By: Margaret Jones Hopson

Partner

Jackson Walker L.L.P.

Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

(Second of a 3 Part Series)

Introduction: In the first installment of this series, we discussed that U.S. export controls, specifically those found in the Export Administration Regulations (EAR), apply not only to companies dealing internationally in military, high tech or otherwise sensitive goods and technology, but to activities that are wholly domestic and not readily recognized as international, as well.

We outlined ways in which the EAR applies to their activities. We also discussed that the consequences for violating the EAR are stiff: criminal and administrative penalties of up to $250,000 or twice the value of the transaction and a fine of up to one million dollars and/or up to 20 years in prison, respectively. For both civil and criminal violations, a denial of export privileges may result.

In this installment, we will discuss the elements of an effective EAR compliance program. The final installment will instruct exporters on how to deal with potential violations of the EAR.

Principles of an Effective Export Compliance Program

Not only can an effective compliance program help an exporter to avoid violating the EAR, such a compliance program is entitled to great weight in the mitigation of a violation of the EAR. The BIS employs 9 guiding principles to assess effectiveness of an export compliance program.

1. 1)The program is supervised by appropriate senior company officials. Senior management official(s) must be designated with the overall responsibility for the export compliance program.
2. 2)Meaningful risk analysis is performed. The risk analysis must be ongoing and include types of goods exported and the destination of those goods.
3. 3)There is a formal written compliance program. There must be effective implementation & adherence to written policies operational procedures.
4. 4)Adequate training provided to employees. This training must be ongoing & keep employees aware of their responsibilities under the program.
5. 5)There is adequate screening of customers and transactions. This training should include screening of employees, contractors, customers, products, & transactions & implementation of compliance safeguards throughout the export life cycle.
6. 6)Recordkeeping requirements are adhered to. Easy retrieval is critical for effective recordkeeping. Develop a formal records program. Designate program-level records officers.
7. 7)There must be an internal system for reporting export violations, including making Voluntary Self-Disclosures. There should be clear guidance to employees on how to report violations, suspected violations, or to obtain advice on compliance requirements. There must be a policy of no reprisal action unless a report was made knowing it was false.
8. 8)Internal/external reviews or audits are carried out. These should include periodic audits, focusing on highly sensitive areas & random audits.
9. 9)Remedial activity is taken in response to export violations. These actions should be aimed at preventing repeated violations.

Conclusion: The far reaching nature of the export control laws in the U.S. generally, and the many ways in which an unwary exporter can violate the EAR, specifically, can be overwhelming. However, an effective compliance program can assist an exporter in complying with the EAR. Such a compliance program can be surprisingly modest in cost. In the final installment of this series, we will discuss what to do if you discover potential EAR violations.

Coming July 2012:

Third of a 3 Part Series – What to Do If You Discover You May Have Violated the EAR