Census to put pressure on exporters for accurate SEDs

Census to put pressure on exporters for accurate SEDs The U.S. Census Bureau is designing an informed compliance audit program to help educate shippers on how to accurately file electronic export documents, but is prepared to point out gross violators to Customs and the Commerce Department's Bureau of Industry and Security so they can act as surrogate enforcement agencies.
   Operating under the premise of where there's smoke there is fire, the Foreign Trade Division plans to refer companies that have loose internal controls for using the voluntary Automated Export System as candidates that might also be violating international trade and export control laws.
   'We assume that if you violate our regulations you are probably violating BIS's regulations,' and it may want to investigate a potential risk, said William Bostic Jr., chief of the Foreign Trade Division, in an interview during the mid-April conference of the National Customs Brokers and Forwarders Association of America in Phoenix.
   Census plans to launch the nationwide audit of non-compliant AES filers on June 1, Bostic said.
   His comments mark a significant change in philosophy since last November, when Census officials announced their intent to audit AES records for educational purposes only.
   Census currently has no penalty provisions.
   The Commerce Department agency published in February 2005 a proposed regulation that would require mandatory electronic filing of export information, but the rulemaking has been stalled by an intramural dispute with the Department of Homeland Security over continued use of post-departure filing of shippers' export declarations (SEDs) and the department's desire for blanket permission to share confidential export information with foreign governments and other agencies as part of antiterror security cooperation.
   Post-departure filing in AES, also known as “Option 4,” allows certain approved exporters and forwarders to process export declarations 10 calendar days after departure, because in some cases much of the shipment data, such as weight, is not known until the ship is loaded and sails. Option 4 filers represent 20 percent of all export transactions and 20 percent of the value of all exports, according to Census.
   Congress mandated in 2002 that all SEDs be filed through the Automated Export System or its online cousin, AES Direct.
   The proposed rules would also give Census the ability to enforce its own regulations for the first time by delegating authority to CBP and BIS.
   And along with the move to paperless filing are new penalty provisions — up to $1,000 for each violation and $1,000 for each day, up to 10 days, that an SED is not filed for a shipment.
   BIS is responsible for licensing exports with dual commercial and military applications, and enforcing embargoes and nuclear non-proliferation restrictions.
   Under the current regulations, export information is collected from both paper and electronic transactions filed by exporters or their freight forwarders. The vast majority of SEDs — more than a million transactions per month — are electronically filed. Census uses the data to compile the nation’s trade statistics, while CBP uses the information to target illicit outbound cargoes for seizures in real-time and BIS uses it to investigate export control violations, usually after the shipment has gone through.
   Data quality plunges 50 percent when paper forms are filled out, in part because paper filers do not benefit from automated prompts warning that essential data is missing or incorrect. Despite the low error rates with SEDs filed via AES, Census wants to tighten up the system so that its trade statistics are more accurate.
   Census can take away a company's AES privileges, but the exporter can still get a freight forwarder to file on its behalf or go back to using a paper SED.
   The Foreign Trade Division in March began a pilot AES Compliance Review Program designed to test its processes and develop a list of best practices used by companies to achieve high compliance levels during the past three years, Bostic said. The demonstration program involves 16 companies in the Mid-Atlantic region, including a few non-compliant companies to test the review process.
   Small teams of Census staff will visit the companies to get a sense of how they overcame challenges with filing electronic SEDs. Census is interested in their filing process, and what practices and quality controls they put in place to ensure compliance. Those lessons will then be shared with companies who are still having problems filing export information correctly in AES. Census officials say most errors involve late filings, wrong export classification numbers and not following the special reporting requirements of post-departure filing.
   Census currently sends out fatal error reports to exporters every two weeks, asking them to take corrective action. Companies that export without fixing a fatal error technically have not filed an SED and the report indicates Census is aware of the problem. Exporters are expected to correct any errors and submit a voluntary disclosure that they made shipments without the complete documents.
   Export specialists emphasize that simply filing out the AES form correctly doesn't mean a company is in compliance with export regulations. AES only measures if the proper data is entered in the appropriate field.
   The audits will start with a phone call and a follow-up letter to confirm the date of a meeting and the compliance issues to be reviewed, Bostic explained. Census will provide a four- to six-week window prior to visitation to allow companies time to prepare and have appropriate personnel attend or join the meeting via conference call.
   The agency will work closely with non-compliant AES filers to correct the problems. It will send a follow-up letter with recommendations and give the company 90 days to come into compliance.
   'If they don't, then we will consider making a referral to BIS's Office of Export Enforcement or CBP,' Bostic told Shippers' Newswire.
   By playing the role of informant for BIS and CBP, Census is attempting a backdoor approach for enforcement while the mandatory AES rule is in political limbo.
   The pitch Census officials plan to make to their sister Commerce agency or CBP is, 'Here's what we found, issues we are having with our regulations. So you may find similar non-compliance with your regulations,' Bostic said.
   The compliance review program will be targeted at larger companies that are non-compliant because of the agencies limited resources, he said. Census will consider the size of a company and the value of its export transactions on a monthly or annual basis.
   Bostic said his team will be looking to see how much training a company has provided its staff about export regulations, how they input the data, whether they are involved with routed transactions, and other issues related to the electronic filing of the SED. Routed transactions have added challenges because they involve a foreign party granting power of attorney to a domestic freight forwarder to complete the documents.
   Export compliance experts say that companies can improve their compliance by conducting internal audits. Those that use a freight forwarder to file their SEDs, also need to check the transportation intermediary's work too to they know what's being filed on their behalf.
   Paul DiVecchio, a Boston-based consultant on export regulations, found it hard to believe that Census would get in the enforcement game.
   'I would be really surprised if that's going to happen because Census has traditionally not been an enforcement agency. It was a struggle to even get them to a point to get penalties in the new regulations.
   'If CBP and Commerce are not going to be part of the audit, how can there be a penalty for non-conformity?' he wondered.