Export Compliance

 If the transaction involves international commerce federal controls likely apply. The United States controls what leaves the U.S. to make sure the export stays out of hands of a terrorist group. Some federal controls designed to ptotect the United States economy if there is a shortage of certain materials  within the national borders. Regulations are also used to encourage other countries to stop human rights violations.

If your company employes foreign nationals you must review your export compliance program in order to avoid even accidental violations of federal regulations. Even an innocent oversight can be catastrophically costly to your business. Federal regulations restrict with whom a U.S. person can conduct business, how the business is done and what can be transferred. These regulations cathces everything from financial transactions, dealership agreements, distribution agreements, stock transfers, exports of know-how, tecnhology transfers, to mere proposals for certain exports.

Every year Department of Justice collects multi-million dollar fines from offending U.S. persons and companies that dare to violate or simply make mistakes of what Department of Commerce, Department of Defense, Department of State and Department of Energy consider as export laws and regulations. To make matters worse some times even a failure to act such as non-reporting may invoke criminal liability under Foreign Corrupt Practices Act, Anti-Boycott Rules.

In order to prevent such consequences every international entrepreneur, exporter or a business employing foreign nationals should implement sound export compliance system that typically consists of a few documents and procedures described below.  

TYPICAL EXPORT COMPLIANCE SYSTEM

This sample is designed to provide an overall picture of how different departments of a company must work together for an Export Control Program to work.

First: Country to which a product is to be exported will be considered before processing of any orders. Potential transaction will be checked for compliance with the sanctions administered by the Treasury and Commerce Departments. If a transaction is subject to country-specific sanctions, it may be eligible for a license, depending on the goods involved. Representatives of Sales and Accounting departments will be responsible for considering initial client’s contacts with the Company and deciding whether to go through with the order.

Second: The next step will be to obtain information about a customer and how that customer will use our product. Every potential customer, including freight forwarders, banks, shipping lines and insurers will be checked with regard to the final destination and use of Company’s product to determine if the export is in compliance with U.S. law. Representatives of Finance and Accounting departments are in the best position to carry out these tasks prior, during and after the final processing of the orders and actual delivery of the product.

Third: To Determine whether a license is needed to export our particular product or service Company’s Product Development department must classify the item. Classification of the product will determine jurisdiction of the particular Federal agency that controls this item. Software developed by the Company may require license from the Department of State if it was designed for military application. At the same time a product may be subject to Department of Commerce if the item has possible military application such as “dual use.”

Forth: Every department's head in the Company is responsible for control of possible deemed export issues. Deemed export can be an area of concern for a Company because some of the products (including technical data or services) that may require licensing from various Federal agencies can not be freely available for non U.S. persons. Every department must set screening procedures when non U.S. persons come into contact with Company’s controlled export.

A flowchart typically describes various steps Company’s departments take before, during and after processing an order. The order processing flowchart will be especially helpful for the sales, accounting and product development departments.