Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

So again, good morning, everyone. Thank you for joining for the Export Compliance webinar today. My name is Sarah Mass, and I'm in sales operations based in our Minneapolis branch and I'll be your webinar host for today. Before we begin, I just want to cover a couple of items to note for the webinar. Today, the webinar will be approximately 90 minutes in length and we will be respectful of everybody's time today. So there will be 60 to 70 minutes of content with 15 to 20 minutes at the end for Q&A. [Operator Instructions] We will address as many questions at the end of the webinar as possible. But please note if we do not get to your question, we will follow up after the webinar and make sure your question is answered. We won't be recording the webinar today, and all attendees will receive a thank you e-mail from myself, which includes a short survey that we would like you to complete with feedback from our webinar. After you complete the survey, you will receive the reference material slide deck. Again, thank you for joining. I'd like to introduce our speakers for today's export compliance webinar. Ashley Hubbell is our Ocean Export Supervisor for the Chicago branch and Cara Lemire is our Regional Trade & Customs Compliance Manager for the Midwest region. Again, please remember that all questions should go to the Q&A window. And with that, I'll turn it over to Ashley.

Good morning. I'm Ashley Hubbell. I'm actually -- in the role of District Trade Complaints Manager now for Expeditors, Chicago. Prior to this role, I did spend 13 years with Expeditors in our Ocean Export department. And this I have with me, Cara Lemire.

Good Morning, everyone -- good morning. It works better if I take it off mute. Okay. Good morning, everyone. My name is Cara Lemire. I am a Regional Trade and Customs Compliance Manager for the Midwest. I've been with Expeditors 15 years. And I'm actually based out of our St. Louis office. And thanks this morning for the opportunity to speak with you today. Ashley and I are really excited and happy that you've joined our webinar this morning. And I'm going to turn it back over to Ashley, who's going to kick us off. Okay. And we'll get started. Thanks, everyone.

