Strategies for Surviving Government Enforcement Actions ì Export Controls By Paulette Kolba
Export Controls ì Census (Commerce Department) ì Customs and Border Protection (CBP) (DHS) ì Bureau of Industry and Security (BIS) (Commerce) ì Directorate of Defense Trade Controls (DDTC) (State) ì Office of Foreign Assets Control (OFAC) (Treasury)
Prevention ì Don t get into trouble in the first place! ì Documented Compliance Program Written Policies and Procedures Training Systems and Process Controls Monitoring and Auditing ì Red Flag Awareness ì Restricted Party Screening
Export Enforcement ì CBP at the border ì Individual export control agencies after export ì BIS: Office of Export Enforcement (OEE) ì State Department: Homeland Security Investigations (HSI) (ICE) ì Investigations are coordinated across several agencies through the Export Enforcement Coordination Center (E2C2)
High Probability / Low Impact ì CBP Enforcement of the Foreign Trade Regulations AES Errors ì CBP Focus: Transportation Data Elements: Port of Export Date of Export Mode of Transportation (exiting the U.S.) Carrier (transporting cargo out of the U.S.) ì $10,000 Penalties How much file profit does that eat up?
Low Probability / High Impact ì Diversion to Embargoed Countries ì Shipments to Restricted Parties ì Anti- Boycott Violations ì Knowing that a violation has or is about to occur ì IEEPA* Civil Penalties - up to $250,000 ì Challenge Maintaining awareness in our operations * International Emergency Economic Powers Act
CBP Enforcement of the Census Regulations ì CBP Imposition and Mitigation Guidelines ì CBP issues penalty notice (can go back 3 years) ì Research and petition for mitigation ì Determine if you have a systemic issue ì Take meaningful corrective measures ì Higher penalties for repeat offenders
Exams, Detentions and Seizures ì 19 USC 1595a(d) merchandise exported or sent from the U.S., or a6empted to be exported contrary to law, and any property used to facilitate expor=ng, purchase, receipt, transporta=on etc. prior to exporta=on, shall be seized and forfeited to the United States. ì 22 USC 401 (AECA) whenever an a6empt it made to export any arms or muni=ons of war or other ar=cles in viola=on of law, or whenever there is probable cause to believe [such ar=cles] are intended to be exported in viola=on of law, the Secretary of Treasury [CBP and ICE] may seize and detain such ar=cles.
Exams, Detentions and Seizures ì Not for AES errors BUT remember - AES data feeds the CBP targeting system ì Suspected license issues (BIS, DDTC, OFAC, etc.) ì Prohibited merchandise (drug paraphernalia / unapproved drugs) ì Goods intended for an embargoed destination or restricted party ì Need probable cause
Exams, Detentions and Seizures ì Coordinated through the Exodus Command Center ì CBP, ICE, BIS (licensing) ì Can take awhile to make the determination ì Cost, loss sales ì No statutory timeline on how long CBP can detain cargo
Exams, Detentions and Seizures ì Is the forwarder responsible? Were you properly authorized to handle the transaction? Did you obtain all of the information in writing? Did you transmit the information accurately? Did you have reason to question it? ì Refer CBP to the U.S. Principal Party in Interest (USPPI) for further information / substantiation of their license determination
Enforcement Actions ì Charging Letters, Subpoenas, Warrants ì Do you have an internal process? ì Do you have an escalation policy? ì Should you contact Legal Counsel? ì Internal Reviews
Subpoenas ì Requests typically ask for: All documents All communications For a specific timeline or for specific transactions Might include an email search ì Be prepared to invest time and money Internal review and analysis of all documents and communications Can you identify / locate the communications? External (legal) review and analysis
Do you need legal advice? ì Determine if you need legal counsel advice ì Example 1: Repeat Requests Same item ICE may share reasons with you May not be a need for outside legal counsel ì Example 2: Requests involving diversion to an embargoed country (such as Iran) Better to get guidance and outside review
Subpoenas ì Ask if you are the target ì Seek legal advice (internally first) and determine if outside counsel will be needed ì Keep communications and review within a limited circle of individuals ì Limit the scope of the request, if possible ì Ask for more time
Subpoenas ì Gather documents / communications ì Conduct an internal review and investigation ì Determine your culpability and scope of the issue ì Respond to the request ì Be prepared for further requests on the same subject and decide if you ll want subpoenas for subsequent requests
Enforcement Actions Destination freight forwarder diversion Ties to a U.S. company Ties to previous violations of a related company Penalty: $125,000 Negative publicity BIS Press Release
Anti- Boycott Charging Letter Charging letter Review of files Internal investigation to determine scope Negotiate settlement Corrective measures: controls, monitoring, training FOIA - Anti- Boycott Alleged Violations
Shipping to Party on Entity List U.S. freight forwarder shipped to a party on listed on the Entity List without a license 4 violations Charged in 2014 for violations that occurred in 2009 Settlement: $90,000
Excerpt from Charging Letter
Negative Publicity Freedom of Information Act FOIA http://efoia.bis.doc.gov/index.php/electronic- foia/index- of- documents Public informa=on Nega=ve publicity Newsle6ers / Blogs Being the example in government and trade presenta=ons
Voluntary Self Disclosures ì What if you discover a violation? Do you disclose or not? ì Pros and Cons Mitigating Factor most of the time Could still result in fines ì Can t do it after you ve been contacted
Best Practices ì Policies for handling any USG request ì Policies for handling visits from enforcement (OEE, ICE) especially if they have a warrant ì Internal escalation policy ì Work with attorneys who specialize in the government agency / trade issue you are dealing with
BIS Best Practices ì BIS Best Practices for Prevention of Transshipment Diversion ì ì Best Practice No. 1 Companies should pay heightened attention to the Red Flag Indicators on the BIS Website and communicate any red flags to all divisions, branches, etc., particularly when an exporter denies a buyer s order or a freight forwarder declines to provide export services for dual- use items. Best Practice No. 2 - Exporters/Re- exporters should seek to utilize only those Trade Facilitators/Freight Forwarders that administer sound export management and compliance programs which include best practices for transshipment.
BIS Best Practices ì ì Best Practice No. 3 - Companies should Know their foreign customers by obtaining detailed information on the bona fides (credentials) of their customer to measure the risk of diversion. Specifically, companies should obtain information about their customers that enables them to protect dual- use items from diversion, especially when the foreign customer is a broker, trading company or distribution center. Best Practice No. 4 - Companies should avoid routed export transactions when exporting and facilitating the movement of dual- use items unless a long standing and trustworthy relationship has been built among the exporter, the foreign principal party in interest (FPPI), and the FPPI s U.S. agent.
BIS Best Practices ì Best Practice No. 5 When the Destination Control Statement (DCS) is required, the Exporter should provide the appropriate Export Control Classification Number (ECCN) and the final destination where the item(s) are intended to be used, for each export to the end- user and, where relevant, to the ultimate consignee. For exports that do not require the DCS, other classification information (EAR99) and the final destination should be communicated on bills of lading, air waybills, buyer/seller contracts and other commercial documentation. For re- exports of controlled and uncontrolled items, the same classification and destination specific information should be communicated on export documentation as well.
BIS Best Practices ì ì Best Practice No. 6 - An Exporter/Re- exporter should provide the ECCN or the EAR99 classification to freight forwarders, and should report in AES the ECCN or the EAR99 classifications for all export transactions, including No License Required designation certifying that no license is required. Best Practice No. 7 - Companies should use information technology to the maximum extent feasible to augment "know your customer" and other due- diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end- users for authorized end- uses.
Resources BIS Best Practices for Preventing Transshipment Diversion BIS "Know Your Customer" Guidance BIS Red Flag Indicators CBP Imposition and Mitigation Penalty Guidelines for Failure to Comply with the Foreign Trade Regulations Consolidated Screening List
Contact Information Questions??