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

Okay. So it is 2:00, and this is our start time. So good afternoon, everyone. Thank you for joining us today for our Exports 201 webinar: Export Controls. My name is Sarah Mass and I'll be our webinar host for today. I'm in the regional sales operations role for the Midwest, and I'm based in our Minneapolis branch. Before we begin, I do want to cover a couple of items to note. Today's webinar will be about 90 minutes in length. There will be about 60 to 70 minutes of content presented with 15 to 20 minutes at the end for Q&A. [Operator Instructions] So today's webinar will be recorded. [Operator Instructions] All attendees will receive a thank you e-mail from myself, which includes a short survey after the webinar is over. And we would like you to complete it with feedback from today's webinar. And then after you complete the survey, you will receive presentation material. And for our webinar this afternoon, Cara Lemire will be presenting. She is our Regional Trade And Customs Compliance Manager for the Midwest. And just one last reminder. [Operator Instructions] And with that, Cara, take it away.

Thank you, Sarah. Thank you for that kind introduction. As Sara was saying, my name is Cara Lemire. I'm the Regional Trade Compliance Manager for the Midwest region. I've been with Expeditors for 17.5 years. I am a licensed customs broker. I currently sit in our office in St. Louis, Missouri. . Let's see, let me just tell you guys a little bit about myself. I have a 13-year-old who's going back to school next week, hooray, with mixed emotions, I'm happy and sad at the same time. I am an animal lover. I'm an owner of a Golden Doodle. And my hope today is to be able to talk about export compliance in a little more in-depth fashion, make it relatable to what you're doing. And hopefully, today, you'll go away with a little more knowledge on export compliance coming into our conversation today. And thanks so much for joining for giving me the opportunity to talk to you guys today. We really appreciate you all taking time out of your schedules to come be a part of this seminar. What we're going to talk about today is we're going to look at the export control system. We're going to look at all the government agencies that are involved. We're going to talk about how do I determine what are the regulatory requirements? Who's regulations am I under? We'll look at an overview of classification. And then we'll talk a little bit about export management and compliance programs. So if we look at an overview of the export control system, the government, they control sensitive equipment, software and technology as a means to promote our national security interest and our foreign policy objectives. Through this control, the government can effectively, hopefully, do these things, provide national security by limiting access to the most sensitive U.S. technology and weapons, promote regional stability, take into account humans rights considerations, prevent proliferation of weapons and technologies, including weapons of mass destruction to problem end users and supporters of international terrorism. We also, as a government, we need to comply with international commitments. Things such as nonproliferation regimes in the UN Security Council sanctions and UNSC Resolution 1540. If we look at this platform, okay, at the top of it, sits the President of the United States. And then we have what I would call our big guns and export. We have the DDTC, which is the Director of the Defense and Trade Controls. They're going to be your Department of State [ and ] Military items. And their regulations are found in 22 CFR Parts 120 through 130, and these will call ITAR or International Traffic in Arms Regulations. Next we have the BIS, so the Bureau of Industry and Security. And these guys are under the Department of Commerce's umbrella, and they cover both commercial and some military items. Their regulations are found in 15 CFR Part 730 through 780, and those are referred to as the EAR or the Export Administration Regulations. We also have another subset that's under the Bureau of Industry and Security. And this is the Department of Census, and they regulate the foreign trade regulations, which is going to be your EEI data elemetns, your Electronic Export Information, okay, that's required for exports out of the U.S. And their regulations are found at 15 CFR Parts 30.1 to 30.99 are under the EAR as well. And then we have, last but not least, okay, and the big guns that we're talking about today, it's going to be OFAC, The Office of Foreign Asset Controls. And these guys are under the Department of Treasury, and their focus is on sanctions and embargoes. And their regulations are found in 31 CFR Parts 500 through 599. And you hear those regulations referred to as OFAC regulations. So in addition to those big guns that we just looked at, there are also other government agencies that control exports relative to the commodities in which they regulate. These are just some of the agencies that may be involved in the exporting of the goods to the U.S. It's always best to consult these agencies before exporting goods to ensure that their regulations are followed. Back in 2016, Census published what they called a draft appendix in the [ EIS/EIR ] indicating that some of these government agencies would be required to receive electronic data for items that fall under their regulation, okay? Prior to 2016, this was all done through a paper form, okay? And over the past several years, there really has been a push in the reduction of paper, okay, trying to move everything to an electronic platform. One single platform of communications to and from the government agencies. The data required and for these government agencies are either required to be submitted with the EEI electronically or they have to be uploaded to the document imaging system or sometimes, a combination of both. Okay. Just to call out a few of these particular agencies, just to kind of where they stand and the status of pushing or being required to receive data electronically, AMS or Agricultural Marketing Services, some of you guys may be thinking AMS for Automated Manifest. I have to clip my mind every time I see that word to say, which one are we talking about here? But in this instance, we're talking about Agricultural Marketing Service, and they've actually decided since that initial announcement that they were withdrawing their intent to collect data electronically. So that is still all very much paper fashion, which can be uploaded through the document imaging system. ATF is doing things electronically now. The DEA, it is required to be electronic as of August 2017. EPA is required to be electronic as of December 2017. Fish and Wildlife Services, it can be transmitted electronically voluntary. It's not required to be electronic right now. National Marine Fisheries Services, or NMFS, that's required to be electronic now. And then ATF, or I should say TTB, Alcohol and Tobacco Tax Trade Bureau, I'm dating myself, saying the other acronym. This can also be transmitted electronically, but that's also on a voluntary basis, okay? So if you're asking yourself, well, "How do I know what is subject to these government agencies"? These agencies have put out [ HTS ] list that are available, okay? So there is a published list that have items that would be flagged that could potentially be under the scope of these other government agencies. So it's something that also to consider is my item subject to one of these agencies. So let's talk about determining regulatory requirements. It's important to think about what are you exporting? Where are you exporting? Who will receive the item? And what will the item be used for? To help us determine what the regulatory requirements are, we need to ask these who, what, where and use. These are the questions that we need to be able to answer before exporting to determine what are the regulatory requirements. You should be able to answer each one of these extremely important questions regarding each and every shipment. When you ask yourself as a military, how do you know? Is it both commercial and military? Do you what countries sanctioned and embargoed or if the end user is prohibited? How many of us rely on brokers to answer these questions? A broker is a good resource, right, that you can ask questions to you. But the government does expect, the exporter to understand what the requirements are for their commodities. Various requirements of the CFR depend on your knowledge as the exporter of the end use, the end user, ultimate destination or other details about the export transaction. If you can discuss your transaction in good conscience and with complete confidence, then there shouldn't be any cause for alarm. However, if you cannot explain who you're selling the product to, why the customer is buying in the first place or what he or she will do with it once it's purchased, then you have a problem. This is where as an exporter, you want to determine the whats, the wheres, of what you're exporting. And this is where you should familiarize yourself with the export regulations, and know your product, and who you're sending it to you and what these items will be used for, right? Knowing that you should do denied party screening, that's very critical. All of the items that I just laid out are important to knowing what you're doing as an exporter of record. And understanding these 4 whys, will help you determine what set of regulations do you need to be under and what actions do you have to comply with. So let's talk about possible outcomes, for when it comes to regulatory requirements. And when we're going through the 4 Ws, we're going to come to 1 of 3 conclusions. Where they're going to say, "Hey, a license is required." Or we'll say, "In lieu of a license an exception or an exemption or a general license is required." Or we could say, "Hey, no license is required at all." However, one thing I want to keep in mind is that NLR, or no license required, never applies to ITAR commodities. All right. So let's talk about the set of regulations that are out there for these big guns and export control. So how do we know which set is the set that applies to us? As a quick reminder, we have ITAR, which is going to be your military defense articles and services; OFAC, for sanctions and regulations; the EAR, commercial and sub military; and then we have the FTR, which is the electronic export information. Okay, all the rules for the export filing. When we look at determining jurisdiction, seeing, "Okay, who's rules do these fall? Who's rules do my commodity fall under?" Sometimes it's very simple, very clear, very easy. Sometimes, it's not. Sometimes, it's very confusing or very difficult to decide where it goes in because sometimes commodities are -- can be used for different things. They have like a dual purpose. So products and technology that are controlled for exports by government regulatory agencies. Let's take a look at the Department of State. The Department of State, they have export control jurisdiction over exporter defense items and articles that are under International Traffic and Arms Regulations or ITAR. And we're going to talk a little bit more about those items in a few of the upcoming slides. And then we have the Department of Commerce. Their export jurisdiction is over dual-use items and items that have a strictly civilian or they have a combination of commercial military use under the EAR. When we look at what order we go in, ITAR always gets precedence over the EAR. So you always want to check the USML list first. If the commodity is found on the U.S. Munitions List, then it's ITAR. Plain and simple. Let's look at that, right? So outcomes for ITAR. Once you're able to say, "Hey, the item is ITAR," then it gets a little simpler. So because when it comes to ITAR, they are really only 2 outcomes. A license or license exemption. But most of the time, the license exemptions require having a license have already been issued for those commodities. So whereas when we start looking at the EAR, we'll see there are several different outcomes and even overlapping regulations in those instances. So the USML list is found in Part 121 of the ITAR regulations, which is in 22 CFR. So let's look a little bit closer at this U.S. Munitions List. We have a lot of categories here. Firearms, close assault weapons and combat shotguns, guns and armament, ammunition, ordinance, launch vehicles, guided missiles, explosives. Surface vessels of war, special naval equipment, ground vehicles, aircraft related articles. Basically, if it's on the list, if your item is on this munitions list, it's ITAR, plain and simple. And any item, physical item or services even that fall under these categories are subject to the Department of State. So let's say that it's not really clear. Is your item really on the USML list or is it not? If you guys then in the trade industry or in transportation, probably been introduced to, things are not always black and white. Sometimes, we have some gray areas, right, where it's really very hard to understand where something falls. So that's where if you have a doubt, you want to obtain a CJ or commodity jurisdiction from the DDTC. So you will find commodity jurisdiction under Part 120.4 of the ITAR under its purpose and definition section. When we think about jurisdiction of an item, it really is determined as a matter of law at the time that something is manufactured. So what this means is that defense article remains a defense article from the time it was made through any subsequent use, whether it's civil or military, unless it's been determined not to be ITAR-controlled through a commodity jurisdiction determination. The whole purpose of the commodity jurisdiction request is to determine if an item or service is covered under that USML list and therefore, making that subject to the ITAR regulations. After reviewing the USML and other relevant parts of the ITAR, you're unsure, you should request the commodity jurisdiction, something that you want to think about, okay. You can't always solely rely on saying, "Oh, hey, we just don't make military items and move on? How do you know that, that could be the case? What if you make sunglasses and you receive an order from a government agency asking for specialized shooting glasses? What if you're a clothing manufacturer and you receive the same order for specialized government office ?or an auto manufacturer? It can get very gray. Are you now subject to the USML? In some instances, you may need to have a Commodity Jurisdiction even. So what happens when that CJ request is made, the DDTC, they will consult with the Departments of the State, defense, commerce and any other agency that they feel that could potentially be involved to make this determination. And they have the final authority to say if something is subject to the ITAR or to the EAR. And this procedure is the only U.S. government method of determining whether or not an article is covered by the USML. So when in doubt, obtain a commodity jurisdiction request -- submit a commodity jurisdiction requests from the DDTC. So