Bigger Fines, Higher Hurdles, and a New Country Category ‘C’ To Learn...

Several key government import-export compliance initiatives expected to have a major impact on U.S. companies are rapidly taking final shape. These include a new Export Administration Act with far larger penalties (see table), a requirement for substantially more detailed electronic import submissions, and creation of an entirely new Country Group C called “Destinations of Diversion Control.”

Larger EAA Penalties Proposed

Commerce Department Secretary Gutierrez recently announced proposed legislation from the Bush administration that would revise and strengthen the enforcement provisions of the Export Administration Act (EAA). The legislation, the Export Enforcement Act of 2007, would renew the EAA of 1979 (lapsed since 2001) for five years while significantly increasing civil and criminal penalties for violation of export control laws. Under this bill, maximum corporate penalties for criminal violations would soar from $50,000, as provided for in the International Emergency Economic Powers Act (IEEPA), to the greater of $5 million or 10 times the value of the exports involved (see accompanying table). The proposed bill would also increase the list of criminal violations under which denial of export privileges could be based; provide CBP agents with overseas investigative authority; set permanent standards for protection of confidential business data; and renew the Commerce Department’s authority to administer the dual-use export control system. A fact sheet on the proposed bill can be viewed at:

 http://www.bis.doc.gov/Enforcement/EAARenewalBillFactSheet.pdf.

‘10 + 2’ Target Date

November 2008

The latest projection from Customs & Border Protection (CBP) regarding the requirement for importers to file 10 additional data elements electronically prior to importation is that the earliest date the rule would be in place with enforcement is November 2008. That timetable is based on CBP issuing a formal notice of proposed rule making in August 2007 followed by a public comment period and a one-year compliance phase-in process after actual publication. CBP is currently putting finishing touches on the Notice of Proposed Rulemaking (NPRM) to be published in the Federal Register. The rule will mandate 10 additional data elements from importers 24 hours prior to foreign lading (and two data sets from ocean carriers). The “10 + 2” rule will be the most significant new security measure since the 2002 24-hour rule—and the one with the greatest impact on importers. For a Q&A on the CBP Web site regarding the rule, go to:

 http://www.cbp.gov/xp/cgov/trade/cargo_security/carriers/security_filing/.

Country Group C Rule

The comment period has ended on the Bureau of Industry and Security (BIS)’s advance notice of proposed rule making (Federal Register, Feb. 26, 2006) to impose new restrictions on exports of high-tech products to nations allegedly failing to control illicit re-export or diversion of such products. Such nations would be grouped in a new Country Group C category called “Destinations of Diversion Control.” Comments by the trade on the proposed rule can be viewed at efoia.bis.doc.gov under “Public Comments.” Nations in the new category (not yet identified) could potentially be subject to harsher export licensing review, resulting in less approvals or more conditions attached to licenses granted—as well as end-user checks resulting in further delays. Inclusion in Country Group C would be determined by volume of trans-shipments, inadequacy of export-re-export controls, and “demonstrated inability” to control diversion. Concerns voiced by the trade in comments include the following key points: Due to its unilateral nature, the rule might harm U.S. competitiveness and complying with the rule will lengthen critical “time to market” of U.S. goods in the targeted nations—thus causing loss of business to global competitors.

Proposed 2007 Legislation to Increase Export Enforcement Penalties

Existing EAA	IEEPA	EEA 2007 (Proposed)
Criminal Maximum	Criminal Maximum	Criminal Maximum
Corporate: Greater of $1 million or five times the value of exports involved	Corporate: $50,000 (greater of twice the gross gain or loss or $500,000 under alternative criminal code fine provision)	Corporate: Greater of $5 million or 10 times the value of the exports involved
Individual: $250,00 and 10 years imprisonment	Individual: $50,000 and 10 years imprisonment (greater of twice the gross gain or loss or $250,000 under alternative criminal code fine provision)	Individual: Greater of $1 million and 10 years imprisonment
Civil Maximum	Civil Maximum*	Civil Maximum**
$11,000 per violation ($120,000 for national security violations)	$50,000 per violation	$500,000 per violation

*IEEPA civil penalties were increased by a statutory amendment set forth in the USA Patriot Act IImporvement and Reauthorization Act of 2005, enacted on March 9, 2006.  However, for violations committed prior to this amendment, IEEPA civil penalties continue to be set at $11,000 per violation.

 **Other existing administrative penalties (e.g., denial orders and exclusion from practice) would be retained.