Managing an Export Compliance Program (ECP) properly ensures its effectiveness. These programs are essential to the sustainability of a business. However, any plan, no matter how well conceived, is only as effective as its execution.
Planning the Export Compliance Program
Specific requirements for an Export Compliance Program are contingent on the types of products an organization exports, the size of the organization, the number of exports, where articles are to be exported, and the end-use of the exported items. Each product or service to be exported should be classified to determine the United States Government agency involved in regulating the export.
The Directorate of Defense Trade Controls (DDTC), under the jurisdiction of the Department of State, controls defense articles and services categorized on the United States Munitions List (USML) These items are regulated under the International Traffic in Arms Regulations (ITAR).
The Bureau of Industry and Security (BIS) under the auspices of the Department of Commerce administers the Export Administration Regulations (EAR). The EAR control the export of commodities enumerated in the Commerce Control List (CCL) with a unique Export Control Classification Number (ECCN). Prohibition of export or requirements for licensing are based on the classification of the item, the destination of export, the end user, and the end use of the item.
A properly designed export compliance program should be tailored to the unique requirements of the business. These requirements should include the size of the business, the percentage of sales that are export controlled, and the expected growth of the organization. The plan should be kept current with changes in regulations and should include procedures to handle compliance issues.
Essential Elements of an ECP
Requirements for Managing an Export Compliance Program vary between these two agencies and organizations should refer to current requirements to create and maintain their program. However, these key elements are critical for any program.
The management team has ultimate responsibility for the ECP. As such it should create and maintain a program, provide sufficient resources for its functions, and communicate its commitment through a written policy statement. Once initiated, management should regularly review and update the program as required for its proper function and foster a culture of compliance within the organization.
Management should also appoint and train Empowered Officials (EO) and Export Compliance Officers as required. These officers are responsible for overseeing activities of the program including classification, licensing, and restricted party screening.
Registration with the DDTC is a requirement for organizations falling under the ITAR. Program documentation should include instructions for registration and maintenance of registration.
Processes should be in place to assess risks associated with:
- Exporting a controlled item without a required export license
- A deemed export caused by the unauthorized release of sensitive information or controlled technologies
- Servicing of items outside of the United States
Restricted Party Screening
It is the responsibility of the exporter to ensure that exports do not end up in the hands of prohibited end-users. Procedures should be in place to verify the legitimacy of the buyer, obtain end-use statements, screen all involved parties against denied parties lists, and ensure that shipping documentation notifies all parties of the nature of the export.
Retention of documents pertaining to export activities should be maintained for a minimum period of five years. For electronic documentation, care should be taken to ensure confidentiality, integrity, and availability of information. Specific roles and responsibilities for maintaining these records should be assigned.
Any Export Compliance Program is only as resilient as its weakest link. Training is mandatory for all members of an organization that are involved with controlled items. This training should provide job specific knowledge, communicate responsibilities, and impart accountability for compliance. This training should be periodically reviewed to ensure knowledge and update personnel on changes in regulations or policies.
The export compliance program should be regularly audited to assess its effectiveness. Audits should be conducted on specific functional levels as well as the program level. While these audits can be conducted internally, it is considered a best practice to conduct an audit with an outside auditor.
Handling Export Violations and Taking Corrective Actions
Violations can occur even in a well-executed export compliance program. In the event of a violation, procedures should be in place to address the investigation, corrective action processes, and voluntary disclosure. An organizational culture should be in place that encourages employees to suspected violations and ensures a safe environment for doing so.
Elements of the Export Compliance Program should be detailed in a manual that is available to all employees. This manual should stress the importance of compliance to the organization and provide a summary of relevant export laws and regulations. It should explain the functions of the compliance program and identify roles and responsibilities within the program.
The manual should reference policies and procedures necessary for the performance of functions within the program and contain necessary templates for communicating with relevant agencies. This manual should be updated regularly in response to changes in regulations, organizational knowledge obtained in maintaining the program, and vulnerabilities and key risk areas identified in program review processes.
CVG Strategy Export Compliance Management Programs
Managing an Export Compliance Program is an important subject for businesses engaged in sales of items that are intended for international sales or could result in international sales. Failure to comply with regulations can result in criminal prosecution including imprisonment and fines. It can also result in civil penalties and disbarment from export activities.
CVG Strategy can help you in understanding the ITAR and EAR, and help you establish a coherent and effective export compliance system. We can perform export control classifications, perform audits, assist in filings for export licenses and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.