Further Details on BIS' Updated Freight Forwarder Guidance (Risk Mitigation and Partnerships)

BP previously issued an overview of this updated guidance, covering BIS' updated information on forwarder responsibilities, routed export transactions, AES information, and some information on risk mitigation. (See ITT's Online Archives or 01/15/10 news, 10011520, for previous BP summary.)

This summary provides further details on BIS' on the new "risk mitigation and public/private partnerships" section of the document.

BIS Discusses Forwarder Compliance Requirements & Responsibilities, Penalties

In its updated guidance, BIS added a section entitled "Mitigating the Risk and Building a Private-Sector/Public-Sector Partnership," which includes the following information on possible penalties and compliance requirements for freight forwarders:

Forwarder responsibility in non-routed transactions. Although in a non-routed transaction the primary burden of compliance rests with the U.S. principal party-in-interest, 15 CFR 758.3 states that "[a]ll parties that participate in transactions subject to the EAR must comply with the EAR." Therefore, some compliance responsibility also rests with the freight forwarder.

1. CFR Parts 744, 760, 736, 732, Supplement no. 3, and 764, among others, discuss how export transactions may not be conducted with certain parties, that dealing with certain parties may have additional licensing requirements, that dealing with certain parties should raise Red Flags for exporters, and that certain countries, activities, and items have certain restrictions under the EAR.

Definitions of 'exporter', etc. Notably for freight forwarders, 15 CFR 758.3(b) notes the difference in definitions between Census and BIS for the term "exporter." 15 CFR 758.8 discusses the return or unloading by forwarders, or other entities, of shipments at the direction of U.S. government officials, and 15 CFR Part 730, Supplement no. 3 notes that export control responsibilities for Ocean Freight Forwarders are with the Federal Maritime Commission's Office of Freight Forwarders.

Forwarder penalties for EAR violations. The guidance states that forwarders may be subject to criminal prosecution and/or administrative penalties for violations of the Export Administration Regulations. BIS has not hesitated to hold forwarders liable for participating in illegal transactions. Bad publicity alone can cost companies incalculable sums, in terms of future business, not to mention costs associated with lengthy and costly litigation, or administrative or criminal penalties.

For example, in August 2009, after a government investigation lasting for more than five years, DHL reached a $9,444,744 Settlement Agreement with BIS and Treasury's OFAC in a case involving hundreds of shipments to Iran, Sudan, and Syria, and a failure to adhere to government recordkeeping requirements.

This case, and many others involving forwarders, demonstrate the need for forwarders to know their customers and be aware of suspicious circumstances and Red Flags that may be present in an export transaction.

BIS Recommendations for Risk Mitigation

BIS's new section in its updated guidance also includes the following recommendations for risk mitigation:

Export management & compliance programs. While the EAR allows flexibility in the manner in which U.S. companies meet compliance requirements in a number of different methods, BIS strongly recommends that all parties dealing with export transactions maintain a vigorous and effective Export Management and Compliance Program (EMCP), incorporating the nine key elements and especially the screening of all parties to transactions, as part of their overall due diligence.

BIS, however, also recommends striking the right balance. Compliance activities would differ depending on the nature of the items being exported and the destinations to which they are exported, but err on the side of caution to ensure that our U.S.-origin dual-use goods and technologies are exported in compliance with the EAR.

Forwarder/exporter compliance partnerships. BIS states that freight forwarders and exporters are symbiotically situated to work together to develop compliance procedures for their mutual benefit and sustainability. Building compliance partnerships and sharing compliance strategies with each other and other parties to transactions as part of Standard Operating Procedures will give all involved a competitive edge.

Integrate compliance into existing business processes. Once the investment is undertaken and the procedures are in place and continually maintained, export transactions will proceed predictably, safely, and with consistent application of the appropriate research and analysis of parties and uses/applications. The more compliance processes are integrated into existing business processes, the more seamless the entire export process will be. As businesses share and learn compliance techniques with their partners and build synergies while also building business relationships, they will ensure mutual longevity and bottom lines.

Forwarder recordkeeping requirements. Concerning documentation requirements, BIS refers forwarders to 15 CFR Part 762 (applicable to all transactions subject to the EAR) regarding records that have to be maintained, records that don't have to be maintained, requirements for producing records, retention period, etc. There are also recordkeeping requirements from Customs (19 CFR Part 163), the State Department (ITAR and 22 CFR 122.5), the Census Bureau (15 CFR 30.66(c)), and the Office of Foreign Assets Control (31 CFR Part 501).

The guidance states that even if forms like the BIS-711, the Destination Control Statement, and the Letter of Acceptance of License Conditions are not required by the EAR from a forwarder's overseas business partners, as part of their own compliance processes, they may wish to draft a document including language similar to these and require their use in certain situations to enhance compliance.

Information briefings with government. Companies may additionally set up information briefings, whereby they invite EMCD, U.S. Customs and Border Protection, BIS' Export Enforcement, and/or representatives from other government entities to make presentations to their company and business partners, in order to support in educating all regarding compliance. BIS recommends that companies make use of their Web site and the other government Web sites, and send staff to BIS seminars and seminars offered by other government agencies.

Voluntary Self Disclosure for possible violations. Parties who believe they may have committed a violation of the EAR are encouraged to submit a Voluntary Self Disclosure (VSD) to BIS. VSDs are an important indicator of a party's desire to bring their export activities into compliance, and also may provide important information to BIS helping to identify foreign proliferation networks.

Parties submitting VSDs may be eligible for significant reductions in administrative penalties, and those with well-implemented EMCPs may expect further significant reductions of administrative penalties. Procedures for submitting VSDs may be found in 15 CFR 764.5. The procedures detailed in 15 CFR 764.5 do not apply to VSDs involving violations of the antiboycott provisions of the EAR. Procedures for submitting VSDs for boycott violations are found in 15 CFR 764.8.

Contact with BIS offices to ensure compliance. The Office of Export Enforcement (OEE) and the Office of Exporter Services (OExS, which includes EMCD, OESD, and RPD) welcomes the opportunity to work with the international forwarding community to help ensure compliance with U.S. export requirements. While it is important to protect one's business and clients from engaging in transactions that might constitute violations, it is equally important that BIS be able to fulfill its mission of keeping the most sensitive goods out of the most dangerous hands.

BIS notes that development of effective, well-integrated and well-implemented EMCPs, prompt notification by forwarders to OEE of suspicious transactions, and assistance to OEE Special Agents in gathering the evidence necessary to disrupt illicit proliferation networks and bringing export violators to justice, are important steps in helping to achieve these private-sector and public-sector goals.

BIS Freight Forwarder Guidance (updated 01/07/10) available at http://www.bis.doc.gov/complianceandenforcement/freightforwarderguidance.htm

Export Management and Compliance Program (EMCP) Web page available at http://www.bis.doc.gov/complianceandenforcement/emcp.htm