AES

On April 17, 2008 Don Manzullo (R-Illinois) and Adam Smith (D-Washington), introduced new legislation to modernize the Automated Export System. The Securing Exports Through Coordination and Technology Act is described as being able to, “clarify the confusing US export system that punishes mistakes with costly fines” as well as “strengthen the government’s ability to crack down on deliberate violators” as described by Smith and Manzullo. The bill will also include provisions designed to improve the use and operation of e AES.

Under the Act the AES would be required to:

• Reject data submitted for exports that would violate US export control or sanction regulations by virtue of the destination country or entity;
• Alert the exporter of potential export license requirements under the EAR and/or the ITAR based on codes;
• Issue a fatal error notice when the data submitted includes: names, addresses or restricted entities or destination countries subject to US sanctions and embargoes;
• Issue compliance alerts or other warnings to the filer if: the data submitted includes an inconsistent classification number, a license exception which is not available for the country or ultimate consignee or if there is no license number

Exporters say that these types of errors happen often because of the many different export control laws and regulations they have to handle. Read More

Beginning on April 28, 2008, AES reporting requirements for export license exceptions will change. It will be mandatory to report the Export Control Classifications Number (ECCN) on the AES record when using license exceptions TSR, RPL, GOV, GFT, TSU, BAG, AVS, APR, KMI, TAPS, ENC to export goods, technology, or software from the United States.

The ECCN will be required for the following exception codes:

1. C35-LVS
2. C36-GBS
3. C37-CIV
4. C38-TSR
5. C40-TMPC
6. C41-RPL
7. C42-GOV
8. C43-GFT
9. C44-TSU
10. C45-BAG
11. C46-AVS
12. C47-APR
13. C48-KMI
14. C49-TAPS
15. C50-ENCC51-AGR
16. C53-APP

While some have argued that this new requirement should not pose any problems for exporters, those arguments usually come from people who are not responsible for doing AES submissions and coordinating export paperwork and documentation.

More information:

www.access.gpo.gov/bis/ear/ear_data.html

On October 16, 2007, President Bush signed legislation increasing by a factor of five the civil and criminal penalties under International Emergency Economic Powers Act and penalties for violations of the Export Administration Regulations. Previously, civil penalties had been $50,000 per violation; the amended statute now calls for the greater of $250,000 or twice “the amount of the transaction that is the basis of the violation”. The news is worse than appears because a single export transactions can result in multiple violations, because of this: many times the BIS can double or triple count violations for one shipment. For example, Violation 1) would be the illegal export, Violation 2) would be acting with knowledge of an illegal export, Violation 3) would be making false statements on AES/SED records that no license is required). With this is mind, the practice of multi-counting counting, combined with the new fines could send the monetary amounts of the penalties into the stratosphere if companies are not careful.

The legislation also adds new activities that represent violations; in the past civil violations consisted of violating or attempting to violate the law. Now it is a violation to “conspire” or “cause a violation” of the law. The criminal side merely adds that it is a violations to “willfully conspire to commit” or “aid or abet” a violation.

OK, so you forgot to do your AES filing for that shipment to Aruba, no big deal, right?

According to the Commerce Department, over a period of almost 8 months, Aviacsa Airlines of Houston, Texas exported No License Required aircraft parts without filing the required SEDs/AES on 75 different occasions. The shipments ranged in value from $2550 to approximately $22,000. Consequently, Aviacsa agreed to pay a fine of $450,000—half of the fine is suspended for one year and will be waived if Aviacsa doesn’t get caught with any violations during the one year period.

No doubt, Aviacsa’s lawyers claimed that they got a good deal for their client, who could have faced fines of $875,000, or even more if Commerce had decided to double count violations as it often does.

Bottom Line Compliance Lesson: Failure to file SEDs/AES can lead to problems. I am not saying one mistake will get you in big trouble, but we now know what can happen if you fail to file 75 times. Use this story to scare your company into doing a better job with its SED/AES filing.

