Small firms lead the United States in exporting. But what entrepreneurs don't know about export laws could cost them millions! One export expert offers tips on protecting your business against export violations.
Interviewer: Export compliance law is applied to all businesses, big and small. Federal fines for export violation can reach up to $1 million dollars per violation and some can be classified as criminal cases, meaning possible prison time. Our exporting expert joins us today, David Noah. David welcome. David Noah: Thank you. Interviewer: David is the founder and president of Shipping Solutions, developer of export software. David, where should a business start to ensure that their compliant with US export regulations? David Noah: Well, the first step is to properly classify your products. You need to know what the Export Control Classification number or ECC number of your product is, so that you can determine whether not your products require a license before you can export them. Interviewer: What sort of categories are we talking about—flammable, explosive, computer related—how do they break it up? David Noah: Well, the government calls it dual use products. So even if a product has a commercial application, if that technology of that product could be modified in a way and that it could be used in a harmful way against our country, then that’s something that maybe controlled by the government. Interviewer: So if I’m, for example, a farm exporter and I’m exporting large amounts of nitrogen-based fertilizer, it could be a potential dual classification, because it can also be used as an explosive, right? David Noah: That’s right. Interviewer: Okay, well how does an entrepreneur determine if the destination country requires an export license? David Noah: Well, the Export Administration Regulations include a thing called a country-controlled list. And this list will tell you, based on that ECC classification of your product whether an item is controlled for that country that you want to ship to and would require an export license. And that could depend on the country that you’re shipping to. An item is more likely to be controlled if you’re shipping it to China than if you’re shipping it to Canada. Interviewer: So, if I’m shipping parts for a nuclear reactor, I probably won’t be able to send them to North Korea, right? David Noah: You probably can’t send them pretty much anywhere in the world without getting an export license. Interviewer: What are some of the ways to research or screen export transactions? David Noah: Well, a lot of the information is available online. Several of the US government agencies published a list of bad guys or denied persons. And you need to always make sure you check all the parties in your transaction against those several different lists to make sure you’re not shipping to or using a carrier who is on one of those lists. Interviewer: Now, when we say denied persons, are we talking about individuals or are we talking about countries? David Noah: It could be individuals; it could be companies or other organizations. And then there’s also a list of countries that are embargo and those are controlled as well and you can’t export to those without getting a license. Interviewer: David, what are some of the red flags to look out for in export compliance? David Noah: Basically if anything is unusual about an order, something that raises your curiosity that would be considered a red flag. So if a customer’s willing to pay a large sum of cash upfront for an order and that’s unusual, that’s a potential red flag. If they’ve asked you to ship it to an international freight forwarder or PO Box, that’s another potential red flag. If it’s a product that typically requires some kind of training and they don’t want the training, that’s another red flag. So anything that’s out of the ordinary that’s unusual for an order for your products that would be a considered a red flag and something that you have a legal anti-moral responsibility to investigate further. Interviewer: So are there hard members for this like over so many units or over a monetary amount or is it pretty much a common sense, “I know my business this is not right,” type of thing. David Noah: Exactly. It would be a common sense thing. If something is out of the ordinary, it’s worth at least another look. Interviewer: Is it possible for small and mid-sized firms, many which don’t have a lot of resources to outsource the export document compliance? David Noah: Absolutely, but remember that you can outsource the responsibility but you can’t outsource the liability. So if you’re a company that’s using a freight forwarder to do the compliance or some other at their party logistics company to do that compliance screening for you, if they make a mistake, it’s your company that’s still legally liable and could face those penalties that you described for the violations. Interviewer: So, much like my CPA, he does all the work, crunches all the numbers but if the IRS audits me ultimately I’m the one who’s responsible David Noah: Exactly, absolutely. Interviewer: David Noah thanks again for joining us today. David is the founder and president of Shipping Solutions, a developer of export software. You van learn more about his company at www.shipsolutions.com and of course our company is SBTV.com, where small business is our only business.