Up until recently, not much free press was given to export compliance. Occasionally, there may have been some news about anti-boycott violations or about violations of the Foreign Corrupt Practices Act or about U.S. exports that were diverted to rogue countries, such as Libya. But on the whole, not much was written in the media about export compliance and what was written, generally reported situations that were rather egregious and that did not appear to involve routine export transactions. This situation has changed, however.
The change started with Customs' announcement of its Outbound Compliance Program. This program was launched by Customs in 1996 and phased in over the course of the next two years in three separate phases that include both ocean exports and air exports. Now Customs. Outbound Compliance program is in the enforcement mode.
To date, much of Customs' enforcement activity has focused on the Shippers Export Declaration (SED). The SED is a document that must be filed by U.S. exporters (or their agents) on virtually all exports prior to export. It provides a summary of an export transaction and is used by the U.S. Census Bureau as the basis for compiling official U.S. export statistics. Since export compliance had not until recently been a priority for Customs, Customs had traditionally not paid much attention to SED filings and as a result, SED's were frequently not filed or were filed late or were filed with inaccurate data. Customs. Enforcement activities related to SED's appears to be paying off as compliance in SED filing has improved. But Customs' goal for SED compliance is 97% so its enforcement efforts in this regard will not doubt continue.
SED compliance is not the only aspect of export compliance that Customs is enforcing -- Customs is also focusing on NAFTA reporting and record-keeping compliance. Exporters exporting products from the U.S. to either Canada or Mexico must provide proper documentation to Canadian and Mexican importers that claim NAFTA duty preferences on U.S. exports. This documentation takes the form of a NAFTA origin certificate which certifies that the exported product is eligible for NAFTA duty preferences because the product was manufactured within the U.S., a NAFTA country. In providing this documentation to Canadian and Mexican importers, however, U.S. exporters must not only certify that the exported products are eligible for NAFTA duty preferences, they must also maintain the back-up data necessary to substantiate the NAFTA eligibility claims they certify. For exporters that source product components for their exported products from many different vendors -- both within and outside the U.S. -- this is no small task. It is, however, a required task and one that U.S. exporters cannot ignore if they desire to remain in compliance with U.S. export laws and regulations.
Customs is not alone in its export compliance activities as Commerce recently launched its own export compliance program called the License and Enforcement Action Program or LEAP. The LEAP initiative encompasses activities that impact upon exporters that export under export licenses as well as exporters that export under license exceptions or no license required (NLR). Included among these activities is an undertaking by Bureau of Industry and Security (BIS) to increase reviews and spot checks (audits) of exporters' compliance with export laws and regulations. While many details remain open as to how BIS will implement LEAP, it is certain that LEAP will cause U.S. exporters to pay closer attention to their export compliance activities.
Faced with the onslaught of U.S. government sponsored export compliance initiatives, U.S. exporters are well advised to institute effective internal export compliance programs to guide their export activities. To be effective, an internal export compliance program should formalize the process to be followed by an exporter in exporting products from the U.S.. This process should incorporate four principal elements: export controls, export behavior, export procedure and export records. The balance of this article will discuss each of these elements and provide exporters some guidance as to the issues that these elements should address.
The primary determination here is a determination as to the relevant export control jurisdiction for the exported product. Export control jurisdiction can be based on the product that is being exported, the place from which an export is made or the party that is making the export.
With regard to export control jurisdiction based on product, the choices are primarily either the export control jurisdiction of the U.S. Department of State or the export control jurisdiction of the U.S. Department of Commerce. The result is determined based on the nature of the exported product. In general, products that are specifically designed, developed, configured, adapted or modified for a military application are subject to the export jurisdiction of the State Department, whereas products that have a predominant or exclusive civil application are subject to the export jurisdiction of the Commerce Department.
Similar to export control jurisdiction based on product, export control jurisdiction based on the place from which an export is made or on the party that is making the export can point to the Commerce Department, but it can also point to the export control jurisdiction of the Treasury Department and its Office of Foreign Assets Control.
Determination of the relevant export control jurisdiction for exported products is a key component of any export compliance program because its sets the stage as to what U.S. exporters can and cannot do (export prohibitions) and as to whether or not U.S. exporters face any export restrictions (export licensing requirements) in exporting their products.
This element is also a key component of any export compliance program as it establishes how U.S. exporters must behave in negotiating and executing their export transactions. In general, U.S. exporters may not bribe foreign government officials for the purpose of obtaining or retaining foreign government related export opportunities (the Foreign Corrupt Practices Act). Additionally, U.S. exporters may not participate in other countries. Boycotts of countries that are friendly to the U.S. and that are not subject to a boycott imposed by the U.S. (Anti-boycott Act).
The export procedure element of an export compliance program documents the steps that must be followed in dealing with export restrictions for particular export transactions (applying for and obtaining any required export licenses) and in completing the paperwork required for particular export transactions (the SED, the commercial invoice marked with a destination control statement, the NAFTA origin certificate), etc. Obviously, this is a very important element of an export compliance program as it produces the proof which is typically the focus of most export compliance initiatives and which is generally used to substantiate the extent to which an exporter has achieved export compliance.
While the export procedure element of an export compliance program is responsible for the production of the proof used in substantiating the extent of an exporter's export compliance activities, the export record-keeping element of an export compliance program is responsible for safeguarding and providing accessibility to such proof. In general, U.S. exporters are required to keep their export records for a period of five years after an export is made.
While export compliance programs officially still remain optional for U.S. exporters, the recent moves by various U.S. government agencies in the area of export compliance enforcement make it clear that export compliance programs are important. Indeed, they are considered in many instances to have a mitigating effect in the case of an export violation. Against this background, U.S. exporters who fail to develop export compliance programs appear to be ill-equipped to deal with the steadily increasing number of government-sponsored export compliance initiatives. But who knows, maybe they see a benefit in the potential of a little free press.
(Article appeared in the 1999 Official Export Guide)
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