If not, the company risks a visit from the Commerce Department’s Bureau of Industry and Security and other federal agencies involved with enforcing U.S. export control regulations. The result can be costly fines and penalties, not to mention the negative publicity that goes along with being involved in illicit export transactions.
“It is evident that Commerce, Homeland Security Investigations and Treasury are cracking down on those overseas affiliates and distributors that are finding creative ways to avoid compliance with U.S. laws and regulations,” said Paul DiVecchio, head of export compliance consultancy DiVecchio & Associates.
The 2018 John S. McCain National Defense Authorization Act, which contains the Export Control Reform Act, has further intensified the emphasis on enforcement of the nation’s export control regulations not only within the U.S. but abroad.
In addition, the Trump administration over the past two years has unleashed a flurry of announcements that crack down on individuals and entities posing a threat to national security or violating export controls and embargoes.
For some U.S. companies, this illicit activity may be happening in their overseas offices already without their corporate compliance officers even realizing it.
It’s important for U.S. companies to have centralized oversight of all their export transactions long before the shipments go out the door.
“We screen all transactions centrally using our ERP systems, both for sales and service transactions,” said Brian Amero, head of global compliance and ethics for Teradyne. (Amero is a member of American Shipper’s Editorial Board).
“The ERP systems don’t differentiate,” he said. “They subject all transactions to a compliance review against U.S. and even non-U.S. export rules. A central resource reviews any issues. We don’t delegate this responsibility to the local offices.”
“The commitment of the senior official within an overseas affiliate to abide by the corporate governance and ethics will dictate how subordinates will follow the procedures and policies established by the U.S. corporate compliance organization,” DiVecchio said. “Most subordinates tend to be subservient to the general manager of the affiliate, which in some cases runs counter to U.S. corporate governance.”
This problem becomes amplified for U.S. forwarders who are employed to facilitate export transactions, yet equally culpable in the eyes of U.S. export enforcement agencies if wrongdoing occurs.
“Handling large multinational companies in the U.S., as well as overseas, requires you to be consistent with your order management practices when it comes to screening order parties against embargoes and sanctions and, of course, record keeping,” said Michael Ford, chief compliance officer of BDP International.
“The internal challenge comes in the form of educating your staff overseas about U.S. export regulations,” he added. “The consistency of systems also helps a lot with meeting the U.S. regulations.”
DiVecchio said it’s also critical for U.S. companies to identify a point of contact for compliance within that overseas subsidiary, branch office or affiliate who is approved by the chief corporate compliance officer and directly accountable to the U.S. corporate compliance organization; has the appropriate skills and command of the English language; has visited the U.S. and participated directly in training with U.S. corporate compliance team; and ensures that corporate compliance procedures are integrated consistently within the overseas operations.
In addition, he recommended corporate export compliance work with the corporate audit team to establish an assessment module that can identify any deficiencies or potential culpabilities as they relate to corporate governance. This includes training the audit staff on how to conduct “a pragmatic, real-world assessment” of the practices, policies and procedures for export control compliance.
“Anything less will place a U.S. company at risk of export violations,” DiVecchio said.
In the case of China, where Teredyne has strong operations, the company has an on-the-ground trade compliance manager who reports to Amero in the legal department. She performs training for employees and distributors on export control, audits distributors’ processes and conducts public record searches in China for high-risk transactions.