Best Practices for Transit, Transshipment,
and Reexport of Dual-Use Items
Subject to the Export Administration Regulations
SUMMARY: The Bureau of Industry
and Security (BIS) is publishing the guidance entitled, “Best Practices
for Transit, Transshipment, and Reexport of Items Subject to the Export Administration
Regulations.”
FOR FURTHER INFORMATION CONTACT:
Dr. Richard Cupitt, Office of the Under Secretary for Industry and Security
by email
or (202) 482-1459.
SUPPLEMENTARY INFORMATION:
Background
On May 16, 2003, the Bureau of Industry and Security (BIS) published a notice
of inquiry requesting public comments on its proposed “Best Practices
for Exporters/Reexporters and Trade Facilitation/Freight Forwarding Companies
Regarding the Transit, Transshipment, and Reexport of Dual-Use Items”
(68 FR 26567). In response to this request for comments, BIS received 22 comments
from associations, corporations, and export control compliance consultants.
Summary of Comments and Responses
Following is a review of the comments received pursuant to BIS’s notice
of inquiry on the best practices.
Comments Related to Specific Best Practices
- Best Practice No. 1 - No comments were received on Best
Practice No. 1, providing that exch company should develop a written policy
against allowing its exports or services to contribute to terrorism or to
programs of proliferation concern.
- Best Practice No. 2 – Each company should identify
a person who reports to senior management other than to a sales or marketing
official to oversee the Company’s export control compliance program.
Two comments indicated that employees whose job responsibilities included
sales and marketing should not be disqualified from oversight of a company’s
export control program. Both noted that it is not uncommon for employees
to have multiple areas of responsibility within a company, which may include
sales and regulatory compliance. BIS is sensitive to the burden such a practice
may place on companies, especially small ones, and has modified this “best
practice” to provide that sales or marketing should not be the only
or primary additional responsibility of the official identified for oversight
of the company’s export control program.
- Best Practice No. 3 – Each company should create
an export control compliance program that is integrated into its overall
regulatory compliance, security and ethics programs. Several comments noted
the similarities between the U.S. Department of Commerce Export Management
System (EMS) and the proposed best practices. One comment proposed that
BIS include a specific reference to deemed exports. BIS did not include
deemed exports in the proposed best practices, because they rarely involve
transit, transshipment or reexport issues. Two comments suggested that BIS
explicitly include an audit component. BIS did not adopt this suggestion
because audits are an inherent component of an effective export compliance
program.
Several comments pointed out that consideration should be given to the
role and functions of the each type of company that may be involved in
transshipment, transit and reexport transactions, stating that the same
standards should not apply to all companies. These best practices recognize
that specific compliance programs will differ based on each company’s
role and responsibility in transactions. As such, each company should
implement these best practices in a manner that is appropriate and consistent
with the its role and responsibilities.
- Best Practice No. 4 – Each Company should ensure
that relevant personnel receive appropriate training and that incentives
for compliance and disincentives for noncompliance be offered. BIS received
one comment pertaining to employee incentives for compliance. It stated
that employees should not receive incentives for compliance because compliance
is expected as part of their job responsibilities and because it is the
law. BIS has determined that incentives and disincentives are best left
to the discretion of the companies and has amended this best practice accordingly.
BIS also received a separate comment relating to company incentives for
compliance with the best practices, such as expedited license processing
and other specified privileges for companies that participate in BIS-sponsored
compliance or certification programs. As proposed, the best practice related
to individuals, not to companies.
- Best Practice No. 5 – Exporters/Reexporters should
seek to use Trade Facilitators/Freight Forwarders that also observe the
best practices. Comments included requests that BIS provide a list of disapproved
forwarders, detailed checklists, or questionnaires, in order to assist companies
in making such an assessment. BIS acknowledges that often the buyer, and
not the exporter, selects the Trade Facilitator/Freight Forwarder. However,
in instances where the exporter has discretion to select the Trade Facilitator/Freight
Forwarder for a particular export transaction, BIS recommends that the exporter
seek to utilize Trade Facilitators/Freight Forwarders that observe these
best practices. Simply asking if they observe the best practices is sufficient
for purposes of this guidance.
One commentator also inquired whether a company would be liable for misrepresentations
by a Trade Facilitator/Freight Forwarder regarding adherence to the best
practices. This guidance does not address questions of legal liability,
which are governed by specific provisions of the applicable statutes and
regulations; however, compliance with the best practices will be considered
a mitigating factor if a violation of a provision of the Export Administration
Regulations applicable to transit, transshipment, or reexport occurs.
- Best Practice No. 6 – Exporters/Reexporters should
classify their products, should communicate the Export Control Classification
Numbers (ECCN) or other classification information to the Trade Facilitator/Freight
Forwarder and the end-user, and should maintain records of such classification
for each export. Several commenters queried whether ECCNs would be required
for export transactions that did not require a Shipper’s Export Declaration
or where such information was filed electronically via the Automated Export
System. Commenters also remarked that maintenance of such information for
every single transaction would impose a significant administrative burden
on companies. One comment suggested that the best practice be amended to
state that a company should have a process whereby it makes ECCNs available
upon request.
Two commenters stated that this provision would improve past situations
where exporters provided reexporters with insufficient information on
the classification of an item. One of these commenters requested that
BIS add “ultimate consignee” to “Trade Facilitator/Freight
Forwarder and the end-user” and consider making this provision a
legal requirement in the Export Administration Regulations in the future.
The other proposed that BIS work as an intermediary between the exporter
and reexporter to ensure that the classification received by the reexporter
is correct.
BIS has modified this best practice to apply only to the classification
of items listed on the Commerce Control List (15 C.F.R. Part 774, Supplement
No. 1). To avoid redundancy, this guidance recommends communication of
the ECCN only when such information is not otherwise available to the
Trade Facilitator/Freight Forwarder. BIS has also adopted the suggestion
to include “ultimate consignee” along with Trade Facilitator/Freight
Forwarder and end-user.
One commenter recommended that BIS include a separate best practice on
the need for a written power of attorney between exporters and freight
forwarders to clarify their responsibilities. Another commenter requested
that the Government select a single classification code for industry to
use, rather than having the Harmonized codes, Schedule B codes and ECCNs.
BIS has not adopted these recommendations because they are broader than
the scope of the best practices, which apply to transshipment-related
issues.
- Best Practice No. 7 – A company should screen all
parties to the transaction against relevant lists and maintaining a record
of such screening. Two requests were made for BIS to consolidate all of
the lists of parties of concern published by all U.S. Government agencies
into one list or database BIS agrees that this proposal would be a worthwhile
undertaking, but it is beyond the scope of these best practices and beyond
BIS’s ability to implement within the U.S. Government. However, BIS
has modified this best practice to more accurately describe the types of
lists against which parties should be screened.
- Best Practice No. 8 – A Company should screen all
exports/reexports against a list of embargoed destinations and maintain
records of such screening. BIS received two comments relating to screening
for an embargoed destination. The first suggested that the company need
only retain a record that the screening was performed, rather than the results
of the screening. BIS has amended the guidance to incorporate this recommendation.
The second comment requested clarification on the records that need to be
kept for transactions that are visually screened and never enter the company’s
system. BIS does not intend for freight forwarders or carriers to retain
records of transactions that they do not accept.
- Best Practice No. 9 – Exporters/Reexporters should
take “appropriate steps” to know the end-user and determine
whether an item will be reexported or incorporated into another item for
reexport. This best practice received the most comments. Several commenters
inquired about their responsibility for obtaining actual end-user information
when the end-user may not be a party listed in the transaction or when requesting
such information is outside the normal course of business (e.g., the customer
is a distributor and distribution agreements prohibit identification of
end-users). One commenter noted that some items are so generic that it is
not necessary to know details about the end-user absent any red flags. With
respect to reexports, commenters noted that it was unclear why companies
should monitor whether an item will be later incorporated into another article
for reexport, absent red flags. Other comments related to exposure of a
company if an item is diverted to a party other than those listed on the
documentation they were given and the differences in responsibilities for
freight forwarders, carriers, brokers and port operators with respect to
this best practice.
The best practices are not intended to change companies’ normal
business practices, instead, the are intended to outline good business
practices. As such, each company should determine, based on its normal
business practices, the appropriate steps to know the end-user or to know
whether items will be later incorporated and reexported.
The second sentence of this best practice stated that an Exporter/Reexporter
should inform the appropriate party of the license terms and conditions.
Two commenters noted that this is already a legal requirement under the
EAR and that the entry should reference this to avoid confusion. The best
practices are not intended to alter or supercede the legal requirements
set forth in the EAR.
- Best practice No. 10 – Companies should have procedures,
including documented confirmation, in place to respond to theft or unauthorized
delivery. BIS received several comments stating that requiring delivery
verification was burdensome and unnecessary. Commenters noted that the customers
typically contact the companies if they do not receive their shipments and
that companies may not have sufficient personnel to request and monitor
delivery confirmations. Some companies also explained that local authorities
or freight forwarders may be unresponsive to their requests for such information.
While BIS continues to believe that many companies do use documented confirmation,
BIS has amended this best practice to clarify that companies that procedure
for handling theft or unauthorized delivery matters may include delivery
confirmation.
- Best Practice No. 11 - no comments received.
- Best Practice No. 12 – Sets forth certain actions
that a company should take when it encounters a suspicious transaction.