let's say that it's been determined or we've done a commodity jurisdiction, okay and got that from the DDTC, saying that the item is not subject to ITAR, but subject to the EAR. Then we got to make sure that the EAR is complied with. That's what's up next for our topic. The EAR, remember, is administered by the Bureau of Industry and Security under the Department of Commerce. Now they control commercial and military items that are not exclusively under the jurisdiction of another federal department or agency. And they have their own list. They have their own export control list. And this is called the Commerce Control list or the CCL. Determinations of licensing requirements is based on the export control classification number or the ECCN, which is what's listed on the CCL. So if we're looking at the EAR, and we're going to be looking at Parts 730 through 744 and 15 CFR, and any time we move into a regulation and we start looking at it, it's always good to start at the beginning. You want to start at the beginning. And in this case, that's going to be Section 732. And what the EAR is, is a set of regulations on the export and import of most commercial items. And the U.S. Department of Commerce is responsible for implementing, enforcing these regulations. Many of the items are what's considered dual use, meaning they have both the commercial and military functions. To determine if you have a product that falls under the EAR, you have to refer to the commerce control list and items export control classification number, or ECCN, can also be found within that CCL. In the big picture of things, a relatively small percentage of U.S. exports and reimports require license. License requirements are dependent upon an item's technical characteristics, the destination, the end user and the end use. Again, those Ws that we talked about, right? So in essence, the EAR controls any item, warranting control that is not exclusively controlled for export, reexport, transfer and country by another government agency of the U.S. government or otherwise excluded from being subject to the EAR altogether. So items subject to the EAR include purely civilian items with both military and both civil and military use. Items that are -- have terrorism or potential weapons of mass destruction related applications, and items that are exclusively used for military applications, but that do not warrant control under the ITAR regulations. We'll talk about that a little more upcoming. All right. So we're going to navigate these regulations a little bit. We're going to go through a decision tree. We're going to look at. are you even subject to the EAR, we're going to look at ECCN and EAR. How does that play a difference? We'll talk a little bit about the general prohibitions, license exceptions and license requirements. So generally, any item subject to the EAR that shipped or transmitted from the United States to a foreign destination is considered an export. The method of sending the item outside of the United States doesn't really matter in determining export licensing requirements. For example, an item can be sent by regular mail. It can be -- or can be hand-carried on an airplane. A set of schematics can be sent by e-mail to a foreign destination. Software can be uploaded to or downloaded from an Internet site or technology can be transmitted via e-mail or just during a conversation. So regardless of the method that's used for the transfer, the transaction is considered an export for export control purposes. And export may also include the release of source code or technology, subject to the EAR to foreign nationals in the United States. Thereby, export is when an item subject to the EAR is shipped or transmitted from one foreign destination to another. And export may also occur when source code, or technology subject to the EAR, is released to a foreign national outside of the U.S. An item can be a commodity, software, technology such as -- could be clothing, building materials, circuit boards, automotive parts, blueprints, off-the-shelf [indiscernible] software and any kind of technical information, right? So it doesn't necessarily have to be what we think of as a physical package. Here is our EAR decision tree that we'll use to follow along some regulations. Really, the very first thing we have to decide out of the box is are we even subject to the EAR? If we are, then we got to go through the whole flow chart. If we're not, we take the arrow down and we exit and go on [indiscernible]. So let's look at how do we know. Well, really, most items are -- in the U.S. are subject to the EAR, except a few. You have publicly available technology and software except for encryption. This is most always subject to the EAR, must always. Then you have publications that are artistic or nontechnical in nature. So some examples to think about here. Printed books, pamphlets, publications, such as newspapers, periodicals, music, maps, calendars, movies, things like this. These are all outside of subject to the EAR. And there is a definition of what's considered published that can be bound in Part 734.7 because your own individual personal definitions are published may not match the governments. So it's will be always a good idea to take a look to see what does the government considers published because that's what you have to follow when it comes to export controls. Then we have to also think about items that could be exclusively under the jurisdiction of another federal department or agency. So anything that's under their realm, you would not use the EAR and you would go to that pertinent government agency regulations. So ITAR, Nuclear Regulatory Commission, department of Energy. Those are just some particular ones that you're going to need to look at our set of regulations versus the EAR here. They're outside of the EAR. And then we have to think about items located outside of the U.S. that these -- sometimes, those items can also be subject to the EAR. And then even certain foreign-made items if that item contains a certain, what we call, de minimis amount of U.S. content. Typically, 10%, 25% and if that foreign-produced item is in the direct product of certain controlled U.S. technology and software. Foreign-made commodities that incorporate controlled U.S. origin commodities and foreign-made commodities that are bundled with controlled U.S. origin software, foreign-made software that's co-mingled with controlled U.S. origin software, and foreign-made technology that is co-mingled with controlled U.S. origin technology, right? These are all items that you want to consider because they're going to be subject. There's a lot to consider. We're still not quite done yet. Then we have to think about it from an individual level, from a personal level. There are certain activities that U.S. persons have to comply with. No U.S. person can, without a license from the BIS export, reexport or transfer in country, any item that the person knows that such an item could or will be used in the design, development or production or use of nuclear explosive devices; enter by a country that's listed in country Group D2; would be used in the design development or production of missiles, right; that could be used in the design development, production, stockpiling or use of chemical or biological weapons. So no person shall, without a license -- a U.S. person shall, without a license not only export, re-export or transfer, items that do not have a license that are required by this section of the regulations. And this goes down to support any action. The government's work is facilitation. This