All right. So today's agenda is we are -- we will walk through the different parties to the export transaction. The responsibilities of those parties in the Export transaction, the EEI requirements and data elements, types of export transactions, the timing of when electronic and export information needs to be filed, government agencies that control exports as well as the penalties and some information to consider before you export and a few best practices. An export transaction or an export is the act of shipping or transmitting an item subject to the export administration regulations from the U.S. to a foreign destination. A shipment is defined as goods being sent from a U.S. principal party in interest to a consignee in a single country of destination and a single conveyance on the same day. For instance, this could mean you could have 3 separate shipments that you send to Expeditors and for the same consignee destination, and we could consolidate them onto the same flight, and they would actually qualify as a single shipment, even if separately, they meet the low-value exemption. Shipment is defined as goods being sent from the U.S. principal party and interest -- my apologies. The U.S. requires that you electronically file the export information through the automated export system. The electronic information is often referred to as the EEI but as previously known as the SED. The EEI can be filed through the government's AES direct website or a filer is actually allowed to also use their own software to make that filing. The Bureau of Census and Customs Border Protection regulates the export process through the FTR. The parties, there are 5 parties to the export transaction, the USPPI, the FPPI, the forwarding or authorized agent, the ultimate consignee and the carrier. The USPPI is the principal party of interest within the U.S. This is a person or entity in the U.S. that receives the primary benefit that could be monetary or some other type of benefit from the export transaction. Generally, the USPPI is the seller manufacturer, [ order ] party or in some cases, it could be a foreign entity if the entity is actually in the U.S. at the time the goods are purchased or obtained. As a general rule, the U.S. requires a U.S. party to be the USPPI. There are a few limited allowances in which the foreign party would be able to assign an agent to act as USPPI. The foreign party in interest -- foreign principal party in interest or FPPI, is the party in which the final delivery is made or will be -- they will be the end user of the goods. This party can be the ultimate consignee, but in general, the foreign party -- principal party in interest is also the foreign buyer of the exported gods. The ultimate consignee is the person, party or designee that is located abroad and actually receives the export shipments. In instances where the ultimate consignee is a trading company, a freight forwarder or warehouse, for example, it is important to understand who the true end user of the goods will be. These types of ultimate consignees are often third parties receiving and holding the goods until final delivery is made to the end user, which means that you do not qualify as the ultimate consignee. The boarding agent or authorized agent is the person in the U.S. who is authorized by the principal party in interest, whether U.S. or foreign to facilitate the movement of the cargo from the U.S. to a foreign destination. And in some cases, they are preparing and filing the required documentation. The authorized agent is required to obtain a power of attorney or written authorization from a U.S. principal party in interest or the foreign principal party in interest to act on its own behalf and to complete the EEI filing. The carrier is the company that transports the goods and/or people by air, land or sea. It can own or charter vessels and equipment and is named as a carrier in the Contract of Carriage. The carrier's responsibility -- responsibilities include delivering the required documents to CBP and the documents shall contain or must contain that appropriate AES proof of filing citation when the EEI is required or if an exemption applies the exemption legend for the cargo -- must be included. Airlines, trucking companies, railroad companies, shipping lines, pipeline companies, these are all examples of carriers. An EEI is required when exporting from 2 foreign countries around the United States, Puerto Rico, U.S. Virgin Islands or if you are exporting from the U.S. to Puerto Rico or the U.S. Virgin Islands. An EEI must be filed when the value of the shipment is over $2,500 or when there is a license requirement. The low value filing exemption does not apply for the ECCN -- for items that have an ECCN or other than EAR99 to China, Russia and Venezuela. This last bullet point is fairly new, taking effect in 2020. These are -- this is a few examples of when an EEI is not required. The list at this [indiscernible] has some routings that qualify for available exemptions. Again, if the Schedule B is less than $2,500, it could qualify for as an exemption. Shipments in bond where cargo originates in the foreign country to -- for another foreign country and these good do transfer across the U.S., but they do not actually enter the commerce or consumption channels of the U.S. The internal business correspondents or Co-Mat -- Co-Mat is referring to interplant company business records. And these are just a few of the exempted commodities from filing 30.37 for miscellaneous exemptions in FTR. Most importantly, licensing determination will still be required. And if a license or an ITAR exemption applies to a shipment to an export, the EEI must be filed regardless of the exemptions. So when you file the -- your EEI, you'll receive an internal transaction number, an ITN number, this is automatically generated by AES once they confirm that your EEI was accepted. It's considered your proof of filing citation and the USPPI or the authorized U.S. agent needs to include this ITN number or the exemption legend to the carrier on their instructions. The ITN number always begins with an X for and then the date it was filed and 6 randomly generated digits following the date. So as you can see, it's X2022 for the year and then the month of May and the date of the 18. This is the list of the required data elements for filing -- for your filing. So you're required to file the name, address, and the EIN or ID number of that USPPI, the state of origin is required. The state of origin actually refers to where the goods are picked up or where they're starting their export journey, not necessarily maybe where your company is headquartered, but where the goods are actually physically moving. You also need to provide a description for the Schedule B commodity code as well as the actual Schedule B number. U.S. Customs does allow most [ ETS ] -- U.S. numbers to be used in place of the Schedule B. There are, however, a very small percentage of Schedule Bs that are excluded from this option. The origin of goods is required. So whether it's domestic or foreign produced or manufactured, the quantity and unit of measure, this is referring to what Census has determined to be the reportable quantity required. Each Schedule B is assigned a quantity. A couple of examples would be like net weight or meter squared. Value is