New Guidance on Use of ITAR Licenses and Exemptions...By Sarah Reynolds Many importers who import articles under the International Traffic in Arms Regulations (ITAR) rely on the expertise

MANAGING IMPORTS & EXPORTS

APRIL 2010 www.compliancemaven.com

ISSUE 01-13 WWW.COMPLIANCEMAVEN.COM APRIL 2010

ALSO IN THIS ISSUE....

New Guidance on Use of ITAR Licenses and Exemptions continued...................................................2NAFTA - Part 2................................................................3Website Feature of the Month......................................3Ask The Experts..............................................................4For Those Who Travel by Air...................................5, 6Proper Understanding of Harmonized Tariff Schedules (HTS).........................................................6, 7How to Structure Compliance Audits for Service Providers......................................................8, 12PACMAN Annual Meeting..........................................9Walking the Fine Line - International Compliancevs. Cost Reduction...................................................10, 11Fines & Penalties.....................................................12, 13Import-Export Managers’ Calendar.....................14, 15Upcoming Educational Seminars...............................15

New Guidance on Use of ITAR Licenses and Exemptions

By Sarah Reynolds

Many importers who import articles under the International Traffic in Arms Regulations (ITAR) rely on the expertise of their service providers to guide them on issues related to the import and export process. This has been a chal-lenging task as most service providers operate based on common practice efforts within the in-dustry that have been successful in the past. It is important to note that the management of ITAR regulated items has recently been nationally formalized by U.S. Customs and importers and exporters need to be aware of the new changes.

It is imperative to understand that in order to properly manage the reporting of the ITAR licenses and exemptions on imports and exports, specific training and education is required. Mer-chandise that is controlled by the Department of State Directorate of Defense Controls under the International Traffic in Arms Regulations is a challenging compliance topic for even sea-soned compliance professionals. The export and import procedures are enforced by U.S. Customs & Border Protection (CBP). Many shipments of defense articles face increased scrutiny by the regulatory authorities and are often detained or seized as a result of the incorrect entry declara-tion of a license or license exemption. CONTINUED ON PAGE 2



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New Guidance on Use of ITAR Licenses and Exemptions continued…

There has been a common practice within the en-forcement community that represented an inconsis-tent pattern of regulatory enforcement creating an environment of different practices at different ports of entry and exit. CBP has addressed this common practice issue by providing a guideline for handling imports and exports that are subject to the ITAR license and exemption process.

The CBP memorandum to the field is titled "Paper-less Entries and ITAR Licensing Procedures" and advises the following:

1. Imports subject to a DSP-61 Temporary Im-port License or a DSP-73 Temporary Export License must be cleared using a hard copy Customs entry. The entry and license must be presented together to CBP at the port prior to release for review, release and license decrementation.

2. Imports subject to an ITAR exemption, such as those in 22 CFR 123.4(a), may be submitted electronically using the Automated Broker Interface. This means that the entry may be released electroni-cally ("paperless"). The entry documents must cite the ITAR exemption and contain the statements required by the ITAR to support the exemption.

3. At the time of export, the ITAR exemption must be cited on the Electronic Export Information filed in the Automated Export System and the export documentation must cite the Customs entry number on which the exemption was declared on import. CBP may request a copy of the Customs entry and accompanying documents to verify that the exemp-tion was properly claimed at the time of import.

4. If the appropriate ITAR exemption was not claimed on the Customs entry, CBP will detain the export shipment. The exporter must disclose the vio-lation to DDTC and use a DSP-5 Permanent Export License as authority for export. (Note the recently published DDTC Web notice on temporary import

violations that may apply to these circumstances.) After making the disclosure and obtaining a DSP-5, the exporter can petition CBP to release the ship-ment for export.

5. The memorandum states that first time violators of these procedures will be issued a warn-ing and allowed to make the necessary corrections. The memorandum goes on to say that "subsequent violations are not technical violations and will not be treated as such by the ports."

6. The memorandum also states that the im-porter may use a continuous entry bond in connec-tion with entries of ITAR shipments. Some ports had previously required single transaction bonds for these entries.

