Common Export Compliance Mistakes | ECTI, Inc.

Mistakes happen. We’re all human, so naturally we’re prone to oversights, slipups, misjudgments and more. No one is perfect.

Unfortunately, human fallibilities too often cause serious and impactful problems when businesses seek to export items to foreign countries. Why? Two primary reasons:

• Complying with U.S. export regulations is a highly complex undertaking. U.S. export controls contain literally thousands of requirements; those requirements themselves often are complex; and many can seem counterintuitive. It’s easy to get overwhelmed by the International Traffic in Arms Regulations (ITAR), Export Administration Regulations (EAR) and more—particularly if only one or two people in a business are responsible for overseeing compliance efforts.
• 100% compliance with all applicable export controls is essential. There is no room for error, and nothing can be left to chance.

Indeed, export compliance and human error are like oil and water—a bad mix. That’s why the Export Compliance Training Institute (ECTI) was established: To help businesses understand export control rules and navigate pathways to compliance. Through our industry-leading e-seminars, live seminars, live webinars and 80-plus on-demand webinars, we can help you sell more items abroad—and still achieve total compliance in doing so.

In our work through the years with businesses of all sizes and scopes, we’ve learned through first-hand accounts about many export compliance mistakes. Below are five of the most common ones, along with strategies your business can take to avoid them.

Common mistake #1: Acting like selling to St. Petersburg, Florida is the same as selling to St. Petersburg, Russia.

The challenge: Exporting is potentially lucrative, and seemingly everyone wants in on the game. While businesses that only sell items within U.S. borders are constrained by their target geography, exporters gain access to 80% of the global market, and the sales themselves offer the prospect of diverse and stable revenue streams. Yet as we said earlier, exporting overseas mandates compliance with U.S. export controls. Translation: The procedures and controls your business would normally take domestically are insufficient for the additional risks that accompany international transactions. Moreover, exports to certain countries – for example, Russia – involve extra considerations and often entail compliance with rules specific to those countries.

What you can do to reduce/mitigate risk:

• Fully integrate export controls into your overseas expansion business plan.
• Develop and deploy your export control program so that it accounts for every step in your export process.
• Get the right training and assistance. ECTI has built its entire business model around this by offering industry-leading e-seminars, live seminars and live webinars and a catalog of 80-plus on-demand webinars. Equally important, we also offer the industry’s premier Export Compliance Professional (ECoP^®) certification program which demonstrates to your employer, colleagues, customers – and even potential future employers – that you possess the skills necessary to perform your expert compliance duties.

Common mistake #2: Not classifying the things you export.

The challenge: If the item you seek to sell overseas is not first classified for export control purposes, you will have no idea how whether an export license is required. Accordingly, inadequate jurisdiction via the U.S. Munitions List (USML), the Commerce Control List (CCL) and classification processes (Export Control Classification Number (ECCN)) are a leading cause of ITAR/EAR violations, since many classifications are based on inaccurate assumptions or an incomplete understanding of the item or the control lists. If that wasn’t enough, recent export control reform (ECR) adds another layer of complexity.

What you can do to reduce/mitigate risk:

• Deal with the backlog. You may already have hundreds, or thousands, of items lacking current, accurate export control classifications. Take a methodical approach to classifying these items by prioritizing the most urgent cases, or the items which pose the greatest risk of requiring a license. If internal resources are limited, it may be wise to seek out the assistance of a qualified consultant or attorney to help with this initial tranche.
• Have a process for the future. Develop a plan for ongoing classification of new products. Don’t forget to cover related software and technology which could be exported, including through release to a foreign person employee. Consider the possibility that upgraded or otherwise modified products might shift to a different classification.
• Document everything. Your compliance program is only as good as you can prove. Keep solid records of your classifications, and how and when you determined them.

Common mistake #3: Not reporting your bribes.

We jest a bit with this one. Of course, you shouldn’t pay bribes at all, not least because doing so may risk violating the U.S. anti-bribery statute known as the Foreign Corrupt Practices Act. But there is a real export control connection here. The ITAR requires exporters to report payments of political contributions of at least $5,000 or fees and commissions of $100,000 or more.

What you can do to reduce/mitigate risk:

• Take advantage of export control reforms to the extent they apply to your business and the items you seek to export. ITAR Part 130 does not apply to items on the CCL, only to defense articles and defense services on the USML.
• Only make Part 130 certifications when they are required. If the value of the transaction is less than $500,000, there is no need to certify one way or the other.
• If Part 130 applies, have a process in place to gather the necessary payment details for the reports that must accompany export license applications.

Common mistake #4: Exporting to China without doing your homework.

The challenge: Exports to China remain a top enforcement target of U.S. export regulators. In fact, half of all Directorate of Defense Trade Controls (DDTC) consent agreements since 2012 have involved China-related violations. Experts agree that a China violation appears more likely to result in serious consequences than an otherwise similar unauthorized export to a different country. And yet, U.S. goods and services exports to China still top $180 billion, while only 10 ECCNs account for 95% of all Bureau of Industry and Security (BIS) license value. What that means is that many products may be readily exported to China without a license, but you must proceed deliberately to avoid trouble.

What you can do to reduce/mitigate risk:

• Properly classify exports—i.e., leverage ECR provisions to the extent possible and pursue commodity jurisdictions and commodity classifications to confirm your classifications.
• Lock down ITAR and license-required EAR exports.
• Implement stringent technology access controls to ensure that your organization does not inadvertently release controlled technical data to affiliates, vendors or customers in China.
• Even if an item may normally be exported to China without a license, a license may still be required if the recipient or end user in China is on a U.S. screening list such as the Entity List. As a result, restricted parties screening is essential.

Common mistake #5: Exporting to Iran. Period.

The challenge: Bad actors exist in countries far and wide. Yet Iran remains the number-one export control and sanctions enforcement target for the U.S., and has been for many years. Government agencies that oversee U.S. export controls have given no indication that this will change for the foreseeable future. Therefore, avoid any activities – direct or indirect – that involve Iran as a participant without a very careful evaluation of all export control and sanctions issues.

What you can do to reduce/mitigate risk:

• Most aspects of U.S. sanctions targeting Iran apply to subsidiaries and affiliates of U.S. firms abroad. Get the word out (and the controls in) with your colleagues overseas.
• Institute enhanced “red flag” detection measures within your export compliance program framework.
• Don’t overlook the less-obvious ways that violations occur—for example, through automated software updates or technical support.
• Consider adopting a strict, straightforward policy regarding export activities with Iran. For many U.S. exporters, the risks outweigh the opportunities and a simple policy strictly prohibiting any activities in Iran is a reasonable approach.

Related article: The Export Compliance Basics of ITAR and EAR – Understanding Key Terms, Issues, Similarities and Differences

We hope this article helps you understand common mistakes that businesses make when attempting to export items overseas. As we said earlier, export compliance is a complex and detailed undertaking. Your company’s investments rely on achieving 100% compliance with all applicable export regulations and controls. That said, it is absolutely achievable—you can do it, provided you take the necessary time up front to align with an established and widely acclaimed export compliance training partners who can guide you step by step toward compliance success.

Contact the Export Compliance Training Institute

Do you have questions about export compliance challenges for your business, institution or organization? Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP^®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.