Export compliance is an intimidating process, especially for small businesses. There are many different export regulations and laws for different countries. Misinterpreting or missing requirements all together can result in fines or penalties of up to $1 million.
Many corporations have their own personnel assigned to the task of export compliance, but small businesses may not. To ensure that the proper regulation standards are being adhered to, online research and books will be useful. Below are some tips that will help you begin the process.
Learn the Rules of Deemed Exports
As in any field, knowledge is power. Before you begin any process, you will need to find out the rules of the business you will be engaged with. It is necessary to understand U.S. export control regulations, restrictions on certain financial transactions, embargos, trade agreements, and industry customs. Deemed exports are also an area for research, which includes regulations on intellectual and technical properties leaving the U.S.
Exporting professionals likely already understand the Harmonized System (HS) codes used to classify products. Classifying products determines whether your product requires an export license. The Department of Commerce controls certain exports, dependent on the product’s technical characteristics, destination country, end user and the product’s end use. The Department of State controls products directly related to defense.
Check with the U.S. Export Administration Regulations to find out if your product has a specific classification number. If it does, it is considered a controlled item and will require special licensing. Products not listed are usually not required to have a special license.
Determine Destination Country License Requirements
Destination countries may require special license requirements, determined by the Commerce Country Chart. This will occur when products are being shipped to embargoed or controlled destinations. Shipment to Syria, Iran, North Korea, Cuba, and Sudan will require additional controls from the Office of Foreign Assets Control (OFAC).
Screen Each Transaction
There are additional regulations established by the U.S. government, United Nations and European Union that restrict business with certain parties without a license. Individuals or organizations involved in illegal activities such as terrorism, human trafficking, or drug trafficking appear on this list. While there is no requirement for every export to be checked against these lists, there are penalties and fines if business is transacted with entities on the list.
Regardless of where you are sending exports, it is also advised that the product sale be considered ethical. The Bureaus of Industry and Security published a list of potential red flags for export transactions. The list will help you determine if your product will be involved in illegal activities, such as weapon construction or proliferation of weapons of mass destruction. Compliance with these standards is required.
Document, Document, Document
Ensure that documentation and records are thorough, precise, and kept for at least five years after the transaction. Some businesses hire third-party exporters or freight handlers, but the responsibility of strong documentation still lies with the business. Account books, export licenses, correspondence, and export specific movement will all need to be documented. It is important to remember that there is a paper trail of your company’s good faith measures to ensure the export was ethical and legal. If for any reason your exports are questioned in the future, strong documentation can help you avoid or reduce possible penalties.
Implement a Compliance Program
If the company doesn’t already have one, now is the time to implement a compliance program. Once the research is complete, find a way to document policies and procedures that are accessible to everyone involved in the process. The policy should involve delegation of tasks, methods for reporting violations or problems, and step-by-step checklists that guarantee compliance. Ensure employees receive regular training and guidance. By having multiple parties involved and well-trained, the program will become stable and risks will be mitigated. Additionally, the Bureau of Industry and Standards offers seminars around the country that can help in developing your compliance program.
The experts at Drake Finance are here to help you with your export financing needs. We ensure our clients have the strongest support system and a wealth of resources to help businesses become and remain confident in their trading procedures.