Where Industry and Security Intersect
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The Commerce Department's Bureau of Industry and Security (BIS), has responded to the changing world events by focusing much of its attention on items and services that could be used to develop or deliver weapons of mass destruction.
The terrorist attacks of September 11, 2001, emphasize the importance of controls on the export of dual-use items - controls that are maintained to combat terrorism, stem the proliferation of chemical, biological and nuclear weapons, and protect U.S. national security and foreign policy interests. Under the Export Administration Regulations (EAR), items that might not otherwise require a license based upon a review of the Commerce Control List (CCL) and country requirements, could require a license from BIS because of the nature of the end-use/user. The Enhanced Proliferation Control Initiative was issued in1991 and placed greater emphasis on the end-use or end-user of exported items. As a result, exporters need to be more vigilant in screening their customers and export transactions.
In response to requests from the business community, BIS has published the EMS Guidelines (The Guidelines) to assist companies in establishing internal control procedures for vigilant screening of export/reexport transactions. The Guidelines provide ideas, examples of best practices and tools that have proven effective in U.S. businesses. This brochure provides a summary of the Guidelines, including an overview of administrative and screening elements that can help companies exporting under both license exceptions and licenses. Screening elements have been cross-referenced to the General Prohibitions identified in Part 736 of the EAR. The key is to tailor the best practices to your company's specific operations and activities.
An Export Management System (EMS) is an optional program to assist exporters in complying with the Export Administration Regulations (EAR). A vital part of an EMS is the establishment of mechanisms within the company that provide checks and safeguards at key steps in the order processing system, helping to better manage the overall export process. Such checks and safeguards help to ensure that the right questions are being asked to preclude exporters from making shipments that are contrary to U.S. export controls and, therefore, inconsistent with the exporter's best interests.
An EMS is a program that helps ensure that each export/reexport is treated consistently and in compliance with U.S. export laws and regulations. It is a map to consistent export compliance. |
reinforces senior management policy to comply with U.S. export laws and regulations.
provides management structure and organization for the processing of export transactions.
ensures accountability for export control tasks by identifying who is responsible for performing each part of the process and who is responsible for overall effectiveness of the system.
provides a map of the order processing flow and export control safeguards to ensure consistent compliance with export decisions.
provides written instructions for employees to "screen" export transactions against general prohibitions of exports, reexports and selected transfers to certain end-uses and end-users.
provides personnel with tools to help ensure they are performing their export control functions accurately and consistently.
identifies transactions that could normally be exported without a license, but because of the end-use or end-user, require a license.
streamlines the process and reduces time spent on compliance activities because employees have written instructions, tools and ongoing training.
provides training and awareness programs to help employees understand and comply with the EAR.
protects a company, through implementing an ongoing compliance program, against violations of the EAR.
The establishment of an EMS soundly implemented, coupled with good judgment, can greatly reduce the risk of inadvertently exporting to an unauthorized party or for an unauthorized end-use. The establishment of an EMS, in and of itself, will not relieve an exporter of criminal and administrative liability under the law if a violation occurs. Companies and/or persons that act contrary to the EAR could lose their export privileges, be fined, or even be criminally prosecuted.
An EMS is not a U.S. Government-mandated requirement. However, in a changing export control environment, it is a program that companies may consider establishing to ensure their actions are handled in a way that they comply with the EAR.
Understanding the EAR: If an individual or company exports, facilitates exports or engages in other controlled activities, a working knowledge of the EAR and its application is necessary. BIS suggests that company personnel responsible for export controls attend one of the many seminars offered by the Office of Exporter Services (OEXS).
| For seminar information, contact the Outreach and Educational Services Division at (202) 482-6031 or the Western Regional Office at (949) 660-0144. You may also access this information on our Web site. |
Identifying the factors that will form the foundation for the system: Some questions exporters may want to ask as you begin to develop an EMS are:
Know the Customer: A key
objective of an effective EMS is to be able to detect and react to information
that raises questions about the legitimacy of a customer or transaction. This
guidance refers to the provisions in the regulations that prohibit the use
of license exceptions when an exporter "knows that a proscribed end-use, end-user,
destination, activity or other violation is involved." The EAR also prohibits
specific activities with "knowledge" that a violation is about to occur. These
duties require a certain standard of care.
