U S BIS Guidance for Freight Forwarders and

U. S. BIS Guidance for Freight Forwarders and for Export Management Compliance Programs (ECMP) Charles G. Wall Regional Export Control Officer U. S. Department of Commerce, Hong Kong

“All parties that participate in transactions subject to the EAR must comply with the EAR. ” Export Administration Regulations Sec. 758. 3

End-Use and End-User Restrictions • Know your customer (resolve red flags) • Screen parties to the transaction • Know rules on sanctioned destinations

Know Your Customer (1) Decide whethere are “red flags” (2) If there are “red flags”, inquire (3) Do not self-blind (4) Employees need to know how to handle “red flags” (5) Reevaluate all the information after the inquiry (6) Refrain from the transaction or advise BIS and wait Supplement No. 3 to Part 732—BIS’s “Know Your Customer” Guidance and Red Flags

U. S. Transshipment Best Practices (2011) • Companies should “Know” their foreign customers by obtaining detailed information on the bona fides (credentials) of their customer to measure the risk of diversion, especially when the foreign customer is a broker, trading company or distribution center http: //www. bis. doc. gov/index. php/compliance-a-training/export-managementa-compliance/transshipment-best-practices

Red Flag Examples • A freight forwarding firm is listed as the product's final destination. • The shipping route is abnormal for the product and destination. • The product's capabilities do not fit the buyer's line of business; for example, a small bakery places an order for several sophisticated lasers Supplement No. 3 to Part 732—BIS’s “Know Your Customer” Guidance and Red Flags

U. S. Transshipment Best Practices (2011) • Companies should pay heightened attention to the Red Flag Indicators on the BIS Website and communicate any red flags to all divisions, branches, etc. . http: //www. bis. doc. gov/index. php/compliance-a-training/export-managementa-compliance/transshipment-best-practices

End-Users—Lists to Check http: //export. gov/ecr/eg_main_023148. asp

The Denied Persons List • Includes U. S. and non-U. S. persons for which BIS has denied export privileges • Prohibits any interaction with a listed party that would violate the terms of that party’s denial order

The Unverified List • Includes non-U. S. persons party to a transaction for which BIS has been unable to conduct a pre-license check or post-shipment verification for reasons beyond USGcontrol • Establishes restrictions on exports, reexports and transfers (in-country) to listed persons, as set forth in Section 744. 15 of the EAR

The Entity List • Includes non-U. S. persons for whom the export, reexport and/or transfer (in country) of EAR items is subject to specific license requirements and policies – Supplements other EAR licensing requirements – Over 700 entries in approximately 40 countries • Located at Supplement 4 to Part 744 – Informs the public of supplemental licensing requirements and policies for particular entities

The Entity List • Includes persons whose activities: – Impose a risk of diverting items subject to the EAR into WMD programs – Are contrary to U. S. national security and/or foreign policy interests or are acting on behalf of such entities • Also includes entities: – Sanctioned by the Departments of State of the Treasury – “incorporated by reference”

The Entity List • Imposes a supplemental license requirement, not a sanction • Includes case-by-case, entity-specific provisions: – License Requirements – License Review Policies – Locations and aliases Essential to identify these provisions prior to proceeding in a transaction with a listed entity

SDN List • Specially Designated Nationals and Blocked Persons List • Contains individuals, entities, vessels and aircraft designated/identified under numerous sanctions programs • SDN entries contain identifying information • The SDN List is frequently updated with new listings and removals Maintained by the U. S. Department of the Treasury’s Office of Foreign Assets Control

End-Users—Lists to Check http: //apps. export. gov/csl-search#/csl-search

Trade Sanctions • Additional license requirements if destined to Cuba, Iran, North Korea, Sudan, or Syria • Additional requirements for certain Russian industry sectors, or for the Crimea region of Ukraine. • Affects most items subject to the EAR See Part 746—Embargoes and Other Special Controls

ECCNs and Destination Controls • Recognize ECCNs • Understand destination controls • Understand License Exceptions and “NLR”

U. S. Transshipment Best Practices (2011) • An Exporter/Re-exporter should provide the ECCN or the EAR 99 classification to freight forwarders, end-users and consignees. Classification information and the final destination should be communicated on bills of lading, air waybills, buyer/seller contracts and other commercial documentation. http: //www. bis. doc. gov/index. php/compliance-a-training/export-managementa-compliance/transshipment-best-practices

Recognize ECCNs (first number) 0—Nuclear Materials, Facilities and Equipment and Miscellaneous 1—Materials, Chemicals, “Microorganisms, ” and Toxins 2—Materials Processing 3—Electronics 4—Computers 5—Telecommunications and Information Security 6—Lasers and Sensors 7—Navigation and Avionics 8—Marine 9—Aerospace and Propulsion EXAMPLES: 1 C 351 dengue fever virus 3 A 001 certain integrated circuits 6 A 003 certain high speed cameras See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs (letter) A—Equipment, Assemblies and Components B—Test, Inspection and Production Equipment C—Materials D—Software E—Technology EXAMPLES: 1 C 002 Certain nickel alloys 7 D 003 certain navigation software See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs (third digit) EXAMPLES: 3 A 001 Wassenaar Arrangement dual-use list 9 A 990 Certain diesel engines controlled for Anti-Terrorism reasons 0: National Security reasons (including Dual Use and Wassenaar Arrangement Munitions List) and Items on the NSG Dual Use Annex and Trigger List 1: Missile Technology reasons 2: Nuclear Nonproliferation reasons 3: Chemical & Biological Weapons reasons 5: Items warranting national security or foreign policy controls at the determination of the Department of Commerce. 6: “ 600 series” controls items because they are items on the Wassenaar Arrangement Munitions List (WAML) or formerly on the U. S. Munitions List (USML). 9: Anti-terrorism, Crime Control, Regional Stability, Short Supply, UN Sanctions, etc. See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs (multi/uni-lateral) The numbers in either the second or third digit (e. g. , 3 A 001) serve to differentiate between multilateral and unilateral entries. An entry with the number “ 9” as the second digit, identifies the entire entry as controlled for a unilateral concern (e. g. , 2 B 991 for anti-terrorism reasons). If the number “ 9” appears as the third digit, the item is controlled for unilateral purposes based on a proliferation concern (e. g. , 2 A 292 is controlled for unilateral purposes based on nuclear nonproliferation concerns). EXAMPLES: 2 A 292 Nonproliferation concern, unilateral U. S. control 9 A 990 Unilateral concern, unilateral U. S. control See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs The last digit within each entry (e. g. , 3 A 001) is used for the sequential numbering of ECCNs to differentiate between entries on the CCL EXAMPLES: 6 A 102, 6 A 103, 6 A 107 Missile Technology Control Regime Annex 18. A. 2. , 18. A. 3. , 12. A. 3. See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs Last two characters in a “ 600 series” ECCN. The last two characters of each “ 600 series” ECCN generally track the Wassenaar Arrangement Munitions List (WAML) categories for the types of items at issue. The WAML ML 21 (“software”) and ML 22 (“technology”) are, however, included in D (“software”) and E (“technology”) CCL product groups to remain consistent with the structure of the CCL. EXAMPLES: 9 A 610 Military aircraft and related commodities (Compare to Wassenaar Munitions List entry ML 10, for military aircraft) See Part 738—Commerce Control List Overview and the Country Chart

Recognize ECCNs (EAR 99) Those items “subject to the EAR” but not identified on the CCL are identified by the designator “EAR 99. ” See Part 772—The Commerce Control List

Enforcement • U. S. Enforcement Penalties • Case Examples

Violations (a) Engaging in Prohibited conduct (b) Causing, aiding, or abetting a violation (c) Solicitation and attempt (d) Conspiracy (e) Acting with knowledge of a violation (f) Possession with intent to export illegally (g) Misrepresentation and concealment of facts (h) Evasion (i) Failure to comply with reporting, recordkeeping requirements (j) License alteration (k) Acting contrary to the terms of a denial order See Part 764—Enforcement and Protective Measures

