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David Schwartz
General counsel face more government regulatory enforcement and tougher compliance requirements worldwide than ever before. In the United States, government agencies have noticeably increased their enforcement actions in the international trade law field, forcing companies to scrutinize and improve their corresponding compliance policies, procedures, and programs in light of the Foreign Corrupt Practices Act, export controls, customs, economic sanctions, trade remedies, and anti-boycott regulations. In effect, companies have been compelled to create and nourish a “culture” of international trade regulatory compliance—or else.
In recent years, these prosecuting agencies—the Department of Justice; the Securities and Exchange Commission; the Bureau of Industry and Security (BIS) at the Department of Commerce; the Office of Foreign Assets Control (OFAC) and Internal Revenue Service at the Department of Treasury; Customs and Border Protection (CBP) at the Department of Homeland Security; and the Directorate of Defense Trade Controls (DDTC) at the Department of State—have assessed hefty civil and criminal penalties against those companies failing to have robust policies, procedures, and programs in place.
To assist general counsel, here is a checklist of the top 10 best practices for strengthening companies' international trade law compliance efforts:
1. Export Licensing of "Controlled" Products
BIS and DDTC require export licenses for "controlled" products, services, and technologies that have a dual-use (BIS) or defense (DDTC) purpose. If a company is involved in any form of export, it should determine the Export Control Classification Number (ECCN) or U.S. Munitions List (USML) category for its products, services, and/or technologies. If any are "controlled,” the company should implement a process to identify when export licenses are required.
2. Assessment of Potential "Deemed Export" Issues
If a company has products, services, and/or technologies "controlled' under BIS and DDTC regulations, then it must assess whether its non-U.S. employees in the United States and abroad, or its non-U.S. visitors, have access to those "controlled" products, services, and/or technologies. Such access is considered a "deemed export" that may also require export licenses from either BIS or DDTC.
3. Annual Internal Audits of International Trade Law Compliance Policies, Programs, and Procedures
Because international trade laws and regulations are in constant flux, any company regularly engaged in the cross-border trade of products, services, and/or technologies should conduct annual internal audits of its compliance policies, programs, and procedures to ensure that they are current and effective. If problems are discovered, they can and should be fixed. A company may also determine that certain problems require disclosure to the appropriate U.S. government agency, a step that can mitigate or even eliminate potential penalties.
4. Annual Audits of Freight Forwarders, Customs Brokers, and Other Third Parties
If a company uses a freight forwarder for exports, a customs broker for imports, and/or other third parties as its representatives, agents, partners, or distributors abroad, it should conduct annual audits of those third parties' procedures to ensure that the company is not incurring any liabilities under the export control laws, economic sanction regulations, the FCPA, Automated Export System (AES) filing requirements, anti-boycott regulations, or various customs rules. These audits may also lead to significant savings if they uncover costly errors in valuation, classification, and country of origin labeling under U.S. and foreign customs laws.
5. “Screening” Process to Stop Purchase or Use of Products, Services, and Technologies by Denied/Sanctioned Parties, Entities, or Countries
Audits identify problems after they occur; a “screening” process captures them before they happen. The DDTC, BIS, and OFAC, which oversee U.S. economic sanction regulations, maintain lists of parties, entities, and countries that may be prohibited or limited in participating in certain transactions. Companies should have a "screening" process in place to determine whether transactions involving these denied/sanctioned parties, entities, and countries are occurring and whether they should be prevented.
6. Mergers and Acquisitions Due Diligence on International Trade Laws
Companies involved in M&A transactions often fail to include an international trade law component as part of their due diligence and may, as a result, also "buy" the targeted business’ liabilities/violations that run afoul of export control rules, economic sanctions, the FCPA, customs law, anti-boycott regulations, and/or trade remedy orders. Such a component should be part of any due diligence checklist.
7. FCPA Compliance
Because of the significant rise in DOJ and SEC prosecutions under the FCPA and the global campaign among governments, international organizations, and nongovernmental organizations to eliminate bribery, companies engaging in cross-border business must implement antibribery policies and procedures for their employees and third-party representatives/partners/agents to ensure that the FCPA and its analogs elsewhere (e.g., the UK Bribery Act) are carefully observed. The civil and criminal penalties and adverse publicity associated with such violations are simply too great to ignore.
8. Anti-Boycott Compliance
U.S. anti-boycott laws and regulations prohibit U.S. companies from participating in certain restrictive trade practices, boycotts, or embargoes that are not endorsed by the United States. As a practical matter, these laws and regulations apply today to the Arab League’s economic boycott of Israel. U.S. companies and their agents/representatives/partners doing business with Arab countries should have procedures in place to identify boycott-related language within a wide range of documentation (e.g., RFPs, RFQs, letters of credit and other bank documents, contracts, agreements, purchase orders, and shipping documents). If such language is identified, it must be reported to BIS and the IRS.
9. Annual Compliance Training Programs
Companies should conduct annual compliance training programs to ensure that a company’s relevant employees are following its international trade law compliance policies, programs, and procedures and are aware of any revisions. A company heavily involved in cross-border business may have to conduct training programs more than once a year to stay abreast of rapidly changing laws and regulations.
10. Website Audit
Even if a company has these specific policies, programs and procedures in place to address international trade law issues, it may be failing to ensure that its website is also following them. For example, if a company makes available "controlled" software products on its website, it must ensure that those products can only be received by countries that do not require U.S. government export licenses; further, any company must ensure that denied/sanctioned parties and entities are blocked from accessing the website to effectively stop these violations from arising.
These international trade law best practices can be generally applied across all business sectors. Every industry, however, likely has additional international trade law best practices specific to its own regulatory requirements. And all are critical to a strong international trade law compliance program.
David M. Schwartz is an international trade and regulatory compliance attorney with Thompson Hine in Washington D.C. He focuses his practice on import and export compliance issues; anti-dumping, countervailing duty, and safeguard litigation; trade policy; customs issues; transportation issues; and the defense of importers and exporters in U.S. government enforcement actions. Mr. Schwartz is a graduate of Harvard Law School, the Fletcher School of Law and Diplomacy, and the University of Texas at Austin.
