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Frustrated by C-TPAT? You’re Not Alone

Man with head under laptop, frustrated

Customs-Trade Partnership Against Terrorism (C-TPAT) has undergone numerous changes since its inception in 2001, the last major change being the release of Portal 2.0. Unfortunately, 2.0 resulted in a portal that was not intuitive, in addition to being plagued with glitches.

To add to the frustration, the security profiles in the portal contain criteria that do not belong to the business entity, which are the types of business permitted to participate in the program—for example, highway carrier, Customs broker, consolidator, importer, etc. One example of criteria that does not belong is the Record Replacement Seal, which is currently in the importer section but belongs in the highway carrier section. The security profiles also include criteria that are not part of the C-TPAT minimum security standards, such as the Record Replacement Seal. In addition, some of the notes provided as guidance in the security profile sections do not correspond with what is required in the section. It’s no wonder Portal 2.0 has created so much frustration with C-TPAT members.

To confuse members further, some Supply Chain Security Specialists have told their accounts to hold off on submitting their profiles until further notification. Meanwhile, other Specialists are sending out emails for partners to submit them.

Director of C-TPAT, Liz Schmelzinger, is well aware of the trade’s frustration and has multiple teams working behind the scenes to fix glitches, revise the security profiles, and make the portal more user-friendly. Director Schmelzinger and her teams regularly reach out to members of the trade community for input and very much appreciate the feedback and the insight provided.

What Are C-TPAT Members to Do in the Meantime?

Here are some suggestions to get you through this frustrating process in the meantime.

  • Continue to perform your annual review to ensure integrity within your supply chain. It is important not to neglect this review as it is required of all C-TPAT certified partners.
  • Know your partners and your supply chain vulnerabilities. The best way to do this is to forward comprehensive questionnaires—that touch on all of the security criteria—to your business partners. The questionnaires should be reviewed every year and a written vulnerability assessment should be created and forwarded to your partners for feedback. Ensuring your partners meet the C-TPAT criteria is a critical component of the program.
  • Map out your high-risk supply chains to ensure you know who is involved with your shipment from manufacturer to final distribution center. If you’re an exporter, create cargo mapping from manufacturing to foreign port.
  • Re-evaluate the risks for each country with which you do business. Countries we never thought of as high risk, such as Belgium, France, United Kingdom and Germany are now categorized as higher risk due to terrorist incidences in the last few years. MI5, the United Kingdom’s domestic counter-intelligence and security agency, has set the UK’s threat level as severe. France has announced their terrorism threat as imminent. A country’s threat level should be taken into consideration as it is a major factor when determining risk in a supply chain.
  • If you’re a consolidator, reach out to your agents and the container freight stations they use for co-loading. Agents, container freight stations, and co-loaders are part of a consolidator’s supply chain. Since this is a supply chain security program, you will need to reach out to all of the business partners in your supply chain.
  • Take a stab at rewriting your security profile, even with all of the redundancies. For example, highway carriers will see the same criteria reworded in multiple sections, such as Access Controls, Container Seal, and Container Security. For importers and exporters, you will see sections that do not apply to your business entity. Go through the process of rewriting your profile; and if you know a section does not belong, enter “not applicable” and state why.

If you are a C-TPAT certified importer and exporter, you are in luck. Your security profiles have been revised and should be forthcoming from Customs in the C-TPAT portal public library. In the meantime, if you don’t want to wait for the release, the upcoming changes are listed below [1]. For sections that are scheduled to be removed, be sure to enter “to be removed” in the section.

Importer Security Profile: Importer Questions

Section Question ID Changes
Container Security Record Replacement Seal (2205) Removed
Container Security Reporting Structural Changes (2501) Removed
Procedural Security Shipment Risk (4201) Removed
Container Security Conveyance Inspections (7620) Removed
Container Security Trailer Inspection (7651) Removed
Security Training
and Threat Awareness
Training Documentation (7991) Removed
Access Controls 2800 Added: “An employee identification system must be in place for positive identification and access control purposes.”

 

Exporter Security Profile: Exporter Questions

Section Question ID Changes
Container Security Conveyance Inspections (7620) Removed
Container Security Tractor Inspection (7651) Removed
Container Security Reporting Structural Changes (2501) Removed
Container Security Record Replacement Seal (2205) Removed
Container Security Conveyance & Trailer Integrity (7840) Moved Responses to 7842
Container Security Predetermined Routes (7860) Moved Responses to 7842
Container Security Route Delays (7820) Moved Responses to 7842
Container Security Storage Area Security (2500) Moved Response to 8610
Procedural Security Export Security Program (8860) Removed
Procedural Security Corporate Support (8870) Removed
Physical Security Physical Barriers at Cargo Facility (8840) Moved Responses to 5700
Security Training and Threat Awareness Training Documentation (7991) Removed
Business Partners 740 Added: “Written procedures must exist for screening business partners, which identify specific factors or practices, the presence of which would trigger additional scrutiny by the C-TPAT partner.”
Access Controls 2800 Added: “An employee identification system must be in place for positive identification and access control purposes.”
Physical Security 5700 Added: “Cargo handling/storage facilities and storage yards for instruments of international traffic throughout the supply chain must have physical barriers and deterrents that guard against unauthorized access.”

Customs will be reviewing all other security profiles for the various business entities and will attempt to make the necessary revisions in 2017.

Need Help?

If this process seems overwhelming, reach out to Mohawk Global Trade Advisors for help with your annual review. We have consultants who have been helping companies with their annual reviews since the inception of C-TPAT and we can help you too.

Footnote:

[1] Customs and Border Protection. (Producer). C-TPAT Importer and Exporter Update Internet Webinar [Video webinar]. Webinar presented in December 2016.

By Beverley A. Seif, Vice President & General Manager.

Download the White Paper

©2016 Mohawk Global Trade Advisors

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Twitter Contest: Win a Dictionary of International Trade

Win!

Enter our Twitter contest for a chance to win a FREE Dictionary of International Trade 10th Edition ($78 value). Follow the two easy steps below to qualify!

How to enter:

  1. Follow us @MohawkGlobalTA
    AND
  2. Tweet #MGTAContest2017

End Date will be February 8th at 11:59 pm EST.
Winner will be announced February 10th.

Contest Rules:

  • Mohawk Global Logistics and Mohawk Global Trade Advisor employees are not eligible.
  • Winner must be located in the United States.
  • You cannot enter more than once.
  • The winner will be selected at random.
  • The winner’s Twitter handle will be mentioned.
  • The winner’s company name and last name will not be made public.
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Have You Received a Letter From U.S. Customs?

Business man mulls over the contents of an Informed Compliance Publication letter from U.S. Customs

If you’ve recently received a letter from U.S. Customs & Border Protection (CBP) with the seemingly mundane subject line, “Distribution of Informed Compliance Publications and Other Informative Documents,” sit up and take note—your company may be at risk for a CBP audit or investigation.

