All products exported from the U.S. are subject to U.S. export controls, including goods not typically considered sensitive or restricted. Exporters who fail to understand and comply with applicable laws and regulations can be subject to damaging penalties, restrictions on their business, delays in their shipments, and harm to their reputations. This article is part of a series on export compliance issues and examines major risk factors for potential violations.

An essential part of avoiding compliance problems is assessing and addressing your risk of violating export laws or regulations. Risk assessments allow you to ascertain and analyze the likelihood that violations may occur, the types of violations that are most likely to occur, and the most common reasons violations may occur.

Some risks are associated with the size and structure of your organization or the scope or nature of your business. Higher risks are linked to companies with diverse product lines (including controlled items), a primary focus on non-U.S. business and markets, complex supply chains with suppliers in multiple countries, and significant numbers of foreign employees (whether in or outside the U.S.). Ownership by a foreign entity, subsidiaries located in restricted countries, and regular engagement in mergers and acquisitions are also high risk factors. An inadequate culture of compliance (which can include weak or decentralized compliance processes, minimal awareness or support by senior management, absence of training and compliance manuals, and lack of enforcement actions) is a significant red flag as well.

Other risks are associated more with the export-specific operations of your company. Failure to maintain sufficient in-house expertise on applicable export control laws, regulations, and responsibilities; to develop, maintain, and regularly test effective compliance policies and procedures; and to incorporate export classification, licensing, and other compliance processes into business functions all pose high risks. Substantial use of manual processes as well as inadequate recordkeeping and reporting increase your risk as well.

Insufficient due diligence on customers and suppliers is a particularly high risk factor. This includes lax processes for screening business partners against restricted party lists, for identifying and responding to red flags (e.g., evasive customer behavior, unusual packaging requirements, abnormal shipping routes), and for evaluating the risk of shipments being diverted to restricted end-uses or end-users.

Another risk factor frequently highlighted by export control agencies is inadequate oversight when export compliance tasks are outsourced to freight forwarders or other third parties. These entities can provide expertise and guidance, may have some knowledge of a company’s export business, and can act as a safeguard in reviewing export information. However, the exporter is principally responsible for the accuracy of export information and, as one agency put it, “certainly will be the first focus if any violation occurs.” The odds of such violations occurring can increase substantially if exporters fail to regularly perform audits on their export facilitators to ensure requirements are being met accurately and timely.

Sandler, Travis & Rosenberg’s export professionals have decades of experience helping companies to identify the risks associated with their specific operations and to develop effective compliance programs to ameliorate those risks. For more information on how we can help you, please contact Kristine Pirnia at (202) 730-4964 or via email.

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