Checking Lists Isn't Enough for Export Compliance

I remember riding in the car with my children when they were learning to drive. Whenever we approached an intersection with a traffic light, they always knew what to do when they saw a red or green light—stop or go—but a yellow light always caused a certain level of anxiety.

Should they immediately slam on the brakes and come to a screeching halt no matter where we were in the intersection? Or should they hit the gas and hopefully accelerate through the intersection before the light turns red, while nervously checking the rearview mirror for a police car?

Like many times in life, we don't always face easy black-and-white—or red-and-green—decisions. As my kids spent more time behind the wheel, they learned how to properly assess the situation whenever they approached a yellow light and respond appropriately.

For those of us involved with exporting, making sure our companies stay compliant with U.S. export regulations involves a lot more yellow lights than red or green. We need to approach each export with caution and evaluate the situation.

Reviewing the Parties In the Export Transaction

While a good export compliance program includes several steps, running restricted party screening against all the parties in your export transaction often causes anxiety among less-experienced exporters. That's because you don't always get a straightforward yes or no result. There are more than a hundred lists to check, and sometimes you get a partial match indicating caution.

Here are four important facts exporters need to know about screenings:

1. Restricted Party Screenings Are Integral to a Healthy Export Compliance Process

Restricted parties are individuals, businesses and other organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction, known to be involved in terrorism or drug trafficking, or who have had their export privileges suspended. These individuals, businesses or organizations could be located within the U.S. or internationally. Even the smallest exporters should check all the parties in every export transaction against the various denied party screening lists to prevent penalties.

The U.S. government, as well as several other governments and organizations like the United Nations and the European Union, publish lists of restricted parties to whom you can't export without a license. That includes items that are EAR99 or otherwise don't require an export license based on the country of export.

2. There Can Be Severe Penalties for Exporting to Someone on the List

Some businesses think they are too small or too insignificant to get caught violating export compliance regulations. This is simply not true. Enforcement officials treat each incidence of violation equally, whether you're a multi-billion dollar company or a small-to-medium-sized business. The regulations clearly state that compliance is mandatory for everyone—no matter what. The penalties are severe for breaking these laws:

• According to the U.S. Department of Commerce's Bureau of Industry and Security (BIS), fines for export violations can reach up to $1 million per violation in criminal cases.
• Administrative cases can result in a penalty amounting to the greater of $300,000 or twice the value of the transaction.
• In addition, criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
• You can find out more about the devastating consequences of violating export compliance regulations in the BIS publication, Don't Let This Happen To You.

3. A Free Consolidated Screening List Is Available, but Use It Cautiously

The Consolidated Screening List is an effort to combine major restricted parties lists in a place where exporters can easily identify who they can't ship to. The following lists belong to the Consolidated Screening List, and they are aggregated from:

• Department of Commerce – Bureau of Industry and Security
• Department of State – Bureau of International Security and Nonproliferation
• Department of State – Directorate of Defense Trade Controls
• Department of the Treasury – Office of Foreign Assets Control

a. Denied Persons List

The Denied Persons List is a list of individuals and entities that have been denied export privileges. Dealings with a party on this list that would violate the terms of its denial order are prohibited.

b. Unverified List

According to the BIS, the parties on the Unverified List are ineligible to receive items subject to the Export Administration Regulations (EAR) by means of a license exception. According to the BIS website, “exporters must file an AES record for all exports to parties listed on the Unverified List and obtain a statement from such parties prior to exporting, re-exporting or transferring to such parties any item subject to the EAR which is not subject to a license requirement.”

You can find the restrictions on exports, re-exports and transfers (in-country) to persons listed on the unverified list in Section 744.15 of the EAR; the Unverified List is established in Supplement No. 6 to Part 744 of the EAR.

c. Entity List

The EAR has an Entity List: a list of certain foreign persons (including businesses, research institutions, government and private organizations, individuals, and others) who are subject to specific license requirements for the export, re-export and/or transfer (in-country) of certain items.