The fines and penalties associated with goods regu-lated by ITAR are quite high, therefore, it is im-perative that importers and exporters, in addition to the service providers, are aware of these newly established procedures and process for obtaining the customs clearance on inbound and outbound shipments.

Affirmation of the proper declaration to U.S. Cus-toms must be managed by importers and exporters and they should not solely rely on the expertise of their service providers as that can be a costly liabil-ity. Importers and exporters need to take control of this process and ensure that the proper information is relayed to the service provider and subsequently to U.S. Custom.


APRIL 2010 www.compliancemaven.com 3

NAFTAPart 2

By Kelly Raia

Part 1 of this series discussed the certification state-ments and responsibilities of the party completing the NAFTA Certificate. I’m certain you’ve been hanging onto the edge of your desk awaiting this next installment. In this month’s issue we will review boxes 1 through 6 of the NAFTA Certificate.

Field 1: If you are the exporter enter your company name, address and employer identification number. If you are not the exporter, leave this blank.

Field 2: The intent of this to/from listed here is not to use this as a fax cover page nor a dream getaway destination. If the NAFTA Certificate you are pre-paring is for a one time shipment, leave this blank. However, many companies opt to have a NAFTA Certificate apply for a defined period of time so the company doesn’t have to issue a NAFTA Certificate per shipment. This can be a time saver but as we remember from Part 1, any changes to a NAFTA Certificate must be brought to the attention of the person to whom the form was provided to and this creates additional record keeping and communica-tion responsibilities. The blanket period cannot exceed one year.

Field 3: There are many options available for this field. If your company is the producer and exporter you can indicate your company name again or just write same. If you are the producer but not the ex-porter, indicate your company name. If you are not the producer and wish to keep the producer infor-mation confidential you may indicate “available to Customs upon request”.

Field 4: If you know the importer information, com-plete this with the importer’s name, address and tax identification number. If you are preparing this form to use for many customers, you may indicate “various”.

Field 5: A brief description should be entered. This description should be a bit more detailed than “part #123”. “Stainless steel screws” or “Pencil Sharp-eners” are certainly more specific and then give Customs an indication that the description of your good might actually be a real item.

Field 6: Indicate the harmonized tariff number to six digits. It’s important to keep in mind though that under NAFTA there are specific rules of origin that require eight digits and then you have to indi-cate the eight digit number. 8702.1060 – other motor vehicles is a good example of this.

Next month’s issue: Field 7 – Preference Criteri-on….I know you can’t wait!

Website Feature of the Month

http://efoia.bis.doc.gov/The BIS has a web link, as shown above, that will give you access to a Freedom of Information Act (FOIA) web page. There you will find a list of documents that the BIS has made publicly available. This is a good tool to keep abreast of various aspects of export control compli-ance. There are many examples of violations that you can share with your staff during internal training, or even to assist in convincing senior management of the seriousness of compliance with the EAR.

The list of documents available at this site include, but are not limited to:

• Antiboycott warning letters and alleged viola-tions• Public comments on proposed rules• Current and archived press releases• BIS Annual and BIS Foreign Policy reports• Various BIS publications



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MIE’s ‘Ask the Experts’ team -- Kelly Raia, Vice President & Senior Consultant, Randi Keenan, Assistant Vice President and Senior Consultant and Sarah Reynolds, Senior Consultant, all from The World Academy -- answer readers’ import or export related questions. This month’s column is by Kelly Raia. Readers may submit questions to [email protected] -

Question: On my NAFTA Certificate, if we are the producer of the good, do we have to keep documentation avail-able on how we determined that at the time of shipment, or is it acceptable to be able to show after the fact how we arrived at the determination and only if asked?

Answer: If your company actually manufactures the part and is preparing a NAFTA for that part, because the part meets a Preference Criterion and all the rules under NAFTA, then your company would be the producer. However, if your company purchases the part from a U.S. supplier and that supplier provides a NAFTA Certificate, your companywould create a NAFTA Certificate indicating “available upon Customs request” in Field 3 and indicate “no” in Field 8. Field 8 also requires a notation as to how your company came to have knowledge that the part qualifies for NAFTA. So the “no” would be accompanied by “NO1” “NO2” or “NO3” and the correct number would be based on thedocument provided by the U.S. supplier or your own knowledge. Record keeping requirements for U.S. companies preparing a NAFTA Certificate should follow Customs 19CFR. This includes all back-up documentation as to the determination. Your company does not want to be trying to put together this documentation “only if asked” as what if it didn’t qualify. You must be able to provide documentation to Cus-toms if asked.

