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What is Export Compliance Checklist and How to Make One

What is Export Compliance Checklist and How to Make One

Every business that exports products or services from the United States must comply with the Export Administration Regulations (EAR). These regulations are in place to mitigate the risk of delays and increased costs and ensure compliance with U.S. law. One way to help your business stay compliant is to create an export compliance checklist. 

This blog post will discuss what export compliance is, how to make an export compliance checklist, and what items are regulated by EAR.

 

What is Export Compliance?

Export compliance is a requirement by the United States Department of Commerce. It is designed to enforce EAR (Export Administration Regulations) and regulate the export of “dual-use” items. These are items that have both commercial and military applications. The CCL (Commerce Control List) categorizes each item using an alphanumeric code called Export Control Classification Number (ECCN). 

 

What is an Export Compliance Checklist?

An export compliance checklist is an assessment tool used to identify red flags that may indicate export violations. It can also be used to verify that your company is following all the required procedures for export compliance. 

Non-compliant corporations or individuals will face criminal fines of up to $1 million per violation. They will also face civil penalties of up to $500,000 per violation and no less than twenty years imprisonment.

For this reason, it’s important to comply with export regulations. Checklists can help you ensure compliance by providing a way to check that all the required procedures are being followed systematically.

 

What are Export Administration Regulations (EAR)?

Export Administration Regulations (EAR) are a set of export control rules administered by the U.S. Department of Commerce’s BIS (Bureau of Industry and Security). These regulations implement the Export Control Reform Act of 2018 (ECRA), which amended and updated the export control authority of the President. 

The EAR establishes controls on the export, re-export, and in-country transfer of certain items that have been determined to be “critical” to U.S. national security and foreign policy interests. These items are listed on the Commerce Control List (CCL).

 

EAR Vs. ITAR

The Export Administration Regulation (EAR) and International Traffic in Arms (ITAR) are two export control regimes regulating the sale and transfer of different products and technologies.

The main difference between the EAR and ITAR is that the EAR regulates commercial and dual-use items while ITAR is in charge of regulating sales, distribution, and manufacturing of defense articles and services.

In terms of the governing agency, the EAR is governed by the Department of Commerce, while the Department of State oversees ITAR. Moreover, EAR items are listed under the CCL (commerce control list), while ITAR items are listed on the USML (United States Munitions List).

 

Guide Questions and Red Flags on Export Compliance

Manufacturers that are compliant with EAR and exporters of dual-use products gain visibility across their entire operations. On top of that, they also prevent losing export licenses or debarments. If you want your business to comply with EAR, the Bureau of Industry and Security (BIS) developed five key determinants with potential EAR-violation scenarios to help you assess export compliance risks.

What is the product?

Deemed exports require appropriate export licenses. Classify your EAR-controlled commodity, technology, or software according to the following CCL categories.

  • Category 0: Nuclear materials, equipment, and facilities, as well as miscellaneous items.
  • Category 1: Special materials and equipment, microorganisms, chemicals, and toxins.
  • Category 2: Materials processing
  • Category 3: Electronics
  • Category 4: Computers
  • Category 5: Information security and telecommunications
  • Category 6: Lasers and sensors
  • Category 7: Avionics and navigation
  • Category 8: Marine
  • Category 9: Propulsion and aerospace

 

EAR compliance red flags for items:

  • The product’s capabilities don’t fit the buyer’s line of business, such as a sophisticated order of computers for a small bakery.
  • The customer is not familiar with the product’s performance characteristics but still wants the product.
  • The ordered items are incompatible with the technical level of the country to which it’s being shipped, such as a shipment of semiconductors being shipped to a country that has no electronics industry.

 

Where is the product going?

For exporting and re-exporting, you need to consider the final destination of the product. For example, you might need an export license if the product is going to a sanctioned country or a designated entity.

EAR compliance red flags for destinations:

  • Vague delivery dates or deliveries are planned for distant destinations.
  • The shipping route isn’t normal for the product and its destination.
  • Inconsistent packaging

 

Who will receive the product?

The export license application will require the name and address of the ultimate consignee and end-user. Be cautious when the customer refuses to provide this information or if they provide you with a Post Office Box as an address.

EAR compliance red flags for customers:

  • The customer is located in a country that’s under export sanctions, such as Iran or North Korea.
  • The customer is on the Denied Persons List or Entity List.
  • The customer has been involved in previous export violations.
  • The customer is affiliated with a terrorist organization.
  • You can’t verify the customer’s identity or background through reliable sources.

 

What will the receiver do with the product?

The export license application will also require a description of the product’s end use. Again, be wary if the customer is vague about the planned use of your product or if the user doesn’t match up with the type of product being shipped.

EAR compliance red flags for end use:

  • The customer plans to resell your products without obtaining the necessary export licenses.
  • The customer plans to use your product for military applications.
  • The customer plans to use your product in a prohibited way by the EAR, such as using it for nuclear proliferation.

 

What are the terms of payment and delivery?

Be cautious of export transactions that require 100% upfront payment or payments made through wire transfer. You should also be aware of export transactions that involve barter or trade-in arrangements.

EAR compliance red flags for terms of payment and delivery:

  • The customer refuses to provide a purchase order or contract.
  • The customer insists on using an intermediary to make the payment.
  • The customer wants to pay in cash, traveler’s checks, or other untraceable forms of payment.
  • The customer wants to ship the product to a free trade zone or export processing zone.

 

Conduct Export Compliance with DataMyte

Implementing an effective export management and compliance program requires having a clear understanding of export regulations, export documentation requirements, and export shipping procedures.

DataMyte’s Digital Clipboard is a workflow automation software that can serve as an export compliance solution. It will provide you with the tools and visibility needed to manage all aspects of your export program from a single platform. 

The DataMyte Digital Clipboard lets you:

  • Create workflows that are compliant with export regulations
  • Create export compliance checklists to help you identify red export flags
  • Assign export compliance tasks to specific team members
  • Track and manage export compliance risks
  • Monitor export compliance metrics
  • Audit your export compliance program

 

Schedule a demo today to learn more about how DATAMYTE can help you with export compliance! You can also visit our website to learn more about our Digital Clipboard and other products.

 

Conclusion

By keeping an eye out for these EAR compliance red flags, you can minimize the risk of delays and increased costs associated with export compliance violations. Creating and following an export compliance checklist is the best way to ensure that your export transactions are compliant with the EAR. So make sure you create one today using DataMyte’s Digital Clipboard.

 

 

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