One commenter requested that BIS further define “suspicious transaction”
and disagreed with the approach proposed in the best practices regarding
handling suspicious transactions. A second commenter suggested that the
reference be make to section 764 of the EAR to address compliance issues
with regard to violations. BIS has amended this best practice to provide
greater clarity and to make it consistent with the approach for handling
“red flags” as set forth in Supplement No. 3 to Part 732 of
the EAR. However, these best practices are guidance and, therefore, a company
is not required to follow the procedure for handling suspicious transactions
set forth in item 12, if it has a different process that is better tailored
to its business practice.
Another commenter inquired whether reports to BIS on suspicious transactions
which turn out to be erroneous but were made in good faith would subject
the company to liability. As previously stated, these best practices are
not intended to impose legal liability.
Other Comments
BIS also received several other comments not related to a specific best practice.
Many commenters noted that they already apply most of these practices because
they are consistent with their internal compliance programs. BIS received
several comments requesting greater specificity or examples on appropriate
steps to take to implement these best practices. As previously noted, the
best practices were intended to serve as guidance on good business practice,
rather than requirements. BIS has not provided specific details for implementation
of these concepts because each company should seek to implement them in a
manner consistent with its own business model and its roles and responsibilities
in transshipment, transit, and reexport transactions.
Certain comments fell outside the scope of the best practices:
- BIS should offer advanced export compliance classes for companies that
are involved in the export of more sensitive products;
- Imports and exports of dual-use and munitions items should be administered
by a single agency under a single set of controlling rules;
- BIS should eliminate telephone answering machines;
- BIS and the Office of Defense Trade Controls, U.S. Department of State
should hold meetings with CEOs/CFOs to emphasize the importance of compliance
with export controls;
- BIS should clarify the Overview section, which suggests that the foreign
end-user should be in possession of the items at the time of export;
- Foreign government agencies and institutions should be provided with
an opportunity to comment on the best practices;
- Multilateral consensus is important to implement the Department of Commerce’s
Transshipment Countries Export Control Initiative (TECI) and will be enhanced
by further streamlining the export control regulations;
- BIS should explore possibilities of incentives in addition to mitigation
because of the costs associated with these proposed practices;
- BIS should clarify the guidance so it does not suggest Enhanced Proliferation
Control Initiative (EPCI)-like responsibility for terrorism controls;
- BIS should clarify the types of cargo and the modes of transport to which
these best practices apply;
- Government initiatives relating to security should be coordinated and
consistent to ensure fairness to the private sector, which will have to
comply with the requirements and costs of compliance for each such initiative;
- There should be one set of best practices for dual-use and munitions
products;
- Compliance with the best practices should create a defense to liability;
and
- BIS should produce and publish a list of practical and specific transshipment
risks, including current list of transshipment hubs and known transshippers.
Best Practices as Amended
Following are the best practices as amended in response to the public comments.
Best Practices for Transit, Transshipment, and Reexport of Items Subject
to the Export Administration Regulations
Introduction
The purpose of publishing these best practices is to help industry, and in
particular Trade Facilitators/Freight Forwarders and Exporters/Reexporters,
contribute to a reduction in the illicit transshipment, transit, or reexport
of items subject to the Export Administration Regulations, and to facilitate
legitimate global commerce by improving the capacity to distinguish between
licit and illicit transactions. “Trade Facilitators/ Freight Forwarders”
include entities such as freight forwarders, brokers, air and marine cargo
carriers, express shipment carriers, port operators, and port authorities.
Relevant “Exporters/Reexporters” refers to entities that export
dual-use items to transshipment hubs or that reexport such items from such
hubs.
The success of export control laws, in the transit, transshipment, and reexport
context, rests on the security and reliability of supply chains. The diversion
of controlled goods or technologies – even inadvertently – in
the supply chain from contemplated end-uses, end-users, or destinations constitutes
a serious threat to the effectiveness of export controls. Such diversion undermines
efforts to counter the proliferation of weapons of mass destruction, terrorism,
and other threats to national and international security. Global “transshipment
hubs” – i.e., countries or areas that function as major hubs for
the trading and shipment of cargo – pose special risks for diversion
due to the concentrated presence of commercial infrastructure (e.g., trading
companies, brokerages, and free trade zones) that facilitates large volumes
of transit, transshipment, import and reexport traffic through such hubs make
transshipment hubs particularly vulnerable to the diversion of sensitive items
to illicit purposes. The Department of Commerce’s Transshipment Countries
Export Control Initiative (TECI) has identified the following as transshipment
hubs of particular concern: Cyprus, Hong Kong, Malaysia, Malta, Panama, Singapore,
Taiwan, Thailand, and the United Arab Emirates. This list may be amended at
any time.
