Jan
30
That’s Why There’s an Index
Posted by Clif Burns at 8:34 pm on January 30, 2008
Category: BIS
The Bureau of Industry and Security (“BIS”) released, on January 23, a settlement agreement under which freight forwarder Elite International Transportation, Inc. agreed to pay $156,000 in penalties for export violations. According to the Settlement Agreement, Elite made a false statement on a Shipper’s Export Declaration (“SED”) that it prepared when it stated that no license was required for the export of triethanolamine to Mexico. Triethanolamine, which is covered by ECCN 1C350.c.9 is a common ingredient in shampoos, shaving creams and other cosmetics but is also a precursor to nitrogen mustards, which can be used as chemical warfare agents and which cause blistering similar to the sulfur-based mustard gases used in WWI and WWII.
This blog has often criticized certain enforcement actions against freight forwarders that appear to impose upon the freight forwarder an undue burden of due diligence verifying statements made to it by the exporter. This, however, isn’t really such a case. The SED would have described the product as triethanolamine. Even if the exporter indicated to Elite that no license was required, it was a simple matter for Elite to check this statement. After all, triethanolamine is listed in the alphabetical index to the Commerce Control List. Making the classification here wasn’t rocket science.
Freight forwarders are also not doing any favor to their customers by not double checking the classification of exported items. No doubt the exporter here has already received a nastygram from BIS and is negotiating a settlement agreement under which it will pay an ouch-worthy fine to BIS. If the freight forwarder had double checked the classification of triethanolamine and told the exporter of the mistake (rather than ratting it out), both Elite and the exporter wouldn’t be the subject of a post on this blog.
Clif adds: Be sure to read the comment below from Jim Dickeson. Jim, who is the import and export compliance manager for a freight forwarder, makes a persuasive case that in this instance the freight forwarder was sandbagged by the exporter. Still, I think there’s plenty of fault to go around in this case because the name of the chemical was listed on the index to the CCL. This wasn’t an instance where you had to know the temperature resistance of a composite material or the size and inclination of a borehole in a turbine. It was one where one only had to look under T in the index and there is was: “triethanolamine.”
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5 Comments:
As the more organised freight forwarders scan copies of the shipper’s invoice, how about creating a piece of software that uses optical character recognition to identify key words such as triethanolamine?
Clif,
Freight forwarders are probably one of the greatest offenders when using the “NLR” exception. If OEE investigated every forwarder in the US specifically for exporting fluorinated o-rings “1A001.c”, designed for use in aircraft, they’d find incorrect exceptions being used, i.e.: NLR, missing exceptions, and aggravating their situation further by not obtaining the correct license when required.
Forwarders, based on personal experience with them, lack a clear understanding of export regs esp. when it comes to properly filling an AES/SED – nor do they seem to be very aware of licensing requirements.
I agree with the premise of your posting.
I would argue with Shawn Wheatfill’s assertion about freight forwarders being one of the greatest offenders when using the NLR license exception.
The 55 charges against Elite were broken out, with little explanation in the charging letter, into 13 violations followed at later dates by 42 more. Elite’s exporter customer, Equistar Chemical LP, did receive that nastygram from the BIS for, surprise, 13 violations of exporting triethanolamine without the required license (http://efoia.bis.doc.gov/exportcontrolviolations/e1007.pdf).
What apparently happened is that Equistar saw the flashing red lights in their rearview mirror after the 13th shipment. Shame on Equistar. But when they got around to doing it properly, with the required export licenses, they never bothered to tell Elite. A lot of ongoing business in forwarding is done with minimal paperwork, often just a commercial invoice. When a forwarder handles the same thing every day, they kind of expect the customer to let them know when something big has changed. My guess is that Equistar never told Elite about their new situation, or they never put the license information on those commercial invoices. Double shame on Equistar for not telling Elite. Furthermore, Equistar should have monitored the work that Elite did for them. Usually, export declaration information from forwarders, and entry documents from customs brokers, are sent to clients with the billing invoices. These typically end up filed, not in any trade compliance department, but in accounts payable. Triple shame on Equistar for not monitoring Elite.
On the other hand, Elite should have protected them self with a Power of Attorney from Equistar. Apparently, they did not, and found themselves dragged down in the mess. However, if the amount of a penalty is any indication of who might be more culpable, consider that Equistar had 13 violations for a total penalty of $39,650 while Elite suffered 55 violations for a total penalty of $156,000. You do the math.
I am in charge of corporate import and export compliance for a freight forwarder, and I’ll be the first to tell you that freight forwarders are no saints. However, we walk a fine line every day. Legally, it is the exporter’s responsibility to make all of the export determinations – Schedule B numbers and quantities, ECCNs, license authority, etc. After all, the exporters know better their products and technologies, the chemical makeup and the operating parameters, whether it contains technology originally designed for the military. Freight forwarders do not have PhDs in all the fields of aerospace, nuclear physics, chemistry and biology, certainly not with the profit margins in this business.
The freight forwarder is only supposed to pass along the information provided by the exporter in the form of the electronic export declaration filing. But the vast majority of exporters haven’t the foggiest idea what we’re talking about. If we try to push the job back onto them where it belongs, they threaten to take the business to another forwarder who will do their work for them. So we guide them as best we can. And we get those Powers of Attorney signed. And even though the POA affords us some protection from the government, we still pray that that we don’t get hit with civil litigation by some poor exporter trying to recover the export penalties he’s gotten himself into.
No, I would say that it is the exporters that are greater offenders. To wit, Northrop Grumman’s $400,000 BIS penalty last month, or ITT’s $100 Million ITAR settlement last year.
Shawn, I would welcome more export customers like you. You know your way around the regulatory environment. Better, I would love more export customers that file their own AES so we wouldn’t be put in the position of both policemen and accomplice.
Unfortunately, its not the customer that bullies the freight forwarder into violating the regs, its the marketing side of the forwarders who promise the customers that the forwarders are experts who can guide the exporter through the maze of legal and regulatory challenges. In my 30 plus years of experience, some of which was as an investigative team leader at Commerce, forwarders promise to provide expertise and consulting that amounts to the unlicensed practice of law but then commit that work to untrained barely literate clerical staff who are under pressure to process a great number of transactions.
Gentlemen. All of you have a point on this case. For one side the USPPI does not provide clear information on the commodity and licensing requirements through a Shipper’s Letter of Instructions, threaten to leave if you push them with annoying questions and for the other, the majority of freight forwarders do not have a clue on the EAR and ITAR regulations, act on behalf without a POA, use EAR99 as a way to get through the AES. I have seen fellows in this field (we are freight forwarders and customs brokers in Miami) transmitting SED’s without POA’s, on routed transactions, without checking ECCN numbers, without questioning on DDTC license requirements. The idea in this community is to make the most at low cost(spending minimun time with customers discussing export control regs, lack or non-existing employee training, low salaries, high employee turnover). BIS and DDTC do not catch more people because they do not have enough manpower to do their job. But, when they get you, they try to make the most of it.
