The 5 W’s of exporting compliance checklist

5 questions companies should be asking about exporting compliance

The 5 W’s of exporting compliance checklist

The U.S. Department of Commerce’s Bureau of Industry and Security and the Bureau of Political-Military Affairs' Directorate of Defense Trade Controls take export compliance seriously. When one of their laws is broken, they consider it either a threat to national security or to the United States’ ability to remain a dominant commercial entity. For this reason, it takes a significant amount of work to keep your exports compliant in comparison to imports.

Pete Mento, managing director in global tax services at Crowe, provides an export compliance checklist of five questions companies should always ask before exporting materials or technology.

  1. Where is the product going?
    Several countries are on a restricted list that prevents anyone in the United States from shipping to them. However, there are rare exceptions, such as humanitarian aid efforts.

    When making an exportation deal, companies must make sure that no goods are being shipped to Cuba, Syria, North Korea, Iran, Sudan, or Venezuela. Before you’ve even sent the product, if you accept a deposit from someone on the Office of Foreign Assets Control’s restricted list, you’re already noncompliant.
  2. What is the product?
    Knowing the product can make it easier to identify several red flags that can appear in the negotiations of the export. For example, if the buyer declines a product that includes installation, training, or routine maintenance, it’s possible the buyer intends to break the product down for parts.

    Another potential problem can happen when the purchaser has little to no business background. Mento likens this scenario to a 16-year-old walking into a Ferrari dealership to buy a high-powered car: The deal is a bad idea for everyone. In these situations, it’s important to dig deeper into potential red flags to avoid a buyer that threatens your export compliance.
  3. What is the classification of the product?
    All goods can be broken down into one of two classifications:
    1. Schedule B number or Harmonized Tariff Schedule (HTS) code
      Almost all exports can use the HTS code. However, some products require the use of the Schedule B number rather than the HTS code.
    2. Export Control Classification number
      While the HTS code primarily is used to keep track of statistics, the Export Control Classification number is used to determine if products require a license.
    If you’re shipping goods that require a license, always make sure your products are being classified correctly to avoid additional scrutiny from the Directorate of Defense Trade Controls or the Bureau of Industry and Security.
  4. Who is receiving the product?
    When shipping goods from one place to another, you should always be aware of the final destination. If the buyer intends to resell the product once it gets it, you should know whom the buyer is selling it to and where it’ll be going.

    This knowledge is especially important because, as the U.S. principal party of interest, you’re ultimately responsible for any subsequent resale. If you sell your product to someone in an approved country and they sell it to a country on the restricted list, you will be held responsible for that sale.
  5. Why does your customer want the product?
    The purchaser is unlikely to admit they’ll use your product in nefarious ways. But if you can prove that you made a legitimate attempt to determine what the eventual use of the product was going to be, it’s much less likely that the governing bodies will see you as culpable in the matter.

    If you notice a discrepancy between the product’s capabilities and the buyer’s line of business – a bakery buying sophisticated computers, for example – due diligence should be done to make sure that this is a legitimate purchase.

If you have questions regarding export controls, Crowe can help you maintain export compliance, cut costs, and reduce risks of global trade.

For more insights from Pete Mento, be sure to sign up for his biweekly Trade School webinar series.

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Pete Mento