(2 min read)

As was discussed in the previous blog post, “Evolving Trends in Compliance”, the Bureau of Industry and Security (BIS) is responsible for the implementation and enforcement of the Export Administration Regulations (EAR). To demonstrate adherence to U.S. export control regulations, companies must follow specific procedures and guidelines. This article will share the key steps involved in meeting BIS compliance expectations and how U.S. businesses can avoid suspect business dealings.

The first step in demonstrating adherence to export controls is determining if the products to be exported require a license. All companies must classify their products using the Export Control Classification Number (ECCN) and review the Commerce Control List (CCL) for instruction. If a license is required for that product, companies may apply through the Simplified Network Application Process Redesign (SNAP-R) system.  

Once licensing and classification requirements have been met directly with BIS, the company must keep abreast of due diligence, ensuring customers are not found on government lists of restricted parties, such as on the Consolidated Screening List (CSL). If the buyer passes this screening, the exporter remains under obligation to ensure that both end users and end uses are permissible under U.S. law.

Below is a checklist of Red Flag Indicators of potentially dubious business dealings, taken directly from the BIS website:

• The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’] list of denied persons.

• The customer or purchasing agent is reluctant to offer information about the end-use of the item.

• The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.

• The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

• The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.

• The customer has little or no business background.

• The customer is unfamiliar with the product’s performance characteristics but still wants the product.

• Routine installation, training, or maintenance services are declined by the customer.

• Delivery dates are vague, or deliveries are planned for out of the way destinations.

• A freight forwarding firm is listed as the product’s final destination.

• The shipping route is abnormal for the product and destination.

• Packaging is inconsistent with the stated method of shipment or destination.

• When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

Finally, the seller must maintain detailed records of all export transactions (including export licenses, shipping documents & screening results) for at minimum five years, as well as conduct regular, internal audits. Click here for tips on implementing a robust and resilient inventory management system from EMW’s partner, Virgil Global Trade.

Failure to properly perform due diligence may result in severe penalties. In some instances, BIS might impose a civil penalty, fining up to $300,000 per violation or twice the value of the transaction, whichever is greater. A criminal penalty might carry up to $1 million per violation and a 20-year prison sentence. Other penalties include being barred from receiving federal contracts, denial of export privileges, reputational damage, and the seizure of goods.

It is crucial to work with a compliance specialist. Contact EMW for more information or to be connected to a compliance expert.