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Export Compliance Reform: What it means to the manufacturer

Does your company have an export compliance program? Considering the consequences, it might be the best investment you make. While a majority of exported products which do not have military application do not require an export license, a failure to identify a regulated product can be disastrous. The federal government can levy severe punishment, including civil and criminal fines and jail time, for export violations. In addition, a company can lose the right to conduct business entirely. With so much at stake, it is imperative that exporters have a compliance program in place.



The current U.S. export system
Federal export controls are often considered one of the factors that contribute to competitive difficulties for U.S. manufacturers. The difficulties arise in part due to the current system's two different control lists administered by two different federal departments, three different primary licensing agencies, multiple enforcement agencies and a number of separate databases. This fragmentation can cause delays and even discourage buyers. The complexity and cost of export compliance may seem daunting to small and medium-sized manufacturers, and deter them from exporting their products.




Export reforms: the new system


Reform efforts began this spring, when the Obama Administration issued orders to consolidate export regulation. The reforms will include:


  • A single control list,
  • A single licensing agency,
  • A single primary enforcement coordination agency, and
  • A single information technology system.




The government plan for implementing these reforms is a comprehensive, three phase strategy. The first phase is underway, and includes steps that can be taken without legislation. All of this appears to be good news for manufacturers. Our contacts in Washington, D.C. confirm that the first phase is in full swing; however a timeline for the next two phases is difficult to estimate.


While these changes begin to take effect, it is important for companies to remain vigilant about export compliance. Exporters must track changes to the regulations in order to avoid violations.


Starting/Enhancing your export compliance program
An export compliance program can protect your company from export violations. Your program should govern all aspects of exporting products. The backbone of the program should be an export compliance manual that outlines the company's policies and commitment to following trade laws and regulations. The manual should accomplish the following goals:


  • Establish procedures - The first component of a compliance program is to implement company-wide procedures. These procedures should outline a step by step process for all personnel working on international transactions. The procedures should begin by identifying potential export-control related activities, continue through license applications and end with documentation of the export.
  • Identify product classifications - Currently, either the State Department or the Commerce Department can have jurisdiction over your company's product. The next step in the compliance program is to determine which department's control list is applies to you. Finding the right control list can quickly establish whether any restrictions or prohibitions apply to your business.
  • Establish a documentation strategy - U.S. exporters are generally required to keep their export records for five years. This record-keeping portion of the compliance program is relatively simple to maintain, and ensures you will have the proof required to protect your company from unwarranted claims of export violations.




An export compliance program is one of the best investments you can make for your business. It provides protection for your company from inadvertent violations and potentially severe fines and penalties. A solid export management and compliance program will provide peace of mind, and give you the freedom to focus on growing your business.


What does the government require exporters to track to avoid the risk of penalties?

Take a look at the list of factors issued by The Bureau of Industry and Security, the arm of the U.S. Department of Commerce charged with the development, implementation and interpretation of U.S. export control policy, and you can easily see the need for an export compliance program. Without implementation of company-wide procedure, it is far too easy for violations to occur. Among the many factors:


  • Exporter Type
  • Nature of Item Exported
  • Source of Item Exported
  • Item Sensitivity, Dual-Use Risk and Restrictions
  • Distribution Points
  • Exporter Size
  • Customer Type
  • Use of Product by Customer
  • Location of Customers
  • Subsequent Transfers/Re-exports
  • Exporter/Customer Relationships
  • Order Processing System
  • U.S. Person Participation in support activities by which a person facilitates an export, re-export or transfer that will assist proliferation activities described in the U.S. export laws and regulations.



To learn more about starting a compliance program, visit the Department of Commerce web site. If you have questions about export compliance, please contact the Manufacturing Team at Bingham McHale.



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