Michelle Schulz, Partner Braumiller Schulz LLP International Trade Law www.globaltradelaw.

net

Overview
y Introduction to Braumiller Schulz LLP y Why Trade Compliance? y Establishing an Internal Compliance Program (ICP) y Contracting Services to Outside Experts y Common Pitfalls and Best Practices

Introduction to Braumiller Schulz

www.globaltradelaw.net
y International Trade Law Firm y And Braumiller Schulz Consulting LLP y Trade Professionals Include: y International Trade Attorneys y Trade Advisors y Licensed Customs Brokers y International Freight Forwarders y Former Customs Auditors

A Few of Our Services...

y Export and Import Compliance Programs and

Compliance Manuals y Export Licensing and Agreements y Technology Control Plans y Export and Import Compliance Audits y Free Trade Agreements y Duty Savings and Foreign-Trade Zones y Trade Compliance Training y Fines, Penalties, and Forfeitures

Customs Brokerage and Freight Forwarding Services

y Filing export documents y AES records y Bills of Lading, Air Waybills y Commercial Invoices y Packing Lists y Many others! y Customs entries and supporting documentation y Customs Form 7501 or 3461 y a(1)(A) List: all documents associated with the import

Supply Chain Logistics Services

Why Trade Compliance?

y Export y Security y Trade Secrets/ Economic Espionage y Military Controls - Fighter in the Field y Trade Policy y Economic Sanctions and Embargoes

Why Trade Compliance? (cont d)

y Import y Security
y

C-TPAT and AEO voluntary accreditation regimes

y Duties/Fees y Consumer Product Safety y Trademark, Copyright Violations y Many other agency regulations enforced (EPA, FWS...)

Why Trade Compliance (cont d)

y Companies Require It! y Requests for ITAR Registration Numbers y Requirements that business partner is AEO or C-TPAT certified y Terms and Conditions Specify It:
y

EXPORT COMPLIANCE: Purchaser agrees that its business shall be conducted in accordance with all laws of the United States and its foreign jurisdictions, and in a manner that will always reflect the highest standards of ethics. Diversion of the Product contrary to U.S. law is prohibited. In particular, Purchaser agrees to comply with U.S. government export control laws and regulations...

U.S. Overview: Who Regulates What?

Customs & Border Protection Policemen to enforce regulations 19CFR

Dual Use Items Bureau of Industry & Security Export Administration Regulations (EAR) 15CFR

Defense Items Directorate of Defense Trade Controls International Traffic in Arms Regulations (ITAR) 22CFR

Other Agencies DEA, NRC, OFAC, Census Bureau

Authorities Who Control U.S. Imports

Animal and Plant Health Inspection Service (U.S. Department of Agriculture) U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (U.S. Department of Justice)

U.S. Fish and Wildlife (U.S. Department of the Interior)

U.S. Patent and Trademark Office (U.S. Department of Commerce)

Food and Drug Administration (U.S. Department of Health and Human Services)

U.S. Customs and Border Protection enforces all imports at U.S. borders. (U.S. Department of Homeland Security)

Authorities Who Control U.S. Exports

State Dept s Directorate of Defense Trade Controls (DDTC) controls defense articles, defense services, and related technical data, including most space-related articles - ITAR. Commerce Dept s Bureau of Industry and Security (BIS) controls dual-use items EAR; and the Bureau of Census controls trade-statistics and SEDs

Treasury Dept s Office of Foreign Assets Control (OFAC) oversees embargo and sanction lists - OFAC regulations.

Homeland Security Dept s U.S. Customs and Border Protection enforces all exports at U.S. borders.

Supply Chain Participants

y Examples: y Factory / Supplier y Truck/Rail Transport y International Air/Ocean Carrier y Freight Forwarders - 19 CFR 111.1 y Licensed Customs House Brokers (Brokers, or LCHBs) CFR 111.1

19

Starting a Compliance Program

y Your company wants to start importing or exporting

and has no compliance program. Where to start?

U.S. Export Resources

y Dept. of Commerce International Trade Administration (ITA) y http://www.trade.gov/ y Market Access, Matching, Eliminating Trade Barriers y www.buyusa.gov U.S. Commercial Service y 1-800-USA-TRADE y Dept. of Commerce Bureau of Industry and Security y http://www.bis.doc.gov/ y Dept. of Treasury Census Bureau y http://www.census.gov/foreign-trade/regulations/index.html y Dept. of State Directorate of Defense Trade Controls y http://www.pmddtc.state.gov/

U.S. Import Resources

yhttp://www.customs.gov/ y Informed Compliance Publications available at:
http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_complian ce_pubs/icp021.ctt/icp021.pdf

yCROSS System for tariff

classification rulings

y http://rulings.cbp.gov/

Export Controls Generally

y Dual-Use Items: Export Licensing and the Wassenaar

Arrangement
y Items Classified under ECNs, or ECCNs y Deemed Exports

y Defense Articles: Export Licensing for Military Items y Defense Articles y Defense Technology Transfers y Defense Services

Denied Party Screening

y Lists to check y BIS lists
y y

http://www.ustreas.gov/offices/enforcement/ofac/sdn/ EAR Part 764 http://www.treas.gov/offices/enforcement/ofac/programs/ind ex.shtml

y OFAC Sanctioned Countries List

y

y Federal Register y Other lists...

