The LogisTech Curve: Export Compliance – Minimizing Your Risk

By Martha Lessman Katz, Member of the law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC
December 22, 2011 - SCMR Editorial

Even when (if) the Export Control Reform Initiative simplifies the framework and system, undoubtedly the compliance process will remain complex.  Avoidance only pushes the canister down the road where, at some future time it might explode.  An unfortunate metaphor, but the imagery quickly illustrates the hazard that may result if you ignore the law.  Only by taking the time to understand the process and baking export control into your business processes, will you get your arms around the process and minimize the risks of noncompliance.  Consider the following:

• Create an Export Compliance Office, led by an experienced, knowledgeable Export Compliance Officer.

This will go a long way toward highlighting the issues and reflecting C-level support.

• Develop a strong trade compliance program.

Good programs are not “one size fits all.”  Every company has multiple supply chains, multiple products and customers, each with their own individual needs and risk profiles.  Therefore, each program should be tailored to your particular type of organization, its size, products, employee make-up, geographic reach, etc.  Make it as simple, with as little delay but as much certainty about applicable options and restrictions, as possible.  Find the right bureaucratic balance on both the front end licensing and documentation, as well as the ongoing license management and record-keeping or your personnel will quickly figure out how to ignore or work around it.  Use your intranet site as a resource.  Encourage people to ask for assistance from your Export Compliance Office.  If you are new to the process, http://export.gov is an excellent resource for export basics.  Operated by the Department of Commerce, the website is a collaboration between many of the other agencies involved in export control.  Stanford University’s electronic “Decision Tree” leads the user through a variety of questions, one at a time, with explanatory notes so that users understand why truthful responses are critical in the licensing process.  Visit http://export.stanford.edu/tree/ to get a feel for Stanford’s process.

• Program implementation should include extensive education and training.

Definitions are complex and the legal requirements differ product to product, country to country.  Although not discussed in this Export Control and Compliance series, export compliance should also address the Foreign Corrupt Practices Act, which prohibits payments to foreign offices to obtain or retain business.  The Anti-Boycott Regulations prohibit U.S. persons from participating in foreign boycotts or taking action that further or support boycotts of countries friendly to the United States.  The “Anti-Dumping Agreement” addresses exporting products at prices lower than those normally charged in the exporters home market.

University/industry collaborations present additional challenges when research institutions strive to maintain the “fundamental research” exclusion from export control.  For example, the “fundamental research” characterization may be jeopardized by customary and seemingly innocuous confidentiality/nondisclosure restrictions often contained in a variety of documents such as licenses, material transfer and clinical trial agreements.  However, if these provisions restrict the university’s right to publish research, they may put the “fundamental research” exclusion at risk.  Other export control issues should also be considered when engaging in these and other similar agreements.  In addition, foreign national participation in research that involves controlled information or software may necessitate an export license. 

Most employees want to do the right thing.  By explaining the enormity of the issue, the purpose, process and risks of noncompliance will become clear. 

• Effective programs guide the user through the four basic questions to determine licensing requirements.

o What are you exporting?
o Where is it going?
o Who will be the recipient?
o What will the recipient do with the item? 

• Effective programs include procedures to isolate foreign persons (physically and electronically) from access to controlled products to avoid violations.

Companies need to take the necessary steps now to be ready to enjoy the benefits of the National Export Initiative’s goal to double exports over the next few years.  Export control and compliance programs should not be viewed solely as obligatory defensive obligations to minimize risk, although that is certainly necessary.  But by preventing delay in opening new markets, getting your products to their customers and engaging the services of foreign nationals with unique skills, effective programs can expand a company’s valuable opportunities, thereby giving you an invaluable competitive edge. 



About the Author

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Martha Lessman Katz
Member of the law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC
Martha Lessman Katz specializes in data security and privacy, intellectual property, licensing and technology transactions, eCommerce, social media and other issues relating to the internet. She is a member of the law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC and can be reached at .(JavaScript must be enabled to view this email address).

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