(See Definitions
in EAR, Part 772 which is located on the Government Printing Office Web
Site)
| The "Know Your Customer" guidance is available on this Web site. For assistance in determining the appropriateness of specific end-user or end-uses for goods or services to be exported/reexported, contact 202-482-4811 or 949-660-0144. |
Certain principles have been developed to assist exporters with the establishment of an export management system. Without operational implementation and maintenance of principles, an EMS cannot remain useful and reliable. Each of these principles is considered a link in the chain. One weak link can create a vulnerability that could negatively impact the entire system. These principles are referred to as "Elements" in the Guidelines and include an Order Processing Element, Administrative Elements and Screening Elements:
| Administrative Elements: | Screening Elements: |
|---|---|
| 1. Management Commitment | 1. Denied Persons & Other Lists |
| 2. Responsible Officials | 2. Product Classification/License Determination |
| 3. Record Keeping | 3. Diversion Risk |
| 4. Training | 4. Nuclear End-Uses/Users |
| 5. Internal Reviews | 5. Missile End-Uses/Users |
| 6. Notification | 6. Chemical & Biological Weapons End-Uses/Users |
| 7. Antiboycott Questions | |
| 8. Informed By Letter/Entity List |
The content of these elements can be incorporated into your company's existing office procedures. Such elements help establish that export control issues play an important role in a company's day-to-day operation.
Throughout each of the EMS elements, the importance of "documentation" is stressed. The purpose of "documentation" is to provide a method of assurance that the system and procedures are being maintained according to established company policy and consistent with the EAR. If your company is moving toward a paperless environment, "documentation" may need to evolve into other methods of assurance. In thinking about what those other methods might be, consider Part 762.5 of the EAR which may be found on the Government Printing Office Web site, and which describes acceptable records.
Administrative elements of an Export Management System are designed to help establish the foundation upon which the system will be built.
When establishing an EMS, a company should formulate a clear and concise export control policy statement that outlines senior management's commitment to export compliance. This statement should be communicated to all levels of the company involved in export, reexport, traffic, and related activities; and should emphasize the importance of compliance with U.S. export regulations. The statement of policy should be supported by a sufficient allocation of resources [e.g., time, money, and personnel] in order to make the export compliance program effective.
The next step is to identify those positions within the company that are responsible for export control compliance. Personnel given export control functions should have authority commensurate with their responsibilities, including the authority to stop export transactions when export control questions arise.
Element #3 - Record Keeping (required by the EAR)
The EAR requires that records of all export transactions be kept for a period of five years. This includes exports made under license exceptions. These records include commercial invoices, copies of Shipper's Export Declarations, and air waybills or bills of lading, etc. A program for maintaining records of export transactions in accordance with the EAR should be developed.
The EAR is frequently amended to reflect changing U.S. national security and foreign policy concerns. Consequently, any EMS should include a program for keeping employees, with export control responsibilities, fully informed and up-to-date on how EAR changes affect their responsibilities.
A qualified person or team should conduct regular internal reviews to ensure that the company's EMS is operating effectively ensuring compliance with all the applicable export regulations. These reviews include verifying that appropriate screening procedures have been implemented and that records are being maintained, as required. The reviewer is a person who is not involved with sales or the day-to-day operation of export control functions, including the EMS, and can be a person who is not a regular employee of the company.
A system should be established for consulting with BIS when questions arise regarding the propriety of specific export transactions. (See the Red Flag Indicators)
 |
When company personnel suspect that questionable, unauthorized,
or illegal activities may have taken place, or that the customer is
asking them to participate in such activities, they should contact
their local BIS Export Enforcement office, |
This element consists of flow charting the entire order process from beginning to end, identifying the areas of highest export control risk, and implementing internal controls that eliminate those risks and ensure continuous compliance with the EAR. There are many different types of internal controls that can be used throughout the process that: require a series of questions be asked or steps be accomplished prior to further processing, deflect and hold the transaction for further review by a designated official, or create an immediate cancellation of the order. For example, at an early step in the process, evaluate whether your customer is a denied person, terrorist or other prohibited party. This action of comparing your customer against various U.S. Government lists is one type of export control screen. Other safeguards you may want to build into your Order Processing Element are described in the Screening Elements:
These Screening Elements are designed to provide a mechanism to alert companies to red flags and to prevent them from entering into prohibited transactions based upon the end-uses and/or end-users. Although the following screens are presented as individual principles, they are frequently combined and developed into checklist and questionnaire-type tools.
Denied persons are those individuals and businesses, and any "related persons," that have been denied export privileges by the Commerce Department because they have, or are believed to have, violated the Export Administration Act, the EAR or other trade statutes. No denied persons can legally participate in any transaction that may involve the export of an item subject to the EAR unless authorization is specifically given by BIS. In addition, any person who deals with a denied person in an export-related transaction involving U.S.-origin goods or technical data is subject to administrative sanctions and/or criminal prosecution.
Denial orders are designed to prevent the access of denied persons from exporting or reexporting to denied persons overseas items subject to the EAR. If you export to a denied person, you have violated the EAR. [See the Enforcement section (part 764) of the EAR and the General Prohibitions (part 736) on the Government Printing Office Web site.] General Prohibition Four, prohibits engaging in actions prohibited by a denial order.