Gentlemen (and Ladies): Start Your HTS and Schedule B Classification Engines…

The International Trade Commission has announced that the final version of the 2007 Harmonized Tariff System (HTS)l became effective on February 3, 2007. This will include the World Customs Organization (WCO) changes. Changes will affect about 10% of the eight-digit codes. Importers have until February 20, 2007 to begin using the new HTS codes.

The ITC has posted a draft version on its website, but has committed to posting a the final version by January 22, 2007. The US Customs and Border Protection (CBP) will allow a 17-day grace period for importers to transition to the new system. This grace period will end on February 20, 2007. These implementation plans are posted on their website.

Editor’s Note:

If you didn’t make it to Update 2006, it turns out that the only thing you missed was the posh reception including sushi, crab cakes, and free drinks. You get all of the substance of the presentations here because Scott Gearity wrote a live report from the Commerce Department’s annual Update conference on October 16-17, 2006. Note the time stamp at the beginning of each point below.
–John Black

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Count me in among the poor export control nerds hoping to ride the AES compliance gravy train to a trip to the tropics.  Yep, it’s San Juan, May 17 for a Census Bureau “AES Compliance Conference.”  And, I understand that the Census Bureau does not report back to your boss about whether you actually attended the meetings or sat out on the beach or by the pool sipping on a Pina Colada.

OK, if you can’t swing San Juan, here is the upcoming schedule of AES Compliance Conferences:

• Dearborn, MI, May 9 (not quite tropical)
• Jamaica, NY, June 6 (nope, despite the name, its not tropical)
• Pittsburgh, PA, June 20 (nope, the Pirates are not in town)
• Chicago, IL July 25 (White Sox are in town, but the Cubs aren’t)
• Omaha, NE, September 12 (nice time to watch the corn grow)

Census also has these “AESPcLink Certification Workshops” planned:

• Laredo, TX, May 16 (nice song about the town)
• Jacksonville, FL, May 24 (yes, its warm enough to hit the beach)
• Miami, FL July 19-20, English & Spanish sessions (beach city!)

In what may truly be the most long-anticipated regulatory change in the export control arena, the Census Bureau is finally nearing its goal of mandating use of the Automated Export System (AES) in place of paper Shipper’s Export Declarations (SEDs) across-the-board. AES is already mandatory (since 2003) for the export of items on the United States Munitions List (USML) and the Commerce Control List (CCL), as well as rough diamonds subject to the Kimberly Process. In a February 17, 2005 notice of proposed rulemaking, Census reiterated its intent to extend the AES requirement to cover all exports from the US which currently require a SED. The threshold triggering the need for a SED under the current Census regulations - a value of more than $2,500 classified under an individual Schedule B or Harmonized Tariff Schedule (HTS) commodity classification code - remains unchanged. (After all these years, an adjustment for inflation would be nice.) Exports valued at less than $2,500, but which require either a license from Commerce or a license or license exemption from State will continue to require AES reporting (data submitted via AES is now called “Electronic Export Information” or EEI).

Census solicited feedback with their February proposed rule, which they received in spades from over forty different exporters, carriers, trade associations, and even other federal government agencies. For those seeking to understand every nuance, impact, and possible criticism of the Census proposal, the comments are an excellent resource. (Although, unfortunately, when Census scanned the comments into Adobe Acrobat files they did not turn on the optical character recognition feature which would have made it possible to easily locate references to particular words or phrases.) I particularly recommend the response offered by the Regulations and Procedures Technical Advisory Committee (pdf, RPTAC), which identifies numerous inconsistencies and ambiguities in the Census proposal, and the comments from US Customs and Border Protection (pdf, CBP) which argues that even the very limited exemptions from filing EEI provide an unacceptable loophole for bad actors to exploit. CBP wants all exemptions eliminated, including the sub-$2,500 exclusion.

Census is expected to issue a final rule as early as this month, which will most likely go into effect sometime around the first day of the new year.