means any action, including financing, transportation, freight forwarding by which a person facilitates an export or transfer. Now if we think about when an export reexport is -- can be deemed to take place. This is going to be when technology or source code is released to a foreign National within the United States or abroad. This is different, right? It's not a physical commodity. This release is considered to be an export or reexport to that person's home country. This would not apply to U.S. citizens or certain other individuals such as those who have green cards. You can also release source code or technology to foreign nationals when you make the source code or technology available for visual inspection such as reading technical specifications, plans, blueprints or when you have a verbal exchange or you provide guidance to a foreign national through practice or application. So you have to think about those types of things of like what kind of information I'm releasing it to? Who am I releasing it to? Is it, in fact, controlled? And then really other kind of activities that will be subject to the EAR are going to be any kind of activities related to you proliferation of nuclear explosive devices, chemical and biological weapons, missile technology. Those things that all fall under the activities of the EAR. And then activities of U.S. or foreign persons that have been prohibited by an order issued under the EAR, including a denial order. Those activities are subject to the EAR. So those denied parties with those list of concerns that are put out by government agencies, they are subject to the regulations. All right. So once we have determined that an item is subject to the EAR, so we've said, "Hey, yes, it's subject to the EAR." Then we have 3 possible outcomes. One, we're going to need a license. Second one is that we're going to be able to apply a license exception, while the third is going to be no licenses required, all right. So next, we want to take a look at is our item classified under an ECCN on the CCL. That's what we are to figure out next. All right. So the Commerce Control List, or the CCL, it is similar to the U.S. Munitions list of the ITAR. The CCL contains items that are subject to licensing authority under the BIS. And the items are listed in terms of their technical parameters. Each entry on this list is called an Export Control Classification Number, or ECCN, and it consists of 5 alphanumeric characters. So again, like when I look at it at a big picture. A relatively small percentage of U.S. exports and reexports require a license. And those license requirements are going to be dependent upon that item's technical characteristics, the destination, who the end user is, and the end use, right? So again, you've got to determine, you have to determine those Ws. What are you exporting? Where are you exporting? Who's going to receive your item? And what are they going to use it for? That's needed in order to be able to say, "Hey, is a license needed for this commodity or not?" So our ECCN is that classification number on that CCL. And, guys, you got a classifier before they're exported. Once it's already gone -- once the cat's out of the bag, you're not getting the cat back in the bag. You got to have all your requirements, ducks in a row. However you want to look at it before that item is going to export. And this number is different. Then the commodity classification number required by customs or Census. This is not your Schedule B. This is not your HTS U.S. It is completely different. You could have an HTS U.S. You could have a commodity that has the same HTS U.S. But when it comes to the CCL, that could really fall into different categories on that CCL. It's not a one-per-one ratio there. Let's take a look at the structure here. Excuse me, guys. Throat's getting a little dry with all the talking here. Okay. All right. So here's our ECCN. So we're going to break down this structure over the next few slides. This is really useful to understand like how an ECCN to be able to do a correct ECCN classification or an analysis of one. All right. So if we take a look at our first digit, the 5. This identifies a general category in which the entry falls in. The letter immediately following the first digit, in this example, our letter A. This identifies, which is the 5 groups, the item is listed under on the CCL. The second digit, the 0. Here, identifies the types of control associated with the items contained on the entry. The third digit correlates to the second digit number in certain circumstances. And then the last digit is simply a sequential number, it just helps to differentiate it. So let's take a look at our 5. Let's take a look at our category. We have 10 categories in the CCL. I have most of all out here on the slide. And they go on in order. So if we look at the category that they're in, we're going kind of in the most control to -- it has an order, most controlled to more like the least control. So if we have 5, this represents telecommunications, right? So anytime you see an ECCN that starts with 5, you're going to have telecommunications, right? 3 is going to be electronics. 2, materials processing, that's a broad category. So that's where you start and then you work your way in. Then we have our product group. There are 5 product groups. And we can see A here. A is systems equipment and components, right? So in our example here. For the first 2 digits, we would know that this commodity is a telecommunication system equipment or component. Then this third position is the number representing the reason for control. I may have more than one reason for control, and many of them do have more than one reason. And if that's the case, the reason for the control with the lowest number takes priority over the other reasons. So for example, we have an item that's controlled by both national security, which is represented by a 0, in the missile technology represented by 1. The entry's third digit would be 0 because of the MS prevails over MT. If we add an item that is controlled for missile technology only, then the third digit would be the 1, right? So let's say we have an item that's controlled by both nuclear proliferation number 2 and chemical and biological weapons, number 3. In this instance, our third digit would be 2 because nuclear proliferation precedes the chemical and biologicals. It's higher on that list. It's scarier, in other words. So special mention here. I want to call out reason for control 6. Any time you see a 6 as a reason for control, this is what we call the 600 Series. We're going to take a little bit closer look at this 600 Series. Items that are on the Series 600 or classified as even 5X515 where X can be any of the one 5 product groups. These are all subject to stricter controls because of their potential military application. These items have been identified as the Wassenaar Arrangement's Munitions List, WAML, or they used to be on the USML list, ITAR's list, and these guys were moved to the BIS CCL. So in other words, 600 Series represents military items. So just as a reminder, ITAR is a set of regulations that control defense articles and services and their list is the USML. The Wassenaar Arrangement on the other hand, you're not familiar with that, is an international set of standards for export controls or dual-use items and technology as well as for items a military use, right? So keep in mind, anything that falls under these 2 areas, the 600 Series or the 9X515 ECCN classification, these items are going to be subject to stricter controls. Back to our ECCN