Checking Lists Isn't Enough for Export Compliance... Here's Why

David Noah | April 29, 2015 | Export Compliance
Print this article:

10 Lists You Should Check for Export ComplianceWe’d spent the last seven hours driving to the North Woods, and then took a couple of hours to trek into the forest. We'd just finished setting up camp when the first sign of trouble—an ominous wall of grey and flashes of lightning—appeared. Not five minutes later, fireworks of lightning exploded overhead, thunder roared, and rain began to flood our campsite.

In the belly of the forest, we rushed to pack up and seek shelter in the car. Our headlight beams pierced the dense grove of trees, but the rain and the darkness seemed to suck us in—every direction looked the same, and the tire tracks we’d left were quickly washed away.

With no clear vision of where we’d come from and only a vague sense of what we should be looking for, it seemed we’d be stuck in the flooded woods for the night—until we pulled out the map we’d picked up at the park’s ranger station. It gave us a sense of direction, an overall idea of where we were, and what pitfalls we needed to pay special attention to avoid: a lake just a few yards away, a marsh we would have been stuck in, and an obscure rock formation that might have seriously harmed us had we hit it in the car. Our map kept us away from danger, and it gave us something to follow to avoid a precarious situation.

We were thankful for a map, but we knew we could have avoided the whole scenario by taking precautions so we were prepared for the weather.

Sometimes, export compliance feels a lot like that forest did. It can be a dense, clouded and unnerving place. Your clarity is obstructed, and the pitfalls and hidden obstacles could easily cost you. Export compliance, specifically, has another tricky aspect—there’s no one single place you can reference to make sure you’re avoiding exporting to people or countries illegally. That's why you shouldn’t attempt exporting without checking the conditions before you enter the forest.

In order to make that easier, here are four important facts exporters need to know regarding export compliance checklists:

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. If you violate any of the regulations, there are severe penalties.

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 $250,000 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 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, according to the Bureau of Industry and Security (BIS).

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, reexporting 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, reexports 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, reexport 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. Nonproliferation Sanctions

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

e. 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.”

f. 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 require a license for exports or reexports to any party in any entry on this list that contains any of the suffixes ‘SDGT’, ‘SDT’, ‘FTO’, ‘IRAQ2’ or ‘NPWMD’.

g. 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.

h. 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.

i. 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 several major deficiencies exporters must know about.

  • Most importantly, the Consolidated Screening List is not a complete list. The nine 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 not updated real time, and the ultimate responsiblity (of the exporter) is 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.
  • With the consolidated list, as well as other lists provided online, you're just downloading a list of names only. Think of it this way: if you’re a bad guy, it's pretty likely you will not go by only one name, especially one that's known to be problematic. Also, there are many variations on foreign names, so the odds that you’re going to get an exact match on a spelling of a name are limited.

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 parties 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. There's a more sophisticated way to ensure export compliance.

If that’s too tedious, don’t sacrifice your export compliance—use Shipping Solutions export document software to quickly check multiple lists at once. Shipping Solutions Professional's Export Compliance Module 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 Export Compliance Module 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 Shipping Solutions Professional software 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.

For More Information on Export Compliance

We have an extensive archive of export compliance articles on the Shipping Solutions International Trade Blog. Here are a few selected articles:

Download What You need to Know About Export Compliance White Paper