Potential Consequences of a Violation • Consequences of violations may include: • A Warning Letter • Civil Enforcement • Fine • Denial of export privileges • Exclusion from practice • Referral to Criminal Prosecution • Placement on the Entity List • The type of enforcement action depends primarily on the natures and scope of the violations

Don’t Let This Happen To You • In December 2011, Fed. Ex agreed to pay a $370, 000 civil penalty after it “caused, aided and abetted” exports to prohibited entities in the United Arab Emirates and in China, and to Syria. http: //www. bis. doc. gov/index. php/forms-documents/doc_download/1293 dlthty-final-7 -31 -15

Don’t Let This Happen To You

Don’t Let This Happen To You • In August 2009, DHL agreed to pay a civil penalty of $9, 444, 744 after it “aided and abetted” unlicensed exports to Syria, Iran and Sudan and also failed to comply with recordkeeping requirements. • The EAR requires export documents to be retained for a period of five years. http: //www. bis. doc. gov/index. php/forms-documents/doc_download/1293 dlthty-final-7 -31 -15

Don’t Let This Happen To You

Don’t Let This Happen To You http: //efoia. bis. doc. gov/index. php/electronic-foia/index-of-documents/7 electronic-foia/227 -export-violations

Freight Forwarder Guidance • Forwarding agents have compliance responsibilities under the EAR even when their actions are dependent upon instructions given by customers • Hiring an agent, whether a freight forwarder or some other agent, to perform various tasks, does not relieve a party of its compliance responsibilities. http: //www. bis. doc. gov/index. php/forms-documents/doc_view/620 -newfreight-forwarder-guidance

Freight Forwarder Guidance Routed Export Transactions: • Primary responsibility for compliance with the EAR falls on the "principal parties in interest" (PPI). Generally, the PPIs in an export transaction are the U. S. seller and foreign buyer. • In a "routed export transaction, ” the foreign PPI expressly assumes responsibility for determining licensing requirements and obtaining authorization for the export. In this case, the U. S. agent acting for the foreign PPI is the “exporter” under the EAR See Section 748. 5, part 758. 3

U. S. Transshipment Best Practices (2011) • Companies should avoid routed export transactions. . . unless a long standing and trustworthy relationship has been built among the exporter, the foreign principal party in interest (FPPI), and the FPPI’s U. S. agent http: //www. bis. doc. gov/index. php/compliance-a-training/export-managementa-compliance/transshipment-best-practices

U. S. Transshipment Best Practices (2011) • Exporters/Re-exporters should seek to utilize only those Trade Facilitators/Freight Forwarders that administer sound export management and compliance programs which include best practices for transshipment http: //www. bis. doc. gov/index. php/compliance-a-training/export-managementa-compliance/transshipment-best-practices

Expectations of Industry • Be knowledgeable of U. S. export controls when trading in items subject to U. S. export controls • Only export with U. S. authorization- if no license required, under License Exception, or by license • Diligently follow license conditions and recordkeeping requirements • Maintain good relations and cooperation with BIS officials

Resources http: //www. bis. doc. gov/index. php/compliance-a-training/export-administration -regulations-training/online-training-room

Hong Kong Guidance http: //www. stc. tid. gov. hk/eindex. html

Hong Kong Guidance http: //www. stc. tid. gov. hk/cindex. html

Other Guidance Available http: //www. wassenaar. org/best-practice-guidelines-for-transit-ortransshipment/

“All parties that participate in transactions subject to the EAR must comply with the EAR. ” Export Administration Regulations Sec. 758. 3

Thank You Charles G. Wall Regional Export Control Officer U. S. Consulate General Hong Kong & Macau Tel: +852 2521 -6515 Fax: +852 5429 -5952 charles. wall@trade. gov