Question: In making my NAFTA determination, we are unable to determine the origin on low-value hardware items. How should we treat this in our calculation?

Answer: If you are unable to determine the origin, you should disregard those items and treat them as non-origi-nating (non-NAFTA) in your total calculation when determining regional value content.

Ask The Experts



For those who travel by air ….

By Randi Keenan

To those who travel by air, you may have noticed recently that when making a reservation with an air carrier, there are additional questions being asked of the passenger such as date of birth and gender. There is another new question that is asked….which is…”Redress Control Number?” (or some variation thereof). You may have wondered what that number is referring to. So did I and have come to find out and wanted to share that with you, the readers. If after you read this short article, you still have questions regard-ing this issue, or if new questions arise, you should contact the Department of Homeland Security directly, with any inquiries. Their phone number is 202-282-8000. There is also a comment line where you can just leave a comment… 202-282-8495.

The program spoken of in this article is called the Department of Homeland Security Travel Redress Inquiry Program, or DHS TRIP. DHS TRIP addresses various travel related problems that you may be en-countering on a personal level.

When should you use DHS TRIP?

TRIP helps travelers work to resolve personal travel-related issues, when:

• You feel that you were discriminated against by an officer of the federal government OR an officer of the Department of Homeland Security based on race, disability, religion, gender, ethnicity or national origin

• You believe the U.S. Government’s record of your personal information is inaccurate or has been misused

• You believe you were unfairly detained dur-ing your travel experience or unfairly denied entry into the United States

• You were not able to print a boarding pass from an airline ticketing kiosk or from the Internet as a result of some type action taken by Homeland Secu-rity

• You were denied or delayed boarding

• A ticket agent “called someone” before hand-ing you a boarding pass

You were told :• your fingerprints were incorrect or of

poor quality.• your photo did not match the travel docu-

ment• your personal information was incomplete

or inaccurate• you are on the “No Fly List”

The article that follows and more regarding Redress Control numbers may be found at the following link: http://www.dhs.gov/files/programs/gc_1257360592800.shtm Redress Control Numbers

Airlines are modifying their reservation system as part of the Transportation Security Administration’s (TSA) Secure Flight program. Secure Flight is a behind-the-scenes program that streamlines the watch list match-ing process. It will improve the travel experience for all passengers, including those who have been mis-identified in the past.

The Redress Control Number (redress number) allows Secure Flight to match travelers with the results of their redress case.

Quick Facts about Redress Control Numbers

The Redress Control Number is the record identifier for people who apply for redress through the DHS Travel Redress Inquiry Program (DHS TRIP). DHS

CONTINUED ON PAGE 6



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TRIP is for travelers who have been repeatedly identified for additional screening and who want to file an inquiry to have erroneous information corrected in DHS systems.

Airlines will modify their reservation systems to allow passengers who have a 7-digit redress num-ber to enter it when making their reservation.

Travelers without Redress Control Numbers

• Not everyone has a redress number.

• If you don't have a redress number and an airline or a travel site asks for your redress num-ber, you can leave it blank.

If you do not have a redress number, you will still be able to make reservations and travel as normal. The redress number is an optional field and is not relevant for most travelers.

Travelers with Redress Control Numbers

• You may provide your redress number when you make a reservation or when updating your airline profile.

• If you have lost your redress number, con-tact DHS TRIP at [email protected].

For those who travel by air...continued…

Proper Understanding of Harmonized Tariff

Systems (HTS)

By Rennie Alston

Classification of imported and exported products is an extremely important legal responsibility of im-porters and U.S. Principle Parties of Interest. Many international trade participants inherit this responsi-bility without a clear understanding or explanation of the derivation of the HTS system, its purpose and functionality in the supply chain. Clarification on these points of interest will undoubted serve towards the betterment of compliance management for all international trade participants, most specifically import and export parties managing this task.

