The annals of export violations are replete with ne’er-do-wells whose sole purpose was to circumvent international trade laws for illicit gain.

And then there were those who fell foul of the law through lack of due diligence, where what would have sufficed was performing a straightforward denied party screening, determining whether an export license was required, and, yes, even waiting on the Government for that export license to be issued.

In its recently-published annual report for the year to September 2019, Don’t Let This Happen to You, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) lists out major and minor breaches going back more than a decade with the purpose of educating us all on the importance of staying on the straight and narrow.

Bad Actors in International Trade

First the ne’er do wells. The cast of characters here are the usual suspects—those who intentionally mislabel goods so that they can select EAR99 and No License Required, hide the identity of the true end user by transshipping through intermediary countries, make false and misleading declarations in their Shippers Export Declaration (SED) and Automated Export System (AES) filing, and lie to customs and investigating agents querying anomalies in their documentation.

And this has to be mentioned. There was also the case of the conspirators signing a non-disclosure agreement among themselves (also reported in this blog) to prevent the authorities from getting wind of their scheme. It did not work and they were caught.

Export Violations That Could Have Been Flagged for Review

Now to the other group, who would be best described as requiring a better understanding of export compliance and all that entails, including knowing who they were doing business with, screening for restricted and denied parties, classifying against ECCN and UMSL regulations to determine whether a license was required, and making sure that they were not engaging in business deals with individuals and companies in countries that were under trade sanctions and embargoes.

Let’s start with the company that released exports to Ecuador, Venezuela and Mexico while still waiting for an export license to be issued. The thermal imagery company, apparently eager to expedite the deal, was aware that official and formal authorization was needed because its products were controlled for national security and regional stability reasons

The following is a list of other legitimate businesses and how they unintentionally got into trouble:

  • An oilfield services organization had the appropriate export compliance policies and procedures in place, but did not adequately train its personnel on those processes.
  • An electronics company, using eBay, unknowingly sold a device that converts pressure into an analog signal which also had a dual use application in nuclear explosives technology.
  • An oscilloscope manufacturer who failed to properly screen the buyer, and ended up engaging in business dealings with a Chinese organization listed as a denied party.
  • A pump maker failed to obtain export licenses to ship products that were controlled for reasons of chemical and biological weapons proliferation to China and Russia.
  • Another pump and valve maker failed to get authorization to transport EAR99 items to the embargoed nations of Syria and Iran
  • A scientific equipment and supplies vendor sold a lubricant for cutting tools to China, Hong Kong, Thailand, India, Brazil, and Israel without the required export licenses. The substance is listed as controlled for chemical/biological, anti-terrorism and chemical weapons reasons
  • Two freight forwarders shipped EAR99 items (scrap steel and machinery that produces spiral ducts for ventilation systems) to denied parties in Pakistan and China
  • A thin film and vision sensor technology company breached deemed exports regulations by releasing controlled blueprints and drawings without the required export licenses
  • In another deemed export violation, an integrated circuit designer and manufacturer inadvertently exposed classified technology to Chinese and Iranian national employees without first applying for export licenses.

And the list goes on. In a 2020 OFAC compliance violations case, a cookware coating manufacturer thought that it could engage in business dealings with Iran as long as there were no direct connections between it and the embargoed Mideast nation. The company later realized the error and self-disclosed the violation to the Office of Foreign Assets Control (OFAC).

Due Diligence the Key to Export Compliance

The above examples are basically the “unforced errors” of international trade. They demonstrate how a lack of due diligence and subsequent adherence to export control compliance requirements can lead to unintended export violations.

What is required at all times is: 1) adequate screening of trade chain partners (buyers, suppliers, resellers, business associates, full and part time staff and others involved in the business) against restricted and denied parties lists; 2) proper classification of exports against U.S, EU, and other rules for accurate shipment filing to customs bodies: and 3) to be aware of countries with restrictions and steer clear of those under embargoes.

To help ensure compliance, there are software solutions that can help, such as for denied party screening and export classification. There are others including global trade intelligence and solutions that strengthen businesses’ logistics and supply chain productivity.