As an exporter, my take is a little different—I think the line should read, “Export compliance isn’t a big thing; it’s a million little things.” And while it might not make for a lovely greeting card, it’s true—your export compliance responsibility isn’t a simple task.
Export compliance is a nuanced, complex process that requires exporters to be aware of the scores of ever-evolving government regulations and requirements. In an effort to make understanding and obeying export compliance regulations a little easier, here are three epic fails in export compliance you should avoid at all costs.
The Foreign Corrupt Practices Act (FCPA) prohibits paying bribes to foreign government officials, specifically to buy products or clear customs faster. It was passed in 1977 in response to several U.S. bribery scandals involving the Mexican oil company PEMEX and the Tanaka government in Japan.
While criminal prosecutions under the FCPA were few and far between in the early years, that is changing. U.S. cases in the past few years have included Walmart Inc., Microsoft Corporation, Goodyear Tire & Rubber Company, Avon Products, Smith & Wesson, Hewlett-Packard, and Alcoa.
The FCPA covers two types of activities, which we detail in our article The Foreign Corrupt Practices Act:
In the Walmart case, according to The FCPA Blog, "Walmart Inc. agreed Thursday to pay the DOJ and SEC $282 million to settle allegations that it violated the Foreign Corrupt Practices by paying an intermediary in Brazil for help obtaining construction permits and having weak anti-corruption internal controls in Brazil, China, India, and Mexico.
"From 2000 through 2011, Walmart’s subsidiaries in Brazil, China, India, and Mexico 'operated without a system of sufficient anti-corruption related internal accounting controls,' the SEC said."
In the Microsoft case, "Microsoft Corporation paid the DOJ and SEC $25.3 million Monday to settle FCPA offenses related to its operations in Hungary, Saudi Arabia, Thailand, and Turkey."
While Walmart and Microsoft are very large well-known corporations, there are plenty of examples of much smaller companies paying substantial penalties for FCPA violations.
A painfully easy way to get stuck in an epic export compliance fail is to hand off your responsibilities to partners like your freight forwarders. This previous blog article neatly sums it up: If You’re Relying on Your Freight Forwarder for Export Compliance, You’ve Probably Already Violated the Law.
There are three things you need to remember and take into account in every transaction with a freight forwarder: You are the manager, you are the boss, and you are ultimately liable for your exports. You can take control of export compliance by choosing your freight forwarder wisely and maintaining control of and responsibility for your exports—and you can’t outsource liability.
According to the Bureau of Industry and Security (BIS), fines for export violations can reach up to $1 million per violation in criminal cases; in administrative cases, fines can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction. In addition, criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges. These penalties are almost always devastating for small and mid-sized companies.
These situations can be prevented. Our white paper, What You Need To Know About Export Compliance, will help you identify other common areas you must consider to remain on the right side of compliance.
In every export, you should always make sure you substantiate your choices and your reasons for making them. In fact, the most important thing exporters can do post-shipment is to keep a thorough paper trail of all exports.
As we discuss in our article 10 Time Savings Tips for Creating and Organizing Your Export Documents, an industry-wide best practice is to maintain export documentation for at least five years after an export transaction is complete. For most companies, this means five-plus years of paper records. This includes:
As a rule, paper copies work better than electronic. All handwritten notations must be saved and stored with corresponding files. We recommend printing hard copies of every file, note and document associated with your shipments, but if you can’t, you must at least scan in your paperwork and keep an electronic file.
Shipping Solutions software makes it easy for you to not only complete your documentation, but to save and print every export form (including notes you may have on individual transactions). Sign up for a free online demo of the software.
While this article addresses just a few epic fails in export compliance, we’ve written extensively on the topic. Here are a handful of general export compliance articles that may answer your questions:
The Department of Commerce’s Bureau of Industry and Security (BIS) has published a book, Don't Let This Happen to You, which outlines exporters' compliance responsibilities and includes real-life examples of penalties they have recently issued against individuals and businesses. It’s a must-read, and you can get it for free by clicking below.
This post was originally published in October 2015 and has been updated to include current information, links and formatting.