A reliable source close to Mohawk Global Trade Advisors has informed us that CBP’s Office of Regulatory Audit in Houston is issuing such letters to the top 1000 U.S. importers.

What’s in these letters?

Although each letter is different, they all mention

  • that as part of CBP’s responsibility for Informed Compliance (under the Mod Act), they are providing information to your company to ensure future compliance;
  • a specially selected list, specific to your company, of Informed Compliance Publications—guides for the trade, written by and available for download from CBP, which cover general compliance topics, such as recordkeeping, the Valuation Encyclopedia (which was updated in 2015), and rules of origin, as well as specific commodities, such as ball bearings, gaskets and textiles;
  • 19 USC § 1592(c)(4), Penalties for fraud, gross negligence, and negligence, and 19 CFR §162.74, Prior disclosure. The letter does not require an importer to make a Prior Disclosure, but if an importer elects to do so, penalties may be reduced under certain circumstances;
  • since CBP has provided this information, future violations could result in seizure, forfeiture, and/or monetary penalties;
  • and, a request for the signature of a “responsible official” to acknowledge receipt of the items listed in the letter.

Why are these letters being issued?

First, it’s important to understand that these letters are not being issued arbitrarily. Importers who receive these letters are at risk for a CBP audit or investigation. It’s also important to note that the Informed Compliance Publications listed in the letter are not random; out of the 95 listed on their website, CBP has identified those with topics that relate to your transactions. You’ll need to carefully examine these areas.

Recommended steps for your organization

Based on the details available for these Informed Compliance Publication letters, there are some recommended steps that your organization can take.

  • Do not assume that participation in the Importer Self Assessment (ISA) program excludes you from audits related to these letters.
    Even if you are an ISA participant, and had been taken out of the audit pool, you are not excluded from this new targeting pool.
  • Determine how likely it is for your company to receive such a letter.
    Our sources tell us that CBP is currently mailing letters to companies in the top 1000 U.S. importers. Although no list of the top 1000 exists, CBP has published a list of the top 5000, which can be found at: https://www.cbp.gov/document/top-5000. Finding your company on this list may indicate if there is potential for you to receive the letter.

If you receive a letter, here are some recommendations for your organization to take.

Review data in your ACE portal based on the topics of the Informed Compliance Publications indicated in the letter.
There are many reports available in ACE that allow you to review discrepancies, HTS, exam results, free trade agreements, and entry summaries. The first ten pages of the ACE Portal Reports Dictionary for Importers provide a summary of reports and information they contain. And while you’re in the ACE portal, confirm that your company information is up to date.

Find out when your company last did a risk assessment or gap analysis.
The assessment/analysis should have included:

  • whether you have a written compliance manual and if your employees know where it is and how to use it
  • if any of your imports are the subject of Priority Trade Issues, such as antidumping/countervailing, free trade agreements, textiles, or related party transactions (valuation)
  • the number of post entry corrections made and Prior Disclosures submitted since your last analysis
  • whether you’ve received any Requests for Information (CBP 28s/29s) or communication from the Centers of Excellence and Expertise (CEE)

Give careful consideration as to whether the letter should be signed.
Be aware that potential liability for violations may increase after the letter is signed. Should your company wish to prepare a reply that may reduce the risk of an audit, the following approach is recommended.

  • Start by utilizing the services of a consultant or Customs attorney who can provide guidance and best practices.
  • Before you respond, review and understand the issues related to any Requests for Information (CBP 28s/29s), and if pertinent, any Centers of Excellence and Expertise (CEE) correspondence; as well as take a close look at internal audits and post entry reviews to understand the results, observations, and required process improvements.
  • When composing your response, if your company filed a Prior Disclosure before receiving the letter, advise CBP that you are already reviewing these areas, have done your due diligence, etc.

One final important consideration: who in your organization will get this letter? Will it languish in the mail room because no one knows what it is or where it should go? Will it sit on the desk of someone in the accounting department for weeks before it is even opened? You can decrease the chances of these scenarios by asking your staff to send any documentation with a CBP logo or return address to the appropriate party as soon as possible.

Do you need guidance on an Informed Compliance Publication letter you received? We can help. Contact Mohawk Global Trade Advisors and ask for assistance with your letter.

By Adrienne Graddy, Senior Advisor

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MGTA Presents Country of Origin & Marking Webinar on 12/1

Executive holding webinar sign

You can’t mark goods without knowing the correct country of origin (where they were made). Step through the process of determining a product’s origin during this webinar, presented by Robert Stein and Jim Trubits of Mohawk Global Trade Advisors.

This webinar includes visual examples to explain marking methods and requirements, giving attendees a vivid understanding of the real world scenarios they may encounter.

Country of Origin & Marking Webinar
December 1, 2016
1-2:30PM ET
1.5 CCS Credits
Hosted by the NCBFAA

Cost:
$50 – NCBFAA members
$75 – Non-members

Register Now

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C-TPAT and Canada’s PIP Joining Forces?

Two men forging on an anvil with an American and Canadian flag in the background

During the latest Canadian Society of Customs Brokers National Conference, the Canada Border Services Agency (CBSA) discussed implementing a new system that will require certain importer data to be electronically submitted in a specific timeframe. This will be similar to our Import Security Filing requirement for U.S. importers.

When Canada deploys this new system, companies involved in Customs-Trade Partners Against Terrorism (C-TPAT) and Canadian Partners in Protection (PIP) could be allotted more time, about 96 hours total, to transmit their data. Those not participating in these programs will have only 24 hours to submit their import data, which may encourage more companies to join C-TPAT and PIP.

What is C-TPAT

C-TPAT is a voluntary program free of cost to join. When a company joins C-TPAT, they are considered to be of low risk and their cargo is less likely to be examined by Customs at a U.S. port of entry. That may seem like benefit enough to join but there are many other advantages to joining as well.

Mutual Recognition Arrangements

Mutual recognition arrangements (MRAs) have been established between PIP and C-TPAT. In other words, both countries consider the programs equivalent and recognize each other’s members, meaning they may grant them similar benefits when importing into the country. The U.S.-Canada arrangement has been in place since June of 2008. Canada and the U.S. are currently working towards joining PIP and C-TPAT into one, which will further enhance the benefits for members by having only one application process, one site visit performed, and a single point of contact to manage their membership in both programs. Here are the differences between the harmonization and the MRAs. This will benefit eligible members by removing duplicated efforts and ultimately save both cost and time.

If you are interested in learning more about C-TPAT and how you might benefit from becoming a member, Mohawk Global Trade Advisors has the resources and answers.

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Congress Adjusts Exporter Penalties

Gavel and money

Under the Federal Civil Penalties Inflation Adjustment Act of 2015, Congress has mandated, effective August 1, 2016, a one-time catch-up adjustment to civil monetary penalties for export violations, in order to account for inflation. The last time such an increase occurred was in 1985. Going forward, it is important to note that these penalties are not one-time increases but will be subject to an annual adjustment for inflation, to be implemented no later than January 15 of each year.