Denied Party Screening

Non-U.S. Examples
Australia  Australia Consolidated List  Listing of Terrorist Organizations  Implementation of UN Security Council Sanctions Canada  Anti-terrorism Act Currently Listed Entities  Canada Cumulative Warning List  OSFI Consolidated List of Entities  OSFI Consolidated List of Individuals  Royal Canadian Most Wanted List Chile  Most Wanted Fugitives European Union  EU Financial Sanctions  EU List of Persons, Groups and Entities Involved in Terrorist Acts  List of Airlines Banned Within the EU  UN Persons Publicly Indicted by the ICTY for war crimes  Sanctions or Restrictive Measures in Force Hong Kong  Wanted Persons India  Most Wanted  Terrorist, Insurgent and Extremist Groups Interpol  Most Wanted Israel  Palestinian Suspects Wanted for Terrorism and Other Crimes  Palestinian Terrorist Wanted  People Involved bombing the Jewish Community Center in Argentina (AMIA)  The Leading Palestinian Terrorist Organizations

Trade Management Software

y y y y y y y

Denied Party Screening Free Trade Agreements Export License Management Deemed Export Management Inventory Management Classification Examples:
y http://www.integrationpoint.net/ y http://www.managementdynamics.com/ y http://www.ecustoms.com/vc/vc.cfm

Outsourcing Services to a Broker or Freight Forwarder

y Services May Include y Customs and Export Clearance, Paperwork y Commodity Classification (HTS, Licensing) y Supply Chain Logistics

Outsourcing Services to a Broker or Freight Forwarder (cont d)

y Limiting the Number of Brokers, Forwarders Used y Better service y More control (consider also WTO Incoterms) y Best Practices y Written Compliance Procedures y Standard Operating Procedures (SOPs) with client y RECORDKEEPING 5 years

Pitfalls: The DHL Case

y BIS charged: y on 8 occasions between June 2004 and September 2004, DHL caused, aided and abetted acts prohibited by EAR when it transported items subject to the EAR from the US to Syria y 90 exports between May 2004 and November 2004 - DHL failed to retain air waybills and other export control documents required to be retained under Part 762 of the EAR. y OFAC charged that DHL violated various OFAC regulations between 2002 and 2006 relating to thousands of shipments to Iran and Sudan. Like DHL's EAR violations, its OFAC violations primarily involve DHL's failure to comply with applicable record-keeping requirements.

The Outcome
y BIS and OFAC entered into the joint settlement

agreement with DPWN Holdings (USA) and DHL Express (USA). y The settlement amount: $9.44 million y "Large-scale compliance breakdowns lead to significant sanctions aimed at ensuring that freight forwarders put into place and maintain necessary measures to meet their compliance responsibilities."

The DHL Case

y Four times greater than any civil penalty on BIS s

Major Cases List and far exceeds freight forwarder settlements to date.

Key Points from the DHL Case

y U.S. export controls typically do not consider freight forwarders to be the exporter, but OFAC pursued DHL because it appeared to have exported or attempted to export multiple shipments. y BIS, on the other hand, characterized DHL s involvement with those exports only as aiding or abetting someone else s export. y BIS threatened DHL with $250,000 per violation. Even though it could have done the same, OFAC started settlement negotiations at $50,000 or significantly lower amounts per violation.

BIS Red Flags

http://www.bis.doc.gov/enforcement/redflags.htm
y Customer or purchasing agent reluctant to offer information about end-use y Product's capabilities do not fit buyer's line of business y Customer willing to pay cash for a very expensive item when terms of sale

would normally call for financing

y Customer has little or no business background y Customer is unfamiliar with product's performance characteristics but still

wants it

y Freight forwarding firm is listed as the product's final destination y Shipping route is abnormal for the product and destination

Export Penalty Examples

y Criminal Sanctions: y A fine of up to $1,000,000 or up to ten years in prison, or both, per violation. y Civil Sanctions: y A fine of up to $500,000 per violation. y Additionally, for any violation of the ITAR either or

both of the following may be imposed:

y The denial of export privileges; and/or y Seizure/Forfeiture of goods.

Best Practices
y Senior Management Commitment to Compliance y Written Compliance Procedures y Recordkeeping Procedures y Ongoing Compliance Training y Monitoring: Audits, Reviews, Corrective Measures y Updates on U.S. restrictions, sanctions, licensing,

denied parties, country lists

y Review the lists y Watch for Federal Register notices y Refer to online resources

Best Practices (Cont d)

y Denied Party Screening
y y y y

Employees Vendors Manufacturers Buyers

y Awareness of Red Flags y Ongoing Communication with Broker, Freight

Forwarder, Trade Attorney, and Other Experts y In the event of an error, consider voluntary disclosure

Stay Current!
y Watch for Updates: y Automated export/import filings y HTS tariff codes and rates y VEU program updates y Denied party lists y Country sanctions y Licensing requirements

Contact Information
Michelle Schulz, Partner Braumiller Schulz LLP International Trade Law 214.348.9306 michelle@globaltradelaw.net www.globaltradelaw.net