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By Tracy A. Smith email
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Besides being something you might scream while bungee jumping
from a 1,000-foot high bridge, IEEPA is the acronym for the International
Emergency Economic Powers Act. When Congress enacted IEEPA in 1977,
they granted the President emergency powers to protect against foreign
national security threats.
When the Export Administration Act (EAA) expired in August of 2001,
President Bush used his powers under IEEPA to issue Executive Order
13222, which extended the authority of Export Administration Regulations
(EAR). The EAR are issued by the Department of Commerce, Bureau
of Industry and Security to control most U.S. exports, reexports
and other activities.
President Bush has now signed S. 1612, the International Emergency
Economic Powers Enhancement Act, which, among other things,
increased the penalties for violations under the IEEPA into law
on October 16, 2007.
The amendments to the IEEPA increased the civil penalty for a “person
to violate, attempt to violate, or cause a violation” to “an
amount not to exceed the greater of (1) $250,000; or (2) an amount
that is twice the amount of the transaction that is the basis of
the violation.” It also increased the criminal penalty, “upon
conviction, be fined not more than $1,000,000, or if a natural person,
may be imprisoned for not more than 20 years, or both.”
If you haven’t been keeping track of export penalties, the
maximum civil penalty under the EAA was $10,000 per violation. When
the EAA expired in 2001, civil penalties for violations under the
EAR were subsequently adjusted by the Department of Commerce to
a maximum of $11,000 per violation. Just over a year ago, the EAR
was amended to reflect changes in the civil penalties made by the
USA Patriot Improvement and Reauthorization Act of 2005, which amended
Section 206 of the IEEPA to raise the maximum civil penalty under
the IEEPA to $50,000 per violation. So the latest change increases
penalties five fold!
Hold on to your compliance hats, because those penalties won’t
necessarily stop there. Senator Christopher Dodd introduced bill
S. 2000 on August 3, 2007, that is intended to increase the enforcement
authority and extend the Export Administration Act of 1979. If that
bill is passed, the Export Administration Act of 2007 will, among
other things, increase the maximum civil penalty to $500,000 per
violation. It will also increase the maximum criminal penalties
to the greater of $5 million or 10-times the value of the exports
involved for corporations and the greater of $1 million and 10 years
imprisonment for individuals.
Oh, yeah, keep in mind that a shipment, if in violation, will generally
consist of multiple violations. 15 CFR 764.2 (g)(1) states that
“no person may make any false or misleading representation,
statement or certification, or falsify or conceal any material fact,
either directly to BIS, the U.S. Customs Service, or an official
of any other U.S. agency, or indirectly through any other person.
(ii) In connection with the preparation, submission, issuance, use,
or maintenance of any export control document as defined in §
772.1 or any report filed or required to be filed pursuant to §
760.5 of the EAR. Export control documents include, but are not
limited to a license, an application for a license, dock receipt
or bill of lading issued by any carrier in connection with any export
shipment subject to the EAR, and all documents prepared and submitted
by exporters and agents pursuant to the export clearance requirement
of Part 758 of the EAR (§772.1).”
Exports are good for U.S. companies and their workers and help
the ever-growing trade deficit. With the weaker U.S. dollar and
efforts to boost revenues, more and more companies may see increased
export sales or start exporting all together. But all companies
and individuals involved in exporting must be aware of the export
rules and the penalties for noncompliance.
The changes to the penalties under the IEEPA just signed into law
as well as the impending changes proposed by the EAA of 2007 are
two very compelling reasons to ensure your compliance Export Management
System is up to date and you are performing your due diligence as
required by the law. Remember, “Regulations; what regulations?”
or “I did not know about any export regulations” are
not going to fly with the Office of Export Enforcement if they come
knocking at your doorstep.
From a compliance standpoint, your executive team should need no
incentive to provide you the support you need for your compliance
program. If they do, the increased penalty provisions speak for
themselves. After all I don’t think they would like to trade
in those business casual khakis for a bright orange jumpsuit anytime
soon.
