SCREENING EXPORTS FOR PROBLEMS

SCREENING EXPORTS FOR PROBLEMS

In last week's column I outlined the Bureau of Export Administration's Export Management System guidelines. The guidelines serve as a template for companies to use when setting up an in-house export compliance system. The guidelines consists of six ''administrative'' elements, such as clearly identifying staffers with compliance duties and issuing a statement companywide showing unequivocal support for compliance. These were discussed last week. The EMS guidelines also contain eight ''screening'' elements, which allow companies to guard against possible infractions.

The first element screens all foreign buyers against the Commerce Department's Denied Persons List, which can be found on the BXA website (www.bxa.gov/). When checking for parties to be denied, exporters should look for the names of the foreign company's principals and for end-users. The BXA recommends that all export transactions be screened, using either a customer-based or transaction-based method. The second element is a product/country license determination screen, designed to determine what authorization is required for an export shipment. The system should ensure that the exporter secures the appropriate export license for the goods in question. To determine whether items are eligible for license exceptions or whether they require licenses, the product/country screen should contain procedures that identify the right Export Control Classification Number, and check the item against the 10 general prohibitions listed in the Export Administration Regulations. Since most compliance violations result from improper classification of goods, the employee making the classification should have a technical background and be familiar with the parameters of each item. The process used to classify items should be described in the company's Export Management System manual. The BXA's website offers clear guidelines that help exporters design a Product/Country License Determination Matrix. The matrix cross-references items with the various export licenses that are available.

The EMS should also include a diversion risk screen, which determines if there is a risk that the exported goods will be diverted to unauthorized end-users or uses. The diversion risk screen includes a list of red flags that could indicate the potential for illegal diversion. The red flags include products not fitting the buyer's type of business, customers wanting to pay cash for items that generally require financing, or buyers that refuse routine installation, maintenance and training services, and transactions in which a forwarder is listed as the ultimate consignee. The BXA recommends that transactions be screened immediately upon receipt of an order. Diversion risk screens should also be performed on a transaction basis since shipping instructions could, in rare circumstances, indicate a red flag. The fourth screening element is a nuclear screen, which may not be necessary for most exporters. Nevertheless, it should not be dismissed lightly. One consultant told me about an exporter who shipped titanium bicycle parts that were ultimately determined to have potential applications in nuclear power plant construction. A missile screen, which is the fifth element, is set up to ensure that missile technology does not leave the U.S. without the appropriate license. A number of exporters have been whacked with substantial fines for exporting goods with potential missile applications. The prohibitions against the export of missile technology are complex. They sometimes involve the export or reexport of goods to foreign branches of U.S. firms, and can touch on questions of whether the exporter ''knows'' of any potential end-use involving missiles.

The chemical and biological weapons screen is similar in some respects to the nuclear screen; most companies export goods that are in no way connected with potential chemical and biological weapons applications. As with the nuclear and missile screens, it should be part of any comprehensive compliance program. The seventh element is the anti-boycott compliance screen.

The final BXA element is the informed letter/entity list screen, which is designed to ensure that transactions involving U.S. goods subject to export laws do not find their way to parties on the Department of Commerce Entity List without proper review and documentation. The Entity List describes foreign firms that are subject to specific license requirements when they receive goods from U.S. exporters. If a foreign customer is on the Entity List, a ''hold'' function should be implemented in the company's order processing flow until a licensing determination is made. The Entity list is updated often and can be found on the BXA website.