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

Good afternoon, good morning. Since we're already getting a few reactions here, which we all love to see, we are going to go ahead and get started. We are right at 1:00 here on the East Coast, so we want to be respectful of everyone's time. We have some great content to go over with you all today. I always wish I could kind of click on these floating reactions and be able to tell who's giving us the love, but thank you all so much for joining us. We are talking about navigating the ever-changing environment of U.S. export controls, and we had quite a lot of response in terms of registrations for this event. So we know that you all are eager to learn more from our speakers. So I will just let you know a couple of quick housekeeping items before we go right into introductions and the content. My name is Samantha Hurst. I'm one of our Americas managers, marketing managers, for marketing and bids for the Americas region and help support on this webinar. So in the background, if you have any questions or technical difficulties, you're welcome to reach out to me via quick chat message. Today's content will be about 45 minutes with Q&A to follow, as usual. We do ask that you submit any questions into the Q&A window. So I know I just mentioned the chat, in case you have technical difficulties, but if you do have questions for our speakers, please make sure you put those in the Q&A box. That will help us make sure we can keep track of everything and that we haven't missed anyone's questions by the time we wrap up today. One of the main questions we get a couple of times as soon as these webinars start is, how do I receive the slides and is this being recorded. So this webinar is being recorded, and we will send you a short feedback survey at the end of the webinar. Typically, we're able to do that within about an hour of the webinar wrapping up, so we need to get the recording to be completed. And once you get that survey, if you could just fill it out to give us as much feedback as possible about the content and the value of today's event, we would greatly appreciate it. That helps us make sure that these events are useful for you. And then finally, if you want to learn more information about our upcoming events, you can scan this QR code that's right here in the bottom right, and that will allow you to subscribe so that you get all of those invites as well as our global market updates that go out fairly regularly. Okay. So now I'm going to introduce our speakers. So with us today, we do have Kim Myskewitz. She is our Director of Trade Compliance for the Americas. And Kim has been with us for 25 years with most all of that time being in customs compliance with a little stint in account management. So we are very thankful for Kim's time today to share her expertise with us. We also have Sila Barr. She's our U.S. export customs Compliance Manager and Sila has been with Expeditors for 17 years with about 15 of those also in customs and compliance. So you all came to the right place today. We also have experts in the background here that are going to be answering any questions we can, and we'll certainly save some, most likely for the live Q&A at the end as well, especially if we think it's particularly useful to the whole group. So now I'm going to pass things over to Sila, who's going to go over our agenda and we will get started. Thank you.

Awesome. Thanks so much, Samantha. Hey, everyone. Welcome officially to our export controls webinar. Kim and I are really happy to have you here with us today to talk about this really exciting world that is the U.S. export controls environment. So do you want to level set us? I know that the webinar title includes Export 101 in it. I do just want to give you some expectations on what to expect from this webinar today. We're not going to be covering specific types of export controls, what export controls are, how they work, things like that. This webinar is really going to be much more focused on things we're seeing in today's export controls environment here in the United States. We're also going to try to give some tips, some questions that you can ask on how to even determine whether or not your items or your services, your transactions might be controlled by some sort of export law. We're also going to provide some best practices on things that you can do to apply some of this information you're learning to your overall company, your overall compliance program. And then we have a resource slide included in this presentation as well that has all sorts of links and information that you can utilize to get started on your export compliance journey. So with that, I'm going to go ahead and kick it over to Kim, and she's going to get us started with some information on what we're seeing in the export control space today here in the U.S. So Kim, please take it away.

Thank you, Sila. Good morning, good afternoon. So we'll jump right into this. So on the slide here, you'll see there are many regulators when it comes to U.S. exports. Some of them before they're listed here are the main ones that we're going to talk about throughout the slide deck here. But the DDTC, which is part of the Department of State, they regulate military goods and services, things like military vehicles and weapons. BIS, just part of the Department of Commerce, they regulate dual-use goods and services, so things that can be used in both military and civilian applications. And then you have OFAC, which is part of the Department of Treasury and they focus on sanctions and embargoes. So for example, a shipment that would -- that is involving Russia or Iran would fall under OFAC's purview. And then finally, CBP, which is part of the Department of Homeland Security, and they're the enforcement arm for most of the other agencies in an export transaction. So when there are questions about a declaration, they're usually the first people that you hear from. There are other agencies such as Drug Enforcement Agency or DEA, Nuclear Regulatory Commission, NRC, Fish and Wildlife Services, FWS, et cetera, who also regulate exports from the United States. But many -- like I mentioned, many of the regulations and concepts that we're addressing today revolve around the 4 agencies shown on this slide. So next slide, Sila, please. Okay. So the export control environment is extremely complex. Some of you may remember the days when there wasn't a lot of focus on U.S. exports transactions. Unfortunately, those days are long gone. Some of the areas that you may need to be aware of are things like foreign direct product rule. So if you're familiar with this rule, I apologize. I'm sorry. And if you're not familiar, I hope you never have to be. The high level look of what the FDPR does is it applies to certain items manufactured overseas using U.S. origin components or made using U.S. technology or software. And this rule allows the BIS to regulate the reexport and transfer of these foreign-made goods. We can honestly spend an entire day discussing this subject, but we're going to move on. So technology advancements. As technology advances, the government is constantly trying to balance controls with commerce. They don't want to hold back U.S. businesses, but they also don't want technology get into adversarial hands. Emerging technologies, especially things like AI, quantum computing, semiconductors, that's a constant area of focus. So if you're in the business of exporting any of these types of products, and if you're not already aware of the heightened risk in this area, you need to be. International cooperation, all of the U.S. government agencies are working with other countries to exchange information and best practices. So this is an ongoing thing that they're doing. So some of the examples of this is the Group of 7 or G7. So that's U.S., Canada, France, Germany, Italy, Japan, U.K. and EU. And they work together to coordinate things such as global economic policy, international security and artificial intelligence. And then in the past, BIS has also worked with Hong Kong to try to align controls and has also been the Export Enforcement 5 or E5, which is the U.S., Australia, New Zealand, Canada, and the U.K. And they've committed to robust enforcement of export controls on Russian. And then we're also seeing U.S. government agency cooperation. So we're seeing U.S. government agencies coming together more and more to release guidance or set up joint investigations, which -- any of you have been around for a while, you would know in the past that this was virtually unheard of. So there's something called the Quint-Seal documents that I'll talk a little bit more about on the next slide. But this is a very good example of this collaboration. Also BIS and DDTC has also worked together to expand their end-use controls for support of foreign military intelligence services. And then finally, the volume of changes in designations. BIS has issued over 20 significant regulatory updates in the last year, which means that trade is required to digest and adapt way more quickly than they've had to in the past. And more parties have been added to various denied party list. I believe that there have been well over 500 just this year. So every day, there seems to be a new listing. So next slide, please. Okay. So along with the complexity that I just discussed, we also have seen additional enforcement. So I mentioned this on the last slide. The U.S. government agencies are collaborating more and more. And one of those things that they have collaborated on is the Quint-Seal note. It was issued in December of 2023, and it's a collaboration of the Department of Justice, the Bureau of Industry and Security or BIS, Department of Home Land Securities' homeland security investigations, the Directorate of Defense Trade Controls, and the Office of Foreign Asset Control. The compliance note outlined the responsibilities of all participants in trade for assessing the risk profile and implementing rigorous risk-based internal compliance programs to avoid potentially illicit conduct and reduce the risk of sanctions and export controls, violations and evasion. The note includes recent criminal and civil enforcement actions and further emphasizes that the U.S. government, through its various federal agencies and departments, continues to closely monitor the shipping industry to ensure compliance with U.S. laws and that enforcement of such laws remains a top priority. Another thing that has been issued or has come together recently is the disruptive technology strike force. So that was launched by BIS and DoJ in 2023. And it was set up to target illicit actors and strengthen supply chains, protect critical technological assets from being acquired or used by nation-state adversaries. And as of February of this year, the Strike Force has charged 14 cases involving alleged sanctions and export control violations, smuggling conspiracies and other offenses related to the unlawful transfer of sensitive information, goods and military-grade technology to Russia, China or Iran. And then there have been many other industry guidance documents that have come out, and they're all trying to communicate information on best practices and ways companies can better achieve due diligence. So as previously mentioned, there have been a lot of additions to denied party lists, including the entity list, specially designated nationals list or SDN list, and the military end user MEU list. And there's more and more of a focus on prohibited end users and end use investigations. There's also been new releases on the BIS voluntary self-disclosure or VSD front. So a memo was issued in 2023, encouraging reporting and quicker resolution of VSDs and an codified internal policies with a final rule that was issued in September that amended the VSD regulations to adjust the cap on monetary amounts for none egregious penalties. So setting a MAX is half the transaction value, and it made the decision to not self -- made the decision to not self-report an aggregating factor. So keep in mind, if you are filing a VSD that overlaps different agencies, then you should file to all of the affected agencies at once to receive any benefits of filing that VSD with that agency. If one agency receives the information from another agency versus from yourself, then you no longer receive any of the VSD benefits for the agencies that you did not file with. And then in April of this year, OFAC extended the statute of limitations from 5 to 10 years for civil and criminal violations of the International Emergency Economic Powers Act or the Trading with the Enemy Act. And then as expected, in September, OFAC issued an interim final rule, extending the statute of limitations to 10 years for the recordkeeping requirements that were codified at 31cfR501.601. So now that you know a little bit more about the export controls environment, I'm going to turn it over to Sila to talk further about what you should be looking for in your transactions.

Awesome. Thanks, Kim. Yes, as you guys can see, as she mentioned, we're no longer in the good old days of being able to "rate it high and let it fly", as many people, I think, in the industry like to joke. Things are getting way more complex and enforcements becoming much more prevalent, and the government is using export data for a lot more targeting than they used to. So what can you do? How can you understand your items, how they're shipping, how they might be controlled under some of these? So we have some questions here, some groups of questions that we're going to delve into. I know that these are a little bit out of order of the typical who, what, when, where, why, but why not mix it up a little bit? So let's delve into the first section of questions, which is the what. So at the very base level, what are you exporting? What are your items, okay? So when I say items or commodities throughout this presentation, really, we're referring to services, we're referring to technology. We might be referring to information that's being e-mailed or information that's being shared with foreign nationals. We might be talking about design specifications, and we're also talking about tangible items. So it's not only the tangible items that are covered by these various export control laws. There's a wide swath of things, activities that are all regulated that you need to be aware of. But the very base level question is, what are your items? That is a really basic question, and you probably want to do some more digging after you understand what because the answer might be as simple as it's a T-shirt, okay? Great. But are your items military? Are they commercial? Are they specifically designed for inclusion in some sort of military application or are they specifically designed to not be included in military application? Do they have a classification on either the commerce control list, which is CCL. BIS maintains this list, and that is a list of items the government has deemed to be dual use, as Kim mentioned, so they could have military application or they could have a civilian application. Or are they classified on the U.S. ML, the United States Munitions List. This list is a list of commodities that are very militarily focused. That one is owned by the DDTC under Department of State. So all of the military items that the government has deemed absolutely are used for military purposes, those exist on the U.S. ML. Are your items on either one of those lists? Are they intended to be on either one of those lists? Are they designed for military purposes, like I mentioned. So that's another layer you can add. You can go deeper. What are the specifications of your item? How is your item designed? What is it intended to be used for? The more information you can get about your products to help give you a full complete picture of the what will be really helpful in understanding how that item might be controlled. So if we take our T-shirt example, and bear with me, this is a very bad example. So just trying to keep it interesting. If we take our T-shirt example, if you just ask, hey, what is that? Someone might say, a T-shirt. And you say, great, that sounds benign. Ship it everywhere. What if though you start asking some questions, and you say, hey, what's the fabric content of the T-shirt, how is it designed, things like that. Someone may tell you, oh, that T-shirt actually was designed with Kevlar. So we're including Kevlar material into that T-shirt. So Kevlar, for those of you who aren't familiar, is a really common material used in the manufacture of bulletproof vests and a number of other fun things. It probably might kick your T-shirt into a different area of control, knowing that it's a shirt made with Kevlar instead of just cotton, okay? So understanding and asking questions about what your items are is really an imperative step in building that first picture of what, that complete picture of what. Another thing to kind of keep in the back of your mind is you can actually utilize knowledge of the controls to influence how your items might be designed. So maybe you don't want to be in the dual-use control space. Maybe that's not something that your company is interested in participating in. Maybe you'd like to just export T-shirts and not Kevlar T-shirts. Knowing all of this, you might choose to take the Kevlar back out of your T-shirts and make it just cotton and that might deregulate your item in certain ways. So you can actually use some of the knowledge of export controls to influence how you might design or manufacture your items to fall into a particular set of controls or outside of a particular set of controls. So you can use that strategically as well. So our next set of questions has to do with where. Where are the items going or to what country? Or is that information being communicated to what country are those items going. If you are dealing in the software space and people are downloading your software, you might have questions on where are the people that are downloading your software from. What country are they a national of. That counts, in some cases, as an export to that particular country. Okay, just things to think about there. But where are you shipping your items? This is a really important part of the puzzle as well. Are your items even allowed to go to that destination. So Kim mentioned the agency OFAC. They happen to manage many of the U.S. sanctions and embargoes programs here. One of the most, I would say, long-standing and famous ones is the embargo against Cuba that the U.S. has. So if we