Export violations, even accidental ones can have significant reputational and financial consequences. If a Company is serious about upholding high compliance standards, they will generally do whatever it takes to stay on the right side of the law. Sometimes, though, it can be too much.
How you can possibly be too compliant? After all, more is better, isn’t it? Not always. Sometimes, the most well intentioned due diligence can be bad for business.
Proof positive – End User Statements.
An End-User Statement certifies that a buyer is the final recipient of exported materials and has no intention of re-exporting said materials to anyone else. This document can play a vital role in preventing export violations and providing proof of the original our efforts to do the right thing. There are very specific circumstances under which End-User Statements should be used:
- As required to restrict the flow of materials to embargoed countries like Cuba or North Korea, nations with poor human rights records, or to places generally considered a threat by the original supplier
- To export sensitive or highly controlled items (such as military grade weaponry)
- To restrict exports to countries with a high diversion risk, such as those that have not signed the Nuclear Non-Proliferation Treaty
- If there are other “red flags” that warrant a more cautious approach to the transaction, such as a historical appearance on an entity list
Some businesses make a practice of requesting End Use Statements from all their domestic and international customers, and for all items, whether a license is required or not. This includes items that are designated EAR 99 (subject to Export Administration Regulations but not listed with an Export Control Classification Number on the Commerce Control List. The majority of commercial products are EAR 99 and do not require a license to export or re-export). This level of oversight and diligence because is necessary when the sales staff takes little interest in understanding their customers and/or high turnover of sales staff. When this situation exists, it allows for gaps in understanding customers and thus providing opportunity to overlook suspicious activities, i.e. overlooking Red Flags.
The potential downside is that utilizing these as a blanket requirement to conduct business might alienate customers who have neither the time nor the inclination to complete superfluous paperwork. It also creates an unfortunate spirit of animosity where there does not need to be one. Is it really necessary for a U.S. purchaser of Legos to certify they won’t re-export your them, each and every time they buy? NO
Historically at PAP, the sales staff tend to have longer-term relationships with their customers, and thus know them and understand their business. These customers are not of specific concern and tend to be covered by the End-User and licensing requirements for further export of items outlined in our T&C’s.
The bottom line is – the sales team needs to know their customer. If there were a diversion of product to a regulated country, not only would the company be at risk, but also the sales person. The sales person is the only one that has a relationship with the customers. It is the obligation of the sales person to know their customer. Putting your head in the sand is not a defense; so, it behooves each member of the sales team to be diligent, and look out for Red Flags, use End –User Statements when they have doubts and generally to be part of the compliance effort. This is in essence strategic compliance.
The End-User Statement is a valuable compliance tool. However, it must be used appropriately based on (a) what you are exporting and (b) to whom you’re exporting – have we done business with this entity in the past and have there been any Red Flags. For recurring or open contracts where we deliver products on a recurring basis, maybe we provide one End User Statement, using it more a training tool. What works best for each specific customer? Remember, its not just the company on the line here, so are you. Also, examining one’s own risk profile is beneficial not only to avoid pushing End-User Statements on undeserving (and eventually angry) customers, but also for making sensible determinations regarding other compliance obligations, such as procedures for restricted party screening (if your transactions occur just once per month, why rescreen your buyers on a daily basis?) Having a keen awareness of your company’s needs and taking a logical approach to compliance requirements can save you countless hours of manpower. It can also keep you from inflicting unnecessary work on the customers (and potential customers) you rely on to keep your business afloat.
So is this important? Yes, you can have too much of a good thing. To be sure, your compliance efforts do not exceed what is reasonable and prudent from a financial standpoint or otherwise—strategic compliance is necessary. Doing what is required under the law, and being mindful of what is needed for the success of your business is often a challenging but necessary endeavor.
RED FLAGS (As provided by the Bureau of Industry and Security (BIS) )
Things to Look for in Export Transactions
Use this as a checklist to discover possible violations of the Export Administration Regulations. You may also wish to visit our BIS page, “Know Your Customer Guidance.“
- The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’] list of denied persons.
- The customer or purchasing agent is reluctant to offer information about the end-use of the item.
- The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.
- The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
- The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.
- The customer has little or no business background.
- The customer is unfamiliar with the product’s performance characteristics but still wants the product.
- Routine installation, training, or maintenance services are declined by the customer.
- Delivery dates are vague, or deliveries are planned for out of the way destinations.
- A freight forwarding firm is listed as the product’s final destination.
- The shipping route is abnormal for the product and destination.
- Packaging is inconsistent with the stated method of shipment or destination.
- When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.