required. The value is either the cost if goods are not sold at the time of export, or the sale price plus the charges incurred to move the goods to the port of export. So examples of additional charges that would be added to the sale price could be inland freight or insurance. You need to provide the ECCN or other government agent -- agency license identifiers, sufficient technical information to determine licensing authority, the ultimate consignee type. In this case, you need to indicate whether the ultimate consignee is a reseller, government entity, direct-to-consumer or other. This is another reason why it's important to know your true end user, so you can accurately assign the ultimate consignee type. And then the licensable value if the shipment is actually licensable. So there are 2 different types of export transactions. The first is a standard transaction in which the foreign principal party in interest, or the FPPI, they place the order with the USPPI and the USPPI then chooses an authorized agent within the U.S. to help facilitate that export, so arrange transportation or help file the EEI and documentation and that is called the standard export transaction. The second is the routed export transaction. And this is similar to the first one where the foreign -- the FPPI will place the order with the USPPI. And then -- but in this case, the FPPI selects the forwarding agent or the U.S. authorized agent to help arrange the export. As exporter, if you chose to be the forwarder for export, it would be a standard transaction. But if your customer should decide the forwarder order, then this transaction would be considered routed. In a routed transaction, the foreign trade regulations are defined it as an export transaction in which the foreign principal party in interest authorizes a U.S. agent to facilitate the export of the shipment from the U.S. and to prepare and file electronic export information on their behalf. Routed transactions are considered risky as they shift control of the goods movement from the USPPI to the FPPI while the FPPI controlling -- is controlling the export transaction, the USPPI must still provide their name, address and all commodity information to the filing agent, and this requirement can be found in the FTR Section 30.3(e). So here are a few responsibilities of the USPPI. So in a standard transaction, the USPPI is able to act on their own behalf and file the EEI or again, they can appoint an authorized U.S. agent to prepare and file on their behalf. They are required to provide the EEI information for that filing. They also need to provide power of attorney or written authorization to a U.S. authorized agent. They are required to make any license determination for the export and retain documentation. In a routed transaction, the USPPI is responsible to file on behalf of the FPPI if a power of attorney or written authorization is received, they provide authorized U.S. agent -- the authorized U.S. agent of the FPPI specific export and licensing information. They -- again, they have to obtain a written authorization from the FPPI and retain documentation. And these are some responsibilities of the authorized agent. So in a standard transaction, the authorized U.S. agent must obtain authorization or power of attorney from the USPPI. They need to provide transportation data, provide the USPPI with export information that provided as submitted through the AES if the USPPI requests it, and they must retain the documentation. In a routed transaction, upon request, they can provide the USPPI with a copy of the power of attorney provided by the foreign principal party in interest, prepare and file the EEI record, timely and accurately, obtain authorization and/or power of attorney from the foreign principal party in interest and upon request provide the USPPI with a copy of the data elements provided by the USPPI. So key points to remember about routed transactions. The FPPI controls the movement of the goods out of the U.S. The FPPI also provides the authorization to a U.S. agent to prepare and file the EEI and the USPPI also provides information to the U.S. agent regarding the shipment or can file the -- or yes, can file the EEI if they have received authorization from the FPPI. It's important to remember this last bullet point that the EEI data must come from the USPPI even in the routed transaction. So there are requirements about when you have to file this to EEI. So this is if the shipments are not ITAR shipments. So in this case, if there are predeparture filings and post-departure filings. So for pre-departure filings, if it's leaving -- exporting on a vessel is required to file 24 hours prior to loading. In the case of air, 2 hours prior to scheduled departure, for trucks it's 1 hour prior to arrival at the U.S. border. And if it's moving by train is 2 hours prior to arrival at the U.S. border. In the case of post-departure filing, this was formerly known as option 4, it must be approved by the government. And you -- the filer has 5 calendar days from the date of exportation to file, and this includes weekends. And you could no longer apply to be a post-departure filer when they adjusted the filing timing requirements then you had to be grandfathered in order to continue to post departure file. And this is regarding the timing of the filing -- EEI filing for ITAR shipments. So ITAR refers to military developed or designed commodities, and Cara will discuss further later on, on how to determine whether your shipment qualifies as ITAR. But in the case of an ITAR shipment, if you're moving by vessel, you need to file within 24 hours prior to loading -- on loading the cargo if it's moving by train, again, 24 hours, prior to the train arrival at the U.S. border to go foreign. If it's moving by truck, you have 8 hours prior to the arrival of the truck at the U.S. border to go cross over into the foreign country. And then if by air, again, 8 hours to the scheduled departure time of the aircraft. And then there is -- there are confidentiality rules regarding the EEI and sharing that information. Only the USPPI or USPPI's agent may have access to the AES record. It is actually prohibited to share the EEI information with a foreign government or entity or any other party for nonofficial purpose. The EEI contained in the AES is confidential and is to be fully used for official purposes as authorized by the Secretary of Commerce. The EEI collected info is used by different government agencies like Department of Commerce, Census Bureau for statistical purposes or also other federal agencies like the DOS or Bureau of Transportation. Outside of this type of authorization information collected shall not be disclosed to anyone from the federal government or other parties other than the USPPI or the USPPI's authorized agent. Information viewed by the government is used for improving compliance with U.S. export laws and regulations as well as detecting and preventing violations. And due to an increase in request for EEI from information from foreign parties in November of this year, Census issued a standard letter, the exporters are allowed to share as support as to why you are unable to provide those EEI details. And now I will hand over the presentation to Cara to discuss the anti -- to discuss the government agencies that control export and penalties.

