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Violations Of The Foreign Trade Regulations, Easy To Do, Costly To Resolve

By Jenny Hahn, President

Your company exports commodities to locations all over the world. Sometimes you file your own Automated Export System (AES) records and other times your company contracts with freight forwarders to do these filings on your behalf.

 Recently your company received a demand letter from US Customs for $10,000 payment of a fine associated with an AES filing that your company made. The demand letter advised you used the wrong port of export code in the AES filing.

Can you really be fined $10,000 for such a simple error?

The answer is yes.

US Customs and Border Patrol (CBP) has the legal authority via the Foreign Trade Regulations (FTR) to impose fines against companies who report incorrect information in the AES system. (Note: AES is converting to ACE February 28, 2016).

Under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), exporters are obligated to electronically file Electronic Export Information (EEI) regarding their transactions in addition to the requirement in the FTR. Each EEI submission must contain a myriad of information per the FTR, including:

  • The United States Principal Party in Interest (USPPI) – usually the seller in the United States;
  • The USPPI Federal Employee Identification Number (EIN);
  • The address for the USPPI
  • The Carrier and its Standard Carrier Alpha Code;
  • The Authorized Agent of the USPPI – if the EEI is not being filed by the USPPI;
  • The Ultimate Consignee (Foreign Party) – the Foreign Principal Party in Interest (FPPI);
  • The address for the FPPI;
  • The Intermediate Consignee (Foreign Party), if any;
  • The address for the Intermediate Consignee, if there is one;
  • The Country that your exporting to;
  • The State of Origin of the export shipment;
  • The Schedule B # for the commodity/commodities being exported;
  • The Commodity Description, quantity, weight, and US$ value (based on sales price);
  • The origin of the commodity (domestic or foreign);
  • The US export classification of the commodity (e.g., USML Category XI(a)(5)(i), ECCN 3A611.a, or EAR99;
  • ITAR specific information related to the commodity, if applicable (i.e., USML classification, DDTC registration number)
  • The License #, code or license exception;
  • The Port of Export;
  • The Mode of Transportation (e.g., Air, Vessel, Ground/Truck);
  • Whether the Export is a “Routed Transaction”?
  • Whether the Export is between “Related Companies”?

There are different filing timelines imposed in the ITAR versus the EAR and exporters should be aware of the requirements for each.

Companies using AESDirect (where they file the AES record themselves) should have an internal process to verify that the information they file is accurate, since the export will actually take place after the freight leaves the company dock. The exporter at the time of preparation of the AES record, may not be specifically aware of what the flight or vessel details will be, including what the port of export will be.

The FTR provides exporters with up to 24 hours to correct any of the data fields in the AES filing after the export has occurred.

After that timeframe, any correction to the AES Record could cause CBP to impose a fine of $10,000 on your company per EEI submission. The fine amount can quickly escalate if you have more than one AES violation. To mitigate such penalties, it is recommended that your company file a Voluntary Self-Disclosure (VSD) with the Census Bureau as soon as possible after learning that the company may have submitted erroneous EEI or failed to submit EEI where it was required under the FTR.

Depending on the nature of the AES correction, disclosure to the Department of State or Commerce (BIS Office of Export Enforcement) may also be required.

As noted above, there are many fields that can be completed incorrectly. Audits of shipments where EEI submission was required have resulted in the identification of common errors in the following EEI fields:

  • Port of Exit;
  • License Code;
  • Commodity Classifications under the EAR;
  • Schedule B;
  • Foreign Consignees; and
  • Ultimate Consignees.

And what about not filing AES when you should have? That is a much more complicated and significant issue. Remember, AES is required for all ITAR and 600/500 series ECCNs, regardless of value or destination. *The rules for filing AES on other EAR controlled commodities differ depending on whether you are using a BIS license or BIS license exception, exporting as No License Required (NLR), if the value is below $2,500 and if the destination is in a proscribed country. There is clearly a lot to know about a set of regulations that have the potential to cause significant fines for simple errors.

Performing AES reviews by trade compliance personnel is an important part of your overall compliance program. If shipping clerks in your company are authorized AESDirect users, the shipping supervisor should review within 24 hours after shipment to verify the accuracy of the EEI submitted. Internal Trade Compliance personnel should also make a thorough inspection of the AES data an integral part of their periodic shipment reviews.

Don’t let AES filing errors cost your company big dollars in fines! Ensure your shipping and compliance personnel are properly trained on the FTR requirements and conduct periodic reviews.

*This article doesn’t address OFAC or NRC license requirements for AES filings. However, should you have such exports, ensure that EEI is submitted through AES/ACE.