2008 WisconsinInternational Trade Conference May 13, 2008
U.S. Export ComplianceDisclaimer: This presentation does not represent legal advice, simply a collection of U.S. ExportCompliance experiences. For legal advice regarding each organization’s specific situation,expert legal advice should be sought.
ModeratorSteve Rubinson, MWTA Compliance Committee Co-ChairPresenters – in order: The Global Company… Why is Export Compliance Important? – Linda Bourdo-Zuehlke, GE Sensing Business Case - Steve Rubinson, JohnsonDiversey, Inc. What are ITAR & Export Licensing? - Candace Knuteson, Derco Aerospace Fact or Fiction: Breaking Down the Substantive Export Risk Areas - Joan Koenig, Drinker Biddle & Reath LLP Q&A - all
The Global Company…Why is ExportCompliance Important?
Exporting…a little history Exporting Good for Wisconsin Good for the country Post 911 CBP more organized, sophisticated Also-Export Enforcement Weapons of mass destruction, Terrorists, Terrorist Sympathies-Not just a US import concern, global-just like everything else Products with the capabilities of being used for something other than what they were intended are crossing borders every day. Denied Parties and entities are creative in obtaining the products that they are looking for.
Sell Product Globally Encourage Sales Teams Establish Distributors Product Build a Customer Base/End User Sales People Training Global Customers Technology UpgradesCompany Technology Proprietary Enhancements Research & Development Finances Communications/Emails Internet Financial Transactions
Denied Party ListsThe regulations do not say how to screen against theDenied Party Lists, or how often to screen against the lists.The regulations basically say…..You may not do business with anyone on the Denied Party Lists. Distributors End Users DPL Banks (dynamic lists) New Customers Field Engineers Other???
1) Know your Product ECCN/Country2) Know your Customer Distributors End-Users3) Screen Against Denied Party Lists Screen to mitigate your company risk -only affiliates -global -countries of concern4) Export Management System Written Internal Controls -ownership -established processes -training -record keeping -audit and validation
Do you know your products? • Export Control Classification Number (ECCN) • Harmonized Code • Country of OriginDo you know your customers? • End User – Watchlist Screening • End Use • Country of Ultimate Destination – Embargoed Country Screening Export Control Classification Number (ECCN) Export Administration Regulations DPL Lists/Screening Tools
Legal ImplicationsPurposes of export control laws and regulations • Prevent the proliferation of sensitive technologies (not an exhaustive list) – Advanced computer technology – Military and dual-use items (military and civilian) – Weapons of mass destruction (nuclear, chemical, biological) • Implement sanctions as part of US foreign policy • Implement multi-country sanctions (UN) to which the US is a party
Potential Consequences of Non-Compliance Fines and penalties ($) • Corporate liability risk – up to $500K per incident • Personal liability risk – up to $250K per incident • Criminal penalties, including officers of corporations Sanctions such as loss of export privileges Disruption of business
Process UnderstandingJohnsonDiversey Global Value Chain Export Order Process – Micro – Version 3 – Dated 24 October 2007 (or JD Plant) Customer Order Product Record- Receive Receive Order Start Via e-mail, fax keeping Shipping Confirmation or ERP system (End) Documents Regulatory Work with I/E to Resolve NoExport Dept. Regional) (Local or Check Process Order Finalize and send Release Order Book with Receive booking Record- Regulatory OK? in ERP export documents Yes to Warehouse Freight details and release keeping Requirements System to Forwarder and Forwarder shipment (End) Customer NoWarehouse(Onsite or Offsite) Pick/Pack/Label Print BOL and Customer and advise details Confirm shipment Routed? to Export Staff against BOL Yes Forwarder Freight Receive Book with Carrier Receive Booking and send details documents and Request from to customer and prepare for Customer JD Export staff. importationNote 1: Export orders can be communicated in a number of different ways. Plant to plant orders between JD companies are not always placed via an ERP system. Bestpractice for plant-to-plant orders on the same ERP system (SAP or JD Edwards) is to perform a “stock transfer” between JD entities. The receiving company sells the goodsto the local customer, who may be a distributor or an end user. Import ProcessNote 2: Sub-process to check regulatory requirements is primarily a manual process for many exporting locations, and is often incomplete, not covering all areas of (Start)regulatory concern. This is a process gap that must be addressed to meet Legal requirements.Note 3: ERP systems cover a great majority of Import/Export transactions, divided between SAP in EMA and JD Edwards (2 instances) for the rest of the world. Some JDsubsidiaries still use legacy systems or non-standard versions of SAP, and will eventually switch over to one of the main ERP systems, depending on region.Note 4: International Terms of Sale (Incoterms) vary from region to region. EMA sells primarily on an EXW basis, while NA has recently standardized on a CIF basis.Should further standardization of Incoterms occur, this process flow chart would be updated to reflect any process changes that might occur.
Development of the Export Compliance Function at JohnsonDiversey2002 – Johnson Wax Professional (US) acquires DiverseyLever from Unilever (Anglo-Dutch). Export compliance processes in infancy2005 – Decentralized Regional Environment – North American region implements automated restricted party screening2006 – Licensed US Customs broker hired as Global Import/Export department head within Value Chain function2007 – Business case made to expand the use of automated restricted party screening beyond North America2008 – Expanding restricted party screening, moving towards centralized oversight of export compliance processes, involving global staffSenior Management Support was strong from the beginning, andremains strong today
Interim Actions Taken While Automating Restricted Party Screening•Use existing resources to screen trade party lists ofregions outside North America•Communicate US export compliance requirementsto foreign subsidiaries•Communicate compliance vision as well as riskreduction activities to senior management•Develop training materials to expand generalawareness of global trade compliance•Process exceptions
Other ITAR Correspondence Commodity Jurisdiction (CJ) Prior Notification Prior Approval General Correspondence • Advisory opinion • Retransfer
ITAR Licensing-Plan Ahead ITAR licensing takes time so try to plan ahead, build in flexibility, and have patience. TAA/MLA approvals and DSP-5 for Foreign Nationals can take over three months. Licensing approvals involve inter-agency review • DTSA • DOD service branches • Intelligence agencies
ITAR Violations Failure to Register (Manufacturer/Exporter/Broker) Exporting or attempting to export without required licensing approval/authorization Exceeding scope of license/approval/exemption Failure to comply with license terms, conditions, provisos Failure to comply with recordkeeping requirements Failure to comply with notification requirements
ITAR Best Practices “Flow Down” • Functional areas • Post authorization checklists/license reviews Networking • Councils or Trade Associations Education/Training • External – IIEI and SIA • Internal – Brown Bag sessions and Survey Monkey