The Harmonized Tariff System is a comprehensive product/commodity classification system devel-oped under the auspices of the United Nations and the Customs Cooperation Council, now the World Customs Organization (WCO), for universal use by customs authorities and the international trade community. Customs authorities and trade statistics reporting agencies in most countries (over 190 to date) have adopted this system.

The HTS is a significant facilitation of international trade. Prior to the introduction of the HTS prede-cessor, the Brussels Tariff Nomenclature (BTN) in Europe in the 1970s, there was little or no common classification of products for customs tariff purposes; each country used its own product classification schema for determining the correct assessment of cus-toms duty. This created considerable additional work by international traders and their agents in projecting duty costs and complying with customs entry regula-tions. With the BTN as its base, further development was undertaken by the U.N. Customs Cooperation Council to create an even more universal product/commodity classification system for worldwide use.

CONTINUED ON PAGE 7



Editorial Advisory Board

Marilyn-Joy Cerney, Esq. Gerry Doyle Robert Core Marie Cabral Attorney Attorney Foreign Trade Zone Mgr Imp/Exp Compliance Dir Cerney Associates, PC Doyle & Doyle L’Oreal USA America II Electronics, Inc. Kay Georgi Thomas A. Cook Karen West Lydia Moya-Kiste International Trade Attorney Managing Director CEO Imp/Exp Compliance Mgr Washington, DC Office American River Int’l Earth Customs Inc. Unipart Services America (Export Controls/Trade Remedies) Earth Cargo Inc. Partner, Arent Fox PLLC Jerina Barutis Customs Attorney

The HTS emerged in the early 1980s, and was adopted via the Convention on the Harmonized Commodity Description and Coding System, presented and initial-ly adopted in June 1983. The HTS has also been ad-opted by a few transportation carriers for use in cargo commodity rate tariffs.

The correct use of the Harmonized Tariff Schedule system is governed by the General Rules of Interpreta-tion, which is universally applicable, as well as HTSUS Additional U.S. Rules of Interpretation. Applicability of individual headings and subheadings is governed by chapter notes, if any, appearing in the heading/sub-heading sections. The applicability of the final four digits is governed by chapter notes, if any have been added by the governing authority.

In addition to the HS classification schedule, General Rules of Interpretation (GRI’s) and heading/sub-head-ing notes, the UN/Customs Cooperation Council has published a lengthy set of accompanying HTS Explan-atory Notes as further guidance in using the HS sys-tem. Explanatory notes are used as an aid to in-depth understanding, the international version of the Har-monized System. The Notes are arranged in the same order as the Tariff itself. They can be used to assist in classification, but have no legal force. They typically contain more detailed descriptions of the products or groups of products to be included in a given area of the Tariff often including detailed accounts of the manu-facturing processes to be used.

However, these Notes are not adopted by all countries that have adopted the HTS, in which case they are for

Proper Understanding of Harmonized Tariff Systems (HTS)continued…

guidance purposes only. HTS Explanatory Notes are not currently adopted by the U.S. as binding on the use of the HTSUS.

In addition to providing a universal, high level classification system listing and differentiating all known commodities and products, the HS system also provides a "catch-all" chapters (Section XXII, chapters 98 and 99) to cover, at the discretion of the adopting agency or user, situations where the classification of the goods are not to be based on the goods themselves, but rather controlled by the circumstances surrounding the goods, exporter, importer or shipper.

The HTS is reviewed twice each year by a group of national customs officials and updated as needed with respect to headings, Chapter Notes and HTS Explanatory Notes to reflect new products and tech-nology that the HTS does not yet address, or for which the classification has become controversial as to which HTS heading applies.

(U.S.) Both the U.S. Schedule B (export classifica-tion system) and the HTSUS (import classification system) now use the Harmonized System. The HS system uses a universal "base" number consist-ing of four digits (the first two digits denote the "chapter," and the first four together are known as the "heading"), followed by two digits (known as the "sub-heading"), optionally followed by two to four digits at the option of the adopting authority or user to complete the classification number. The U.S. implementation uses all four of these optional numbers for a classification number configuration of nnnn.nn.nnnn.

