Export Compliance Matters

Insight on Export/Import & Compliance Issues

Real OFAC Policy Changes Toward Iran—OFAC will consider non Ag/Med exports

As a new round of nuclear talks involving American, European, and Iranian leaders commence this week in Vienna it appears that the first-step deal agreed upon in January has already led to significant changes in OFAC’ s Iranian sanctions regime. In the months since the initial deal,  OFAC has taken incremental yet steady action geared towards ultimately allowing certain U.S. industries to begin trading with Iranian entities. While initial actions by the President and OFAC did not significantly change anything for U.S. industries in particular (they were primarily geared towards allowing transactions with Iran involving non-U.S. entities to go forward), the following actions may signal the start of a reopening of trade relations between the U.S. and Iran, especially if the current round of talks prove to be as successful as the last:

  1. OFAC has granted Boeing a license to export spare commercial parts to Iran for use in repairing IranAir’s commercial fleet. The transaction will be the company’s first dealing with Tehran since 1979 and represents the first substantial application of OFAC’s new “favorable licensing policy” towards Iran, which was first announced on January 20th.  A Boeing statement maintained that the license had been granted to promote flight safety. Additionally, General Electric said it received permission to repair 18 commercial plane engines it had sold to Iran decades ago. The repairs will be carried out in GE facilities or at a German partner firm. Maybe it is time to consider “out of the box” opportunities?  You have to play to win.  This is big market opportunity for companies that want to get special licenses.
  2. OFAC has published a final rule that implements the following changes to its sanctions program:
    • Amends the existing general license that authorizes the exportation or re-exportation of food to individuals and entities in Iran to include the category of agricultural commodities (this is a much broader category, but keep in mind that the rule does exclude some notable commodities such as castor beans, eggs, and live animals, and furthermore, still prohibits the sale of these goods to military or law enforcement purchasers or importers)
    • Adds a general license that authorizes the exportation or reexportation of replacement parts for certain medical devices to individuals and entities in Iran provided that the parts are classified as EAR99 and limited to a one-for-one export or reexport basis (one replacement part per one medical device)

As has been the case for decades, any potential transaction with an Iranian entity must be carefully and thoroughly vetted to ensure that it does not amount to a violation of OFAC’s ever-changing sanctions regime. Yet now more than ever, it may prove lucrative to entertain these possibilities and perform the necessary due diligence to determine whether they are indeed viable opportunities. If relations between Iran and the U.S. continue to improve, companies in a position to swiftly reenter the Iranian market stand to reap the benefits of high consumer demand coupled with minimal competition.

I think it is not too soon to give your business development team a heads up. And, depending on your industry, time to explore options.


Smart Phone Technology and Exports

Export controls and the International Traffic in Arms Regulations (ITAR) have hit the big leagues.  Even NPR’s Martin Kaste is covering it!  I think such coverage is great because outside of the University research communities not everyone has gotten the memo.

Just because a product can be used on a commercial item doesn’t mean it isn’t controlled for export.  You have to run through a series of questions to determine the answer.

Information you need:

  1. End use
  2. End User
  3. Where it is going
  4. Technical specifications
  5. Design process

Then you perform the catch and release analysis.  If you are grabbing a copy of ITAR or Googling it.  BE CAREFUL.  You must get an up to date copy and the government links are not all up to date.  Recent ITAR changes took place in January so you need a post January 2014 copy of the regulations. For more information on the new catch and release process to determine if a product is controlled see our article on ECR… or our blog on classification and catch and release??  Bottom line. You need to do your homework and train your company to avoid inadvertent error. 

Have a great day,


Issuance of a new Ukraine-related Executive Order


As you know, sanctions have profound ripple effects and with the U.S. response to the continuing crisis in Crimea, it is imperative you ensure that these newly-ordered sanctions don’t trickle down to doing business with your trading partners. 

Executive Order 13660 signed by President Obama on March 6 in response to the current political crisis in Ukraine, imposed targeted sanctions against specifically named persons listed on the Treasury Department’s Specially Designated Nationals (‘SDN’) List. The Order froze the assets of these individuals, imposed immigration restrictions on them, and rendered it illegal for any US person or entity to transact with or donate to such individuals or entities. 