Exporters should be aware that other U.S. Government Agencies publish notices in the Federal Register that may impact international transactions, (e.g., Department of Treasury, Office of Foreign Assets Control Terrorism List).
See the Denied Persons List on the BIS Web site.
General Prohibition One, prohibits the export/reexport of item(s) subject to the EAR without the proper authorization (license or license exception).There should be a procedure for the classification of each item your company wants to export. The classification of the item is the first step in deciding if a license is required and whether a license exception is available. Using this screen, exporters should be able to determine which authorization should be used for the export of an item to a destination. The most common tool used to perform this procedure is a Product/Country Matrix, supplemented by written narrative instructions that communicate conditions, specific parameters of license exceptions, and other transaction sensitivities.
The Diversion Risk Screen is based upon the Know Your Customer Guidance and the Red Flag Indicators. The objective of creating this tool is to ensure that personnel are aware of red flags associated with your company products and know to question transactions that raise hints about the legitimacy of the end-use/end-user. This element may be used as a tool to prevent violations of General Prohibitions Six, Seven and Ten found in Part 736 of the EAR. General Prohibition Six prohibits the export or reexport of items to embargoed destinations [Part 746 of the EAR] without the proper license authorization (license or license exception). General Prohibition Seven prohibits Support of Proliferation Activities. General Prohibition Ten prohibits proceeding with transactions with knowledge that a violation has occurred or is about to occur. A person/company may not sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service, any item subject to the EAR with knowledge that a violation of the EAR, the Export Administration Act, order, license, license exception, or other issued authorization has occurred, is about to occur in connection with the item.
Exporters can establish a system to ensure that transactions do not involve prohibited nuclear end-uses. A license is required to ship certain items identified on the CCL as controlled for nuclear non-proliferation reasons because of the nature of the product. This screen would also be used to determine whether items otherwise eligible for license exception require a license because of specific nuclear related end-uses. Some questions an exporter might ask are:
Exporters can establish a system to ensure that transactions do not involve prohibited missile end-use or end-users. A license is required to ship certain items related to the design, development, production or use of missiles to all destinations. These items are identified in the CCL as controlled for missile technology reasons. In addition, sales of items that normally are eligible for license exceptions require a license to prohibited missile-related activities. Some questions exporters might ask include:
Exporters can establish a system to ensure that transactions do not involve prohibited chemical or biological weapons end-uses or end-users. A license is required to all destinations except Australia Group members of chemical precursors and related technical data; for all destinations except Canada for biological agents and related technical data; and to listed items that are normally eligible for license exceptions require a license because of the end-use or end-user. Some questions exporters might ask include:
See other Frequently Asked Questions
This is a tool that can be used to alert and remind personnel of restrictive trade practices or boycotts that the U.S. prohibits. The questions listed are a sample of what you can create for use in your company operations for assessing proposed transactions against conduct prohibited under the Export Administration Act:
When any of the above factors have been identified, exporters should contact the Office of Antiboycott Compliance at (202) 482-2381. Examples of boycott requests are shown on our Web site.
A screen can be established to ensure that transactions involving items subject to the EAR do not involve parties who are on the Entity List without proper review and documentation. The Department of Commerce maintains export controls to prevent the proliferation of chemical or biological weapons, nuclear weapons or explosive devices, and missile systems. General Prohibition Five (Part 736.2(b)(5) of the EAR) prohibits exports and reexports to certain end-users or end-uses without a license. In the form of Supplement No. 4 to Part 744, BIS maintains an Entity List to provide notice informing the public of certain entities subject to such licensing requirements.
Part 744.1 provides that a license is required for exports and reexports to parties on the Entity List for specified items. For example, if the specified items are "all items subject to the EAR," then a license is required for all exports and reexports to the named party. However, if the Entity List specifies a narrower product category such as computers, then each export or reexport of a computer to that party requires a license. The license requirement for specified items exists regardless of the actual end-use.
The Office of Exporter Services seminars provides assistance in gaining proficiency with the EAR and valuable insights into developing and refining an EMS. For additional guidance, or one-on-one counseling, please telephone one of the following offices:
U.S. Department of Commerce
The Office of Exporter Services
Washington, D.C. 20044
Phone: (202) 482-0062
Fax: (202) 501-6750Western Regional Office
Newport Beach, CA 92660-3198
Phone: (949) 660-0144
Fax: (949) 660-9347Northern California Office
San Jose, CA 95112-5591
Phone: (408) 998-7402
Fax: (408) 998-7470
The establishment and implementation of an Export Management System should not be viewed as a guarantee that a diversion or illegal export will be averted. It is a program designed to reduce the risk of these occurrences. As companies implement this type of system, it will help ensure compliance with the EAR and other U.S. export regulations and prevent inadvertent shipments to unauthorized end-uses, end-users, and destinations. You can play an important role in this regard, while at the same time protecting the commercial interests and corporate image of your company.