Partnering against export crime

Experts say it’s better to report attempted wrongdoing to federal regulators.

By Chris Gillis

   If a buyer makes a questionable export request, the smart company would turn down the business.
   However, the more diligent company would take the matter a step further by reporting the suspicious activity to federal authorities in charge of overseeing the country’s enforcement of export regulations.
   Industry experts specializing in U.S. export regulatory compliance say it’s in the best interest of exporters and freight forwarders to relay information about unusual shipment requests to the appropriate agency for follow-up.
   “It’s not about being a tattletale,” said Paul DiVecchio, president of Northboro, Mass.-based DiVecchio & Associates, who has more than 30 years of experience assisting companies with their export compliance. “It’s about doing the right thing and not turning a blind eye to something that’s suspicious.”
   According to the U.S. intelligence community, businessmen, scientists, students and academics from overseas are among the most active collectors of sensitive U.S. technology. Most did not initially come to the United States with that intent. Instead, after finding that they had access to technology in demand overseas, they then start to engage in this illegal activity.
   Similarly, some foreign government organizations are active in illegally acquiring sensitive U.S. technology. According to the U.S. government, they will set up quasi-official operations in the United States to facilitate contact with overseas individuals who will seek to make their transactions.

   The Commerce Department’s Bureau of Industry and Security regulates exports of certain licensable “dual-use” items, which could be used for both commercial and military purposes, while the State Department’s Directorate of Defense Trade Controls oversees licensed shipments of arms, munitions and other military technologies.
   Other agencies active in export control enforcement are Treasury Department’s Office of Foreign Assets Control, Defense Department’s Defense Technology Security Administration, Homeland Security Department’s Immigration and Customs Enforcement, and FBI.
   While there’s no legal obligation to report suspicious export requests, federal agencies generally maintain an open-door policy with the industry to provide them this type of intelligence. Yet, many companies are reticent, either preferring not to get involved or worrying if they do provide the government vital information that they could get dragged through an investigation.
   Douglas Jacobson, a Washington-based attorney specializing in trade compliance regulations, said it’s not uncommon for the U.S. aerospace industry to be approached by middlemen seeking aircraft parts for customers in embargoed countries. Iran, in particular, operates fleets of aging U.S.-made civilian and military planes that desperately need parts to continue flying. He’s often asked by clients in this industry whether it’s appropriate to turn over leads to BIS’s Office of Export Enforcement (OEE).
   “I tell them there’s no downside to providing information to law enforcement. In fact, there’s an upside,” he said. “It shows law enforcement that you’re a good corporate citizen.”
   Jacobson further noted that having a track record of reporting potential bad actors to BIS may actually help mitigate fines and penalties if the exporter itself makes a violation of the export regulations.
   Phillip Poland, director of export control and trade integrity for DHL Express (USA) based in Erlanger, Ky., concurs. “Having a positive relationship with OEE helps when the unfortunate time comes that the forwarder may discover potential violations of its own,” he said. “The forwarder can show its prior cooperation as a mitigating factor to potential violations, because the forwarder being able to identify and turn over potential customer violations is proof that it has a strong compliance program.”
   During the past 20 years, U.S. agencies responsible for export controls have developed various programs to increase outreach with the industry. “Some of these efforts have been successful and others have created a great deal of redundancy and confusion resulting in major gaps in preventing the illegal export activity,” DiVecchio said.

Paul DiVecchio president, DiVecchio & Associates
“It’s not about being a tattletale. It’s about doing the right thing and not turning a blind eye to something that’s suspicious.”

   One of the more successful programs was the Commerce Department’s Business Executives’ Enforcement Team (BEET) in the mid-1990s. BEET offered town hall-style meetings with industry to discuss ways to help executives improve self-policing of export controls and strengthen cooperation between exporters and enforcement agencies.
   “This was extremely successful, resulting in solid two-way dialogue,” DiVecchio said. “But new administration and political appointees perceived this outreach as soft on enforcement. Making cases as opposed to outreach became the important metric and thus BEET got beaten up and dissolved.”
   In 2007, the Justice Department formed the multiagency National Export Enforcement Initiative’s Counter-Proliferation Task Force to harden its combat of illegal exports of restricted military and dual-use technology from the United States.
   One of the hallmarks of President Obama’s export reform initiative is to have a single enforcement agency for export controls. The Export Enforcement Coordination Center is expected to coordinate and enhance enforcement efforts and eliminate gaps and duplication across all relevant departments and agencies. This requires congressional approval and is not expected to easily happen with the competition between existing agencies.
   What’s in place now is the government’s so-called Fusion Center to which all agencies involved in export enforcement have assigned representatives. The center coordinates federal export enforcement to include license reviews and investigations.

   DiVecchio, who has provided numerous training seminars to export agents at BIS and Customs over the years, said federal agencies have long relied on exporters and forwarders as their “eyes and ears” for exposing illicit activities, but they seem to have lost this ability to partner with industry in recent years. “The approach in this arena is lacking,” he said. “This is not covert. It must be overt, such as offering public forums similar to the BEET concept.”
   He said the agencies need to provide the industry with a clearer channel for reporting suspicious export activities, avoid the “cloak and dagger” approach during follow-up meetings with companies, and whenever possible provide feedback to the party bringing information to the agency.
   For the industry’s part, DiVecchio recommended exporters and forwarders should:
   • Establish a focal point in the company who coordinates export data collection and outreach to the representative agencies.
   • Don’t say no — “The natural instinct is to turn away any suspicious transaction,” DiVecchio said. “Before doing so, reach out to the appropriate agency to partner. The agency may want to go forward, issuing a hold harmless letter or they may want to have the opportunity to sting the transaction with the company’s cooperation.”
   • Exercise due diligence by making sure the company’s personnel know to contact the compliance officer with any anomaly related to international transactions.
   • Document all actions taken to maintain a solid recordkeeping audit trail.
   Poland said DHL employees receive varying levels of export compliance training depending on their position in the company. “The complexity and length of training increases based on the employee’s potential exposure to export compliance issues,” he said.
   Training for DHL Express (USA) employees ranges from internal presentations made by the trade compliance team to completion of external certification programs through organizations such as the National Customs Brokers and Forwarders Association of America, and International Import Export Institute.
   “A courier or person moving a box in the hub needs a basic level of training to be aware that there are embargoes and sanctions against certain countries,” Poland said. “Those employees need to also be aware that only approved and cleared shipments can be sent to those restricted countries. The employees performing the screening and inspections of shipments going to an embargoed or sanctioned country need further training to be familiar with what is permitted under the various embargoes and sanctions programs, and those employees need to be able to identify red flags that need to be escalated to the compliance team.”