It is imperative to recognize that these new penalty amounts are retroactive and can be charged against each violation, regardless of when the violation occurred. This is bad news if you are charged by U.S. Customs, the Bureau of Industry and Security (BIS), or the Directorate of Defense Trade Controls (DDTC) after August 1, 2016, as they can now use the revised penalty rates. These penalty increases raise the stakes for exporters to meet their regulatory obligations.

Here is a summary of the penalty increases:

  • The maximum amount for an EAR civil violation is now $284,582 or two times the value of the transaction (50 U.S.C. 1705(b)).
  • Penalties for late AES filings are now $1,312 per day; with the maximum per violation increasing to $13,118. All other AES violations are now $13,118 (13 U.S.C. 304 & 13 U.S.C. 305(b)).
  • The penalty for DDTC civil penalties has increased to $1,094,010 per violation (22 U.S.C. 2778).

The adjusted penalty amounts serve as a reminder to keep your export compliance program and training up to date. Make sure you monitor your export transactions and processes, and if you do discover an export violation, consider making a voluntary disclosure.

By Jim Trubits, Vice President

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Trade Fest Recap

Trade Fest

A special thanks to Diane Cima, Compliance Specialist, for providing some of the pictures.

Mohawk Global Trade Advisors (MGTA) had a great turn out at Trade Fest in Geneva, NY. We’d like to give a sincere thank you to all of the attendees, speakers, and sponsors for making the event a complete success.

The day was filled with insightful seminars discussing various topics such as, surviving import audits, securing your cargo with SOLAS, understanding ATA Carnet, and saving money with duty drawback and foreign trade zones. The event was live tweeted by Mohawk’s marketing team; here’s a preview.

 

 

 

 

 

 

 

 


Thank you again to our Trade Fest speakers Amanda Barlow of Roanoke Insurance Group; Jon Yormick of Philips Lytle LLP; Bill Kaufman of Customs and Border Protection; John Manzella of WTC Buffalo Niagara; Jodi Earle of Crossman Corporation; Mary Slack of Spectracom Corporation; Rhonda Augustine of Seal & Design; and Rich Roche, Nathan Holsing, Robert Stein, Jim Trubits, Robyn Moore, Sue Nans, Cindi Kavanaugh, and Kristen Morneau of MGTA.

 

A special thank you to our sponsors Mohawk Global Logistics, High Tech Rochester, Philips Lytle LLP, Avalon Risk Management, Questaweb, Roanoke Insurance Group, Western New York FTZ Operators, and Ontario County FTZ 289. We wouldn’t have been able to do this without you.

Sponsor Tables at Trade Fest

By Danielle Passage

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Kristen Morneau and Robyn Moore to speak at Maine Import Forum

Know your docs: Kristen Morean and Robyn Moore to speak on Oct 13 at Maine Import Forum

MGTA’s own Kristen Morneau and Robyn Moore will be speaking at the Import Forum at University of Southern Maine on October 13.

The Import Forum will cover what Maine’s small- and medium-sized businesses need to know about importing including valuable import entry procedures, how to minimize risks of penalties and pitfalls, and best practices to maximize your import profits.

Kristen and Robyn will be presenting on import documentation, FTZ, and duty drawback during the “Logistics: From Docks to Docs” segment of the program, in conjunction with MGTA’s local partners, OceanAir.

Mohawk Global Trade Advisors is a proud sponsor of this event.

Event Details
Import Forum
When: October 13, 2-5pm
Venue: University of Southern Maine, Portland, ME 04101
Cost: $45 for MITC members, $65 for non-members
Registration: Advanced registration required. Click here to register.

Kristen Morneau is Senior Advisor for Mohawk Global Trade Advisors. Click here to read more about Kristen.

Robyn Moore is Duty Drawback Manager for Mohawk Global Trade Advisors. Click here to read more about Robyn.

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Catch Jim Trubits on Oct. 19 at Youngstown State University

Foreign Goods Returned: Save on duties, taxes, and fees. With Jim Trubits on Oct 19.

Join Jim Trubits, of Mohawk Global Trade Advisors (MGTA), on October 19 in Youngstown, OH for “Importing for Successful Exporters,” a panel discussion hosted by the Ohio Small Business Development Centers.

The panel will be speaking about the key finance, compliance, and logistics issues that many small business exporters run into when importing components and accepting returns into the U.S.

As a licensed Customs broker with decades of experience, Jim will be explaining how to implement strategies to reap significant savings on the duties, taxes, and fees for foreign goods returned.

This event is proudly sponsored by Mohawk Global Trade Advisors.

Event Details
Importing for Successful Exporters
October 19, 9am-noon
Venue: Williamson College of Business at YSU, Room 3423
Cost: $25
Parking: Free parking available. See flyer for details.
Registration: Click here to register. Registration closes October 13.

Jim Trubits is a licensed Customs broker, certified Customs specialist, and Vice President for Mohawk Global Trade Advisors. He is endorsed by the National Association of Small Business International Trade Educators (NASBITE) as a Certified Global Business Professional. Click here to learn more about Jim.

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Get Ready to Blend Destination Control Statements

Blender with 2 documents going into it

Effective November 15, the Bureau of Industry and Security (BIS) and the U.S. Department of State (DOS) will enforce new requirements for the destination control statements needed under the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). The revisions will combine both destination control statements, used for EAR and ITAR, to make one statement. This will help to alleviate perceived concerns for exporters of non-600 series and non-9×515 ECCNs under the EAR.

Destination Control Statements

Currently under the EAR, exporters are required to include a destination control statement on certain transactional documents, such as commercial invoices, ocean bills of lading, and air waybills, which is similar to the ITAR requirements, with the exception of a few words. The purpose of the destination control statements, for both cases, is to alert that the item is subject to the EAR/ITAR. This means that an item exported to a specific destination, must not deviate from that destination.

The Wording of the New Destination Control Statements

Per the amended 15 CFR 758.6,

“These items are controlled by the U.S. government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.”

What the Revision Will Do

The joined destination control statements will use phrasing that can apply to EAR and ITAR exports, making only one statement necessary. By harmonizing these rules, the one destination control statement will only be required on commercial invoices and will no longer have to be included on air waybills, bills of lading, or other export control documents. Additionally, destination control statements will only be required for items exported in “tangible form,” such as physical goods. However, if a commercial invoice does exist for an “intangible export,” such as software, schematics, engineering plans, etc., it is still recommended by the BIS to include a destination control statement or other relevant export control-related information. Having only one destination control statement will make it easier to automate documents since the same destination control statement can be used for both EAR and ITAR shipments.

