Freight Forwarders Often Targets of Export Control Enforcement Actions
U.S. exporters face numerous compliance challenges for items exported abroad under dual-use export controls administered by the Department of Commerce’s Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR).
Under the EAR, exporters must know a variety of details regarding the items intended for export, including the appropriate export control classification number for commodities exported, any limitations on the use of license exceptions under the regulations, restrictions on certain end users and end uses, and requirements for obtaining export licenses in cases where they are required. Failure to comply with the various requirements of the EAR could subject U.S. exporters to administrative proceedings, civil penalties, the denial of export privileges, criminal prosecution, and various other enforcement actions.
Freight forwarders and international logistics service providers are not immune to enforcement proceedings in cases where EAR violations have taken place. In fact, a review of publicly-available information on BIS administrative proceedings illustrates that freight forwarders have often been the subject of administrative proceedings and have faced civil penalties and other remedial measures. These cases highlight how, despite the fact that freight forwarders are often acting on behalf of another party, they must nevertheless ensure that stringent export compliance programs are in place to prevent violations of the EAR.
One essential element of an export compliance program is diligent monitoring of the various restricted parties lists maintained by U.S. government agencies with regulatory authority over export controls. This includes the BIS Entity List which identifies entities that are subject to license requirements for certain exported items that appear on the EAR’s Commerce Control List, and the Specially Designated Nationals List (SDN List) administered by the Office of Foreign Assets Control (OFAC) of the Department of Treasury.
In January of 2015, BIS fined General Logistics International, Inc. of New Jersey a civil penalty of $90,000 for facilitating the unlicensed export of scrap steel to a party located in Pakistan, which was listed on the BIS Entity List. In that case, General Logistics facilitated the export while acting on behalf of a Canadian company by providing numerous logistics and shipping services to its Canadian client, including the filing of information in the Shipper’s Export Declaration (SED) in the Automated Export System (AES), required under both the EAR and the Foreign Trade Regulations for items being exported from the U.S.
In another case, Kinetsu World Express (U.S.A.) Inc., another New Jersey freight forwarder, was fined a civil penalty of $30,000 in September of 2014 for facilitating the export of spiral duct production machines and related accessories, all items subject to the EAR, to a Chinese company without the requisite export authorization. In completing required documentation in the SED, Kinetsu World incorrectly indicated that no export license was required for these items. This case is also noteworthy because the Chinese recipient of these exported items was a party listed on the Department of Treasury’s SDN List. This case demonstrates the need for freight forwarders to be cognizant of the various restricted parties lists that must be screened by U.S. exporters. It is also noteworthy because it highlights the need for U.S. exporters to have comprehensive screening procedures.
Freight forwarders providing services to their clients should also be aware of export control requirements for exports to destinations that are subject to U.S. trade embargos, as such shipments can trigger special regulatory requirements. Under the EAR, an export license is required for U.S.-origin items exported or re-exported to Syria and certain other countries, with the exception of food and medicine classified as EAR99 under the EAR.
In September of 2013, Total Cargo Logistics, Inc. (Total Cargo) of New Jersey was assessed a civil penalty of $27,000 for facilitating the export of PVC cement and primer cleaners valued at approximately $57,000 to Syria without the required export authorization from BIS. This case demonstrates the need for freight forwarders’ internal export compliance programs to take into account special licensing requirements for embargoed destinations and also highlights the need for logistics service providers to be aware of individual export classification details for items they export on behalf of their clients.
Julio Fernandez is a trade compliance professional in Washington, DC. His expertise includes developing export compliance programs for projects funded by the U.S. Agency for International Development.
Editor’s note: A second installment of this article will be appearing on Global Trade next week.
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