The second Ukraine-related executive order signed by the President on Monday specifically condemns the Russian government for its actions in Crimea, opening the door to the addition of Russian individuals and entities to the SDN list.

What you need to do:  Ensure your trading partners are not on the SDN list! Run the name of all potential business partners against the SDN list.  Treasury adds and removes people from the list daily. So for now, the sure-fire way to avoid a sanctions violation remains straightforward: check the SDN list early and often. As the situation unfolds, I’ll make sure to let you know of any changes in US policy towards Ukraine and Russia that may affect your business.

For a concise description of the historical context and political tensions that have led to the crisis in Crimea and an analysis of reactions from the particular individuals that have been targeted by U.S. and EU sanctions thus far, take a look at this New York Times article by Steven Lee Myers and Peter Baker. As you’ll see, it appears very likely that these sanctions will be expanded in the coming days and weeks…stay tuned.

Have a great day,


From FCPA to Export Compliance: Avoiding the Slippery Slope to a Compliance Violation

The second half of 2013 saw the continued expansion of FCPA enforcement by the DOJ and the SEC.  The decrease in the scope of protections afforded to whistleblowers will lead to an increase in the number of FCPA potential violations reported to the U.S. government.   The increase in  compliance violations reported to the government will likely lead to an increase in export violation prosecutions.  I say this because once an FCPA investigation begins the facts often show weak compliance in other areas such as export control compliance.    And, the penalties are getting crazy.  For example, Avon recently submitted a revised filing estimating that the FCPA-related fines levied against it would amount to $132 million.  I am speechless about this.  Avon isn’t selling missile detection systems.  Cosmetics is obviously a more competitive business than I realized.

Additionally,  it isn’t just the United States government you have to worry about.  If you do any business in the U.K, the U.K. Bribery Act  also applies to you with its strict liability provisions. The U.K. Act, has only one mitigating factor and it’s a robust compliance program meeting the Act’s requirements.   Starting on February 24, the United Kingdom will have the option of using deferred prosecution agreements (or DPAs) to enforce the UK Bribery Act 2010.  DPAs, already in use in the United States, seek to incentivize corporations under investigation by offering a negotiated resolution in return for cooperation with the investigation. They also provide a form of supervision of the remedial measures undertaken by a corporation after a violation occurs: if a company fails to implement the changes it agreed to, the government can revisit the “deferred” criminal case against it. And then there is the “imbedded probation agent” that the government assigns to a corporation which is like having an IRS agent camping out in your internal audit department.

So what is the point?  Don’t limit your focus to your anticorruption program.  An audit of an exporter arising out of a potential FCPA violation may unearth unrelated inconsistencies that lead to additional headaches.  To avoid this slippery slope in the event of an unforeseen FCPA investigation, you must have an up to date export compliance manual and licensing records sufficient to survive a thorough audit of all of the company’s practices, not just those related to bribery.  Can you easily put your hands on your training attendance sheets,  your list of product classifications and your anti-boycott procedures? If not, consider some spring cleaning and reorganization.   

As State and Commerce continue to rollout the President’s Export Control Reform Initiative in stages, there is an increased likelihood that inadvertent errors will occur as employees scramble to familiarize themselves with changing regulations during this period of transition. By ensuring that your company implements and maintains up-to-date anticorruption and export compliance programs, you are insuring yourself against the possibility of a minor inadvertent error leading your company down a slippery, costly, and potentially embarrassing slope.

Have a great weekend,



White House Announces “Single Window” Initiative Aimed at Streamlining the US Export/Import Process: Supply Chain Regulatory Reform is Coming

President Obama’s February 19 Executive Order outlines an initiative aimed at reducing supply chain barriers by simplifying filing processes and eliminating duplicative requirements in order to allow companies to concentrate on managing their businesses.

The Order includes two intimately related elements:

  1. The creation of a “single window,” dubbed the International Trade Data System (ITDS), where companies can submit required import and export documentation to the various agencies that play a part in regulating the transfer of goods across U.S. borders.
  2.  Establishment of a Border Interagency Executive Council to continually develop and reassess policies and procedures aimed at further coordinating the agencies involved in trade regulation in order to facilitate the transition to the ITDS.

