A wide variety of U.S. laws and regulations affect international business transactions. Some address importing or exporting of goods or services or even technology and know-how. Others regulate how businesses and individuals may conduct themselves in an international transaction. Surprisingly few United States managers and directors are aware of these rules designed to protect U.S. foreign policy and security in the most mundane business transactions.
The U.S. government has increased the volume of enforcement cases and the penalties imposed, including larger fines, seizures, loss of importing or exporting rights, and and criminal prosecution. Even if the charges are eventually dropped or mitigated, resulting adverse publicity can irretrievably damage business and personal reputations. Thus, heightened awareness of and programmed compliance with these international trade laws is well advised.
Export regulations are becoming an increasingly hot topic, with millions of dollars of fines being imposed on companies around the world, even some who are not sending products abroad.
Aside from the classic idea of exporting as selling products, services, or technology abroad, the government also considers a disclosure of technology to a foreign national inside the US to be an export. A company deals with a controlled technology may have to apply for a license to allow any foreign nationals to have access to it. This can present serious regulatory issues for companies that employ foreign nationals, as violations can result in criminal and civil fines as well as jail time. The importance of these regulations was demonstrated when a University professor was indicted for violations of export regulations because he allowed a Chinese graduate student to work on a project that involved technology that was controlled by the Department of State.
A company engaged in international commerce faces export regulations including:
- Sanctions and Embargoed Country Restrictions: The Office of Foreign Assets Control (OFAC) in the Department of the Treasury administers and oversees a series of laws that impose economic sanctions against hostile targets to further U.S. foreign policy and national security objectives. OFAC is responsible for promulgating, developing, and administering the sanctions for the Treasury under ten federal statutes. OFAC, like the Department of Commerce, regulates transactions to prevent shipments to certain countries and users. The laws enforced by OFAC include the International Emergency Economic Powers Act, the Trade Sanctions Reform and Export Enhancement Act, and the Iranian Transaction Regulations, among others. (OFAC has authority over the exception that applies to medical products and authorizes exports to embargoed countries under a license exception.)
- Export Administration Regulations: The Export Administration Regulations (EAR) are administered by the Department of Commerce’s Bureau of Industry and Security (BIS) and define the license rules and regulations that must be followed by exporters. These rules and regulations are determined by the item’s technical characteristics, the destination, the end-use, the end-user, and other activities of the end-user. BIS maintains the Commodity Control List (CCL), which includes all commodities subject to export controls.
- Denied Persons List: Specially Designated Nationals (SDNs) are usually persons who are not nationals of a designated target country, but who nonetheless are treated as nationals or as the government when applying sanctions to their transactions. They are typically front organizations. OFAC has identified and named numerous foreign agents and front organizations in a list of “Specially Designated Nationals and Blocked Persons.” Exporters cannot ship to any individual or organization on these lists.
- Antiboycott Regulations: While the antiboycott regulations prohibit various actions, they also require that the exporter report certain boycott requests – even if the exporter has no intention of accepting, much less complying with the proposed boycott terms. The Act went into effect in 1965 in response to the Arab League’s practice of blacklisting firms that had dealings with Israel.
- Foreign Corrupt Practices Act: The Foreign Corrupt Practices Act (FCPA) was created in order to reduce corruption by U.S. entities in obtaining or maintaining business in foreign countries. The FCPA imposes civil and criminal penalties for bribing foreign officials and may also give rise to certain legal actions by competitors if the activities provide an unfair advantage for the violating company. Companies doing business with foreign governments and governmentally related businesses should have active FCPA compliance programs.
- Recordkeeping: Recordkeeping is a very important aspect of conforming to the EAR since it requires that complete and accurate records be maintained by the exporter for a period of at least five years from the date of export for all export transactions, regardless of whether or not a license is used.
- Export Management System: Exporting companies should have an export management system to ensure that their exports and export decisions are consistent with the EAR. Such a manual or guide will include internal procedures for screening exports by providing steps to determine whether a license is required because of item/country identification on the CCL. The manual will also focus on training, document requirements, screening mechanisms for the “Know Your Customer Guidelines” and determining whether the end-user is a prohibited party. Establishment of an EMS will not relieve an exporter of criminal or administrative liability under the law if a violation occurs, but will be a factor in proving due diligence and mitigating the penalty imposed.
