So you’ve weighed the pros and cons of conducting business outside the country and you’re ready to take your company international. Congratulations! But before you can send your items outside the U.S., you’ll want to make sure you are compliant with any and all export regulations.
Consider this: according to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), fines for export violations can reach up to $1 million per violation in criminal cases. Administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction. In addition, criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include losing export privileges.
Penalties of this size can devastate small and medium-sized businesses which represent 97% of the approximately 300,000 U.S. companies that export. Exporting rules are something you need to take seriously; making sure your business is export compliant and regulation ready. Let’s dive into a list of six export compliance basics to get you started.
The Department of Commerce’s Bureau of Industry and Security (BIS) controls the export of most commercial products. While only a small percentage of exports under BIS’s jurisdiction require an export license– a product’s technical characteristics, the destination country, the end-user, and a product’s end-use all factor into this determination.
The first step for deciding whether or not a product requires an export license is finding out if it has a specific Export Control Classification Number (ECCN) by checking the U.S. Export Administration Regulations (EAR). If a product does have a five-character ECCN code, the EAR will also list one or more reasons why it is controlled. You use these reasons to help determine if you need to apply for an export license based on the countries to which you are exporting (see step #2 below).
Products that do not have an ECCN code and are not subject to control by any other U.S. agency are designated as EAR99. Products classified as EAR99 are low technology consumer goods and usually do not require an export license. However, even EAR99 items require licenses for exporting to embargoed countries, to a restricted party, or in support of a prohibited end-use.
Does your destination country require an export license? There are several reasons the U.S. government prevents exports to certain countries without an export license. In the most extreme cases, the U.S. has placed embargoes on countries like Iran and Syria for supporting terrorist activities. In other cases, the U.S. restricts companies and individuals from exporting certain products to specific countries for reasons of national security, nuclear nonproliferation, chemical and biological weapons, or several other reasons outlined in the Export Administration Regulations (EAR).
Many government agencies maintain lists of people, organizations, and countries to which it is illegal to export for various reasons. These are called restricted parties. The U.S. government, along with other governments and organizations, regularly publish lists of restricted parties to whom you can’t export without a license– whether you’re EAR99 or not.
These restricted parties are individuals, businesses and organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction, known to be involved in terrorism or drug trafficking, or who have had their export privileges suspended. While there is no requirement that companies check every export against these various restricted party lists, it is a violation to export to anyone on the U.S. lists.
Even products that seem harmless can sometimes be used in ways that are not intended. As an exporter, you are responsible for knowing how your products will be used once they leave the country.
The EAR defines red flags as “abnormal circumstances in a transaction that indicate the export may be destined for an inappropriate end-use or end-user.” The BIS provides this list of red flags to look for when exporting as well as a guide of the next steps to take if red flags are raised.
Did you know that you can be an exporter without even knowing it? Or without shipping goods outside of the U.S.? If you are transferring knowledge– it’s called a deemed export. Companies export technology by sharing technical data such as plans and blueprints of products or by allowing a visual inspection of a product to foreign nationals within the U.S.
Deemed exports are complex but you can read more about them on the Deemed Exports section of the Bureau of Industry and Security website.
Rather than deal with much of this on your own, many companies choose to hire a freight forwarder or another third party to do the heavy export lifting. And while there is nothing wrong with outsourcing the export functions; remember, you cannot outsource the liabilities.
If you do hire an outside company to handle exporting, make sure you request documentation that all export regulations are being followed. Hold on to copies of this documentation—as well as the actual export forms for each shipment—onsite for at least five years. These documents demonstrate compliance with the EAR or, in case some violations are found, can be used as evidence of a good-faith effort to comply, which could result in reduced penalties.
In case you missed it, be sure to read the first article in our Export Education series Export Education: An Introduction.