What to Take From This

Only your commercial invoice is required to have the destination control statement on it. However, it is a best business practice to have the destination control statement on quotes, pro forma invoices, or order confirmations you might send to customers. Additionally, the BIS recommends that you include a destination control statement on other relevant export control-related information such as, on applicable drawings and other “intangible items” sent in electronic format.

By Danielle Passage

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Catch Export License Issues with AES Before They Occur

Person frustrated at a laptop with the symbol AES on it

A new AES function, deployed by the Bureau of Industry and Security (BIS), with help from U.S. Customs and Border Protection, assists filers with tracking decrementing license values. If the license quantity or value has been or will be met, filers will receive one of the following messages straightaway:

  • The BIS license value has been met or exceeded by a prior filing.
  • The BIS license value has been exceeded by the current filing.
  • The allowable shipping tolerance (10% over BIS license value) has been exceeded by the current filing.
  • The remaining value on the BIS license may be negative.

These messages will not prevent the issuance of an ITN, nor will they result in a fatal error. However, if you do receive any of these warnings, it means you have the ability to stop the export from shipping and apply for a new license. Otherwise, you may end up with a penalty, if the issue is not properly handled prior to export.

Keep a Positive Outlook

Although it may not seem like it, these messages from the AES system are a positive addition to the process, since they provide exporters with timely feedback as to what is wrong with their shipment. Before this update, you could have found yourself, months later, caught up in the middle of an investigation and facing a possible export violation. Now, the new function will allow exporters to better manage their commerce licensed exports, making it easier to catch a problem before there is an export violation.

Communicate Internally

It will be imperative to take a second look at your internal process to prepare in the event you receive one of the messages above. Communication between your compliance and shipping departments, and your authorized agent handling your AES filings, is crucial. If your shipping department or agents receives one of these license condition messages, it is important that they inform you, to ensure that everyone is on the same page to prevent a potential export violation.

Keep in Mind

For BIS-licenses obtained prior to July 28, this decrementing will not reflect previously declared values or quantities filed in AES.

 By Danielle Passage

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Bureau of Industry and Security Revises Penalty Guidelines

Definition of penalty with the bureau of industry and security logo

Effective July 22, the Bureau of Industry and Security (BIS) has officially revised their penalty guidelines to align with those of the Office of Foreign Asset Control (OFAC).

What has changed?

The base penalty amount will now depend on whether the violation is determined to be egregious or non-egregious. The revised guidelines will also take into consideration whether or not the case resulted from a qualifying voluntary self-disclosure. The Office of Export Enforcement will first set the base penalty amount and then look at mitigating and aggravating factors to determine whether the penalty amount should be adjusted.

Who benefits most from these changes?

Exporters that have an established export compliance program will reap the most benefits. Failing to have an export compliance program makes it more difficult to mitigate a penalty. If you don’t have one or it needs updating, this is a great time to establish or update your export compliance program. The importance of having an Export Management and Compliance Program that incorporates at least the 9 core elements, outlined by BIS, will help minimize your compliance risk.

Great Weight Penalty Reductions

One of the significant changes made, has to do with voluntary self-disclosures which are provided for in Part 764.5 of the EAR. They will no longer be listed as a mitigating factor. To encourage the submission of disclosures, BIS will extend “great weight” in the form of a 50% mitigation to the penalty case if it is based on a disclosure. The good news is that the majority of penalty cases made through a disclosure will only result in a warning letter and only 3% of the disclosures submitted actually will be issued a civil penalty.

The key points to take away from these changes are:

  • Establish and maintain an Export Management and Compliance Program that incorporates, at minimum, the 9 core elements outlined by BIS.
  • Monitor your export activity for possible violations.
  • Make a voluntary self-disclosure if you suspect a possible violation.

Let us know if you need assistance with setting up your Export Management and Compliance Program, training, or filing a voluntary self-disclosure.

By Jim Trubits, Vice President

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ITAR Compliance Pop Quiz

business man with his head in the sand

 

You’ve heard the phrase, what you don’t know, won’t hurt you; well in this case, not knowing can hurt a lot more than you’d expect. Undetected ITAR violations can not only negatively impact your company’s bottom line, but it can also hurt its exporting future. By going through these questions, you can uncover what you don’t know and confirm what you do know about your process in identifying ITAR violations.

  1. Have you reviewed the new definitions for export, re-export, and retransfer?
  2. Have you confirmed or re-classified all your products in accordance with export control reform changes?
  3. Does “specially designed” apply to any of your products?
  4. Do you subscribe to and receive regulatory email updates from the DDTC (Directorate of Defense Trade Controls), DOS (Department of State), and BIS (Bureau of Industry and Security)?
  5. Do you fully understand the order of review process?
  6. Do you have a process to segregate and control your ITAR technical data?
  7. Have you renewed your DDTC registration within the last year?
  8. Do you screen all guests prior to arrival at your facility and, if necessary, have licenses in place for foreign national plant visits?
  9. If you use ITAR exemptions, have you reviewed them for proper usage?
  10. Within the last three years, have your ITAR processes and procedures been audited by an independent party?

It’s what you don’t know that can hurt you. If you have answered no or need further light shed on ITAR compliance, contact Mohawk Global Trade Advisors today.

By Danielle Passage

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Antidumping and Countervailing Duties Coming Back to Haunt You?

American bill faces over cargo ship

 

After a relatively quiet week, your CFO calls you into his office to discuss a $280,000 bill received from U.S. Customs for antidumping duty on entries made seven years ago. You were not with the company at that time, you don’t have the money, and all of the profit made on this particular imported product has not only evaporated, but is now the largest loss on any product sold by your company in its history. Most of your imported products are either duty free or at a very low duty rate. How could this have happened?

When required, the imposition of antidumping (AD) or countervailing (CV) duties on U.S. imports levels the playing field by protecting U.S. industries against unfair trade practices. AD/CV duties exist in many countries and include U.S. products exported to other countries. According to the Anti-Dumping Act of 1974, when a foreign manufacturer sells a product in the U.S. for less than the price in their own market or at a price lower than the cost of production, an AD duty is imposed. When a foreign manufacturer receives a government subsidy lowering their local production cost, a CV duty is imposed to eliminate the unfair pricing advantage that the foreign manufacturers have due to the subsidy. In FY 2015 alone, “approximately $10.1 billion of imported goods were subject to an AD/CVD order” [1]. Imported products can be subject to either antidumping or countervailing duty, or both in some cases.

AD/CV duty rates can vary significantly and are specific to the manufacturer and country. The following are examples of this variance.