The Entity List is found in Supplement No. 4 to Part 744 of the EAR. Individually, the persons on the Entity List are subject to licensing requirements and policies in addition to those found elsewhere in the EAR.

d. Military End User List

According to BIS, the parties on the Military End User List (MEU) have been determined to be military end users and represent an unacceptable risk of use in or diversion to a military end use or military end user in China, Russia or Venezuela.

e. Nonproliferation Sanctions

Nonproliferation Sanctions parties have been sanctioned under various legal authorities against foreign individuals, private entities and governments that engage in proliferation activities.

f. AECA Debarred List

The AECA Debarred List is comprised of entities and individuals who are prohibited from participating directly or indirectly in the export of defense articles, including technical data and defense services. Pursuant to the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR), the AECA Debarred List includes persons convicted in court of violating or conspiring to violate the AECA and subject to “statutory debarment” or persons established to have violated the AECA in an administrative proceeding and subject to “administrative debarment.”

g. Specially Designated Nationals List

The Specially Designated Nationals List names parties who may be prohibited from export transactions based on OFAC’s regulations. The EAR requires a license for exports or re-exports to any party in any entry on this list that contains any of the suffixes ‘SDGT’, ‘SDT’, ‘FTO’, ‘IRAQ2’, ‘NPWMD’ or 'NS-PLC'.

h. Foreign Sanctions Evaders List

The Foreign Sanctions Evaders List is comprised of foreign individuals and entities who were determined to have “violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Syria or Iran, as well as foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. Sanctions.” Transactions between U.S. exporters and foreign sanctions evaders are prohibited.

i. Sectoral Sanctions Identifications List

The Sectoral Sanctions Identifications (SSI) List is comprised of individuals operating in sectors of the Russian economy with whom U.S. persons are prohibited from transacting in, providing financing for, or dealing in debt with a maturity of longer than 90 days.

j. Correspondent Account or Payable-Through Account Sanctions List

The CAPTA List includes one foreign financial institution subject to correspondent or payable-through account sanctions.

k. Non-SDN Menu-Based Sanctions List

The NS-MBS List is comprised of individuals subject to certain non-blocking menu-based sanctions.

l. Non-SDN Chinese Military-Industrial Complex Companies List

The NS-CCMC List is a reference tool that identifies people subject to certain sanctions that have been imposed under statutory or other authorities.

m. Palestinian Legislative Council List

The Palestinian Legislative Council (PLC) List is comprised of individuals who were elected on the party slate of Hamas, or any other foreign terrorist organization, specially designated terrorist, or specially designated global terrorist.

The Problems with the Consolidated Screening List

The Consolidated Screening List is handy, but it has some deficiencies exporters must know about.

• Most importantly, the Consolidated Screening List is not a complete list. The 13 lists are just a fraction of the scores of lists exporters must check.
• The Consolidated Screening List is not updated in real-time. The website itself notes that it is updated each day, but it is the responsibility of the individual agencies to make these updates available for the list. As their website states, it is the ultimate responsibility of the exporter to check the Federal Register and see the latest names added, as there may be a lag before those names are added to the individual list including, but not limited to, the consolidated list.

The bottom line? Every exporter—even the smallest exporters—should check all the parties in every export transaction against the various restricted party lists to prevent penalties. The restricted party lists are all updated at random times on their individual websites, and the only place to guarantee you’re identifying every restricted party on the more than 125 lists is on the Federal Register. You—or your export compliance software provider—should check the Federal Register every single day.

4. A More Sophisticated Way to Ensure Export Compliance

If that’s too tedious, don’t sacrifice your export compliance—use Shipping Solutions' Restricted Party Screening (RPS) Wizard to quickly check multiple lists at once. The RPS Wizard continuously monitors the Federal Register to make sure all the latest names and addresses are part of its consolidated list. With Shipping Solutions software you can check all the required government lists by just clicking a button, so you have (at least!) 125 fewer things to worry about.

The RPS Wizard relies on sophisticated algorithms that identify the close matches in your screening process, including misspellings, alternate spellings, different formats for addresses and company names. It provides a more comprehensive review of each list and an indication of the likelihood of a potential match. Of course, the RPS Wizard tells you if there’s a 100% match on a name or address; more importantly, it tells you if a contact is a 95% match or a 72% match or some other potential match. With that information, you can make more informed decisions about your potential international business partners.

The RPS Wizard also maintains a record of all your restricted party screenings. An important part of a company's export compliance process is maintaining records of all your efforts. With the RPS Wizard, you can quickly generate a list of all the screenings you've performed within any timeframe you'd like.

More Information on Export Compliance

We have an extensive archive of export compliance articles on Passages: The International Trade Blog. Here are selected resources:

• 6 Basic Steps for Export Compliance
• The Art of Using an Effective Restricted Party Screening Program for Your Exports
• Request a Free Trial Subscription to the Restricted Party Screening Wizard

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This article was first published in April 2015 and has been updated to include current information, links and formatting.