- Red Flags: The EAR, OFAC and Patriot Act regulations, to varying degrees, require due diligence on the part of exporters to avoid business with prohibited persons or places. Part of this process is understanding the “Know Your Customer Guidelines” and the Red Flags. The U.S. government has put the burden on the exporter to ask questions before shipping including what is being shipped, to whom, where, and to what end-user/purchaser where. Exporters need to track each shipment from the U.S.
- Destinations Control Statement: To help ensure that U.S. exports go only to legally authorized destinations, the U.S. government requires a destination control statement on shipping documents. Under this requirement, the commercial invoice and bill of lading (or air waybill) for nearly all commercial shipments leaving the U.S. must display a statement notifying the carrier and all foreign parties that the U.S. material has been licensed for export only to certain destinations and may not be diverted contrary to U.S. law.
U.S. Citizenship & Immigration Services (USCIS) requires every employer sponsoring a worker in H-1B, H-1B1, L-1, and O-1A status to certify on the petition form that it has reviewed relevant regulations and has determined that a license is not required or that the employer will either prevent the foreign worker from accessing the controlled technology or data or will obtain a license to do so. We presume that licenses are not required and we accept clients’ assertions in such certifications and do not include export licensing consulting services in our immigration pricing, but we are ready to help clients with their internal analysis and compliance procedures in connection with these certifications.
The Customs Modernization Act of 1993 imposed a higher degree of corporate responsibility for compliance with federal statutes. That law requires that an importer exercise “reasonable care” in declaring the value, classification and rate of duty of the merchandise that is being imported. A failure to exercise reasonable care can lead to payment of fines that can reach four-times the amount of duty that should have been paid or even seizure and forfeiture of the merchandise. In matters where there is fraud in the importation process, companies and individuals can, and frequently are, prosecuted criminally. In such cases, the company and the individuals must contend not only with U.S. Customs and Border Protection (Customs) in the Department of Homeland Security but also with the U.S. Department of Justice.
There are several Steps in the customs entry process and declarations by the importer that are scrutinized by Customs: (1) Is the merchandise value accurate? (2) Is the merchandise properly classified in order to determine the appropriate tariff rate as well as whether other fees or regulatory conditions apply? (3) Is the stated origin of the product correct? If Customs finds any of the foregoing to be inaccurate or false, the penalties can be devastating and the follow on consequences of continued governmental scrutiny very burdensome.
Adoption of systematic internal controls and compliance policies not only tend to prevent actual noncompliance but, in the event of an accidental violation, also tend to reduce penalties assessed.
How We Can Help
We regularly represent corporate and individual clients who may be subject to requirements for export licensing. We counsel companies prospectively on the development of internal compliance mechanisms that minimize the risk and potential for violation of such laws. We perform preliminary audits of company policies and mechanisms, review sample transactions, and offer recommendations where improvements of changes should be made. We also provide complete compliance manuals, the architecture of a compliance program, for on-going implementation, review and improvement of compliance mechanisms. We believe that such service is an important element in the “best practices” program for any U.S. business entity transacting international business in today’s regulatory climate.
Even despite best efforts, government enforcement actions sometimes occur, typically when employees fail to follow procedures. We defend clients who have been charged with the types of violations noted above. We advocated for clients before the Departments of Homeland Security (Customs), Commerce, Treasury, and others, seeking to avoid or mitigate penalties. We also defend criminal investigations and prosecutions in concert with our firm’s White Collar Crime Group.
We do not incorporate export/import compliance services into our immigration services unless we have specifically agreed in writing to do so and have charged additional fees for this important service. Immigration clients should not presume that in handling immigration matters we have evaluated their movement or assignment of personnel for export/import compliance. We are happy to discuss integration of immigration and export/import compliance services.
For further information or assistance please contact Doreen Edelman in our Washington, D.C. office at 202-508-3400 or firstname.lastname@example.org.
Consult with us for assistance with a case.
- I-129 Certification language re Deemed Exports – Excerpts from I-129 and form instructions concerning employer’s certification about export licensing