I can’t think of a better time than now to ensure the compliance
side of the house is in order and up to date with necessary resources.
A proactive approach to compliance is the best way to mitigate risk
of a violation and possible penalties.
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By Michael Laden email
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Most European Union (EU) member states began accepting applications
for Authorized Economic Operator (AEO) status in July of this
year. AEO is the EU equivalent of the U.S. Customs-Trade Partnership
Against Terrorism (C-TPAT) program. Well, not exactly; it
might better be described as C-TPAT’s evil twin!
There are stark and dramatic differences between the two
programs. The U.S.-based program is solely related to supply
chain security; the AEO program comingles security and customs
compliance. The U.S. program was developed and built in the
spirit of partnership with the trade, each side leveraging
the others knowledge and bringing ideas to the table. I don’t
think the word “partnership” is mentioned once
in any of the AEO documentation or materials. This is an important
distinction and I would also assert a big missed opportunity.
Unfortunately, the list of dissimilarities between C-TPAT
and AEO does not end there. Now it appears that certain EU
member states are proffering different sets of criteria and
different application processes for obtaining AEO status.
This lack of uniformity among EU member states undermines
and fractionalizes the AEO program and will result in a nightmare
for multinational companies operating in the EU.
Additionally, the uniformity disparities will make it extremely
difficult, if not impossible, for other countries to achieve
mutual recognition with the EU. Mutual recognition is achieved
when countries bilaterally agree to reciprocity based on a
general agreement that their program standards and validation
procedures are mutually supportive.
Achieving mutual recognition among as many countries as possible
is imperative to relieve the burden that will otherwise be
placed upon the large multinational companies operating on
multiple continents. Without mutual recognition, each company
will be faced with separately applying for a different security
regime, each with its own unique set of standards, in each
country they operate in. New Zealand, Singapore and Jordan
have already reached mutual recognition agreements with the
U.S.
Earlier this year mutual recognition negotiations between
the U.S. and EU commenced. However there has been little reported
progress and with good reason. The proliferation of different
standards among different EU member states, if not put in
check, might just render AEO as a nonstarter in the EU.
Earlier this week I learned that German Customs had been
working on a proprietary set of standards and questionnaire
for AEO membership. At first glance, the draft is so draconian
and convoluted that I would be surprised if more than a handful
of companies apply. And, as I previously mentioned, unlike
C-TPAT, the AEO program delves into your compliance history
and records.
By way of example, today C-TPAT contains three pages of guidelines
describing how to comply with C-TPAT objectives. In contrast
AEO has nearly 36 pages of detailed instructions and requirements.
It requires applicants to prove their financial stability
and to describe ordinary compliance controls the company uses
for traditional customs obligations such as valuation and
classification.
Who is going to review all of this data? When C-TPAT was
first launched in the U.S., Customs and Border Protection
(CBP) could hardly keep up with a rather simple paper-based
(now Internet-based) system for C-TPAT application.
We are at a critical crossroads, and it is necessary for
the EU Commission, the World Customs Organization (WCO) and
the World Trade Organization (WTO) to take an active leadership
role in helping EU member states reduce the impediments to
joining AEO. The window of opportunity to do so narrows with
the continued development of divergent standards and questionnaires.
In the second week of October the WCO hosted a critical meeting
of the newly appointed SAFE Working Group (that replaces the
High Level Strategic Group) and the Private Sector Consultative
Group (PSCG). It is incumbent upon these two groups to come
together with one voice offering constructive feedback and
guidance to the EU on issues relating to uniformity and standardization.
Hopefully member states within the EU will take heart.
If you are engaged in global trade with a business based
in the EU or a multi-national with operations in the EU, it
behooves you to pay close attention to AEO developments as
they play out over the next several months.
The WCO will also be hosting an important conference on AEO
at WCO Headquarters in Brussels, Belgium, on December 12 and
13. For more information please visit the WCO
website.
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