By: Jenny Hahn, President
Small companies may suddenly find their export compliance programs aren’t up to the expectations of the Departments of State, Directorate of Defense Trade Controls (DDTC) or Commerce, Bureau of Industry and Security (BIS). This is particularly true when you consider the complexity of the Export Control Reform (ECR) initiative, and the significant changes to the US Munitions List (USML) that have occurred or will occur as a result of ECR. Items once controlled under the International Traffic in Arms Regulations (ITAR), may now be controlled under the Export Administration Regulations (EAR), under the so-called “600 Series” ECCNs (Export Control Classification Number), with a totally different set of rules to comply with. Added to that, technical services or assistance related to these now EAR controlled articles may remain controlled under the ITAR, and unknowing or unprepared companies may find their export compliance program woefully deficient.
One of the most common issues small companies face is that the company budget doesn’t provide for dedicated internal export compliance resources and personnel assigned to export compliance may be multi-hatted, and don’t have the time or the right level of training to develop a comprehensive company-wide export compliance program. Often companies only learn that their compliance program is lacking during a US government investigation of matters related to a voluntary disclosure as a result of a violation of the ITAR or the EAR. Below are some examples of things that may require a company to submit a voluntary disclosure:
- The company learns the parts it has been exporting without a license for 10 years are regulated by the ITAR and would have required an ITAR license to ship. The company needs to complete the export of the remainder of the hardware on the purchase order and needs an ITAR authorization to do so;
- The company has a foreign national employee assigned to perform a manufacturing or engineering related task on an ITAR or EAR 600 series hardware and the company does not have the required authorization from State or Commerce:
- The company learns that its domestic supplier of ITAR or 600 series hardware has had the part produced offshore in China or another destination without a ITAR/EAR authorization;
- The company learns that the foreign program it has been providing design assistance on involves a platform on the USML or Commerce Control List (CCL) in a 600 series ECCN;
- The company is using the cloud for its IT storage and email requirements and learns that its service provider is hosting the data on servers located offshore;
- The company learns that its foreign partners on an ITAR TAA (Technical Assistance Agreement) are transferring technical data received from your company to subcontractors that are not listed on the TAA;
- The company failed to renew its State Department ITAR registration in a timely manner but continued to make technical data and defense service exports against existing State Department licenses;
- The company is notified that it is a named party in another companies voluntary disclosure
How the government agency (State or Commerce) handles that disclosure and determines if it will levy a penalty or whether it will require monitoring or oversight of the company’s activities, can be based in large part, on how the company compliance program is setup and what steps the company undertakes to fix the cause of the violation(s) and prevent future occurrences.
The DDTC and BIS generally require companies to provide their export compliance manuals, policies and procedures as support documents to the corrective actions cited in a voluntary disclosure. Government enforcement and compliance personnel reviewing the disclosure will want information pertaining to training provided to key staff including senior management & compliance personnel as well as relevant departments/persons involved in the violation . Both DDTC and BIS will want to know the specific details on the company’s audit program including internal and external audits, when and where they were last performed and how frequently they are performed.
Where does your company stand with respect to a documented compliance program with processes and procedures, training and internal/external audits? Don’t let your compliance program be implemented via a voluntary disclosure! Taking a proactive stance in establishing all necessary steps to ensure export compliance will help prevent costly mistakes that could lead to fines and sanctions.
Questions and steps to consider:
- Does your company have sufficient resources allocated to export compliance?
- Are your resources adequately trained in the ITAR and the EAR?
- Do you have a good process to determine the correct jurisdiction and classification of your products and technology for export purposes?
- Do you have a documented export compliance plan?
- Is your compliance plan implemented in the day-to-day processes of the company operations?
Instead of spending dollars on government mandated programs as a result of a voluntary disclosure, why not engage one of our export compliance experts to assist your company with establishing a meaningful export compliance program. We offer customized training programs for all levels within the company. We have baseline export compliance manuals and procedures, ready to be tailored to your company’s specific requirements. We offer one or two day onsite procedure reviews to identify weaknesses in your compliance program and make recommendations for improvement. Call us to find out how FD Associates may assist you.