If diamond exporting is of interest to you then take note - effective June 15 there is a new AES documentation requirement for rough diamonds related to the international effort to stem the flow of conflict diamonds, also known as the Kimberley Process.  On that date the Census Bureau’s new and final rule will require that exporters of rough diamonds input the Kimberley Process Certificate (KPC) in the AES record license number field (excluding the 2-letter ISO country code).

As in other aspects of the US export control system, multiple agencies are involved in controls on conflict diamonds.  In this case, it is the Office of Foreign Assets Control (OFAC) which is responsible for the Kimberley Process in the US.  On their site you can find an overview (pdf) and the regulations.

The Census Bureau unofficially announced that it will publish the proposed rule requiring the mandatory use of the Automated Export System (and the elimination of paper Shipper’s Export Declarations) in the Federal Register in June 2004. There will be a 60 day public comment period for the proposed rule. Census hopes to publish the final rule in early Fall 2004, with a January 2005 effective date.

Aren’t you glad you have already started using AES (or PC Link)?

Last month Directorate for Defense Trade Controls (DTC) published a notice on its web site requiring electronic filing of Shipper’s Export Declarations (SEDs) using the electronic AES system for all items controlled by the International Traffic in Arms Regulations (ITAR). On October 27, 2003, DTC amended the ITAR to officially require the same. The new ITAR requires that you electronically report all ITAR exports to the US Government, except for exports of technical data under exemptions (not including the exemption for agreement). Generally speaking, for hardware exports you report electronically using AES and for technical data exports you report directly to DTC.

Note to Companies outside of the United States: If you are transferring items between non-US locations, no AES or ITAR reporting is required but you may want to share the information below with the US-based business who export to you to help them get their exports to you cleared properly.

The primary ITAR revisions come in the new ITAR section 123.22 - Filing, retention, and return of export licenses and filing of export information. ITAR 123.22 requires electronic export reporting for all ITAR exports, either via AES for hardware or via a new system for direct reporting to DTC (the latter system currently is a paper reporting system). These are the new ITAR 123.22 procedures for exports.

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In the October 22, 2003 Federal Register the Census Bureau announced that it will eventually publish a proposed rule that would require AES reporting for all exports from the United States (with certain exemptions). Currently, the AES requirement does not apply to items classified as EAR99 in the Commerce Control List. You currently may use paper Shipper’s Export Declarations to report exports of items classified as EAR99. Census gave no official prediction as to when it might publish the proposed rule. Best guesses are pointing toward late Spring as the likely timing.

In the October 22, 2003 Federal Register the Census Bureau published a notice requiring AES reporting for rough diamonds. The United States is doing this as part of the international effort to combat rough-cut diamonds being used to finance military conflicts in Africa.

Now you must use AES to report your exports of items controlled by the International Traffic in Arms Regulations (ITAR).

DTC recently published guidance on their website on AES shipments. Some key points include:

• As of October 18, all exported items on the Munitions List (hardware and tangible software and tangible tech data) must be declared in AES prior to departure—8 hours for vehicle or air, and 24 hours for vessel or rail.
• In case of an emergency, you may file 1 hour in advance for vehicle or air exports, and 2 hours for vessel or rail. This shorter filing time can be revoked at the discretion of Customs and Border Protection or DTC if they feel it is being abused.
• Until December 18th, a paper SED must also be filed for the same transaction.
• The exporter must complete the new ITAR data fields, as described in last month’s issue.

For more information, see: www.pmddtc.state.gov/aes.htm 

Buried in the DTC web page guidance on AES, DTC published some interesting and painful clarifications on how you should export technical data under a license and report it to DTC, as is required by ITAR Part. Interesting, mostly for a few die-hard ITAR freaks, painful for all exporters of ITAR-controlled tech data.

Many defense exporters have argued, with reason, that the first shipments of technical data under a TAA or MLA does not need to be reported. They argue that the actual ITAR 123.22(d) and 123.24 language only requires reporting of the first shipment under a license, not an agreement because those ITAR paragraphs are in the ITAR Part 123, which has the title “Licenses for the Export of Defense Articles” and agreements are not licenses. Exporters also cite Part 124 “Agreements..” as the ITAR Part to look to for requirements for exporting tech data under agreements.

