A Bureau of Industry and Security official recently discussed publicly for the first time the nine principles the agency uses to evaluate export compliance programs in the context of assessing administrative penalties. Assistant Secretary of Commerce for Export Enforcement Darryl Jackson told the BIS Export Control Forum in Newport Beach, Calif., that ensuring compliance with export control laws is “the most significant thing” companies can do to help the federal government protect national security.
With export enforcement activity on the rise, Jackson said, compliance is more important than ever. He pointed out that the International Emergency Economic Powers Enhancement Act signed into law last year increased administrative penalties for violating the Export Administration Regulations from $50,000 to the greater of $250,000 or twice the amount of the transaction. That law also increased the ceiling for criminal penalties from $50,000 and 10 years in prison to $1 million and 20 years. In addition, Jackson said, more criminal prosecutions can be expected given that the Department of Justice is focusing more of its resources on export violations.
Although compliance programs are primarily designed to help exporters avoid violations and enforcement actions, Jackson noted, they also offer significant benefits if violations are discovered. He noted that having an effective compliance program will enable exporters to receive “great weight mitigation” – a 25 percent reduction – in administrative penalty cases if that program was in place before the violation occurred and the exporter has taken steps to address any compliance concerns raised by the violation.
Program Evaluation Principles. According to Jackson, the BIS applies the nine principles listed below in deciding whether a compliance program is effective and entitled to great weight mitigation. Although there is no “one size fits all” compliance program, he said, “to be effective, all export compliance programs, no matter how large or small the company, no matter how simple or complex the business, will evidence” these principles, which must not only appear in the design of the program but must also be actually implemented.
• Whether the company has performed a meaningful risk analysis – Among other things, exporters must consider the types of goods they are exporting and the destinations to which they are bound as well as the likelihood of diversion. It is critical that companies periodically revisit their risk analyses as their business models change over time and become different or more complex.
• The existence of a formal written compliance program – Without a written program there is no baseline from which to measure its effectiveness and no common goals set or communicated to others.
• Whether appropriate senior officials are responsible for overseeing the program – People at a high level of responsibility should be put into oversight positions for all export-related matters. Export compliance should not be left to “some isolated, lower-level person in the company.”
• Whether adequate training is provided to employees – Training must be ongoing and companies must maintain records showing that they provided appropriate training.
• Whether the company adequately screens its customers and transactions – Export compliance programs must have the proper controls in place, including export screening mechanisms. The BIS Web site includes “Know Your Customer” guidance as well as various lists against which export transactions should be screened.
• Whether the company meets recordkeeping requirements – To properly document the transactions in which they have engaged, exporters should ensure that they meet the recordkeeping requirements in the EAR and maintain the kinds of records commonly expected in their line of business.
• The existence and operation of an internal system for reporting export violations – Systems for reporting suspected violations enable exporters to look into such matters further and take appropriate action, including making voluntary self-disclosures, for which the BIS mitigates administrative penalties by 50 percent.
• The existence and result of internal/external reviews or audits – Exporters must test their compliance programs by running periodic audits of some kind and modify their procedures in light of what those audits show. In addition, Jackson said, it is probably time for exporters to review and revise their programs in light of recent developments in the law, in business and elsewhere.
• Whether remedial activity has been taken in response to export violations – It is important for exporters to take appropriate disciplinary actions against employees who commit violations. “If either the prosecutors or I get to those problems and employees first,” Jackson said, “it will be worse for everyone involved, including your company.”
Burden on Exporters. Jackson emphasized that exporters bear the burden for demonstrating that their compliance programs are effective. “Accordingly,” he said, “everything that you do, including the manner in which you present the papers to us, should be geared toward carrying that burden.” For example, merely sending the BIS a binder of materials or conducting a “document dump” is not likely to be effective. Exporters who have not proven their case should expect the attorneys in the BIS’ Office of Chief Counsel to “push back” and, if necessary, to recommend that the company not be granted great weight mitigation. Even if such mitigation is recommended, Jackson said, exporters should make the OCC attorneys “look good, because the final decision is mine” and “I will not accept their recommendation if I find it is not adequately supported by the evidence you have submitted.”
World Trade/Interactive