Thank you so much, Ashley. I appreciate that. All right. So let's talk a little bit about the purpose of export control laws What is their intent? So the U.S. -- United States imposes export controls to protect national security and trust and promote foreign policy objectives. This is done with the purpose to restrict exports of goods and technology that can contribute to military potential of adversaries, prevent proliferation of weapons of mass destruction, under nuclear, biological and chemical avenues, prevent terrorism and comply with U.S. trade agreements and trade sanctions against other nations. So export laws have a lot of purposes, right? Most of them are protection purposes, as you can see. So let's now discuss some government agencies that control exports. Export laws in general are U.S. federal laws and regulations that regulate the export, a strategically important products services and technologies to foreign persons. So let's talk about 4 main players here. Now these are not the only players in the world of export. But we're going to talk about the Bureau of Industry and Security, we talk about OFAC, the Department of State, Customs and Border Protection. Well, briefly -- let me briefly touch on each of these, and then we'll go a little bit more in depth on a few of them. So the BIS or the Bureau of Industry and Security. They're set of regulations, the EAR, covers equipment, materials and other technologies that have both a commercial and potentially a military application. So these items are what's called Dual Use technologies. There could be a variety of different items that are considered this Dual Use. And they put them under what is called this Commerce Control List or the CCL list. Items that could be dual use, could be chemicals, satellites, software, even certain types of material that are -- that's used to like make golf clubs. I'm sure some of you guys like to play golf. The material is used to make golf clubs controlled, fun fact, because it can also be used to make the head of a missile So that type of commodity that we may not think about on a day-to-day basis, it's controlled, but it is. So anything that has these dual uses that is not military in nature, meaning design, developed made with a specific military use, purpose and application are going to fall under the Commerce Control List. Anything that has that military purpose would be more under the Department of State or ITAR. Let's talk next about OFAC, the Office of Foreign Asset Controls. So they are actually under the U.S. Department of Treasury, and they enforce economic and trade sanctions based on U.S. foreign policy, national security goals, and they target against foreign countries and regimes that have terrorists, maybe international traffic, narcotic traffickers, anybody that's engaged in weapons of mass destruction that could be considered in -- a threat to national security and the foreign policy or economy of the United States. OFAC actually acts under presidential emergency action power as well as authority granted by specific legislation to impose controls on transactions and freeze assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates. They're typically multi ladder on scope and could involve a close cooperation with our allied governments. Sanction programs are talked about a lot if you watch any news programs. Some of the ones that you've probably seen on the news in the last year could be sanction programs involving Russia, Venezuela, of course, we have Cuba, Iran. There's many, many out there. I'm certainly won't name them all to date, but there's many different sanctions that are out there, and they fall under OFAC. And then we have our Department of State [ player ]. Department State is going to be military, items that are designed to serve in a military application. So the Department of State has their own list of controlled items. And these are called on the USML list or United States Munitions Control List. So these could be defense services, technologies, anything that's related to military. So -- and there's their own set of regulations that are specific to ITAR. So as Ashley was talking about the EEI timing requirements, they're in a different game than your regular exports or your exports that fall under the Department of Commerce, the Department of State has additional rules involved. And then we have good old Customs and Border Protection. These guys are the enforcer They are the ones that have to make sure that the policies and procedures and the regulations of over 40 government agencies are followed. I talked a little bit more in detail about [ FREE ], different agencies But in addition to the ones that we highlighted, we also have agencies such as official Custom Wildlife, FDA, EPA, DOT, various, various -- NRC, Nuclear Regulatory Commission, their task with enforcing all of these policies. So they have a pretty large job that to do. All right. So let's talk a little bit more about the Export Administration Regulations, EAR under the Bureau of Industry and Security. So we talked about Dual Use. Services to distinguish EER controlled items that can be used in both military and other strategic uses. It can be nuclear, can be commercial applications. The core of export control provisions that are listed within the EAR concern these dual use items. But there could be some times where it's not clear what jurisdiction something falls under and the government does give us guidance on that. There are a few decision trees that are out there that are available to exporters to use. And one of them helps you to make determinations about if something falls under the umbrella of the Department of Commerce or under the Department of State and it's got like a catch in release concept to it, where you put information about your product and it's going to kind of catch it in a hold. And then as you ask in for specific questions, you can pull it back out to say, okay, this really is more Department of Commerce versus Department of State. When we had export reform several years ago, there was a lot of items that had traditionally falled under ITAR regulations under the USML, a whole new set of ECCNs were issued that -- Export Control Classification Number the reasons for control. We had a huge shift in items that moved from the USML to the Department of Commerce and the Series 600. So some of the ECCNs in general, when you look at those on the Commerce Control List, they're going to say that there are parts for like military, they were originally designed for military. But the idea behind this switchover was for there to be control for items -- ITAR control for items that are necessarily only military and don't serve a dual use. So maybe many years ago, a bolt or a nut or something that had been developed to be used on a fighter plane is now used on commercial aircraft too. So that's the type of commodities that maybe used to be on the ITAR list that are now under the CCL list. But still, there could be times where it's not clear even if you go through a decision tree. So you can also go to a scope determination. You can go to these government agencies and say, here's my commodity, which house does this really fall under? Who do I need to apply for a license with? Do you need to apply for a license with the Department of Commerce? Do I need to apply for a license with the Department of State. There's also that service out there as well. And there could be certain actions that you could have to take place under the EAR that you may not really think about as being an export. So Ashley talked to us about the movement of goods. We typically think about a box or crate or whatever the commodity is, something physical that we're putting on a plane or that we're putting in a boat for to go out of the country. In some cases also giving someone access to certain types of technology could be considered an export. And this is what's called a deemed export. So let's say that I have a foreign national that comes to the United States and maybe they're taking a tour of the plant, maybe it's a CEO of the company -- of a company. But the information itself is considered controlled. If I share that information with that person, at least that information to them, it would be deemed an export. And items that are controlled information that's controlled with one of those export control classification numbers, you could need a license to even share that information with someone. So it's just something to think about as you go back, to your office, as I say, back to your offices like we're all in the same room. But as you talk to other people in your company, maybe export compliance is your -- your only job. Or maybe you also are involved with the hiring or maybe you're involved with where people get placed. These are all items to think about, especially if you have commodities that are controlled in nature that could be licensable that if you're deeming or releasing this information to these individuals, have you applied and got the necessary license in place in order to be able to give them that information. We also have to think about the transmission of electronic data now. So hopefully, times have changed. Everything in the cloud, everything being so readily available So any type of transmission of data that is nonpublic would be considered, deemed an export as far as U.S. export regulations are concerned. So just keep that in mind, based off the type of commodities that you handle as a company, and does extra care need to be taken and where employees are in place in any types of electronic data transmissions. Or even in person meetings, Zoom meetings, all of these types of things that we're now all accustomed to doing. We have to make sure that we can set our -- the regulations when we're having those. All right. So we have a fantastic decision tree here. I love flow charts and decision trees. Compliance likes this kind of stuff and I know I got some compliance people on the call. So some of you guys are really feeling this flow chart, I can already tell. But there's a lot of great information out there from our government from -- especially the Department of Commerce, they've got some really cool things out there that once you know that they're out there and available to you, you'll find that, hey, I use these. But the example that we have here is one of the decision trees that I mentioned earlier And this is how to determine like if your item, what to do if your item is subject to export controls? So the first thing that we have to figure out, to even use this decision tree is are items subject to the EAR? Chances are guys, like they are. Chances are that they're going to be. I'm going to say like 99.9% of the time, you're going to fall under the EAR based of what we see. So this would be something is going to fall under the EAR jurisdiction if it has U.S. origin items in it. If it has foreign-made commodities that incorporate controlled U.S. origin commodities. So things that are bundled with items that have U.S. origin items that are controlled, software items like that. Foreign made technology that's co-mingling with any type of U.S. origin technology, even those types of items are going to be subject to the EAR. And then we have items that are moving in bond, anything is moving from a foreign trade zone. All these items are going to be considered under the EAR. So the chances of you moving from our first triangle down to the exit the EAR, very, very slim Most of the time you're going to find yourself moving straight to the right And so now that we've decided that, hey, my item is subject to the EAR, then I have a few more items that I have to figure out I have to figure out my classification under the ECCN, whatever my export control classification number is on the commerce control list. So this flow chart here is for items that we have determined that are nonmilitary. So if I look at the commerce control list and I see all the reasons of the controls that are out there, and my item is not called out on the CCL list, it doesn't have a reason for control, my item would be considered what's called EAR99. It's not a concern for control. And -- if I've decided that my item is EAR99, so I'm going to take us on the path downwards first to talk about if it's EAR99, and then we'll jump back up to ECCNs After I've decided is EAR99, then I have some other things that I have to consider before I can move forward All I have to go through and say, do any of these items -- do any of the general prohibitions that are listed out in the EAR apply? There are 10. They're found in Part 736 of the EAR. And let me just kind of recap them very, very briefly So we have items that exports and re-exports. Export and re-export of controlled items to listed countries. And that may or may not apply We're talking about EAR99, but these general prohibitions, we have to look at them regardless if the item is EAR99 or if the item has an ECCN. So some of these talk about items that are controlled and we've already established that our item is not controlled. It doesn't have an ECCN. Then I'm just going to talk at a high level -- the prohibition so that you have an idea of what they are here? The second one would be looking at the parts and the components for re-exports. Could an exporter re-export from abroad foreign made item, incorporating these items if there's more than a de minimis amount like whatever the measured amount is, the minimal amount. Does it have that item in it? Does it have this controlled content. Looking at foreign produced, direct product re-exports, items that are exported from abroad with foreign products that have U.S. technology and software in them. Looking at denial orders, Prohibition #4, engaging in activities that are prohibited by a denial order. So as you're checking, is my item doing any of these things? That's what you're doing when you're looking at these prohibitions. Provision #5, exporter read, exports are prohibited end users or prohibited end use, not only who is it going to, but what are they doing with it? And then we have our Provision #6, export and re-export to embargo destinations. When we talk about OFAC and sanctions involved, that's looking at your Provision 6. Provision #7. Support of proliferation activities. Is this going to be used in a manner that is going to be supporting maybe weapons of mass destruction in some capacity? Could it be used in that? Then we're looking at prohibition #8 in transit items and items to be [ unladen ] from a vessel or an aircraft. So you have to look at -- also what types of vessels they're moving on. Who's flag is it flying on. So there's also the government doesn't want us using flags that fly an Iranian vessel or a Russian vessel, for right now, as a matter of fact. So we have to take into consideration like who's moving it too? And then Provision #9. Denial orders, violation of any orders, terms or conditions that are out there. And then Provision #10. Proceeding with the transaction that you know are believed to be, or could suspect could be violating the regulations. So here is all the things that the BIS says, "hey, you have to look to see any of these prohibitions apply." Do any of them apply? Now I went through all 10 of them too soon to just kind of to go through it. But if you see it as -- when you're going through an item that's EAR99, you're going to really look at 4 through 10. You want to make sure that those are not applying. If 1 of those applies, may be my export or I find out from my buyer, it's going to be re-exported to an embargoed destination, I'm going to have to go apply for a license in order to be able to move forward with that transaction in a compliant manner. So if you get a yes to any of those general prohibitions, you're going to have to pause and apply for a license from the appropriate government agency, whether it be OFAC or Department of Commerce in this case. Let's say that I looked at those general prohibitions and none of them apply. Woo-hoo, hurray! I get to move straightforward, say, NLR, no license required, and I can move right forward with my export. All right. Okay. So now let's jump back up, and let's say I have decided that my commodity has an export control classification number. And there is a reason for control. So then I have to take that ECCN number and look at whatever my destination country is, in any spot that it's going to, maybe I'm shipping it to a party in a country -- in one country and then there the end user is in another country. I have to check everywhere it's going to see what the controls are in place for that commodity in those countries. And I would do that by consulting the country chart that's listed in the regulations. And I would be on the lookout for an X. X marks this box, X mean stop. If you have an X in the box, then that means that it has that control in place for that country, and you would have to look to see, do I need it? Do I have a license exemption that I could potentially use. Some of the reasons for control, you could use maybe an STA or an encryption. There's different types of license exceptions that are available out there. You would have to review to see -- does -- are there -- is there a license of exemption available? If there is not Then I'm going to have to apply for a license from Department of State -- excuse me, from Department of Commerce or maybe OFAC depending on what the control is. Likely Department of Commerce in those cases. If I look and say, Hey, I have a license exception that's available to me, I can use an encryption for an example. Then I'm like, yes, I got my license exemption, then I have to go check all of the general prohibitions to see, do any of them apply. So if I go through all of them and none of them apply, then I can use my license exception code and move forward with my export transaction without a license by using that exemption. All right. So let's go back to where we have the X in the box. We have an X. But I don't have a available license exemption. My next step would be to see do any of the general prohibitions apply. If they do, I'm going to -- if they -- excuse me, if I have an X in the box -- if I have no X in the box, I apologize, guys, then I move to see do any of the general prohibitions apply. If they do not apply, and I do not have an X in the box, that means that wasn't controlled for that country, and I can move forward with an NLR designation. If I have no X in the box and I review to see that I do have one of those general prohibitions that apply, then I will have to stop and apply for a license in order to be able to move forward with my export transaction, right. So it's just -- it's a flow chart to let you know like what are all the things that I need to check to be able to determine if I need a license or not? So some of you guys may be saying, well, how do I figure out what that export control classification number is? And that's a great question. It could be very easy depending on your commodity or it could be also very complex, depending on your commodity. But there are resources out there that can help with that. The Department of Commerce will actually help you with that. They have a lot of great information out on their website. They have some tutorial videos, some of them are actually kind of funny with the animations that will walk you through how to determine what your export control classification number is. They also give you an e-mail, you can reach out to them and give them the information that you have on the commodity, and they will provide you a determination based off of the information that you provide them of what your export control classification number would be. But there's a lot of information out there available We walked through the EAR export control decision tree, but there, again, is also a decision tree to put it if it's either falling under the Department of State, the ITAR. Also, how do you some of those license exceptions that are available, STA license exception can be kind of confusing. So they have a whole decision tree on how to work through questions to see if you can apply that and how to properly apply it. So great information out there available at your fingertips. The government has a lot of stuff out there. They try to give you all the tools to the trade for everyone to be successful and compliant with their exports. All right. Let's talk a little bit about ITAR. So these are inherently military items. And the Department of State is responsible for the control of permanent and temporary export and temporary import of defense articles and services. And this is primarily governed under 22 U.S.C. 2778 of the Arms Export Control Act or AECA and Executive Order 11958. Really, what this means to us from an everyday perspective is that all the provisions that are under this Arms Export Control Act, they are written out in implementing procedures, implementing regulations called the ITAR regulations. We just found in 22 CFR parts 120 through 130. So here's where you can find all the rules involving items that are exporting that are considered military. Now remember, the items that are military that are controlled are what's on their USML list. That's the equivalent of their controlled list. Let's talk about our friends at OFAC. So guys, remember, we talked about OFAC being under presidential powers, as well as the authority granted under specific legislation. But I don't know if you guys have ever read any of the sanctions that are published out there. It's always, I, President Joe Biden, or whoever the President of the time, it's always written in that type of language because it is under the presidential powers. OFAC administers a number of different sanction programs. These could either be comprehensive meaning almost all inclusive, basically prohibiting all trade and exports and imports from those countries. It could be a selective to particular type of commodities. It could be selected to individuals blocking of assets and trade restrictions. And the whole goal of sanctions is to accomplish our foreign policy and also have -- protect our national security goals. So we have the comprehensive sanctions that probably a lot of us are familiar with against countries such as Iran, Cuba, Venezuela is technically not comprehensive, but it's very encompassing. So it's not, but it almost as -- but anyway, there are other sanctions out there involving nonproliferation sanctions. Narcotic sanctions, terrorism sanctions. They go beyond just the country types of sanctions. Again, some of the ones that we're familiar with are probably Russia, Venezuela, Iran, Cuba, Syria, just to name a few. There are a lot out there. And OFAC also has some great information on their website If you were to say, hey, what can I do? What's allowable to Venezuela? They have some great, what I would call like white papers, where it's written in a language that is non-lawyery, maybe for people like me to read, where it makes a little more sense. And it's a little bit easier to digest it and break it down. They also have a lot of FAQs out there that people have asked questions. Hey, can I do this? Can I do that. So OFAC has also a lot of information out there available. All right. And let's talk about my good friends at CBP. CBP, they've been tasked with enforcing all these regulations enforcing the FTR, enforcing the EAR. And their export control team is called the Exodus team and they have some pretty hefty goals that they try to achieve on a daily basis. Their objectives -- they make sure that weapons and other items that are controlled commodities are not falling to the hands of terrorist or just other criminal parties. They have to enforce the ITAR regulations, the EAR and OFAC regulations. They also are asked to detect and seize counterfeit merchandise and stolen export in vehicle exports that are stolen. Cars that have been stolen. These are 2 possible means of financing terrorism. So the things that the bad guys are doing to make their money, CBP is also tasked with stopping those things from happening. Also to make sure that they're detecting and intervening when they need to, if there's hazardous materials involved and the Exodus team that's custom team. And we also see involved ICE, Immigration of Customs Enforcement, the Department of [ Homeland ] Security. These are the agencies that primarily -- primarily do export control violations and then also the Office of Export Enforcement. So those are the agencies that are really out there enforcing the regulations And customs, they're -- again, they're protecting us and protecting the interest of the U.S. government and the U.S. citizens. All right. So let's talk about what happens if we find ourselves in a position where we've had a violation. What are the penalties that are out there under the FTR and how can this -- what does this mean? Let's talk about the 2 different types of penalties that are out there We have civil penalties, which are considered more administrative, there was no intent behind it Anything that's going to fall into the criminal was done with intent. Fraudulent activity, you were -- had a purpose to circumvent the law. You did it with purpose. So under the FTR, you could get a penalty for failure to file or a delayed filing -- and if we look to see how these fall under civil and criminal. If it was just civil, it will be $1,100 per day of delinquency. So all those timing guidelines that Ashley talked about making sure you get your EEI filed. If you miss those deadlines, it's $1,100 per day that you're delinquent, up to a maximum of $10,000. Once you get to that $10,000 mark, basically the 10-day mark, you're now at what's called a failure to file with the government. Now if I did any of those things, and I did it with intent. I'm not filing, or filing late, then my penalty amount is going to be higher. And they're going to see that -- that continues down as we talk about the next types of penalties. $10,000 -- no more than $10,000, per violation, and no more than 5 years imprisonment, or both. So you could also be personally held accountable when it comes to export violations. Let's look at filing false and misleading information -- the government considers false or misleading information, really, any information that's not correct on your export declaration. Maybe you have a wrong port of export, maybe you've used a wrong mode of transportation. Or you have not declared the correct value or the right reporting quantities, any one of those data elements could be $10,000 per violation. You could receive multiple violations on one shipment. And again, if I did it in a criminal manner, you can see that I have $10,000 plus the jail time. And then we have a furtherance of all legal activities which really means that you're not only circuiting the law, for example, maybe I'm providing information on my commercial documents that show it's going to a particular country. When in fact, I know I'm shipping it to a different country that it's going somewhere else eventually. That could be considered, especially, if it involves end users that are sanctioned or sanction destinations. This would fall into the furtherance of illegal activities. And again, penalty and jail time if it's done in a criminal fashion. All right. Let's talk about what's called VSDs or voluntary self-disclosures. So the government has a program where you can go to them and say, hey, we found some stuff when we were looking internally where we have had some violations, it's an admission of potentially improper conduct. And it doesn't absolve you, it doesn't protect you. completely. So it's strongly recommended that any time you have something where you are considering submitting a voluntary self-disclosure. But you do so after consulting your attorney, your trade attorney and do it at the direction of them. Just to make sure that you're protecting yourself and your company, preserve your attorney-client privilege regarding advice and materials. When it comes to if there's an investigation -- just because you filed VSD would not prevent your case from being turned over to the Department of Justice for further investigation. Violations may involve other walls outside of international trade components, that has to be considered. There are benefits to voluntary self-disclosure as well. It's considered a mitigating factor in determining administrative sanctions, meaning a monetary penalty, or if they are going to be putting in certain types of where they say, hey, you have to do -- you have to now develop an export control or you have to pay for an independent auditor for however many years. So it could help mitigate that type of response from the government, but it doesn't protect you. But it is something to consider if you do an internal review and you find that you have had some violations. It's always -- it's usually in your best interest to go to the government and tell them that you have found something rather than the government finding it as a result of an investigation. But again, you should always make sure that you're only doing this in the direction of your attorney because there are still a lot of stake even with a VSD. All right. So there are some things that you should consider before you export. And when I say things that you consider, these are things that the government says, hey, you need to know these things, before you start shipping commodities to people. You need to know your customer. Have you screened all the parties to the transaction against denied parties and other restricted party list. Again, Ashley talked about, hey, if we have a consignee need that's sold as a freight border or a trading company, the items are not staying there. They're going somewhere after that. You are obligated under the regulations to understand who it's going to, where it's going to really what they're going to be doing with it. So making sure there are no embargoes to the destination country. Have you been asked to make any prohibited or reportable boycott statements. The U.S. government does not allow us to support or participate in the boycotts of other nations that are not supported in and of itself by the U.S. government. Do you have knowledge of any prohibited end uses, or end users? Does your shipment contain hazardous materials. Are you compliant with the hazmat regulations for the mode of transport in which you're going to be moving something? There's also red flags. The government says, hey, you need to watch out for these red flags. These are straight from the regulations, guys. So this is a stuff that the government says, hey, you need to know this stuff before you start sending stuff. A red flag could be if the customer is new to you and your knowledge about him or her is incomplete, you need to really know who you're doing business with. If you have a party who their name or their address is similar to a party that's on the Department of Commerce list up to 9 persons. You need to make sure that you take extra caution in validating it's not that person. If someone is reluctant to give you information, when you ask about the end use of the goods. If they don't give you an explanation that makes sense as to why they need the goods, why they're required. If it doesn't make sense for the type of business that they're in, what they're buying, hey, that's the red flag. Let's talk about more red flags. If you have like, let's say, training or maintenance that you would normally set up or do for a commodity and they absolutely refuse it. That's a red flag, paying cash is a red flag, I don't know about you guys, but I hardly pay cash for anything anymore, especially something that's going to be large for most of the time, there's financing involved, depending on what the transaction is, cash is always a red flag. The customer has little or no business background. They're not familiar with the product's performance, but they still want the product. They don't want to hear about it. They just want the product. If they're asking you to route the shipment in a way that's abnormal for the commodity or for where they say it's going to. Packaging. Packaging isn't inconsistent with the stated method of shipment or destination. And just any time that the party is evasive, or unclear, what it's being used for, whether it's going to be reexported, it's going to -- those are all red flags that has a exporter, the government says that you need to clear before you move forward with the transaction. Let's talk about some best practices just to kind of recap here. Make sure you know your customer, watch out for all those red flags that we talked about. Make sure you're doing business with compliant companies. Ensure that you have continued education with your staff, taking advantage of available webinars like you did today. This is an example of continuing education. Government agencies, host webinars too. I know I talked about some of the materials that's out there for you to go and look at and grab at your fingertips, but they also host webinars. Department of Commerce does, CBP does, so they have listed out on the website, the topics. So it's something to check out. These are all items that you should document that you're doing and intending to be able to show the continued education of your staff. Engaging departments with a new organization to make sure that compliance is part of everyone's business. Making sure we have across departments, when we talked about the deemed exports. It's really great for compliance, people to know all the information about deemed exports, but we also want to make sure again that the people that if you're not the person making the decision of where someone is working in our organization and what type of information they have access to, make sure you're looking at your products. And if they're controlled, do the people that make those decisions understand deemed exports and understand that you may have controlled commodities that you would have to get a license for in order for that person to be able to have access to that information. And just to make sure that you have standard compliance procedures, whether it's talking about this is how we screen or this is how we always go through and make our classifications for ECCM, this is how we determine it. Just making sure that you have a documented procedures in place for your company. These are all considered best practices out there for the world of export compliance. Now we have certainly talked about a lot of stuff today. So we have a few minutes. We've allotted for some time for some questions and comments. So I guess we're at that point now, we're ready to field some questions from you guys.

Yes, Cara. Thank you, both of you, so much. We have a couple of questions. So I guess I'll just start from the top. The first question is, in the case of using a parcel courier such as UPS, FedEx or DHL that require an ITN, if the FPPI chooses one of these methods would this shipment be defined as routed?

Yes. So if the foreign principal party of interest is the one that is choosing the party that's going to facilitate the export it would be considered routed.

Yes. Which policy based on the government agencies that control exports is most difficult to satisfy regulations.

Oh, gosh, I don't know that I can give like one single response because some of them are so intertwined with each other that you have to make sure you're covering all of your bases. Gosh, I don't know that I can pick just one, sorry.

Do I determine if any of the items I export are subject to EAR?

So I would definitely say once you guys hit to slide deck, you can look through that decision tree. So anything that's going to have U.S. controlled -- excuse me, U.S. origin items, is going to fall under the EAR. So really, once you have anything that's of U.S. origin, it's going to be pretty much locked under that EAR. So I hope that answers the question there.

Okay, next, here we go, for record keeping. Is the SLI considered as an airway bill or BL even if there's no number listed?

An SLI would not be considered the same thing as an airway bill or a bill of lading.

Should the SLI never be shared with the FPPA considering the rules around not sharing Census info, EEI data?

I love this question. Yes, technically. So that is all EEI information. It's a data element. All of the data elements on the SLI go into the EEI. And I know Ashley talked about the letter that Census just came out with in November because we've seen the request for copies of EEIs just escalating across the board because of some of the changes in regulations in destination countries. And the letter specifically states that really the only thing that you can give them is the ITN number. That's not considering a data element. All the other items are considered EEI data and including the SLI right, they would not be able to be given.

I heard the ECCN is not a required field in [ ACE ] Why?

Not all ECCN numbers are required to be reported. It depends on the reason of control for the ECCN if it's required or not to be on the EEI.

And then to follow up on the SLI question, should Schedule B or [ HS ] codes not be on that list?

The Schedule B or the HTS number, that can be on the commercial invoice. A lot of times, that's needed per the regulations of the importing country to be on the documentation. And HTS numbers are universal, the first 6 digits. So they're universal throughout all countries, those -- and the last digits here in the U.S., we use 10 digits for Schedule B, and HTS U.S., but not all countries use the full 10 digits, but it is standard up to 6 -- up to the 6 digits, so that would be okay.

I think that wraps it up for all of the questions. Again, Cara and Ashley, thank you so much for presenting today, and thank you, everyone, for attending. As I mentioned at the beginning of the webinar, everyone will receive a thank you email from myself that includes a short feedback survey. And after you complete this survey, all of you will receive a copy of the reference material. Thank you for attending.

Thank you, everyone.