The goal is to have the ITDS up and running by the end of 2016.  Although it is too soon to make any substantive changes to your company’s procedures you can best prepare your company by learning about the changes and preparing for the transition.  Keep in mind that more significant changes are on the horizon.  Just like the elements of the President’s Export Control Reform Initiative that began rolling out in stages this past October, the ITDS roll out will create a relatively uncertain time of transition during which the danger of inadvertent compliance errors caused by new and unfamiliar procedures will be heightened.

Consequently, you should plan to allocate additional time and resources in 2016 to ensure that the reforms do not catch you off guard and lead to costly penalties imposed by the government for noncompliance. And when the dust settles, the “single window” approach has the potential to greatly improve the ease with which companies satisfy their compliance obligations.

Have a great day!



Are You New to Exporting? Here is How to Vet a Foreign Partner, Agent or Distributor and Make Sure the Company Can Pay Its Bills!

 Are you proactively planning your expansion or are you reacting to a business opportunity? If you are reacting to a business opportunity, here is what I suggest you do. Start with doing diligence on your buyer/potential agent or distributor. To me this means:

  1. Screening the party against the government lists for parties with whom you can’t do business;
  2.  Provide the party with an anti-corruption questionnaire and certification; and
  3.  Ensure the company can pay you! One cost effective way to do this is using the U.S. Commercial Service’s International Company Profile. This is a great services. The only concern is you must let the company know you are doing the investigation because company executives will be interviewed.  You will get a report that includes:
  • A detailed credit report on your prospective foreign partner;
  • A listing of the company’s key officers and senior management;
  • Banking and other financial information about the company;
  • Market information, including sales and profit figures, and potential liabilities;
  • An opinion as to the reliability of the overseas partner; and
  • An opinion on the relative strength of that company’s industry sector in your target market.

The cost is lowered to $350 for new exporters using the service for the first time. The regular price ranges from $600-$900 depending on the size of the foreign company and takes about 20 business days to complete.

Then you are ready for a draft contract or more diligence on the party if the first round of vetting resulted in significant red flags.

Good luck, and feel free contact me if you need assistance navigating the process.


BVI Company In Trouble Over Plans to Ship Engines to Iran

Dear all,

We usually don’t post enforcement summaries.  However, I wanted to insure everyone was aware that the United States government is really going after non-U.S. entities.  Please see below.  Note it is the Commerce Department not OFAC at Treasury Department.

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) recently issued a temporary denial order revoking the export privileges of a British Virgin Islands-based company, Evans Meridians Ltd., because it was involved in a plan to ship two GE commercial aircraft engines to Iran without first obtaining the proper licenses.  Illinois-based Adaero International Trade LLC shipped the engines to 3K Aviation in Turkey and 3K was planning on reexporting the engines to Pouya Air in Iran. In early January, BIS revoked the export privileges of  these three companies and has now decided to take action against Evans Meridian because it was listed as a purchaser on documents related to the transaction and acted as owner of the engines at one point. The government also noted that following BIS’s initial action against the three companies, Evans Meridian made a payment to 3K despite the fact that the denial order against 3K was in force.  The engines currently remain in 3K’s possession in Turkey so there is still a risk that further attempts will be made to get the items to Iran.

These companies (so-called denied companies) are now disallowed from playing any role in exporting controlled items, cannot apply for export licenses, cannot negotiate sales or shipments involving controlled items, and cannot benefit in any way from any transaction involving controlled items.  Third parties are also barred from helping or working with these denied companies  on transactions involving controlled items.

Have a great weekend!


Beware – Foreign Law May Trump Choice of Law Clauses In Your Agency Agreements!

Here’s a word of caution when dealing with commercial agents based in the EU:  the European Court of Justice (the “ECJ”) has recently ruled that EU Member States can implement mandatory commercial agency rules that will trump any choice of law clauses contained in particular agreements between parties, including arbitration clauses. The ruling stemmed from a case involving a Belgian commercial agent who entered into a commercial agency agreement in order to operate the principal’s container liner shipping service. A disagreement arose when the agent accused the principal of unlawfully terminating the agreement months before the date provided for in the contract. Although the parties’ agency agreement contained an arbitration clause that referred all disputes to the Bulgarian Chamber of Commerce and stipulated that Bulgarian law applies, the Belgian agent brought a claim against the principal in a Belgian court for compensation pursuant to Belgium’s Law on Commercial Agency Agreements. The law provided that “any activity of a commercial agent whose principal place of business is in Belgium shall be governed by Belgian law and shall be subject to the jurisdiction of the Belgian courts.”

Thus, the question was whether the Belgian law granting jurisdiction over the matter to the courts of Belgium and sanctioning the use of Belgian law trumps the choice of law clause in the parties’ agency agreement calling for arbitration of any dispute between the parties in Bulgaria under Bulgarian law.  The ECJ concluded that given the fact that a Member State’s mandatory national laws do not permit the Member State to deviate from such mandatory requirements in order to comply with EU law, a finding that Belgium’s Law on Commercial Agency Agreements imposed “mandatory” obligations on the Member State and the contracting parties would render the  arbitration clause in the agreement unenforceable.

What does this mean for you?  

  1.  Simply pasting in a standard form arbitration clause may not be providing you with the protection you think it is.  The case illustrates the fact that your agent’s home country may have statutes that override terms in your agreement.  Thus, you want to perform more due diligence on potential local agents prior to entering into contracts.   You should go beyond merely understanding where the particular branch or office you are contracting with is doing business and find out if the agent is doing business in other countries with laws that could affect your agreement.
  2.  Also it is now even more important to have a basic understanding of what affect the agent’s local law will have on your agreement terms if a dispute should arise. You can then better assess the risk associated with the agreement and either account for that risk in the agreement or attempt to structure the business relationship in a different way in order to avoid exposure to that particular risk altogether.

Thanks,  Stay warm!


Doing Business Abroad: The ‘Must Haves’ of Your Corporate Compliance Program

Take a look at my recent article entitled “Doing Business Abroad: The ‘Must Haves’ of Your Corporate Compliance Program” located here.  The article highlights key elements of a successful international corporate compliance program including a corporate policy, employee training, anti-corruption procedures, and the all-important tone at the top. Let me know if you have any follow up questions!


The Key Elements of An Effective Trade Compliance Program

Having described the most common shortcomings of an insufficient trade compliance program in a previous post, I’d now like to share five positive pointers that can be used to help ensure effective implementation of your company’s trade compliance program. Remember, a company-wide commitment and a similarly broad allocation of resources is necessary to implement a trade compliance program successfully, so picking and choosing which procedures to implement and which to ignore is not a viable option. Taking that route will result in a trade compliance program in name only, and won’t afford any real protection to your company.   Instead, make sure to keep the following key elements in mind:

  1.  It isn’t enough to just train. Charles E. Duross, Deputy Chief of the U.S. Department of Justice’s FCPA unit recently said, “Training is insufficient.” I would say training alone isn’t enough. To be compliant, companies actually must commit to a new way. Just like in sports and music, knowledge is a requirement, but you must practice. Compliance must be proactive to prevent violations.  No longer is “hope for the best and change after a problem is discovered” an acceptable risk profile.
  2. Embrace technology.  Anyone I know personally will be laughing.  I repel technology. However, new project management formats are being developed to help compliance groups manage and follow legal obligations. The IT system must be set up so that busy professionals can’t hit “dismiss” and overlook a compliance obligation.
  3. Resources will have to be dedicated to the compliance effort. It isn’t an afterthought. Trade compliance must have a seat at the table along with other serious risks.
  4. Senior management must stay engaged throughout the year. A lot can be done by mirroring corporate wellness programs and safety matters.  “Compliance Minutes” and discussion groups are real possibilities. Everyone in the company has a role to play, and when each employee feels empowered, the company will benefit.
  5. Accountability. There is no way around this if you really want to improve compliance. Hold people accountable. Period. It works. (And the government likes it.)

Have a great week,