  • Green widgets manufactured in China by Sapphire Manufacturing Inc. may be subject to an AD margin of 65%.
  • Green widgets manufactured in China by Emerald Manufacturing Inc. may be subject to an AD margin of 98%.
  • Green widgets manufactured in China by all other manufacturers (except Sapphire and Emerald) may be subject to an AD margin of 125%.
  • Green widgets manufactured in Korea by Sapphire Manufacturing Inc. may not be subject to any AD/CV margin.
  • Green widgets manufactured in Korea by Emerald Manufacturing Inc. may be subject to a CV margin of 13.6%.
  • All Green widgets manufactured in Brazil may be subject to an AD margin of 3.2% regardless of manufacturer.
  • Green widgets manufactured in Germany by Ruby Manufacturing Inc. may be subject an AD margin of 13% and a CV margin of 2.1%.

Petitioning Injury

U.S. manufacturers may file a petition with the International Trade Commission (ITC) alleging that imported goods cause injury to their industry, including reduction in demand for the U.S. product, job losses for U.S. workers, and closure of production facilities. Once the petition is filed, a lengthy and complicated review takes place to allow the ITC to determine whether the U.S. industry is suffering. The investigation includes volumes of written documentation from foreign and U.S. manufacturers, U.S. importers, and considers (among other elements) pertinent economic factors such as, U.S. industry’s output, sales, market share, employment, and profits. Generally, the investigations are completed within 12-18 months of presentation of the petition.

If the ITC makes an affirmative preliminary determination of dumping and injury, then a preliminary AD/CV margin is assessed and paid at time of entry. You could be looking at AD/CV margins as high as 500%. These margins are calculated based on the value of the imported product and is in addition to the usual duties, fees, and taxes due. When the investigation is complete, the final AD/CV margin is determined. Because the preliminary margin can be different than the final margin, entries subject to AD/CV are not settled or liquidated by Customs until the final margin has been determined. This brings us back to how the hypothetical scenario from the beginning happened. In that case, the preliminary margin assessed was lower than the final margin, resulting in that $280,000 bill your CFO received from Customs.

The Difference Between Margins and Rates

Margins are assessed, they become rates, and then duty is paid on those rates. These two things happen at two different times in the process. The International Trade Commission conducts investigations to determine the margin to be assessed, advises Customs of the margin, and then it becomes a rate to be paid. The difference between these two words indicates where the process is at the time.

With that being said, even after you have paid the duty based on the preliminary margin at time of entry, you are still not out of the woods. It could be several years down the road before the final margin is determined. At that point, you could be subject to paying much more than you had originally anticipated. There are instances where the final margin is lower than the preliminary margin, meaning you will be refunded the difference by Customs, but those are a rarer occurrence. It is important to be aware that just because you feel that you can afford to pay the AD/CV duties initially, years down the road you may not be able to afford the final margin.

How to Prepare Yourself

It can be difficult to determine whether your specific imported product is covered by an AD/CV order. A comprehensive review and understanding of the scope of the AD/CV order will delineate differences or conditions that will allow you to determine whether your imported product falls inside (meaning you will pay AD) or outside the scope, (meaning you will not pay). Some conditions stipulated within the scope may not be easily discernable. A hypothetical example would be,

flange bearings are classified under 8482.10.5016; some flange bearings are manufactured with two holes and some are manufactured with four holes. It is possible that a flange bearing with two holes is subject to AD and a flange bearing with four holes is not subject to AD.

An importer cannot rely solely on the 10-digit HTS classification to make this determination. It is crucial to understand your product’s scope in order to prepare yourself for the AD/CV duties.

U.S. Customs continues to dedicate significant national resources to target the circumvention of AD/CV and has done so for many years. This includes reviewing and auditing, in high risk circumstances, and testing of imported products. This exceptional focus has led to an increase in identification and disruption of supply chain operations that attempt to circumvent AD/CV, resulting in over $51 million in importer penalties (fraud, gross negligence, and negligence), and seizures valued at over $5.1 million in FY 2015 [2].

It is imperative that you are knowledgeable about your product and to prepare yourself if it is covered by an AD/CV order. Here are some questions to consider:

  • As the U.S. is the only country where AD/CV is handled on a retrospective basis (all other countries handle their AD/CV on a prospective basis), how do you manage profitability and margins on products after you imported and sold and the final margin is higher (or lower)?
  • Do you question whether your product falls within the scope of the order, or you really believe your product does not fall within the scope of the order, what are your options?
  • How long does your organization retain records on your AD/CV shipments?
  • What is your process for raw materials subject to an AD/CV order that are integrated into your finished product?
  • What type of vetting and review process do you have for your current and future products?
  • How do you determine if any new AD/CV cases are applicable to your products?
  • What is your company policy on AD/CV?

Do you want help with your antidumping duty processes? Ask us about our Import Compliance Programs.

Footnotes:

[1] “Antidumping and Countervailing Duties Brochure,” CBP Publication Number 115-0417; U.S. Customs and Border Protection. Retrieved on 07/14/16.

[2] Ibid.

By Adrienne Graddy

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©2016 Mohawk Global Trade Advisors

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Changes Allow for Duty Free Return of Foreign Goods

Faded containers and professional man writing

For years, U.S. buyers have found it difficult to return imported articles when products come in damaged or erroneously shipped. In the case of a return, importers have been required to pay additional duties and Merchandise Processing Fees (MPF) upon re-importation.

With that being said, there is good news for importers. Recent changes to U.S. tariff number 9801.00.10 allow for duty free return of foreign goods, according to the Trade Facilitation and Trade Enforcement Act of 2015 [1].

Conditions to Qualify

It is important to meet the following conditions to avoid paying duties a second time.

  • Goods must be returned within 3 years of initial export.
  • Duty drawback was not claimed on the original export.
  • The goods were not entered under bond or produced in a Foreign Trade Zone (FTZ).
  • The article was not advanced in value or improved in condition while abroad [2].
  • The U.S. importer has proper documentation to support the claim.

Support Documentation

U.S. Customs is in the process of defining the required documents more clearly for 9801.00.10. In the meantime, it is vital for importers to have these documents on hand at time of entry to support their claim. These documents include

  • A Foreign Shipper’s Declaration and U.S. Importer’s Declaration
  • Some form of proof to demonstrate that the goods have been returned within 3 years, such as

- Export invoices
- Export bill of ladings
- Electronic Export Information filings (EEI)

On the bright side, these documents are already required records for exporters, making the process easier.

By meeting these conditions and having the supporting documents, the change to this tariff provision will save importers significant duties and MPF for their returning goods.

For assistance with developing processes and procedures for returning goods, contact Mohawk Global Trade Advisors.


Footnotes

[1] “Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.” Harmonized Tariff Schedule of the United States (2016).

[2] The article was not altered in any way that might have made it into a new product or might have improved it while overseas.


By Jim Trubits, Vice President.

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©2016 Mohawk Global Trade Advisors

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Ghosts in the Machine

Hooded figure as ghost in the machine (ACE)

MGTA’s Robert Stein was recently interviewed by American Shipper about the trade’s trials and tribulations with ACE, excerpted below.

“In general, the ACE roll out is making progress. But we struggle day to day because there’s still so many ghosts in the machine that we’re constantly on the phone with Customs and the PGAs,” Mohawk’s Stein said. “We spend a lot of time trying to figure out how to transmit the data. Then once we learn, we spend time dealing with transactions that don’t process. Sometimes the bugs are in Customs’ system. Sometimes they are in our software. And sometimes, it’s difficult to differentiate.”

You can read Eric Kulisch’s “Ghosts in the Machine” in its entirety, here.

Robert Stein is Vice President for Mohawk Global Trade Advisors. He’s a licensed Customs broker and certified Customs specialist. Read more about Robert here.

By Michelle Kelley

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Robert Stein Reveals How to Use FTZ as an Export Tool at Ohio NEOTEC Seminar

Robert Stein presents "Using FTZ as an Export Tool" at May 15 NEOTEC seminar in Ohio

Come listen to one of MGTA’s best speakers, Robert Stein, Vice President, as he presents at the upcoming Exporting and Foreign Trade Zone Toolbox seminar, hosted by by the Northeast Ohio Trade & Economic Consortium (NEOTEC) and U.S. Commercial Service.

Mr. Stein will be speaking from 2-3pm at the May 12 event in North Canton, Ohio. His topic is “Using the FTZ Program as an Export Tool”.

Other speakers will present on opening global markets, export financing and letters of credit, and the basics of FTZ operations.

Event details

Exporting and Foreign Trade Zone Toolbox Seminar
May 12, 2016, 8:30am – 4:30pm
Kent State University Stark Conference Center, North Canton, OH
Fee: $95 (includes breakfast and lunch)
Registration is open until May 10.

For more information or to register, click here.

For more information about MGTA’s FTZ services, click here.

 

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Manufacturing with Dies and Molds: What’s the Real Cost?

When outsourcing production overseas, U.S. companies will often rely on a foreign vendor to fabricate custom dies and molds to use as part of the manufacturing process. Typically, the vendor will invoice the U.S. buyer separately for the work. Sometimes it’s provided to the buyer at a reduced rate or free of charge. Although this type of billing arrangement may seem beneficial on the surface, especially in terms of convenience, many U.S. importers would be surprised to learn that it’s leading them to undervalue their incoming goods and exposing their company to steep penalties from U.S. Customs & Border Protection.

Plastic parts or components made from molds

Did You Know? By law, duties must be paid on imported goods. They must also be paid on any “assist” that aided in the production of the merchandise [1].

An “assist” is an article or design that meets all of the following criteria.

  • It’s provided by the buyer directly (purchased and shipped to the foreign manufacturer) or indirectly (built to order by the foreign manufacturer).
  • It’s supplied free of charge or at a reduced cost.
  • It’s used in the production of merchandise for export to the United States.

Types of Assists

Assists can take on many different forms, such as

  • tools, dies, molds, and similar items used in producing the imported merchandise
  • materials, components, parts, and similar items incorporated in the imported merchandise
  • merchandise consumed in producing the imported merchandise
  • engineering, development, artwork, design work, plans, and sketches undertaken outside the U.S. and necessary for the production of the imported merchandise

U.S. Customs & Border Protection requires the value of an assist (plus any costs to transport it to the place of production) to be reported as part of the merchandise’s import value [2]. This can be done by

  • reporting the value as a lump sum on the first shipment
  • reporting the value over the number of units produced up to the time of the first shipment
  • prorating the value to the unit cost of the merchandise based on anticipated production [3]

In addition, should the tools, dies, molds, or similar assists undergo subsequent refurbishment, modification, or other improvements, the importer must use one of the apportioning methods above to declare these additional costs as part of the transaction value.

Penalties: A Sobering Reality
Failing to declare the value of an assist is a serious matter in the eyes of U.S. Customs and Border Protection. It’s also easy for the agency to spot, given the sophistication of their monitoring tools. Shipments from any American industry that commonly makes use of molds or dies, such as manufacturers that import plastic products and components, would be watched closely by Customs for indications of an undeclared assist. If Customs expects a violation, they may send the importer a Request for Information (CF28) or worse, a notice for an impending audit. Depending on the veracity of the violation, an importer could face penalties from two to four times the amount of duties, taxes, and fees previously lost by the agency or 20-40 percent of the merchandise’s dutiable value if there was no monetary loss to the agency [4].

Recordkeeping
When declaring assists, the importer must retain all related records (such as invoices, entry documentation, etc.), as long as the assist is in use, to serve as proof of valuation and proper declaration. Failure to produce records for Customs upon request can result in recordkeeping penalties, which could be up to $100,000 for the most egregious of violations [5].

Stay compliant and avoid unnecessary fines!

For assistance with how to properly value your imported goods, contact Mohawk Global Trade Advisors.


Footnotes

[1] Per 19 C.F.R. § 152.103(b)(1)(iii) (2016).

[2] Per 19 C.F.R. § 152.103(d)-(e)(1) (2016).

[3] If the entire anticipated production is not destined for the U.S., the value needs to be apportioned consistent with Generally Accepted Accounting Principles (GAAP). The value declared in the U.S. should be determined based on the anticipated production destined for the U.S.

[4] Per 19 C.F.R. § 162.73(a) (2016).

[5] Per 19 C.F.R. § 163.6(b)(i)-(ii) (2016).


By Cindi Kavanaugh, Senior Advisor.

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©2016 Mohawk Global Trade Advisors

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Mohawk Global Trade Advisors Expands Presence to Serve Importers and Exporters of Greater Chicago

Adrienne Graddy, local Customs broker, leads MGTA’s Midwest development

Adrienne GraddyITASCA, Ill., April 25, 2016 (PR NEWSWIRE)–Mohawk Global Trade Advisors (MGTA), an international trade consulting firm, announces the addition of Adrienne Graddy to its team.

Following MGTA’s enormous success in the Northeast—requiring it to more than double its staff in the last two years—the firm has focused on expanding its presence to neighboring regions. In her new role as Senior Advisor for MGTA, Adrienne will serve the firm’s growing Midwestern clientele, providing training, guidance, and expertise on U.S. import-export compliance programs, manuals, and other supply chain enhancing initiatives from the Chicago office of parent company Mohawk Global Logistics.

A native to the windy city, Adrienne is a licensed Customs broker and author of numerous trade compliance training programs in use by enterprises across greater Chicago. Her previous experience includes managing the regulatory divisions at several of Chicago’s most prominent businesses, including a Fortune 500 company.

“Few can match Adrienne’s expertise and history of corporate leadership in the Chicago market,” says Bev Seif, Vice President & General Manager for MGTA. “I’m couldn’t be more thrilled to have someone of her caliber serving our clients in the Midwest,” she says.

About Mohawk Global Logistics
Mohawk Global Logistics, the parent company of Mohawk Global Trade Advisors, is a freight forwarder and Customs broker with offices in Illinois, New York, and Ohio. The company is headquartered in Syracuse, NY. For more information, visit www.mohawkglobal.com.

About Mohawk Global Trade Advisors
Mohawk Global Trade Advisors (MGTA) provides import-export compliance consulting, assistance with foreign trade zones, C-TPAT certification services, duty drawback programs, and a variety of supply chain solutions to small and medium-sized businesses across the United States. Its team consists of some of the international business community’s most sought after speakers on topics such as U.S. Customs audits, export controls, and NAFTA. For more information, visit www.mohawkglobalta.com.

Contact:
Bev Seif
Vice President & General Manager
Mohawk Global Trade Advisors
(315) 552-5477
bseif@mohawkglobalta.com

 

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Are You Making a Made in USA Marking Mistake?

In order to be transparent and fair in the marketplace, the Federal Trade Commission (FTC) ensures that a product advertised as Made in USA requires an “all or virtually all” standard. This means all or virtually all significant parts and processing that go into the product must be of U.S. origin, having no, or negligible foreign content.

The FTC Act gives the Commission the power to bring law enforcement actions against false or misleading claims that a product is of U.S. origin. All products of foreign origin imported into the U.S. are required to be marked with the name of the country of origin.

Click here to learn about a recent case regarding an American-made flatware company taking legal action to expose companies that falsely advertise their products as being American-made. The Sherrill, NY flatware company’s true selling point is being misused by competitors who are abusing the Made in USA claim.

Complying with the Standard

According to the FTC, an example of a qualified Made in USA claim could look like any of the following:

  • 60% U.S. content
  • Made in USA of U.S. and imported parts
  • Couch assembled in USA from Italian Leather and Mexican Frame

It is apparent that these products above are not entirely of domestic origin, and we can tell because that is indicated appropriately.

The Commission considers factors like how much of the total manufacturing costs can be assigned to U.S. parts and processing, and how far removed any foreign content is from the finished product.

In some cases, a small portion of the total manufacturing costs are attributable to foreign processing, but that processing represents a significant amount of the product’s overall processing. For example, a table lamp assembled in the U.S. from American-made brass and an American made lampshade, but has an imported base. The base counts for a small percentage of the total cost of making the lamp, however it is a significant part of the final product. Therefore, a Made in USA claim is inappropriate.

Made in America marking mistakes

Below you will find three common marking mistakes:

1. An American brand name or trademark by itself does not suffice as a U.S. origin claim. For example, you may recognize a manufacturer as a known U.S. entity, however the manufacturer’s established name does not constitute as a claim of U.S. origin.

2. Not only do products have to be physically labeled correctly, but they also have to be marketed appropriately. The Commission issued an Enforcement Policy Statement (see page 1) on U.S. origin claims to provide guidance to marketers on the difference between a qualified and unqualified Made in USA claim under the “all or virtually all” standard.

Therefore, the Enforcement Policy Statement applies to marketing claims too, including marketing through the Internet or e-mail (see page 19).

For example, if an email campaign was promoting the “Couch assembled in USA from Italian Leather and Mexican Frame,” it would be misleading to use any of the following slogans:

  • Made in USA
  • Our products are American-made.
  • USA

These phrases could lead a reader to believe that the product advertised is entirely of U.S. origin.

3. If a company uses U.S. symbols or geographic references, such as the American flag, when advertising a product that is not entirely of domestic origin, the impression is likely to convey to consumers that the product is of U.S. origin. This type of promotion is deceiving, quite possibly without companies knowing their ignorance.

Does the FTC pre-approve Made in USA claims?

The Commission does not pre-approve advertising or

labeling claims. A company does not need approval from the Commission before making a Made in USA claim. However, a manufacturer or marketer may make any claim as long as it is truthful and substantiated.

The rules and regulations for Made in USA products can get tricky. To learn more about how to comply with FTC’s standards, click here.

By Lauren Felasco 

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Robyn Moore Joins MGTA

Robyn MooreMohawk Global Trade Advisors (MGTA) is excited to announce a new team member.

Robyn Moore joins MGTA as a Duty Drawback Manager. She has experience with Customs brokerage, and processing import entries on the Canadian border. She has completed drawback work for prestigious names in the fashion industry.

At MGTA, Robyn will be in charge of implementing and assisting in creating drawback programs. She will be working closely with Customs compliance, while training sales staff in duty drawback recovery.

Read more about Robyn Moore here.

By Lauren Felasco 

 

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Security Awareness in Business: Who Me?

Office workers looking upAny successful business–small or large–exists based on revenue growth and loss prevention. We all have seen cases where criminals, spies, and terrorists have targeted businesses. Vulnerabilities in physical, supply chain or cyber security can cause down-time and loss of business and reputation if such situations are not handled appropriately and quickly. This may, in turn, impact the company’s bottom line and ultimately impact profits. Further, prohibited or restricted imports or exports can lead to confiscation of goods, penalties, and poor public perception by clients as well as government agencies.

Security Comes First

Firms often find the task of keeping the business functions aligned with security processes highly challenging, especially during economic downturns.  However, the reality is that security should be a primary issue. For example, a computer virus outbreak or a network breach can cost your business thousands of dollars. In some cases, it may even lead to legal liability and lawsuits.

Awareness and Knowledge

Identifying, managing, and exploiting risk across an organization and throughout the global supply chain—from product development to receipt and payment—has become increasingly important to the overall success and longevity of any business. The first defenses are awareness and knowledge.

A part of operations security is a precautionary step known as a general risk assessment. This assessment would include protecting proprietary information that would cause harm. In addition, these assessments defend against threats from criminals, terrorists, and others from obtaining goods or discovering critical information about company’s activities, business processes, or employees.

Important Steps in Security

1. Complete a Risk Assessment

  • identify parties responsible for conducting the assessment
  • analyze all possible threats
  • quantify and document risks
  • apply countermeasures
  • monitor your results

2. Develop Company Policies

A. Operations Security

  • secure on-site and offsite property/goods
  • document inventory controls
  • monitor third party providers (i.e truckers, warehouses and employees)

B. Physical Security

  • plan and map escape routes
  • address procedures for backup generators and off-site backup I.T. systems
  • secure documents in locked cabinets and document shredding
  • secure single monitored public entrance, cameras, access controls and monitoring by outside services
  • process visitors, maintain logs and escort guests

Note: FEMA recommendations are published in technical reports/bulletins and training on building science including building codes, flood proofing, earthquake standards, wind design requirements, etc.

C. Training on security incidents, natural disasters, and cyber security

  • provide awareness training for employees, including those travelling abroad
  • conduct monthly audits
  • develop a crisis communications policy for key personnel
  • periodically review and update disaster recovery plan

D. Insurance

  • insure flood and fire damage
  • insure inventory equipment
  • insure employees’ laptops, mobile devices, USB’s etc.

E. Human Resources

  • establish an employee screening policy
  • maintain a list of emergency contacts (management, local emergency services), employee escape routes, first aid equipment, fire extinguishers, emergency tool kits, flashlight, batteries and firearms (if permitted)

F. I.T.

  • keep a log of hardware/equipment
  • develop security protocols for network access
  • document procedures for monitoring/detecting malware, viruses, etc.

G. Supply Chain Security

  • follow best practices for container seals
  • develop standard operating procedures for supply chain partners and vendors
  • map your supply chain from end to end

To learn more about security awareness in buisness and training on protecting your corporate identity, click here.

By Diane Cima 

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How to Get Senior Leadership Invested in Export Compliance

Do you ever imagine it’s just the two of you, alone on a tropical island? Just the two of you relaxing under a palm tree, basking in the warmth of the sun. Just the two of you, together at last; just you and your beloved set of export regulations.

Export compliance officer making the case to upper management As your company’s compliance officer, you live, breathe, and even daydream (although probably not quite so vividly) about those regulations. It’s in your blood. Unfortunately, it’s rarely a sentiment shared company-wide. Instead of feeling your toes in the sand, you may feel as though your cubicle has been set adrift with nothing but the Export Administration Regulations (EAR) or International Traffic in Arms Regulations (ITAR) to guide the way. You have the knowledge, experience and skill to steer your company around those export reform buoys, but you lack the support of your senior leadership to drive the boat. In a whole-hearted effort to keep management in the loop, you’ve tirelessly forwarded countless emails about changes due to export reforms, attempted to demonstrate the inadequacies of your software, and begged them to budget additional funding for your compliance program. Despite your best endeavors, management has only responded with their usual:

“We can’t afford it.”

“This doesn’t benefit the bottom line.”

“Show me the money!”

If you’ve tried the soft sell by asking for help and explaining the importance of what you do, it might be time to fire some more strategic shots across the bow. Be assured that you aren’t alone anymore. Let’s roll up our sleeves and swab this deck.

First of all, the government is here to help. Now I know you may scoff; but if they are the policy makers and enforcers, then who better to draw on for inspiration to convince management?

If you sell ITAR goods

In prepping your appeal, if you are under the jurisdiction of the ITAR, you can do no better for a qualified reference than the U.S. Department of State, which considers an effective compliance program as one that includes written documentation of who in management is directly involved in export controls and senior management’s commitment to comply with the Arms Export Control Act and ITAR.[1] In other words, your company must have compliant, committed leadership. Use this premise to remind management that they too must have a stake in your compliance program. Then, just to bring home the seriousness of what you are telling them, you may want to reiterate the Department of State’s stance on the need to emphasize compliance throughout an organization “to avoid jeopardizing corporate business and severe sanction against the corporation and responsible individuals.”[2]

While you are pointing this out, shore up some gangplank-worthy facts from Violations and Penalties, 22 CFR § 127 (2016), quoting that everything—from an honest misrepresentation of an export’s value to a willful act of misconduct—can lead to penalties, debarments and consent agreements. Now there’s some help from the government you really don’t want.

If you sell EAR goods

Of course, you may not have any military goods or services; and instead, your items fall under the EAR. If you’re in this boat, relate to your leadership that, according to the Bureau of Industry and Security (BIS), which has jurisdiction over EAR regulated goods, “management commitment” is the first element you need in order to build an effective export compliance program.[3] In addition, make sure to mention the BIS declares “maintaining a program for handling compliance problems, including reporting export violations” as equally necessary.[4]

For some added cannon-fire, explain to management the incentives of maintaining a standard level of export compliance, such as avoiding 20 years imprisonment and, in some cases, a $1 million penalty per violation.[5] Remember, your company is in business to make money. Likewise, your leadership is bound to take interest in any mention of the bottom line being affected.

Pull the wind from their sails with a self-audit

Do you think you need more help in convincing management to pay attention to the gravity of adhering to export control laws? Why not steal another bullet from the best practices of an effective compliance program and perform a self-audit? See what the results produce, where your company is performing well and where water might be trickling in unnoticed.

If Customs and Border Protection knocked on your door to conduct an audit, they would ask for five years of transaction documents. While this depth of analysis would be the most accurate picture of your company’s adherence to regulations, you may not have enough time to take such a prolonged plunge through your records. If that’s the case, then dive into at least a full year’s worth of documents and remember what your goal is—procuring those precious resources.

What (and how) to present to your leadership

Your management may not understand the intricacies of the law as you do; after all, they hired you to do that job. Believe it or not, there are some simple things you can do to improve your chances of winning over their hearts and minds. Here are a few tips to consider when preparing to make your case to the c-suite.

  • List the export rules, regulations or compliance program elements (in simple terms) as demanded or highly recommended by the government. Then counter them with your audit results.
  • Think about how your audit results could hit the company’s bottom line. What might happen in the way of fines and penalties per issue or incident? Tally up the potential fines.
  • Remind management that export reform has taken place and quantify the number of hours needed to incorporate those changes into the company’s daily/monthly/quarterly activities.
  • List every regulation (in simple terms) you cannot adhere to because of inadequate staffing, software, resources, etc.
  • Include charts, graphs and statistics in your presentation. Be more visual and less wordy.

If you find yourself bailing seepage with buckets, or worse—you can’t even identify the source of the leaks—then it may be best to ask someone outside the company to conduct a gap analysis. Reach out and anchor yourself to an impartial, experienced specialist. Consultants can not only help you find the holes, but can also guide you through building new processes and procedures that you and your leadership will be proud to call your own.

MGTA helps companies across the U.S. with export compliance program development and gap analysis. Contact us today for a free quote or for more information about our services.

By Sue K. Nans, Senior Trade Advisor. Click here to read more about Sue.

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Footnotes

[1] Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, U.S. Department of State, “Compliance Program Guidelines” retrieved 21 January 2016 from www.pmddtc.state.gov/compliance/documents/compliance_programs.pdf.

[2] Ibid.

[3] Bureau of Industry and Security, U.S. Department of Commerce, “Core Elements of an Effective Export Management and Compliance Program (EMCP)” retrieved 20 January 2016 from www.bis.doc.gov/index.php/compliance-a-training/export-management-a-compliance/24-compliance-a-training/export-management-a-compliance/227-core-elements-of-an-effective-export-management-and-compliance-program-emcp.

[4] Ibid.

[5] Violations of the Export Administration Act (EAA) of 1979, as amended, 50 USC App. §§ 2401-2420 (2000), and the Export Administration Regulations, 15 CFR Parts 730-774 (2007), may be subject to both criminal and administrative penalties. When the EAA is in effect, criminal penalties can reach up to 20 years imprisonment and $1 million per violation. In cases involving item controlled for national security reasons, administrative penalties can reach $11,000 to $120,000 per violation. When the EAA is in lapse, the criminal and administrative penalties are set forth in the International Emergency Economic Powers Act.

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