While risk management always gets C-level attention, export compliance is often a mid-management or lower level function. Fines and penalties for violations should make export compliance a basic part of risk management. Best practices, including an Export Management & Compliance Program, will reduce exposure to steep fines and penalties. Don’t leave this responsibility to your shipping department! Here is some information from the BIS (Bureau of Industry and Security) website showing details. For help with export compliance contact email@example.com
Violations of the Export Administration Act of 1979, as amended (EAA), 50 U.S.C. app. §§ 2401-2420 (2000), and the Export Administration Regulations, 15 C.F.R. Parts 730-774 (2007) (EAR) may be subject to both criminal and administrative penalties. When the EAA is in effect, criminal penalties can reach 20 years imprisonment and $1 million per violation. Administrative monetary penalties can reach $11,000 per violation, and $120,000 per violation in cases involving items controlled for national security reasons. When the EAA is in lapse, the criminal and administrative penalties are set forth in the International Emergency Economic Powers Act (IEEPA).
On October 16, 2007, President Bush signed into law the International Emergency Economic Powers (IEEPA) Enhancement Act, Public Law No. 110-96, amending IEEPA section 206. The Act enhances criminal and administrative penalties that can be imposed under IEEPA and also amends IEEPA to clarify that civil penalties may be assessed for certain unlawful acts. Criminal penalties can reach $1,000,000 and 20 years imprisonment per violation and the administrative penalties can reach the greater of $250,000 per violation or twice the amount of the transaction that is the basis of the violation. See Endnote below.
Violators may also be subject to denial of their export privileges. A denial of export privileges prohibits a person from participating in any way in any transaction subject to the EAR. Furthermore, it is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the EAR with a denied person.
From the archives…
Customs entries on imported merchandise involve calculating duties and taxes based on commodity classification (HTS), country of origin, and transaction value, along with special notes. In previous posts we have discussed the importance of making sure that correct HTS codes are used. In most cases the commercial invoice or CI value is used for duty calculation. In situations where the transaction is not so clear Customs has established an “appraisement hierarchy” to determine entry value. The details can be found in US Customs and Border Protection regulations 19 CFR part 152. Here is a summary:
1) Transaction Value- actual invoice value
2) Transaction Value of identical merchandise- same country, same class and kind
3) Transaction Value of similar merchandise- same country, commercially interchangeable
4) Deductive Value – start with US retail selling price and deduct commissions, transportation, insurance, duty/tax, and value of further processing
5) Computed Value- sum of the following. Importer can request computed instead of deductive.
- Cost of Materials
- Cost of Labor
- Cost of Packaging
6) Value if other values cannot be determined- if the value of imported merchandise cannot be determined it will be appraised on the basis of a value derived from the methods set forth in parts 152.103 thru 152.106.
Transaction Value cannot be used and the hierarchy comes into play when:
- There is a restriction on sale (except geographic)
- Merchandise is sold on consignment
- There is a barter transaction
- There is “goodwill” value involved
- Parties are related, unless relationship did not influence price
Unacceptable bases of appraisement:
- The selling price in the US of merchandise produced in the US
- A system that provides for the appraisement of imported merchandise at the higher of two alternative values
- The price of merchandise in the domestic market of the country of exportation
- A cost of production other than a value determined under 152.06
- The price of merchandise for export to a country other than the US
- Minimum values for appraisement
- Arbitrary or fictitious values
Need regulatory help? Contact firstname.lastname@example.org .
In previous posts we have discussed the World Bank Logistics Performance Index for international trade. The Index also contains a domestic component as detailed below:
The Domestic LPI looks in detail at the logistics environments in 160 countries. For this measure, surveyed logistics professionals assess the logistics environments in their own countries. This domestic evaluation contains more detailed information on countries’ logistics environments, core logistics processes and institutions, and performance time and cost. This approach looks at the logistics constraints within countries, not just at the gateways, such as ports or borders. It uses four major determinants of overall logistics performance to measure performance:
• Border procedures and time, and
• Supply chain reliability.
Here is some of the data for the US from the 2016 report. The low percentage of physical inspections stands out.
|Shipments meeting quality criteria (%)
|Number of agencies – exports
|Number of agencies – imports
|Number of documents – exports
|Number of documents – imports
|Clearance time without physical inspection (days)
|Clearance time with physical inspection (days)
|Physical inspection (%)
|Multiple inspection (%)
|Declarations submitted and processed electronically and on-line (%)
|Importers use a licensed Customs Broker (%)
|Able to choose the location of the final clearance (%)
|Goods released pending customs clearance (%)