structure. We're going to take a look at the last 2 numbers. In the fourth, this digit works with the third digit to identify entries at a control for multilateral or unilateral reasons. And the very last digit is a differentiator between digits. They help you determine one commodity from the other, but they don't have a specific meaning. So let's take a look at this. Let's take a look at an actual ECCN entry and kind of break down the components. So we have here. Number one, the ECCN and general item description. So next to every ECCN, there is going to be a description. And this is going to be a summary that will direct you to see list of items controlled for a complete list of all the items classified under their respective ECCNs. The term items paragraphed in the list of items, controlled section and describe all the items that, that ECCN controls for that -- for that portion of the heading and proceed to the [indiscernible] list of items controlled. So let's kind of list out the items. Then we have next in number two, our reasons. our license requirements, our reasons for control. Our example that we have up here is CC. That's [ client ] control. And it applies across the entire entry. And we have highlighted here country chart. So we will walk through how to look at this, but what you would do for this particular ECCN is you're going to take that reason control, you're going to look at that country chart, and you're going to look at to see in CC column one, what is there. Because that item is controlled for that reason. Just kind of put that to the side for a minute, we are going to circle back around that, right? Then we have license exceptions. So this section here provides a brief eligibility statement for ECCN-driven license exception that may be applicable to your transaction. And you should only look at this after you have determined a license as required based on the analysis of the entry in the country control chart. And then last, we have the list of items controlled. So underneath here, you'll find related definitions. It's going to -- where appropriate, it's going to give definitions or parameters that apply to all the items that are controlled under the entry. And this section provides, it's unique to the entry, not all -- hence, not all listed definitions are contained in Part 772. Some of the definitions are contained within the CCCL. It's going to give you [indiscernible] controls. If another U.S. government agency or department has export licensing authority over the related items, you're going to see that there. So it's important when you're looking at the CCCL to also take that into consideration. So if we look at reasons for control, what we're going to see on the country chart, when we go to take a look at it, you're going to see these categories. You're going to see chemical and biological weapons, nuclear proliferation, national security, missile technology, regional stability, firearms, crime control, antiterrorism. What you're not going to see on the country chart but you're going to see within the ECCN listing are these other reasons for control. Chemical weapons convention, significant items, short supply, encryption items. So those are all things that you're going to find within that ECCN listing. All right. Okay. So the ECCN number. we're going to take that ECCN number, and we're going to go compare whatever the reasons are for control, against the country chart list. This is maintained by BIS. It's in Supplement 1 Part 738, and this contains the licensing requirements based on the destination and the reason for control. It doesn't take into consideration end user. That's why you got to do your screening, make sure you're looking at all those lists. So if you have any end user controls, that's where you're going to find that for your requirements is on those lists. The country chart is going to really look at destination and why the item is controlled. All right. Okay. So the country chart, again, contains those requirements. So let's take a look at Angola, right? So if we take a look our eye sight across. we have our 2 arrows there. Where those arrows intersect, there is a blank. So if we look at. follow-up to the line, and we see our reasons for control, chemical, nuclear, national security. We can see all of our reasons for control here. Then this is a degree of concern, 1, 2 or 3, right? If we had an example where something was CB3, and we came here. Blank means no license. If I go down to Argentina, and we look under national security, we see where the arrows intersect. Anytime you see an X, that means a license is required. So if you have that X there, that's when you would look on that CCL. Are there any possible license exemptions out there that you could use in your transaction? if you have one that you can apply, then you can use that. If you do not have one that applies to your transaction, your commodity, then you would need to apply for a license and receive a license prior to the export of the goods from the United States. All right. That really is, once you know what your classification number is, and you know where it's going, just get to intersect the lines and see what's there. If you have an X, that means a license is required. If you have a blank, that means no license is required. Now I remember, we can have items that are controlled for different reasons. You have one for crime control and one for nuclear collaboration or national security. You have to do the intersection on all of those and see what you have. If you have an x any of those boxes, a license is required. Okay. All right. So we determined that we had our item. That had an export control classification. We talked about what to do if you have an x in the box. If you do you see, if there is a license available -- license exception available. If there is, then you have to go through all those general prohibitions and say, do any of those apply. If your shipment would have any of those applicable, and that's going to put you back into, have to apply for a license category. If none of the general prohibitions apply then you'll be able to move forward with that license exception that your commodity. If we have an x in the box and the answer was if we ask the question, is the X in the box, the answer was no. We still have to look at those general provisions, does 1 to 10 apply. If yes, you're back and then you got to play for a licensed arena. If none of those apply, then you can use the NLR, no license required, right, and move forward with your transaction. Let's say next. Next, we want to look at the EAR designation. So we said, hey, we looked our items not on the CCL. It's EAR 99. Well, let's talk about what that means. All right. So when products are not listed as having a designated ECCN, the catch all phrase that at the end of each category will state that EAR99 items, subject to the EAR that are not elsewhere specified in the CCL category. So anything that's not listed on that CCL is put into this other bucket, general category called EAR99. EAR99 is not an ECCN, it's a category. Many commercial goods not on the CCL list, we don't have a ECCN. These are typically low-level technology, consumer goods. And most of the times, they would not require a license. However, if your proposed export of an EAR99 as to an embargoed country, or to one of those end users of concern, or support of a prohibited end use then you may be required to obtain an export license. One thing to know, EAR99 does not equate NLR, no license required, right? They are not the same thing. All right. So you've got to make sure when you have that EAR99, you still have to look at those general prohibitions. And you've got to check those list, you have to do the screening. This comes back to the Ws. The who, what, when, where and what are they doing with it. We have some examples here of items at our EAR99. So as long as these items are not exclusively under the jurisdiction of another government agency, you're good to move forward. I think you got to think about fruit, right? Fruit could be in vegetables, USDA; toys, Consumer Product Safety group, what are the requirements there, understanding those. So EAR99 concerns. Things like we have to think about, right, end user and end use controls may apply to any item under the jurisdiction of the regulations. And these controls would require an exporter to submit an export license application. If you, as the exporter know or is informed that an export is for end users involving nuclear, chemical, biological weapons related to missile delivery systems, rocket systems, unmanned air vehicles or destinations that are listed in Part 744 the regulations. So we have our sanctioned countries, understanding what is your person doing. ?What is your buyer doing with the commodity? The government expects you to understand what they're going to be doing with it? They hear all the list that you need to make sure that you're checking. Denied persons, unverified entity list, special designated nationals, [ debarred ], nonproliferation sanction list, Sectoral Sanctions Identification. And there is a consolidated list that's available at export.gov. So you need to make sure that you screen the parties to the transaction before the transaction occurs. A few best practices for exporters with ECCNs. So when you as a shipper, you do a self-determination. You want to make sure you check the CCL alphabetical index list first. There's an alphabetic list where you can search by the name of something. Try to find it that way, right? You want to look at the general characteristics of an item to arrive at the category and product group, and match those characteristics with the ECCN in the sub-paragraph, those notes that the items listed. Make sure you check that 600 Series first before further exploring the CCL list. Because remember, you're going to have stricter controls there. If you're not sure, right, you can always ask the manufacturer, the ECCN of the item. And then, check that information against the CCL to confirm. The BIS, they actually have a publication posted on their website of different types of technology manufacturers and just manufacturers in general that have submitted ECCN numbers for the commodities they make. So some of that information is publicly available out there on BIS' website. And you can also sometimes go to the manufacturer's website. okay? And finalist, they may publish a list on their own website. Big companies do that. They have items like that listed. And then you can always submit a formal classification request to the BIS through the SNAP-R, right? So remember, I would love if the world of trade compliance, export compliance. It will be nice, if everything was crystal clear and black and white. That's not always the case. And the government understands that and realizes that. That's why they have such tools as SNAP-R that can be used to request a formal classification review. So really, the proper classification is essential to determine if you have any license requirements under the EAR. So it's really, really important to make sure that you get that part right because that -- getting that part right, that's what everything else hinges on is making sure that you have that classification correct. Okay. In addition to some of those lists that are published out there for ECCNs, the SNAP-R. BIS also has, what they call, an online training room. They have several recorded webinars and videos that kind of walked you through export control classification, if you're new to it and kind of walk through that process. Something else to think about, if we your doing the SNAP-R, which really stands for simplified network application process and redesign. I probably only called that a couple of times a year. When I'm talking like this, otherwise, I always call it SNAP-R. But besides commodity classification requests, this is where you submit export license applications for BIS, encryption registration, reexport license applications. And as an applicant, you must have a company identification number, and you have to create a user account to use that. Okay. A lot of companies will provide, what they call, the CCATS number, the CCATS number because some encryption exports require you as the exporter to make a post shipment report to the BIS on an annual basis of that CCATS number. And that's one of the mandatory elements that's required for reporting that. Okay. So any time you're dealing with encryption, you want to make sure that you understand what the requirements are for that export control classification number that you're using. One thing that I just could not mention in good conscience. is that anything that has an export control classification number is required to have a destination control statement. It's a legal statement that's required by the EAR stating the items are being exported, adjusted to the country indicated on all the shipping documents. It's required to be on the commercial invoice, but it's not required to be on [ the ] export invoice. It really is a best practice to put that probably on everything, whether you have an ECCN or an EAR99. Just make that part of your programming guy just a good precaution to protect you as the exporter, in the event that the merchandise is sold to domestic purchaser. And then is unexpectedly, exported from the U.S. All right. I'm going to shift gears here a little bit. We're on the home stretch. I want to talk a little bit about the elements of effective export compliance program. Guys, this is really straight from the horse's mouth here. This is from BIS. This is what BIS has published what they identify as effective elements for compliance program. They have 8 elements that they consider critical for an effective ECP. For items that are subject to the EAR, and that's what I want to talk about here. All right. So factors that are going to impact your ECP. The size of your organization, strategic nature of the items, your possible end users and their end uses, the geographic location of the organization, your subsidiaries, your customers, your relationships with your business partners, your volume of your exports and the complexity of your own internal export processes. These were all things that could impact ECP. The very first element that you need to have in place is management commitment. You want senior management and senior organizational officers, officials to be designated with the overall responsibility of the program. The responsibility sits at the top. They have to set the tone. BIS recommends that you get a management commitment statement. They do also publish an example out there that they say, here is an example that you can use with your executives. An employee acknowledgment. Having your employees acknowledge that they understand what's in the ECP and the importance of it. Making sure you have adequate resources and support and then training, right? You got to have support for training. They got to have training sessions. The second element would be risk assessment. And this is where, like many companies get into trouble as they fail to identify their risk early on and they only focus solely on getting orders out. Okay. This can create vulnerabilities in your compliance program and then cause you a whole lot more work later on to correct. My best advice to start early and invest in the compliance program that assesses your organization's risk. And understanding these risks will help you in building your support procedures. So the 3 main areas that are considered a risk are the export item itself, which could be -- you have to be worried about exporting without a license, unauthorized release of the sensitive information or control technologies. And then servicing items outside of the U.S. Then you have to look at internally your organization's operations. Do you have a weak or no compliance structure? That's a risk. Lack of communication with a new organization. Poor relationships with your export facilitators. No or undeveloped export clearance procedures. And then the last area that the BIS says, "Hey, these are your biggest area of concern," are your customers. An unknown end user or an unknown end use, right, unaware of a potential diversion risk and then violating anti-boycott loss, right? Those are risks that involve your customers, understanding your customer base. Third element is export authorization. The things that we talked about today. What jurisdiction you entered? What's the ECCM? Do we have procedures in place for licensing determination? What are our screening procedures. Whether it's a potential screening head, license determination concern or question, or the presence of a red flag, it's critical to create a mechanism for stopping and holding and releasing these questionable transactions. This process should be well-established and should be known to all of your staff. And as part of this process, you want to have written guidance, right, set up to the staff for them to understand and feel empowered to be able to put that staff in place, that hold on any questionable shipment. And then you have to decide who has the authority to review and ultimately release. or stop and export altogether? As companies expand their consumer base, their suppliers, your export facilitators and any other relationships, screening, screening, screening is even more critical. So you want to make sure that you have a process in place that's documented for all of these things as well as any red flags. What's the hold? Everybody can hold it. Who reviews it to release it. So you want to have that process documented. The next thing that we want to take a look at is record keeping. You want to create a system to manage your records. You want to understand how long to retain records. The regulation say that parties are required to keep records from 5 years from the latest date of export reexport activity from the U.S., latest such date of export or reexport activities, which include the date of any known reexport transshipment or diversion, a day of any termination of a transaction whether formally in writing or by other means. And in the case of records pertaining to transactions involving restricted trade practices of boycotts, the date the regulated person receives the boycotted related request requirement. So you want to keep it for the right amount of time. You want to assign roles and responsibilities. You want to -- you need to be able to reproduce original records. Whether you're keeping records in paper or electronic, each medium has its whole strength and weaknesses. You got to evaluate both. With paper, you have to think about copies, physical storage, off-site storage, archiving, destruction, cost and time. Reproducing original records may be maintained if the 9 conditions are met. But you have to look to see if you can store something electronic. You need to check out what the requirements are to be able to do that and make sure you can comply with that. And then you want to be able to also document certain communications with foreign nationals. You want to make sure that if you have items that are controlled, if you have a record keeping for any kind of foreign visitors that come on site to your facility, you want to make sure you have a process in place for that. And then documenting certain communications with the government. You should implement a system to keep track of these. This could be records where you've asked for guidance or interpretations on export control issues. So you just want to make sure that you keep a record of that. It's also really a best practice to have one point of contact like your Export Compliance Manager that has those conversations on behalf of the organization with the U.S. government versus every Tom and Sally e-mailing the Department of Commerce. You want to funnel that through your Export Compliance Manager. And then if we -- I have listed out here the records to be kept, really thing from A to C, every e-mail. Every document. correspondents, notes, memos. That all needs to be kept. Element #5. Training, right? Well, I mean, this is really no-brainer, guys, like how do we expect people to know what to do if we don't train them on what to do, right? They don't understand what the expectation is. So you want to have a documented training program. Some characteristics that you want to -- that you can detail out in your training program would be making sure you have job-specific knowledge based on the need. Make sure that the responsibilities are communicated to each employee and then accountability, right? Holding employees accountable for their export training through assessments. Knowledge checking them. You should always do periodic reviews and revisions to your training material to discuss any changes in your organization products or services, end users and then changes in the regulations. Element #6. Audits. So you keep your compliance program running smoothly, the system in its part should be tested and recalibrated. Export Compliance Managers will need to keep the program dynamic altering it with changes to operations, changes to our regulations. And audits assess the effectiveness of the current process and checks for inconsistencies between your day-to-day operations. Are we doing what we say we do? That's really what you're looking at with the audit. You're going to have a great program. But if you're not checking the program to see that it's working, you could be falling really, really short. So you want to do a couple of different types of audits. You want to do focused audits. Look at specific areas of the process such as record keeping or shipping procedures. You want to look at the program level. You want to just schedule internal audits at least on an annual basis to make sure that you've reviewed that program that everything is in place. You want to review what you have found through your audit. explain where you did good, explain where you did bad? How are we going to fill the gaps? What process can we put into place? Another best practice would be, if your resources allow it, do an external audit, have someone come in. Utilize an outside auditor, right? And then as always, you've got to share your findings and you got to follow up. And then you want to keep records right. Any time you have these follow-up meetings, any time you put any kind of corrective actions in a place, you need to make that part of your recordkeeping, you need to keep this stuff for at least 5 years. Element 7. You would need to have a plan in place for handling export violations and taking corrective actions. So you want to make sure that how to handle it internally and how you're going to report it externally or any type of suspected violations of noncompliance. You want to make sure that if you have a noncompliance issue, that you get that issue corrected as needed. You want to make sure you have disciplinary actions in place for noncompliance within your organization. Someone goes outside your company's policies or outside of export laws, there needs to be some actions in place. Making sure, again, that you have support from senior management here. You want to make sure we have a safe environment that everyone is encouraged to come forward, if they have suspect a potential violation. So they don't have fear of retribution. Kind of an open door policy, where they're encouraged to report things in good faith. You want to have internal and external procedures in place for submitting a voluntary self-disclosure, which is also referred to as a VSD. And what this is, is a mission of potentially a proper conduct. It can help with mitigating factors with the BIS as far as like a penalty in the monitoring. One thing that you always want to take in mind as a VSD, creates knowledge of a violation. And it doesn't protect you from terminal violations that could be referred to the Department of Justice. So it's very strongly recommended that you have a procedure in place and that part of those procedures is that you consult a trade attorney or outside council anytime before you would submit a voluntary self-disclosure because it can open a door in another avenue. And you just want to understand what's behind that door if you're going to let that door be opened. And then you want to have, right, corrective actions. You want to document any kind of corrective actions that you put into place and maybe a level of actions. Here's like a first notice or a second notice or something that is consider important, but not critical or things that are considered critical and high risk to organization looking at the different types of actions that are involved with whatever the infraction is. And then the last element here is just getting this built and maintaining your manual. A lot of times, companies will consult with a trade consultant or attorney. You can always build it on your own. There are templates out there that you can purchase. You want to make sure that you get the 7 elements that the BIS lays out. If you're writing something to be covered under the EAR, you want to make sure that you have -- advertise it to all their employees, so they know where it's available. where they can go look at like what's the procedure? What do I do? And then don't put on shelf and forget it. Make sure that you get it on a calendar to do a periodically review of the manual, and make sure it's dynamic and up to date. You want to do that at minimum that annual audit. Are we doing what we say we are doing, right? The proof is in the review of checking those shipments, checking your process. Are we really doing what we say? And all these factors, especially having an export compliance program. and having these things documented can't help you if you get into a pickle and you do have an infraction. You're able to show that compliance is important to your organization that you take it seriously so much that you have these documented procedures in place. So there -- like I said, this is available. The information, that's published by BIS as a document. We can make sure that we get that shared with you as well. If you're interested in reading more, that's put out there by the BIS on this particular topic. And I have probably gone a little bit over of my -- into my Q&A session, so I apologize for that. But just I wanted to get through it all for you guys today.

Thank you, Cara. That was a lot of good information, and I'm sure we'll have additional questions after people take some time to process everything that you just discussed. But thank you very much. That was great. We do have a couple of questions that we will have some time for. So I will stop recording.

We'll go into the questions. So the first question is attendee did know about exceptions and LVS known as low value, but did want clarification on what is GBS and what is CIB.

Okay. I would like to be able to respond to this with an e-mail, if that's okay. Just so that I can make sure I detail everything, and I don't miss anything from going off of memory for GBS and CIB.

Okay. Will you get that answer over to this attendee. The next question is, what are the risks of exporting a product from the U.S. where the country of origin is known by the U.S. shipper to be incorrect but the HTS and ECCN are accurate? Should the export be deferred until the correct origin is identified?

You're commodity, right? The ECCN, that's going to control all your licensing requirements. So if you have something that is misclassified with the country of origin, and it has like the parts or components of it that are of U.S. origin, you want to understand what those percentages are, when you should get those things correcting. just in part for that reason, right, because that's going to control your exports. Plus if you have something that is not properly classified with the country of origin and you're looking at a U.S. versus a foreign you could potentially be missing filing something on your export declaration, if you have a domestic versus foreign. And it's really one. It's really the other one. So you could be inadvertently assuming something is low value, when it's really not.

Right. And then we do have one last question. Yes, after the webinar today, everyone will get survey from myself. And after you complete the survey, there will be a link that pops up that will have a copy of the presentation that Cara shared today. I'll just wait a few more seconds to see if there's any other questions. And one did come through, "Cara, what do you consider the minimum regulatory requirement to understand the who and the what for exports for online orders?"

Okay. Oh, gosh, online order. So this is fantastic. So a lot of us are involved in the direct to consumer, direct-to-consumer type of business now. You still want to understand who those parties are. And you also have to think about what your commodity is. What -- if your commodity could be used for dual use, you probably want to -- you're going to want to ask additional questions on what they're going to be using it for. But even for online orders, you are still obligated to check those list of concerns, those denied party list to make sure that those individuals are not on those lists. And it is -- it can be a little more difficult when you are -- have an online order to an individual, and that individual matches or as a potential match to a party that's on one of those list of concerns. Being able to vet that person becomes a little more challenging to -- some of the listings will have a data of birth, or a contrary of citizenship that you can try to look out or some of them don't. So it does become more complicated in certain instances to get that who vetted on that case.

Cara, can you go to the next slide?

Oh, yes. I'm sorry. I forgot again, Sarah. I'm so sorry. I did this to Sarah last time, everyone.

It's okay. I just wanted to give everyone a chance to scan this QR code to check out our upcoming webinars and events for our region, and just give one last chance for anyone else to enter any questions into the Q&A box. Otherwise, we will give you a few minutes of your time back into your day. But I do just want to plug that Cara will be presenting. I know this was an exports group, but we will be offering an Imports 101 and then Imports 201 in the fall. So watch for that registration, and we'll give you a few minutes back to your day. Thank you, everyone, for attending.

Thank you, everyone.