BIS Letter Outlines Forwarding Agents' Responsibilities

Hiring an Agent Does Not Relieve a Party of its Compliance Responsibilities, Etc.

According to BIS' letter, primary responsibility for compliance with the Export Administration Regulations (EAR) falls on the "principal parties in interest" (PPI) in a transaction. BIS notes that, generally, the PPIs in an export transaction are the U.S. seller and the foreign buyer.

In its letter, BIS states that forwarding agents may have compliance responsibilities under the EAR even when their actions are dependent upon information or instructions given by those who use their services. BIS states that hiring a forwarding agent or other agent to perform various tasks does not necessarily relieve a party of its compliance responsibilities.

Highlights of Agents' Responsibilities

The following are highlights of forwarding agent responsibilities outlined in the BIS letter:

Agents are responsible for representations they make in filing export data. According to the BIS letter, agents are responsible for representations they make in filing export data. Moreover, no person, including agents, may proceed with any transaction knowing that a violation has occurred, is about to occur or is intended to occur in connection with it. BIS states that it is the agent's responsibility to understand its obligations.

Agents should understand the "Know Your Customer" Guidance and Red Flags. In its letter, BIS states that agents, especially those acting as the "exporter," should understand the "Know Your Customer" Guidance and Red Flags found in Supplement No. 1 to 15 CFR Part 732. BIS further states that agents and exporters should decide whether there are red flags, inquire about them, and ensure that suspicious circumstances are not ignored. Failure to do so could constitute a violation of the EAR.

Agent & PPI that hired the agent are responsible for the correctness of each entry. According to the BIS letter, both the agent and the PPI who has hired the agent are responsible for the correctness of each entry made when filing export data.

BIS states that good faith reliance on information obtained from the PPI can help protect an agent, but the careless use of pre-printed "No License Required" forms or unsupported entries can subject an agent to penalties. BIS further states that agents should also avoid making commodity classifications for which they lack technical expertise, and should obtain support documentation for Export Control Classification Numbers (ECCNs) and other material.

Agents should be familiar with the ten General Prohibitions set forth in the EAR, etc. BIS' letter states that agents should be thoroughly familiar with the ten General Prohibitions set forth in 15 CFR Part 736; and with the violations outlined in 15 CFR Part 764.

BIS explains that engaging in prohibited conduct or committing the violations set out in the EAR may subject violators to significant penalties - up to 10 years imprisonment and fines of $250,000 for individuals and $500,000 for companies, upon criminal conviction; and penalties up to $11,000 per violation for administrative offense.

Risk Mitigation

BIS notes that forwarders may be subject to criminal prosecution and/or administrative penalties for violations of the EAR. BIS states that it has not hesitated to hold forwarders liable for participating in illegal transactions.

BIS states that freight forwarders can take steps to mitigate their own and their clients' risk of liability by establishing a compliance program that scrutinizes export transactions, checks the parties to transactions against BIS' Denied Persons List (firms and individuals whose export privileges have been denied based on prior export violations), the Entity List (organizations identified by BIS as engaging in activities related to the proliferation of weapons of mass destruction), and the Unverified List (firms for which BIS was unable to complete an end-use check), as well as other lists maintained by the State Department and the Treasury Department's Office of Foreign Assets Control (OFAC). BIS states that forwarders should also familiarize themselves with the types of activities to avoid in suspicious transactions as described in the BIS publication, "Don't Let this Happen to You," which can be found on the BIS Web site.

According to the BIS letter, parties who believe that they may have committed a violation of the EAR are encouraged to submit a Voluntary Self Disclosure (VSD) to the Office of Export Enforcement (OEE). BIS notes that parties submitting VSDs may be eligible for significant reductions in administrative penalties. Procedures for filing VSDs can be found in 15 CFR 764.5.

BIS letter, dated 10/19/05, available via email by sending a request to documents@brokerpower.com