One of the main reasons for the government’s Export Control Reform initiative (“ECR”) was to ensure that the United States’ comparative advantage in certain technologies against the rest of the global marketplace is maintained. The United States has taken a two-pronged approach on this issue. First, it has encouraged countries to enhance their export controls so that like-minded countries are on par with one another to ensure that international security is maintained. Second, the United States has determined to transfer certain “controlled” items currently on the United States Munitions Lists (“USML”) to the Commerce Control List (“CCL”). The USML is part of the International Traffic in Arms Regulations (“ITAR”). The CCL is part of the Export Administration Regulations (“EAR”). Therefore, many companies that have always operated under the stringent requirements of the ITAR must now understand the somewhat less stringent requirements of the EAR.
In addition to proper classification under the EAR’s CCL, which is discussed in a related article in this publication, it is important to understand the basic mechanics of the EAR. In anticipation of the many changes which will occur under the ECR initiative, the Departments of Commerce and the State have created numerous online resources to assist companies in achieving compliance. The government websites contain free tutorials and materials discussing ECR and the upcoming changes. The Department of Commerce is offering weekly teleconferences with key administrators to discuss the changes. An “Exporter Portal” link provides general information about the EAR, various useful lists, decision tools, access to SNAP-R, online training videos, best practices, red flags news and contact information. Upcoming seminars on compliance will also be offered in various cities throughout the country.
As an initial step, the Department of Commerce recommends creating a SNAP-R account online as soon as possible. License applications are submitted to the Department of Commerce through these SNAP-R accounts. Parts 748 and 750 of the EAR should be consulted in order to ensure compliance with all necessary requirements of the license application process. Creating a SNAP-R account and submitting a license application to the Bureau of Industry and Security using SNAP-R is free. In order to ease companies into compliance with the new rules taking effect on October 15, 2013, the Department of Commerce is allowing pre-positioning of licenses. These licenses will not be issued until October 15; however, companies may apply at any time before then and complete all of the necessary requirements ahead of time.
However, before applying for a license, information about the relevant transaction such as items, end uses, end users and quantity should be known. Part 748 of the EAR should also be consulted to determine whether an application will require documentation. An application may be more readily approved when all required questions can be answered fully and clearly. Incomplete applications may lead to delays. Information as to whether a license is likely to be approved can be obtained by reviewing parts 742, 744 and 746 of the EAR. Additionally, the status of an application can be checked in SNAP-R and follow-up questions from the BIS will be sent to SNAP-R accounts.
Furthermore, companies should also be aware of a recently developed tool, the Consolidated Screening List, compiled by the Departments of Commerce, the State and the Treasury in order to assist companies in screening parties in export, re-export and transfer transactions. This list is a compilation of the Denied Persons List, Unverified List, Entity List, Nonproliferation Sanctions List, AECA Debarred List and Specially Designated Nationals List.
If a party to a transaction matches a name on the consolidated screening list, the official lists of restricted parties on the applicable department’s website, the Commerce, State or Treasury Department, should be checked. Alternatively, the official publication of restricted parties in the Federal Register may also be referenced. The consolidated screening list may be found online.
During this time of change, the recommended BIS “best practices” for compliance and export management should be reviewed and incorporated into any company’s export control policy. These best practices include: (1) paying heightened attention to BIS’s Red Flag Indicators and communicating concerns internally; (2) seeking to utilize only those trade facilitators and freight forwarders that administer sound export control management and compliance programs that include trans-shipment trade best practices; (3) obtaining detailed information on the credentials of foreign customers to assess diversion risk; (4) establishing and maintaining a trusted relationship with parties to mitigate risks for routed transactions; (5) communicating export control classification and destination information to end-users and consignees on government and commercial export documentation; (6) providing the ECCN or the EAR99 classification to freight forwarders for all export transactions and reporting the classifications in the Automated Export System (“AES”), if applicable; and (7) using information technology to the maximum extent feasible to augment “know your customer” and other due diligence measures in order to combat the threats of diversion and increase confidence that shipments will reach authorized end users for authorized end uses.
The government has taken great effort in trying to have a smooth roll-out of ECR. But, change forces companies to operate outside of their comfort zones. To take advantage of the United States’ comparative advantage in technological advancement and a company’s own competitive advantage, companies should embrace the changes and adapt as quickly as possible to the ECR.