(John Black here. For the record, I am starting to wonder what relevance logic and using dictionary definitions of words has to understanding the ITAR. For example, since Part 125 is “Licenses for the Export of Technical Data,” that would seem to be the logical place to find the requirements for exports of tech data under licenses. Instead of reading the ITAR you just ought to know what it says. This approach of not basing the meaning of the ITAR on the words of the ITAR and requiring exporters to just know what the ITAR says is irresponsible government. If it is important to the security of our country that we apply the ITAR like the State Department interprets it, the State Department is putting the country at risk by not writing the ITAR to say what the State Department wants it to say because some exporters are not plugged into the State Department and might just read the ITAR.)

Reading the guidance, it’s clear DTC disagrees. “[T]he initial export of technical data and defense services using an agreement will be by letter,” the guidance reads. “For ease in handling these requests, the letter should have an attention line reading “ATTN: Initial Export Notification for Agreement [insert agreement number].”

For shipments of technical data under a license, the guidance states you should notify State of the first shipment of technical data by decrementing the license and returning it to DDTC. If you need to ship technical data thereafter, State says to use an exemption in “124.5.” Presumably they are they are referring to exemption regarding copies of technical data previously authorized exemption in 125.4(b)(4).

(Sorry, John Black here again. Gee whiz, what is going on here? So, I get a DSP-5 for offshore
procurement, export data once, and then use the copy of tech data exemption for the next 50 for the offshore procurement? If what I export is not a copy of what was previously exported, but it falls within the description on my DSP-5, can I use the copy exemption for my non-copy. Interesting use of the English language. In the ITAR the word “copy” includes things that are not copies. I sure wish DTC would revise the ITAR to reflect this. I don’t know about you, but I might forget this sometime over the next couple of years and make the mistake of reading the ITAR and thinking “copy” does not include “non-copies.” Back to you Maarten.)

Finally, State reaffirmed that technical data hand carries under a license still require an SED. You should present a copy of an SED to US Customs “upon request” and one copy should be immediately sent to DTC. The guidance appears to indicate that you don’t have to specifically hunt down a Customs officer to submit an SED, as US Customs would never request an SED for technical data unless the traveler brought it to their attention.

The good news is that all these paper technical data notifications should disappear in January 2004. At that time, State hopes to have in place a system whereby all AES entries for shipments of technical data are automatically routed to State. For more information, see: www.pmddtc.state.gov/aes.htm

(I apologize for interrupting Maarten’s analysis of the new AES requirements with my editorial comments. Sometimes I just can’t keep my mouth shut. –John Black)

Hurray! The final Automated Export System (AES) regulation is finally out. Now it’s time to crack open a cold one and celebrate. Let’s also celebrate, shall we, by drinking down the six-pack of essential bullet point elements of the July 17 Census Federal Register Notice:

• An AES SED filing is required for all ITAR shipments regardless of value, license or exemption, unless specifically exempted by the ITAR. (30 CFR 30.60)
• An AES SED is required for EAR shipments valued at $2,500 or more and classified in an ECCN: other than EAR99. (15 CFR 30.1(b), 30.60)
• Proof of AES filing must be made at the time the cargo is tendered to the exporting carrier. (15 CFR 30.12(d))
• SEDs for EAR99 shipments valued at $2,500 or more may be submitted via AES or in the old paper format. (15 CFR 30.1(b))
• Paper SEDs must be filed at the time the cargo is tendered to the exporting carrier. (15 CFR 30.12)

The rule is effective August 18, 2003, and will be mandatory October 18, 2003.

The rule advises ITAR exporters to look to the ITAR for pre-departure filing requirements. The party has yet to start over at DDTC, as the ITAR, of course, has not been amended yet to describe these or other related AES requirements. So at this time it’s anybody’s guess as to when you should file your AES SED for ITAR shipments. ITAR AES amendments were supposed to be released by August 24, but the latest estimate is now September or October.

(Editor’s Note: What’s the Schedule B Number for that six-pack?)