By: Stephen Wagner
You are a small company that exports a wide variety of merchandise all over the world. Years ago, to save money, you contracted out all of your logistics functions to a third-party company which also serves as your warehouse and freight forwarder for export shipments. They take care of all the details of exports for you: licenses, government filings, paperwork…
Today, however, you had a visit from Homeland Security Investigations and the agents said that YOU may have broken the law with regard to certain shipments that were improperly exported. You have a very detailed Services Agreement with your logistics provider and they are responsible for everything. You don’t understand how your company could now be liable for something that your freight forwarder has done!
The question of who is responsible for export compliance, and who may be liable for violations, is very simple and yet may be very complex at the same time. Typically, the “exporter” is responsible for export compliance, but figuring out who exactly is the “exporter” depends on the roles that the various parties in a transaction may play and who may have accepted the mantel of the “exporter” under a contract or agreement.
The EAR defines an exporter as the “person in the United States who has the authority of a principal party in interest to determine and control the sending of items out of the United States” (15 C.F.R. § 772.1). That is why the EAR talks about U.S. Principal Parties in Interest (USPPI) and Foreign Principal Parties in Interest (FPPI). The ITAR does not formally define the term “exporter,” but imposes license and other compliance requirements on “any person who intends to export … a defense article” (22 C.F.R. § 123.1(a)). The FTR adopts the term “USPPI” as the “exporter” of merchandise (15 C.F.R. §30.1(c)). For our purposes here, we will just use the term “exporter.”
In traditional export transactions – and most situations except for “ex works” sales (Incoterms 2012) – the seller of the goods is the exporter. However, both the USPPI/exporter and the FPPI can authorize an agent in the United States to represent them in export transactions; this is where most logistics providers and freight forwarders most often enter the picture.
These agents – which can only act with a proper power of attorney from the exporter – can take over many export responsibilities for the exporter. An authorized agent can enter electronic export information (EEI) into AES and can request and obtain licenses for export. In “routed transactions” the agent can even serve as the “exporter” for export compliance purposes.
However, in all cases except certain routed transactions, using such authorized agents does not relieve an exporter of its legal responsibilities for export compliance or its potential liabilities in the case of most export violations.
The exporter of merchandise from the United States (the USPPI/FPPI) ultimately bears the responsibility for:
- providing the agent with accurate EEI for the merchandise being exported;
- determining the commodity jurisdiction of the merchandise;
- determining the export classification (under the CCL and USML) of the goods;
- determining license requirements (BIS/DDTC/OFAC); and
- keeping all required export records.
Even a detailed Services Agreement that may shift all of these duties onto a freight forwarder does not mean that the exporter is not still responsible and liable for these obligations under U.S. export laws. In our experience, federal export enforcement officials truly frown on exporters that try to make their freight forwarder solely responsible for export compliance. This practice usually results in higher sanctions for exporters when violations are found.
Given that you can never relieve yourself of export compliance responsibilities and liabilities, what should exporters do to effectively manage their third-party freight forwarders and mitigate their compliance risks?
- Own your company’s export compliance. Your company – and not your agent – should be responsible for jurisdiction, classification and license determinations, as well as for consignee/end-user screening. Also, you should know exactly who has powers of attorney to act on your behalf in export transactions.
- Accurately convey information regarding each shipment. Using an old-school Shipper’s Letter of Instruction (SLI) (or providing the equivalent information in another form) for each export transaction helps ensure that your freight forwarder has the most recent, accurate, and complete information for export shipments.
- Ensure you receive export documentation, then audit transactions. You must ensure that you receive copies of shipping documents, AES entry summaries and supporting documents (licenses, special certifications, etc.) for every export shipment. Then, you must periodically audit the shipment information against your invoices, purchase orders and the SLI to make sure that exports are being correctly handled.
- Do your due diligence, and keep it up. From the moment you select your freight forwarder, until the day the relationship ends, you should be in constant contact with your agent to understand their business, assess their general compliance posture and ensure that they are taking export compliance as seriously as you are.
While an exporter can never totally relieve itself of liability for the acts and omissions of its authorized agent in export transactions, following the steps above should greatly mitigate any potential risks and liabilities that your company may face in the event that there are problems.