Forwarder Compliance U.S. Export Control Laws

1. Forwarder Compliance U.S. Export Control Laws WESCCON 2007 Erik Smithweiss esmithweiss@gdlsk.com (213) 624-1970 Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

2. Why Should We Care? • Substantial Penalties for Violations of U.S. Export Laws • Suspension of export privileges for company • $50,000 penalty per EAR violation • $1,000 penalty per Census violation • Possible terms of imprisonment for individuals • Exclusion from practice • New criminal fines for transporting goods knowing they will be exported contrary to any U.S. law (e.g., Nafta) Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

3. Recent Forwarder Export Penalties • PRA Worldwide (Aug. 6, 2007) • freight forwarder knowingly understated the value of goods on 41 shipper’s export declarations. $250,000 civil penalty. • Baltrans Logistics Inc. (April 20, 2007) • Aided and abetted export of product to a company on BIS’s Entity List. $6,000 penalty for a single violation. • A.N. Deringer, Inc. (February 22, 2007) • Exported copier toner to a company in Iran without an OFAC license. BIS charged 3 violations for a single shipment. $21,120 penalty. • Aviasca Airlines ( February 16, 2007) • Failure to file SED’s on 75 exports to Mexico. $450,000 penalty. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

4. General Export Prohibitions • Unlicensed export and re-export of controlled items to listed countries. • Export from abroad of foreign-made items that contain controlled U.S. content/technology and software. • Export from abroad of foreign-produced goods that are a direct product of U.S. technology. • Engaging in actions prohibited by a denial order. • Export or re-export to prohibited end-use/end users. • Export or re-export to embargoed destinations. • Support of proliferation activities. • In-transit shipments through prohibited countries • Violation of license/license exemption terms/conditions. • Sell, transfer, export, re-export, finance, order , buy remove, conceal, store, use, loan, transport, forward or otherwise service any item with knowledge that violation of above will occur. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

5. Violations (764.2) • Engaging in conduct prohibited by EAR (General Prohibitions) • Aiding, abetting, soliciting, attempting a prohibited act • Transporting or forwarding with knowledge a violation has or will occur • Misrepresentation, or concealment of, any material fact in preparation or submission of an export control document (e.g., SED/AES) • Failure to comply with recordkeeping requirements Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

6. “Knowledge” • Positive knowledge the circumstances exist • Awareness of high probability of existence or future occurrence • Can be inferred from conscious disregard of known facts • Can be inferred from willful avoidance of facts (“self blinding”) Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

7. Direct Liability for Forwarders: • Forwarder may violate the EAR if it: • arranges export on behalf of a denied party • Forwards goods to a denied party overseas • Forwards goods to an embargoed destination • Forwards goods to a specially designated national Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

8. Direct Liability for Forwarders (Cont): • Forwarder may violate the EAR if it: • Assists customer to re-route transaction to avoid (evade) OFAC sanctions • Forwards unlicensed goods to a destination requiring an export license, and forwarder was aware of the ECCN • Files SED/AES with reason to know information is false (e.g., understated value, incorrect ECCN, incorrect HTS number), even though export is otherwise lawful • Accepts responsibility to classify goods under the CCL but does so improperly, and goods were improperly exported without a license Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

9. Direct Liability for Forwarders (Cont): • Forwarder may violate the EAR if it: • Fails to follow shipper’s instructions when preparing SED/AES (e.g., is advised of ECCN but designates EAR 99) • Discovers SED/AES contained false information, but fails to submit correction to CBP/BIS • Fails to maintain required export control documents Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

10. Recordkeeping • All persons who as principal or agent participate in any transaction covered by the EAR (i.e., an export) • Retention period 5 years • Create a folder for each export shipment • Include checklist for required and optional documents • Required records in 762.2 • Keep all correspondence with customer/BIS relating to compliance (CYA!!!) • Adopt written storage, retention and destruction polices Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

11. Multinational Forwarders • Role of US office in global shipments • Compliance on re-exports • Implement global customer screening? • Referring business to overseas offices for shipments that would violate US embargoes if made from the US Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

12. CONCLUSION • Have a nice day. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP