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Forwarder Compliance U.S. Export Control Laws. An Overview of Responsibility and Risk Erik Smithweiss esmithweiss@gdlsk.com (213) 624-1970. Why Should We Care?. Substantial Penalties for Violations of U.S. Export Laws Suspension of export privileges for company

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forwarder compliance u s export control laws

Forwarder Compliance U.S. Export Control Laws

An Overview of Responsibility and Risk

Erik Smithweiss

esmithweiss@gdlsk.com

(213) 624-1970

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

why should we care
Why Should We Care?
  • Substantial Penalties for Violations of U.S. Export Laws
    • Suspension of export privileges for company
    • $50,000 penalty per EAR violation
    • $1,000 penalty per Census violation
    • Possible terms of imprisonment for individuals
    • Exclusion from practice
  • Govt. Looking at Forwarders as Constant Link in the Chain and Experienced Party

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

notable forwarder export penalties
Notable Forwarder Export Penalties
  • DSV Samson Transport
    • Forwarded shipments to India, despite BIS warnings of violation of nuclear proliferation control. $250,000 criminal fine and five years of probation; $399,000 administrative penalty.
  • OSPECA Logistics Inc.
    • Export of hydrogen fluoride to Mexico, without the required export licenses from BIS. Also, filed false Shipper’s Export Declarations. $60,000 administrative penalty
  • Immediate Customs Service, Inc.
    • Participated in export of U.S. origin perfume to Cosmotrans, Swiss a company that was denied all U.S. export privileges for twenty years. $30,000 administrative penalty.

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

notable forwarder export penalties4
Notable Forwarder Export Penalties
  • Federal Express
    • Transported U.S.-origin equipment to the Realtek Semiconductor Co., of Taiwan, in violation of Realtek’s denial order. $15,000 administrative penalty.
  • Jagro Int’l Freight Forwarders, Inc.
    • In connection with a shipment to Bahrain, furnished information about another company’s business relationships with Israel. Also, failed to report its receipt of the request for such attestation-$5,700 administrative penalty.

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

u s foreign trade embargoes
U.S. Foreign Trade Embargoes
  • The United States Currently Maintains Trade Embargoes Against Five Countries-U.S. Govt. License Required for Exports to
    • Cuba
    • Iran
    • North Korea
    • Sudan
    • Syria
  • Restrictions Are Administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury
  • Two Categories of Restrictions
    • Exports from U.S. to an embargoed country
    • Transactions by U.S. persons, wherever located (e.g.,in foreign branch of freight forwarder)

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

export licensing
Export Licensing
  • Mostly for items having military, strategic or special high-technology application
  • Also required for shipment to certain end-users and end uses
  • Two licensing agencies in this context
    • Commerce Bureau of Industry and Security (“BIS”)
    • State Dept. Directorate of Defense Trade controls (“DDTC”)

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

general export prohibitions
General Export Prohibitions
  • Unlicensed export and re-export of controlled items to listed countries.
  • Export from abroad of foreign-made items that contain controlled U.S. content/technology and software.
  • Export from abroad of foreign-produced goods from U.S. controlled facility.
  • Engaging in actions prohibited by a denial order.
  • Export or re-export to prohibited end-use/end users.
  • Export or re-export to embargoed destinations.
  • Support of proliferation activities.
  • In-transit shipments through prohibited countries
  • Violation of license/license exemption terms/conditions.
  • Sell, transfer, export, re-export, finance, order , buy remove, conceal, store, use, loan, transport, forward or otherwise service any item with knowledge that violation of above will occur.

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

violations 764 2
Violations (764.2)
  • Engaging in conduct prohibited by EAR (General Prohibitions)
  • Aiding, abetting, soliciting, attempting a prohibited act
  • Transporting or forwarding with knowledge a violation has or will occur
  • Misrepresentation, or concealment of, any material fact in preparation or submission of an export control document (e.g., SED/AES)
  • Failure to comply with recordkeeping requirements

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

knowledge
“Knowledge”
  • Positive knowledge the circumstances exist
  • Awareness of high probability of existence or future occurrence
  • Can be inferred from conscious disregard of known facts
  • Can be inferred from willful avoidance of facts (“self blinding”)

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

freight forwarders responsibility in the export shipment process the players
Freight Forwarders Responsibility In The Export Shipment Process-The Players
  • Law Is Currently Structured to Insure the Presence of a Responsible U.S. Party for Accuracy and Compliance
  • U.S. Principal Party In Interest (US-PPI)
    • Generally the U.S. manufacturer or vendor in export transaction; party who controls the sending of the items out
    • Control Party (Order Party)- a party in U.S. who conducted selling negotiations with foreign PPI and received the order (e.g.; sales agent)
  • Foreign Principal Party In Interest (F-PPI)
    • Generally, the foreign purchaser
  • Freight Forwarder
    • Not a principal party in interest unless involved in transaction beyond forwarding services (e.g., order party)
    • Can be retained either by the US-PPI or, in a routed transaction, by the F-PPI

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

freight forwarders responsibility in the shipment process
Freight Forwarders Responsibility In The Shipment Process
  • Responsibilities of Freight Forwarder When Authorized by Exporter to Prepare SED
    • Accurately preparing the SED based on information received from exporter or order party
    • Obtaining the power of attorney to prepare SED/file AES, on behalf of exporter
    • Provide to exporter a copy of the export information that was filed, whether in the form of a completed SED or electronic format
    • Continuing obligation to correcct SED/AES

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

direct liability for forwarders
Direct Liability for Forwarders:
  • Forwarder may violate the EAR if it:
    • arranges export on behalf of a denied party
    • Forwards goods to a denied party overseas
    • Forwards goods to an embargoed destination
    • Forwards goods to a specially designated national

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

direct liability for forwarders cont
Direct Liability for Forwarders (Cont):
  • Forwarder may violate the EAR if it:
    • Assists customer to re-route transaction to avoid (evade) OFAC sanctions
    • Forwards unlicensed goods to a destination requiring an export license, and forwarder was aware of the ECCN
    • Files SED/AES with reason to know information is false (e.g., understated value, incorrect ECCN, incorrect HTS number), even though export is otherwise lawful
    • Accepts responsibility to classify goods under the CCL but does so improperly, and goods were improperly exported without a license

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

direct liability for forwarders cont14
Direct Liability for Forwarders (Cont):
  • Forwarder may violate the EAR if it:
    • Fails to follow shipper’s instructions when preparing SED/AES (e.g., is advised of ECCN but designates EAR 99)
    • Discovers SED/AES contained false information, but fails to submit correction to CBP/BIS
    • Fails to maintain required export control documents

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

voluntary self disclosures
Voluntary Self Disclosures
  • How much protection do they afford?
  • What happens if the USPPI has filed a disclosure?
  • When should a forwarder submit its own disclosure to BIS?
  • What responsibilities does forwarder have to principal (USPPI or FPPI)?
  • What if the disclosure was made orally?

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP