{"id":180,"date":"2016-10-25T15:48:03","date_gmt":"2016-10-25T15:48:03","guid":{"rendered":"http:\/\/exportcompliancesolutions.com\/blog\/?p=180"},"modified":"2016-11-03T19:37:10","modified_gmt":"2016-11-03T19:37:10","slug":"export-compliance-11-words-part-5-6-12","status":"publish","type":"post","link":"https:\/\/exportcompliancesolutions.com\/blog\/2016\/10\/25\/export-compliance-11-words-part-5-6-12\/","title":{"rendered":"EXPORT COMPLIANCE IN 11 WORDS (Parts 5 &#038; 6 of 12)"},"content":{"rendered":"<h2 style=\"text-align: center;\"><strong>EXPORT COMPLIANCE IN 11 WORDS<br \/>\n<\/strong><strong>A Series on Export Compliance Essentials<\/strong><\/h2>\n<h2 style=\"text-align: center;\"><strong>(Parts 5 &amp; 6 of 12)<\/strong><\/h2>\n<h2 style=\"text-align: center;\"><strong><em>DOCUMENT &amp; COMMUNICATE: SMALL<\/em><\/strong> <strong><em>STUFF THAT MATTERS<\/em><\/strong><\/h2>\n<p style=\"text-align: center;\"><strong><em>When it comes to export compliance, it\u2019s often the little things that make a big difference. The reporting requirements of ITAR \u00a7122.4, for instance:\u00a0 has your company already missed the 5-day deadline? <\/em><\/strong><\/p>\n<p>In a speech called \u201cElephants Don\u2019t Bite!\u201d motivational speaker Joel Weldon reminds his audiences that in the quest for excellence, it\u2019s almost always the small stuff, the stuff that\u2019s easy to miss, not the big stuff, that trips us up. \u201cRaise your hand if you have ever been bitten by a mosquito,\u201d he says. \u201cHas anyone here been bitten by an elephant? . . . That proves my point! It\u2019s the little things that get you, not the big things. The little things come along and cause big problems!\u201d Then, on a more positive note, Weldon adds, \u201cAnd it\u2019s the little things you do right that can bring you huge rewards.\u201d The moral: pay attention to details!<\/p>\n<p>Among the myriad government rules and regulations for U.S. exporters, the requirements for recordkeeping and reporting might easily be taken for trivial matters. Evidently many companies do take them that way, because changes in the firm\u2019s registration information that have never been reported to the DDTC\u2014as required by ITAR \u00a7122.4, \u201cNotification of Changes in Information Furnished by Registrants\u201d\u2014 <u>is one of the most common problems our visiting teams discover when they arrive at a client\u2019s headquarters for an on-site risk assessment<\/u>. And you can be sure that if folks from the State Department arrive at your firm under the Company Visit Program (CVP), as part of their Outreach efforts, they will spot this right away, too, and label it (correctly) as a failure to comply with the requirements of the ITAR.<\/p>\n<p>Here\u2019s the relevant portion of this regulatory requirement in ITAR \u00a7122.4 (as amended on August 26, 2013, effective October 25, 2013):<\/p>\n<p style=\"padding-left: 30px;\">(a) A registrant must, <strong>within five days of the event<\/strong>, provide to the Directorate of Defense Trade Controls a written notification, signed by a senior officer (e.g., chief executive officer, president, secretary, partner, member, treasurer, general counsel), if . . .<\/p>\n<p style=\"padding-left: 60px;\">(2) There is a change in the following information contained in the Statement of Registration:<\/p>\n<p style=\"padding-left: 90px;\">(i) Registrant\u2019s name;<br \/>\n(ii) Registrant\u2019s address;<br \/>\n(iii) Registrant\u2019s legal organizational structure;<br \/>\n(iv) Ownership or control.<\/p>\n<p>When this section was last revised, in 2013, the State Department also revised ITAR \u00a7129.8, which deals with the registration and licensing requirements for brokers, to include some further notification requirements. Here\u2019s the relevant portion of that part of the regulations:<\/p>\n<p style=\"padding-left: 30px;\">(d) A registrant must, <strong>within five days of the event<\/strong>, provide to the Directorate of Defense Trade Controls a written notification, signed by a senior officer (<em>e.g.,<\/em> chief executive officer, president, secretary, partner, member, treasurer, general counsel), if . . .<\/p>\n<p style=\"padding-left: 60px;\">\u00a0(2) There is a change in the following information contained in the Statement of Registration (form DS\u20132032):<\/p>\n<p style=\"padding-left: 90px;\">(i) Registrant\u2019s name;<br \/>\n(ii) Registrant\u2019s address;<br \/>\n(iii) Registrant\u2019s legal organization structure;<br \/>\n(iv) Ownership or control;<br \/>\n(v) The establishment, acquisition or divestment of a U.S. or foreign subsidiary or other affiliate who is engaged in brokering activities or otherwise required to be listed in registrant\u2019s Statement of Registration; or<br \/>\n(vi) Board of directors, senior officers, partners and owners.<\/p>\n<p>And finally, here\u2019s what the DDTC is currently saying on their web site about what the agency expects from registrants regarding notifications of changes \u201cas part of the registration renewal process\u201d:<\/p>\n<p style=\"padding-left: 30px;\">[Registrants are instructed to] notify the Department of the following material changes as part of the registration renewal process: 1) consolidation of a broker registration with a manufacturer\/exporter registration; 2) removal of entities not owned or otherwise controlled from registration; and 3) deletions or additions of U.S. Munitions List categories. However, if notification of change is the subject of an internal reorganization, merger, acquisition, or divestiture registrants must notify the Department of all changes in information<strong> within five days of the event<\/strong>, including where applicable, the three changes specified above.<\/p>\n<p>The third type of change mentioned in this web notice, \u201cdeletions or additions of U.S. Munitions List categories,\u201d is not specifically mentioned in the sections of the ITAR quoted above, but if the change your company is reporting is one involving an internal reorganization, merger, acquisition, or divestiture, you would be well advised to include any such changes in your within-five-days notification to the DDTC as well.<\/p>\n<p>We trust you noted the requirement in all the above citations that these notifications need to be made to the DDTC <em>within five days of the event<\/em>. If you\u2019re wondering whether that phrase means what it appears to mean, the answer is that it does.<\/p>\n<p>If you\u2019ve been thinking while reading the above that \u201cwithin five days of the event\u201d seems like an awfully narrow time window for notifying the DDTC of a change at your company, consider this: some required notifications must be made <em>in advance of the event<\/em>. One such prior reporting requirement\u2014a critically important one, too, and an all-too-common source of violations, in our experience\u2014is found in ITAR \u00a7122.4(b). This paragraph applies to any intended (that is, prospective or planned) sale, or transfer of ownership\/control, of your business, or of \u201cany entity thereof,\u201d to a foreign party or parties. Here is the relevant passage (we\u2019ve underlined for you a couple of crucial sentences that you might easily have missed, imagining perhaps (incorrectly) that they were \u201csmall stuff\u201d):<\/p>\n<p style=\"padding-left: 30px;\">(b) <u>A registrant must notify the Directorate of Defense Trade Controls by registered mail at least 60 days in advance of any intended sale or transfer to a foreign person of ownership or control of the registrant or any entity thereof.<\/u> Such notice does not relieve the registrant from obtaining the approval required under this subchapter for the export of defense articles or defense services to a foreign person, including the approval required prior to disclosing technical data. Such notice provides the Directorate of Defense Trade Controls with the information necessary to determine whether the authority of \u00a7\u00a038(g)(6) of the Arms Export Control Act regarding licenses or other approvals for certain sales or transfers of defense articles or data on the U.S. Munitions List should be invoked (see \u00a7\u00a7 120.10 and 126.1(e) of this subchapter).<\/p>\n<p style=\"padding-left: 30px;\">(c) The new entity formed when a registrant merges with another company or acquires, or is acquired by, another company or a subsidiary or division of another company shall advise the Directorate of Defense Trade Controls of the following:<\/p>\n<p style=\"padding-left: 60px;\">(1) The new firm name and all previous firm names being disclosed;<\/p>\n<p style=\"padding-left: 60px;\">(2) The registration number that will survive and those that are to be discontinued (if any);<\/p>\n<p style=\"padding-left: 60px;\">(3) The license numbers of all approvals on which unshipped balances will be shipped under the surviving registration number, since any license not the subject of notification will be considered invalid; and<\/p>\n<p style=\"padding-left: 60px;\">(4) Amendments to agreements approved by the Directorate of Defense Trade Controls to change the name of a party to those agreements. The registrant must, <u>within 60 days<\/u><u> of this notification<\/u>, provide to the Directorate of Defense Trade Controls a signed copy of an amendment to each agreement signed by the new U.S. entity, the former U.S. licensor and the foreign licensee. Any agreements not so amended will be considered invalid.<\/p>\n<p style=\"padding-left: 30px;\">(d) <u>Prior approval by the Directorate of Defense Trade Controls is required for any amendment making a substantive change.<\/u><\/p>\n<p>We hope you noticed that, in addition to the mandatory notification that must be made to the State Department <em>60 days in advance <\/em>(\u201cmust\u201d and \u201cshall\u201d are such little words that they can easily be missed \u2014 \u201csmall stuff,\u201d right? \u2014 but in government regulations they always translate as \u201cmandatory\u201d and \u201clegally required\u201d), there is also mention of a mandatory follow-up submission required by State <em>no later than<\/em> <em>60 days after<\/em> the first. Any regulatory language that translates as \u201cdeadline,\u201d whether the period specified is \u201cbefore\u201d or \u201cafter,\u201d deserves to be underlined or highlighted; it comes under the heading of \u201csmall stuff that matters.\u201d<\/p>\n<p>\u201cCOMMUNICATE\u201d is one of the 11 key words that we chose to summarize the essentials of export compliance in this blog series. A few synonyms for <em>communicate<\/em> are <em>notify,<\/em> <em>report, <\/em>and <em>disclose.<\/em> <em>N<\/em><em>otifying<\/em> the State Department within 5 days of changes in your registration information is only one of the multiple notifications that are mandatory and must be made in a timely manner. <em>Reporting semi-annually<\/em> on your company\u2019s use of the Canadian Exemption (ITAR \u00a7126.5), as specified in Supplement No. 1 to Part 126 of the ITAR, Note 14(c), is another example of a mandatory communication. (Don\u2019t let that word \u201cexemption\u201d mislead you here; exemption from a license requirement <em>doesn\u2019t<\/em> mean you are exempt from reporting and recordkeeping requirements!) \u00a0<em>Disclosing information to the DDTC or BIS about<\/em><em> a potential or actual export control violation<\/em> (see ITAR \u00a7127.12) is <em>sometimes<\/em> legally mandatory\u2014in which case neglecting to file such a disclosure would constitute an additional violation. But even when such disclosures are not mandated by law, and when they haven\u2019t been \u201cdirected\u201d or ordered by a government agency, they are very strongly encouraged by all the agencies and highly advisable in most cases, since voluntary disclosures will generally be a mitigating factor in determining what administrative penalties, if any, will be imposed.<\/p>\n<p>Whatever synonym is used for it, the failure to communicate critical compliance information to the DDTC, BIS, or OFAC within a specified deadline is one of the most common sources of export violations, and the penalties that can result from such violations are by no means \u201csmall stuff\u201d!<\/p>\n<p>\u201cDOCUMENT,\u201d another of our 11 key compliance words, is closely related to what we have been talking about here. A synonym for <em>documenting<\/em> is <em>creating and<\/em> <em>keeping <\/em>records of your <em>exports<\/em>. Some very specific kinds of recordkeeping for export transactions are mandated by the ITAR, the EAR, and the various OFAC Sanctions programs. Not only do the legally required transaction and licensing records need to be complete, accurate, and secure, they need to kept for a certain time (in most cases, five years) <em>and<\/em> maintained in a certain way.<\/p>\n<p>For example, ITAR \u00a7122.5 states that the information \u201c<u>must be stored in such a manner that none of it may be altered once it is initially recorded without recording all changes, who made them, and when they were made.<\/u>\u201d Have you checked to see whether your company\u2019s current order processing or ERP software supports this critical ITAR requirement? And, if the software you use does have this tracking and recording capability, have you checked to verify that the feature is appropriately configured and \u201cturned on\u201d?<\/p>\n<p>Another detail worth checking: ITAR \u00a7122.5 also says that your export records need to be \u201cavailable at all times for inspection and copying\u201d in case of a compliance audit or other official visit or investigation. <em>Have you checked lately to see how \u201cavailable\u201d the legally mandated records are at your company?<\/em> Which employees know how to access and retrieve them for inspection, if the occasion arises?<\/p>\n<p>The DDTC, BIS, and OFAC most certainly do not consider a company\u2019s failure to keep accurate and complete records of its export transactions, as required by law, to be a trivial matter, or \u201csmall stuff.\u201d<\/p>\n<p>In our experience, many companies have not clearly understood that compliance with these recordkeeping requirements is ultimately <em>their<\/em> responsibility, as the U.S. exporter, or USPPI, and that they <em>cannot<\/em> simply hand it off to a freight forwarder or shipping agent, and then forget about it. Even if you do employ the services of a third-party freight forwarder to ship your commodities, <u>you still need to make sure that you receive and keep on file copies of all shipping documents, AES\/ACE entries, supporting documents, special certifications, and all other required documentation for every export transaction<\/u>. You should also be periodically checking and comparing the freight forwarder\u2019s records against your purchase orders, invoices, export licenses, agreements, reports of exemption use, etc., to make sure that your exports are fully compliant with U.S. export laws and regulation. In the event of an official visit or compliance audit from one of the regulatory agencies, when the agents request the records of one of your export transactions, \u201cI\u2019m afraid I can\u2019t help you with that; I imagine our freight forwarders must keep that sort of information on file somewhere\u201d will not be an acceptable answer; you might be told that it is a synonym for \u201cexport violation.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>EXPORT COMPLIANCE IN 11 WORDS A Series on Export Compliance Essentials (Parts 5 &amp; 6 of 12) DOCUMENT &amp; COMMUNICATE: SMALL STUFF THAT MATTERS When it comes to export compliance, it\u2019s often the little things that make a big difference. The reporting requirements of ITAR \u00a7122.4, for instance:\u00a0 has your company already missed the 5-day [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[7,3],"tags":[],"class_list":["post-180","post","type-post","status-publish","format-standard","hentry","category-all","category-compliance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>EXPORT COMPLIANCE IN 11 WORDS (Parts 5 &amp; 6 of 12) - Export Compliance Solutions<\/title>\n<meta name=\"description\" content=\"Your export transactions must be in compliance with the recordkeeping &amp; reporting requirements of the ITAR, EAR, &amp; OFAC Sanctions to avoid penalties.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exportcompliancesolutions.com\/blog\/2016\/10\/25\/export-compliance-11-words-part-5-6-12\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"EXPORT COMPLIANCE IN 11 WORDS (Parts 5 &amp; 6 of 12) - 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