World class practices of informed compliance man-agement include specific education and training on the use of the HTS reference to assist your firm in meeting established reasonable care standards of supervision and control of your compliance respon-sibilities.



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But, believe it or not, an effective and proactive com-pliance Audit conducted on all the Service Providers within the Supply Chain can be a very effective tool to insure the operation is running smoothly and to call attention to any “Red Flags” of any pending is-sues on the horizon. Let’s review the proper way to set up and conduct such Service Provider Audits to understand everyone’s roles and the expectations as well.

First and foremost, the most effective way to insure cooperation throughout this process is to gain Senior Management buy in to the importance of service pro-vider audits. As all your suppliers and service pro-viders are an extension of your company in the eyes of your customers, it should be an easy task to gain their endorsement as they understand the importance of obtaining and maintaining Customer trust and loyalty.

Once you’ve gained Senior Management’s endorse-ment, here are some pointers to structure and conduct an effective Service Provider Audit:

• Select a knowledgeable and qualified point person to conduct and review audit findings and com-municate audit results to senior management. This person can be an “inside” person, (i.e. Purchasing, Lo-gistics), or someone from the Audit and/or Risk Man-agement Departments as well. However, if they’re from outside the Supply Chain, they should have a complete understanding of how each area operates or their effectiveness may be reduced.

• Involve each Service Provider’s point of contact from the outset. Make your objectives clear to them to insure their cooperation.

• Develop a listing of objectives and action items of the audit along with time lines for comple-tion for the Audit. The goal is to confirm areas of strength, identify compliance gaps and to always seek out “red flags” where potentially damaging issues exist so they can evaluated and mitigated.

• Prepare an audit checklist, (AES, verifica-tion of written authority from the foreign buyer in routed exports, correct use of Schedule B/HTSUS classifications, ISF filing accuracy, rates, DPL man-aging tools, timely communications, etc).

• Be sure to share these criteria with each service provider in order for them to understand the audit process prior to your visit.

• Identify which functions each service provider performs for you (i.e.: Processing export license, filing AES, ATF/USDA/FDA, actual move-ment of freight, filing ISF, brokerage clearances, etc.).

• Identify those Government Compliance reg-ulations that apply to your business profile, (ITAR, Export Licenses, etc.), so they can be scrutinized for compliance and adherence in the audit process.

• Identify and review those SOP’s or Letters of Instruction generated to each service provider for their adherence as they service your company and alert each provider you’ll be reviewing this!

• While on site and performing the audit, use the aforementioned check list for each transaction that you audit.

• Request that the service provider conduct a transaction or review a file in your presence to en-sure they are performing their functions accurately, consistently and in accordance with your instruc-tions.

• Review a diverse array of transactions from “ordinary” to “complex” to insure compliance. For instance, if the service provider normally handles both licensed and non-license required exports, ask to review both types of transactions…this may cull out some important compliance issues.

CONTINUED ON PAGE 12

How to Structure Compliance Audits for

Service ProvidersBy Corey A. Jordan

It’s one of those words which it strikes fear in our hearts and minds the instant we hear the term…“Audit.” Some fear hearing that term when the IRS calls, others in the Corporate world begin to sweat when they hear that an Internal Auditor is coming in for a visit.



PACMAN 2010 ANNUAL MEETING ANNOUNCEMENT

The Professional Association of Import and Export Manager remains committed to providing our members exactly what they want for the 2010 Annual Pacman Meeting

at the Port of NY/NJ on May 12-13, 2010

PACMAN presents… The International Trade Compliance MenuA unique opportunity for our members to “custom tailor” the national membership meeting agenda to their specific interest. The PACMAN association shares the reigns of our leadership decision making process with each member of our organization which results in a positive result of shared information and cooperative spirit.

We are committed to avoiding traditional meeting forums with limited topics of interest that are common with other organizations. We keep your interest and make the best use of your time…We arrange the topics and procure the speakers and presenters that you want to hear.

Informed Compliance at its Best!As a member of the PACMAN association, you may select key topics of interest that you want to include in our annual national meeting from the compliance menu below: Export compliance internal self assessment process Automated Solutions for denied parties screening and EEI filing Importer Security Filing- Management and Mitigation of process C-TPAT Re-Validations and Internal Security Management for the supply chain Importer Self Assessment - Are we ready for ISA? Customs Focused Assessment Audits for importers How to perform a Customs Broker/Freight Forwarder performance Review What would the BIS say about…..? Compliance management expectations for the small and mid size trade importer/exporter Get to know the role of the CBP Commodity Specialist Team Members Automated electronic record keeping best practices Customs valuation management world class practices How can I manage my HTS classification process to meet CBP regulations? How can we control the deemed export requirements? FCPA…the do’s and don’ts related to foreign practices… Can we improve our process with FDA imports? Sarbanes Oxley and International Trade compliance

Select the top ten topics of interest and we will ensure that our annual national event meets your expectations….satis-faction guaranteed! This event will compliment your compliance profile and professional career in just one day…

Past Reviews… “this was the most informed day of compliance training that I ever had” … Jasmin Marin, BMW Onsite Compliance

“The presenters were excellent…definitely coming back in 2010” Lydia Moya Kiste, Unipart Logistics

Be a part of something special in the International Trade community - Put your mark on success and assist in the selection of compliance details for the most common sense presentation in the International Trade industry….

Special Guest Speakers from the following organizations:U.S. Customs and Border ProtectionThe Bureau of Industry and SecurityThe Food and Drug AdministrationPrivate Sector Importers/ExportersThe Department of Homeland SecurityThe Department of JusticeCBP Import Commodity Team Specialist

Early registration discounts can be made by visiting our website www.compliancemaven.com or by calling

877-PACMAN8Email your selections to [email protected]

or fax to 201-265-0071



Walking the Fine Line - International Compliance vs. Cost Reduction

By Ben NorrisInternational Trade Consultant, LCHB

As many U.S. companies struggle adjusting to the still unknown “new normal” behaviors of the recovering economy, an obvious fact of life is that there are no safe havens from the inevita-ble cost cutting efforts. In today’s corporate at-mosphere consisting of pressures to reduce cost in the wake of the most crippling recessions in the country’s history, international compliance challenges have remained unmercifully present in the current business dynamic. This forces corporations to, in effect, walk a fine between cost reductions and maintaining satisfactory lev-els of in the ever-evolving arena of international compliance.

A common outlook some corporations maintain regarding international compliance is that the responsibilities can be pushed onto the shoul-ders of its third party freight forwarder and cus-toms broker service providers. Service provid-ers are obligated to maintain compliance levels for their specific business; however, their efforts do not overlap nearly enough to cover their customer’s responsibilities. What organizations too easily forget is that the USPPI and Importer of Record are ultimately held to account by the government when issues arise from interna-tional transactions. Therefore, while outsourc-ing or watering down an organization’s level of compliance adherence may seem attractive from a short term cost cutting standpoint, the long term impact could result in fines, penalties…..or worse.

Additionally, importers and exporters shouldn’t just assume that the compliance standards of their service providers are inherently stringent. Last August, DHL settled a case stemming from allegations brought forth by both BIS

and OFAC resulting in $9.4 million dollars in civil penalties to the global logistics organization. The allegations claimed that DHL committed numer-ous violations of the EAR and OFAC regulations prohibiting U.S. persons from trading with Iran, Sudan and Syria. DHL, in effect, was standing idly by while its customers continued shipping to the aforementioned countries without the required export licenses. Therefore, it’s not only critical for the importer/exporter to maintain compliance stan-dards, organizations must make efforts to insure the compliance levels of their service provider meet the government’s minimum standards and regula-tions.

Acknowledged as a cost center within the corporate setting, international compliance personnel and re-sources are rarely given proper credit for providing cost avoidance services to their respective organiza-tions. By continuously maintaining an awareness of the ever changing rules, regulations, and respon-sibilities set upon U.S. companies, international compliance divisions and expertise help keep their organizations informed and ahead of the impactful changes set forth by the government. Two recent examples of changes, which have woven them-selves into the current compliance landscape, are the DOT’s Lithium Battery regulations for air ship-ments and CBP’s 10+2 rule for importers. In both cases, the government forewarned the business community of these rules and regulations giving U.S. companies ample time to meet these require-ments at a satisfactory level. Organizations with in-house international compliance experts and/or departments held a decisive advantage to those who were forced to rely on outside assistance to formulate the proper go-forward strategies.

The DOT has the ability to issue fines up to $50,000 per violation to any party shipping lithium bat-teries not in compliance with the new regula-tions. The new regulation requires air transported packages containing medium lithium batteries to be properly packaged, marked, and labeled as

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Hazardous Materials. The business community was given several weeks to prepare for the rule to be-come official in October of 2008. Organizations who responded successfully to this new rule coordinated efforts between product personnel and distribution to properly identify and mark the items that fell into the DOT’s guidelines. It’s safe to assume that these organizations relied on the guidance of their in-house international compliance department and/or experts.

The 10+2 rule has been the source of many import-ers’ stress on how to comply with this very challeng-ing new CBP requirement. When it introduced the concept to the importing community in early 2008, CBP said that its goal was to ascertain more about imports and their origins, intermediate stops, and final destinations in order to screen cargo and freight for security risks. With this new rule, the importer is responsible for providing several data elements to CBP 24 hours prior to the cargo departing from origin. This year CBP says that it will be issuing fines and penalties to importers who are non-compliant with the new Importer Security Filing (ISF) responsibili-ties specific to 10+2. As this rule is still very new only becoming effective in January, 10+2 will stand as the most challenging compliance obstacle facing U.S. importers today.

Funding a company’s C-TPAT program and standards may also become a victim of cost reduction efforts taken on by some U.S. importers. Most medium to large organizations at this point have become C-TPAT certified. In many cases, meeting C-TPAT minimum standards requires organizations to invest and/or continuously train within its supply chain to remain compliant. As U.S. Customs has stepped up efforts to audit previously certified supply chains, U.S. company’s who have temporarily abandoned their efforts to maintain the C-TPAT security levels due to cost cutting will be vulnerable to having their C-TPAT status either suspended or withdrawn. Tak-ing the C-TPAT status for granted could result in devastation if a national security event causing port closure occurs while the company’s C-TPAT status is

suspended. While the temptation may exist to cut funding to an organization’s C-TPAT program, the potential negative fallout could prove fatal to an or-ganization’s ability to import goods. On the export front, many U.S. companies have taken steps to insure compliance with Denied Parties and export license screening. Software applications, as well as third party service providers, offer solutions aimed at making screening requirements for exporter’s user friendly while maintaining the requisite level of compliance. Cutting back on these resources and relying on a manual screening system (or not one at all) leaves organizations vulnerable to human error and oversight on screening trading partners and ensuring export license requirements.

The struggle to recover from the effects of the recession while adjusting to the still undetermined baseline of normalcy is proving to be a monumen-tal task for most corporations. Cost reduction and streamlining the bottom line can become an addic-tive remedy to protecting profits or limiting loss. Managing international compliance continues to be a moving target, however, with the proper in-house department and/or expertise, corporations can strategize how to avoid potential compliance issues with little or no impact to its business. Reliance on the in-house expertise, not service providers, con-tinues to be the best formula for long-term success when interfacing with the government on compli-ance issues. While short-term gain can be realized from cutting or reducing an organization’s compli-ance efforts to aid in capital availability, this long term strategy will continue to present challenges. On the horizon the economy will recover, the “new normal” will be established, and the government will still continue to place demands on companies conducting business internationally. Some compa-nies will be prepared, and some will not.

Walking the Fine Line -International Compliance vs. Cost Reductioncontinued…

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• Be sure to audit transactions or files with different activity levels. Not only should repetitive transactions be reviewed, but so too should those which occur sporadically or even annually. Compliance issues are often over-looked in these less active transactions!

• If your company is a member of the C-TPAT program, incorporate security verifica-tions while on site for audit.

• Be sure to publish your results to every-one inside the company and make them avail-able to each service provider as well.

• After publishing the results, it is imper-ative that you meet with each service provider to review the findings of the audit.

• Develop a team from the Supply Chain to work with each provider to resolve any of the open issues. Develop a timeline for adherence so as to foster a spirit of teamwork.

• Follow up with each provider to insure the issues are being resolved.

• Set-up a capricious schedule for ongo-ing audits, which will keep each provider on high alert as they handle your business.

By following this process, you will insure that from a Supply Chain and Service Provider per-spective, your company will be well on its way to being in good shape compliance wise….No longer will you fear the term, “Audit!”

How to Structure Compliance Audits continued…

WASHINGTON, D.C. - The Commerce Department’s Bureau of Industry and Security (BIS) announced that Sirchie Acquisition Company, LLC (Sirchie LLC), a foren-sics and police equipment supplier based in Youngsville, North Carolina, has entered into an administrative Settle-ment Agreement with BIS to settle allegations of aiding and abetting actions taken to evade a denial order issued by BIS in September 2005. The company has also entered into a three-year Deferred Prosecution Agreement with the United States Department of Justice This settlement marks the first BIS administrative case in which the administra-tive civil monetary penalty amount of $250,000 per viola-tion has been imposed for violations of the Export Admin-istration Regulations (EAR).

Under the Settlement Agreement with BIS, Sirchie LLC will pay the maximum aggregate administrative civil penalty of $2.5 million for the 10 charged violations of the EAR. Additionally, pursuant to the terms of the Deferred Prosecution Agreement, Sirchie LLC will pay a total of $10.1 million in criminal fines, including expending $1.5 million over 3 years on the implementation of an export compliance program required by the terms of the Deferred Prosecution Agreement.

In December 2005, Sirchie Fingerprint Laboratories, Inc. (SFPL) and its then President and Chief Executive Officer, settled with BIS concerning allegations that they had en-gaged in a scheme designed to evade the licensing require-ments of the EAR by which SFPL products controlled for

CONTINUED ON PAGE 13

Fines & PenaltiesSOURCE: BIS.DOC.GOV

Sirchie Pays Maximum $2.5M Administrative Civil Penalty To Settle Charges Of Aiding And

Abetting Violations Of BIS Export Denial Order



crime control reasons were diverted for ultimate end use in the People’s Republic of China and Hong Kong. SFPL agreed to pay a $400,000 administrative civil pen-alty and accept a 5-year suspended denial of its export privileges, and its then President and Chief Executive Officer (hereinafter “the denied person”) agreed to a 5-year denial of his export privileges in settlement of the allegations (hereinafter “the denial order”). In addition, the denied person pled guilty in U.S. District Court for the Eastern District of North Carolina to one count of criminally violating the International Emergency Eco-nomic Powers Act.

Information obtained during an investigation conducted by the Washington Field Office of BIS’s Office of Export Enforcement determined that between February 2006 and November 2007, the denied person was directly involved in SFPL export transactions on at least ten oc-casions. SFPL aided and abetted actions taken to evade the denial order by providing the denied person with requests for price quotes for items to be exported, re-ceiving pricing information from him, and engaging in export transactions involving these items. The assets of SFPL were acquired by Sirchie LLC on January 15, 2008, after the violations had occurred and BIS’s investigation had begun.

“The fact that Sirchie LLC is the first U.S. company to receive the enhanced civil penalty of $250,000 per viola-tion reflects of the gravity with which BIS views viola-tions of BIS denial orders. BIS will impose significant sanctions where a company repeatedly allows an indi-vidual convicted of export control violations and denied his export privileges to continue to participate in export transactions,” said Tom Madigan, Acting Deputy As-sistant Secretary of Commerce for Export Enforcement. “In addition, a company that has previously violated the EAR must change its corporate culture and take prompt and effective corrective action to comply with the EAR and any orders issued thereunder. Failing to do so will lead to additional, significant liability for a company or its successor.”

Acting Deputy Assistant Secretary Madigan praised the BIS Office of Export Enforcement’s Washington Field Office, and particularly the efforts of Special Agent Phil-ip Kuhn and Intelligence Analyst Janette Sessa-Ward for their outstanding work on this case.

BIS controls exports and re-exports of dual-use commodities, technology and software for reasons of national security, missile technology, nuclear non-proliferation, chemical and biological weapons non-proliferation, crime control, regional stability and foreign policy. Criminal penalties and admin-istrative sanctions can be imposed for violations of the Export Administration Regulations. For more information, please visit www.bis.doc.gov.

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