The best practices set forth below represent the types of practices that
many companies already observe, and reflects the broader view of the Department
of Commerce (DOC) that implementing effective export compliance programs constitutes
an important component of responsible corporate citizenship and good business
practices generally. These best practices are intended to complement the set
of Best Practices for Exporters/Shippers found in the U.S. Department of Commerce
Export Management System. Additional information on the Export Management
System resides on the BIS Web site.
The publication of these best practices creates no legal obligation to comply
with such practices on the part of any person, absent a legal requirement
that is set forth elsewhere in the Export Administration Regulations. Compliance
with these best practices creates no defense to liability for the violation
of export control laws. However, demonstrated compliance with these best practices
by a company will be considered an important mitigating factor in administrative
prosecutions arising out of violations of provisions of the Export Administration
Regulations that apply to transit, transshipment or reexport transactions.
Although BIS issues this guidance on industry best practices as it applies
to items of transactions subject to the Export Administration Regulations,
the guidance clearly has broader potential application to items and transactions
not subject to the EAR. BIS envisions this guidance as a step toward an enhanced
dialogue with industry. Other agencies and governments can contribute to this
dialogue with exporters and the trade facilitation industry in a manner that
may make the guidance pertinent beyond its application to the EAR identified
here.
Principles
These best practices are based on the following four principles:
- Industry and government should work together to foster secure trade that
reduces the risk of diversion of items subject to export controls.
- Secure trade will reduce the diversion of dual-use items to prohibited
end-uses, end- users, and destinations.
- Secure trade will encourage the more expeditious movement of legitimate
trade through borders and ports.
- Industry can achieve secure trade objectives through appropriate export
management practices.
Practices
- Best Practice #1. Each Company should develop a written
policy against allowing its exports or services to contribute to terrorism
or programs of proliferation concern.
- Best Practice #2. Each Company should identify one person,
who reports to the Company’s Chief Executive Officer, General Counsel,
or other senior management official (but not to an official whose only or
primary function in addition to export control compliance is sales or marketing),
as the ultimate party responsible for oversight of the Company’s export
control compliance program.
- Best Practice #3. Each Company should create an export
control compliance program. A Company should integrate this compliance program
into its overall regulatory compliance, security, and ethics programs.
- Best Practice #4. Each Company should ensure that relevant
Company personnel receive regular training in export control compliance
responsibilities.
- Best Practice #5. An Exporter/Reexporter should seek
to utilize only those Trade Facilitators/Freight Forwarders that also observe
these best practices.
- Best Practice #6. An Exporter/Reexporter should communicate
the appropriate Export Control Classification Number (ECCN) or other classification
information for each export/reexport to the end-user and, where relevant,
to the ultimate consignee. An Exporter/Reexporter should also make such
ECCN available to the Trade Facilitator/Freight Forwarder, if it is not
otherwise accessible by the Trade Facilitator/Freight Forwarder.
- Best Practice #7. A Company should screen all parties
to proposed transactions for the presence of parties who are: are subject
to an order denying export privileges; on the Unverified List; on the Entity
List; or on any list of U.S. Government sanctioned parties, and should maintain
a record of such screening.
- Best Practice #8. A Company should screen all exports/reexports
against a list of embargoed destinations, and should maintain a record that
such screening was performed.
- Best Practice #9. With respect to transactions to, from,
or through transshipment hubs, Exporters/Reexporters should take appropriate
steps to know who the end-user is and to determine whether the item will
be reexported or incorporated in an item to be reexported.
- Best Practice #10. With respect to transactions to, from,
or through transshipment hubs, Companies should have in place compliance
and/or business procedures to be immediately responsive to theft or unauthorized
delivery. This include procedures to ensure that the item exported has reached
the proper end-user, such as documented confirmation.
- Best Practice #11. With respect to transactions to, from,
or through transshipment hubs, Companies should pay heightened attention
to the Red Flag Indicators on the BIS Website (see http://www.bis.doc.gov/Enforcement/redflags.htm)
and in the “Know Your Customer Guidance” set forth in Supplement
3 to Part 732 of the EAR.
- Best Practice #12. When a Company encounters a suspicious
transaction, such as those outlined in the “Know Your Customer”
Guidance and Red Flags (Supplement No. 3 to Part 732 of the EAR), it should
inquire further and attempt to resolve any questions raised by the transaction.
If the circumstances can be explained or justified, then it may proceed
with the transaction. If there continue to be reasons for concern after
the inquiry, the Company should refrain from the transaction. If the transaction
is determined to involve a potential or actual violation of the EAR, the
Company should contact BIS or another U.S. law enforcement agency immediately
and maintain all relevant records.
DATED: November 24, 2003
| | | | | | |
