Forwarder Compliance U.S. Export Control Laws

1. Forwarder Compliance U.S. Export Control Laws An Overview of Responsibility and Risk 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 • Govt. Looking at Forwarders as Constant Link in the Chain and Experienced Party Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

3. Notable Forwarder Export Penalties • DSV Samson Transport • Forwarded shipments to India, despite BIS warnings of violation of nuclear proliferation control. $250,000 criminal fine and five years of probation; $399,000 administrative penalty. • OSPECA Logistics Inc. • Export of hydrogen fluoride to Mexico, without the required export licenses from BIS. Also, filed false Shipper’s Export Declarations. $60,000 administrative penalty • Immediate Customs Service, Inc. • Participated in export of U.S. origin perfume to Cosmotrans, Swiss a company that was denied all U.S. export privileges for twenty years. $30,000 administrative penalty. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

4. Notable Forwarder Export Penalties • Federal Express • Transported U.S.-origin equipment to the Realtek Semiconductor Co., of Taiwan, in violation of Realtek’s denial order. $15,000 administrative penalty. • Jagro Int’l Freight Forwarders, Inc. • In connection with a shipment to Bahrain, furnished information about another company’s business relationships with Israel. Also, failed to report its receipt of the request for such attestation-$5,700 administrative penalty. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

5. U.S. Foreign Trade Embargoes • The United States Currently Maintains Trade Embargoes Against Five Countries-U.S. Govt. License Required for Exports to • Cuba • Iran • North Korea • Sudan • Syria • Restrictions Are Administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury • Two Categories of Restrictions • Exports from U.S. to an embargoed country • Transactions by U.S. persons, wherever located (e.g.,in foreign branch of freight forwarder) Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

6. Export Licensing • Mostly for items having military, strategic or special high-technology application • Also required for shipment to certain end-users and end uses • Two licensing agencies in this context • Commerce Bureau of Industry and Security (“BIS”) • State Dept. Directorate of Defense Trade controls (“DDTC”) Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

7. 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 from U.S. controlled facility. • 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

8. 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

9. “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

10. Freight Forwarders Responsibility In The Export Shipment Process-The Players • Law Is Currently Structured to Insure the Presence of a Responsible U.S. Party for Accuracy and Compliance • U.S. Principal Party In Interest (US-PPI) • Generally the U.S. manufacturer or vendor in export transaction; party who controls the sending of the items out • Control Party (Order Party)- a party in U.S. who conducted selling negotiations with foreign PPI and received the order (e.g.; sales agent) • Foreign Principal Party In Interest (F-PPI) • Generally, the foreign purchaser • Freight Forwarder • Not a principal party in interest unless involved in transaction beyond forwarding services (e.g., order party) • Can be retained either by the US-PPI or, in a routed transaction, by the F-PPI Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

11. Freight Forwarders Responsibility In The Shipment Process • Responsibilities of Freight Forwarder When Authorized by Exporter to Prepare SED • Accurately preparing the SED based on information received from exporter or order party • Obtaining the power of attorney to prepare SED/file AES, on behalf of exporter • Provide to exporter a copy of the export information that was filed, whether in the form of a completed SED or electronic format • Continuing obligation to correcct SED/AES Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

12. 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

13. 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

14. 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

15. Voluntary Self Disclosures • How much protection do they afford? • What happens if the USPPI has filed a disclosure? • When should a forwarder submit its own disclosure to BIS? • What responsibilities does forwarder have to principal (USPPI or FPPI)? • What if the disclosure was made orally? Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP