said that by coordinating new export enforcement leads through the E2C2, officials have found that in 57 percent of new cases another department or agency is either already working the lead or has information that would be helpful.

In addition, Mills said, Export Enforcement has “significantly increased the consequences” for companies it is not able to verify during its end-use checks by (a) amending the Unverified List in December 2013 to make it a more useful tool for exporters to identify foreign parties whose bona fides cannot be confirmed by the U.S. government and provide instruction on how to deal with those parties and (b) publishing on June 16, 2014, the first set of UVL designations from China, Hong Kong, Russia and the United Arab Emirates.

More generally, BIS chief Eric Hirschhorn told attendees, in its enforcement efforts BIS is “trying to focus on truly bad actors, not those who have a decent compliance program, make a mistake, and work with us to remedy the situation.”

Compliance Measures. “The best way to ensure you’re not violating the regulations,” Mills said, “is to have a comprehensive internal compliance program in place.” Specific actions exporters should be taking in this regard include the following.

Screening. All transactions should be screened against government lists; a consolidated list is available here.

CCL. All items subject to an export transaction should be classified against the Commerce Control List and sales persons need to understand list-based, end-use and end-user controls.

License Conditions. For items subject to a license, exporters have an obligation to share license conditions with their customers and are highly encouraged to ensure their customers acknowledge their intent to comply, even where such acknowledgement is not otherwise required by BIS. Mills noted that BIS end-use checks over the past year have found significant non-compliance in this area.

STA. For license exception transactions involving Strategic Trade Authorization, exporters should ensure that they obtain before they ship a certification in which the recipient acknowledges that it understands that any subsequent retransfer or reexport requires a similar consignee statement prior to such retransfer or reexport.

Hirschhorn noted that BIS is continuing its layered approach to verifying compliance with license exception STA, that the review of Automated Export System data and exporter and consignee records, as well as some on-site document reviews, has resulted in a high degree of compliance, and that BIS will continue to review STA transactions to guard against misuse.

End-Use or End-User Concerns. For export transactions with end-use or end-user concerns, exporters should obtain end-use certificates and double check potential licensing requirements. “Self-blinding by not inquiring about end-use or not doing due diligence on an end-user is not an acceptable defense,” Mills warned.

Transshipments. For items moving through transshipment locations like Hong Kong, Singapore and the United Arab Emirates, it is important for exporters to understand the foreign export control requirements of those governments in addition to those of the EAR. BIS has published a new best practice encouraging exporters to obtain a copy of their Hong Kong and UAE customers’ import licenses prior to exporting and to ensure that customers in these three transshipment locations are aware of export control requirements for the reexport, transshipment or transit of items exported from the U.S.

Mills said that for Hong Kong the absence of receipt of such an import certificate for any multilaterally-controlled item from the importer should be a red flag, as it should be with regard to certain controlled items in the UAE. BIS has encountered many entities in Hong Kong “that are nothing more than secretarial firms who simply offer a forwarding service for the reexport of your item to another country,” he noted. “Because of the likely difference in licensing treatment for your item to Hong Kong as compared to most other countries, such as China, extra due diligence is warranted.”

Voluntary Self-Disclosures. Mills anticipates that BIS will handle 600-series VSDs (of which only 18 had been filed as of the end of July) “in a manner very similar to that of DDTC [the Directorate of Defense Trade Controls] and that most will result in a warning letter or no action at all, as is the case with most VSDs previously filed under the EAR.”

Serious Violations. Mills said that as BIS becomes more familiar with the nature of VSDs filed under the 600 series it is his intention to issue new BIS administrative enforcement guidelines modeled upon those promulgated by the Office of Foreign Assets Control. “OFAC has a robust and comprehensive administrative enforcement program for cases involving more serious violations,” Mills said, and “their guidelines - premised upon the statutory criteria set forth in IEEPA [the International Emergency Economic Powers Act], the statutory authority pursuant to which both agencies now administer and enforce their respective regulations - use the transaction value to determine the baseline for assessing a civil penalty. The OFAC guidelines also provide greater transparency and predictability for the exporting community.”

As a result, exporters “may expect to see a continuing robust and comprehensive administrative enforcement program at BIS involving cases where aggravating factors are present, apart from cases involving knowledge and willful conduct, whether or not those cases arise in the context of criminal prosecutions. Such factors include inadequate compliance programs, systemic failures in those programs, [and] harm to U.S. national security or foreign policy interests.”

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