Export Regulations Due Diligence for Compliance

Export Regulations Due Diligence

Exercising export regulations due diligence involves complying to complex sets of requirements set forth by multiple U.S. government agencies.  These agencies include the Bureau of Industry and Security (BIS), the Directorate of Defense Trade Controls (DDTC), the Office of Foreign Asset Controls (OFAC), and the National Nuclear Security Administration (NNSA).

The International Traffic in Arms Regulations (ITAR)

The ITAR are a series of regulations that control the export of military related technologies.  The ITAR are administered by the DDTC which is an agency of the U.S. Department of State.  Defense articles, defense services, and related technical data that fall under ITAR jurisdiction are enumerated in the United States Munitions List (USML).

These regulations are in place to protect U.S. national security and foreign policy interests.  Therefore export transactions of these goods are subject to a high level of scrutiny.  Requirements for ITAR include item and service classification, applying for required licenses, protection of technical data, site security, visitor screening, and the screening of employees, contractors, and customers. 

Export Administration Regulations (EAR)

The Bureau of Industry and Security (BIS) manages Export Administration Regulations (EAR).  The EAR is a series of regulations that control the export of items that have the potential to fall under dual usage categories.  Dual usage refers to technology that can be used for both peaceful and military purposes. 

Before exporting a product that is subject to the EAR, a business must determine whether an export license is needed from the Department of Commerce.  This is done by finding the classification of the product’s Export Control Classification Number (ECCN).  All ECCNs are listed in the Commerce Control List (CCL) 

BIS Best Practices for Export Regulations Due Diligence

BIS guidelines include the following best practices for maintaining due diligence for the EAR:

  1. Conduct a thorough assessment of your product’s potential application.  Even if an item would not require a license you should consider if there are any potential dual usage concerns.
  2. Always conduct a stringent vetting of new or unfamiliar customers and be on the lookout for any of the following “red flags”.
    • A new customer places an unexpected and/or high-value order for sophisticated equipment.
    • The customer is a reseller or distributor. In such cases, you should always inquire who the end user is.
    • The customer has no website or social media and is not listed in online business directories.
    • The customer’s address is similar to an entity listed on the CSL, or the address indicates the customer is located close to end users of concern, including co-located with an entity listed on the Entity List.
    • Your customer places an order for an item that is available at the designated location and the buyer incurs transportation costs.  In such cases, request that the freight forwarder provide you a copy of the Electronic Export Information (EEI) filing to ensure the information is accurate.

Screening Against Sanctions and Denied Parties Lists

Denied Parties Screening is an essential practice for ensuring regulatory compliance to U.S. law.  Screening is performed to restrict or prohibit U.S. individuals and organizations from shipping products or providing services to parties listed on denial, debarment, and blocked persons lists.

Screening applies to all businesses regardless of product or service sector.  An organization is obligated to ensure that any transaction, where there is a transfer of money, is not destined to an individual or entity on a government sanctions list.  Screening also applies to businesses that only engage in domestic transactions, as individuals on these lists often reside in the United States.  The sanctions these screenings are designed to implement are often in effect regardless of an item or service’s export regulation classification.

Requirements for a Compliance Program

It is a requirement for organizations involved in international trade to implement and maintain viable export compliance programs.  While there are differences in requirements based on which series of regulations an export is controlled by, there are many common requirements.

A formal export compliance program should be documented and have the full commitment of upper management to execute, provide adequate resources, monitor, and maintain.  Training should be provided to enhance program awareness and provide adequate information to allow team members to perform their tasks within the program.  Screening activities should be performed against multiple lists to ensure that any party to a transaction is not on a watch or denied parties list.

CVG Strategy Export Compliance Expertise

Ensuring that export regulation due diligence is consistently performed by an organization requires implementation of viable export compliance programs.  Failure to comply with regulations can result in administrative and criminal penalties including imprisonment and loss of export privileges.

CVG Strategy has the compliance and training programs to help you meet U.S. export due diligence requirements.  We can also assist in item classifications, voluntary disclosures, Technical Assistance Agreements (TAA), and licensing applications.  CVG Strategy also offer signs and accessories to aid in Visitor Access Control on our ITAR Store.

CVG Strategy, LLC is recognized the world over as the premier provider of customized ITAR Consulting and ITAR & Export Compliance Programs.  We provide training that addresses critical U.S. Government regulations including EAR, ITAR and other regulatory agencies.

Kevin Gholston

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