take our cotton T-shirt and maybe you want to ship it to Cuba, there's a good possibility that, that shirt is going to be -- actually, I can guarantee you that, that T-shirt, the export of that T-shirt to Cuba is going to be regulated by some aspect of the U.S. government. And you probably need some sort of authorization to complete that transaction, right? Can you even ship your items to the destination in question? Destination also has a very heavy influence on whether or not a license might be required specifically under BIS and OFAC regulation, but others as well. If you're shipping one item to both the U.K. and India, it's very possible and very likely that maybe the item shipping to the U.K. doesn't need a license of any kind. But that same exact item going to India will need an export license from some agency. So understanding that is another important piece to the puzzle. Also, I just want to kind of highlight this concept of how will your items get to the destination. So this is something that maybe your shipping departments would focus a little bit more on, your logistics supply chain departments. Maybe you're working with your forwarders or your carrier partners on this. But understanding the routing of your items is also -- can be a really important part, especially if you're dealing with controlled items of where those items are going. Some items can flow freely throughout the world without issue. Other items, for example, military items, if there -- if you want to route your freight through Europe, let's say, to get to another destination and it's a military item. Many countries within Europe will require their own licenses to even move that freight through a country. So understanding some of the restrictions on your commodities and where they're allowed to go at all can really help inform conversations on shipping, routing, things like that. So it's a good thing to keep in mind for pricing purposes as well. But it's good to understand, again, how will someone get your items to that destination, you want to be involved in that part of the process. Another call out I want to make is really just understanding the difference between the ultimate destination of your items as well as the location that your buyer is located, okay? So they may be the same. Your buyer might be the ultimate end user of the goods, and that's totally fine. The buyer may also purchase your goods for distribution to other countries. You may know about that, you may not. If you have an inclination though, it's probably a good idea to ask some more questions on what your buyer plans to do with those items or where do they plan to distribute them. As a U.S. exporter, you could potentially be liable again, depending on a number of factors. So again, I'm not saying you are or aren't, but you could be liable for making sure that the items are licensed properly to all the destinations that they are going to. The more information you have about what your buyer plans to do with those items upfront can better prepare you for that type of research down the line. Or it might have that conversation with your buyer, hey, you're unauthorized to send those to a particular location. Here's our contract saying so. You can build in protections and things like that. So where. Another big piece. Then we'll consider the who. So who. Not the band to The Who but who you're shipping the items to, who's actually going to receive those items, who is going to receive that software download, who is going to receive that information as an entity or as an individual, okay? There's a number of parties involved in transactions. And it's a really strong industry-wide recommendation that you screen parties. And I believe it's actually part of a regulation at some point that you screen parties. So screening parties. When I'm talking about screening, there's a number of lists, a large number of lists that government agencies, both inside the U.S. and outside of the U.S. maintain. And these lists contain parties, individuals, people that for various reasons, governments have deemed perhaps unfavorable to do business with, again, for all sorts of reasons. Because of the amount of data that's available on these lists, how large some of these lists are and because probably of the amount of data that you're dealing with as a company, the amount of parties you're dealing with as a company it's a really good idea to try to automate that screening process as much as possible. There are a number of software providers out there that offer this type of service, you can get consolidated information packs to screen against. Again, it's a really big piece of the puzzle because if a party does appear on some of these lists, it really does dictate what you're allowed to do for that particular transaction. Some lists completely prohibit any U.S. persons from engaging in any type of activity with a party on the list. Another list is much less regulated, and that list might stipulate that you can do business with that party as long as you get a guarantee from them as to how they're going to use those goods or where they're going to ship those goods to next or that they aren't going to ship those goods anywhere else, right? So there's a lot of different levels and understanding what lists your parties fall on is a really good place to start with your compliance controls troubleshooting here. Outside of even the regulations and the list, maybe you've done all your screening and none of the parties you're dealing with fall on the list. That's great news. That's really nice. But it's also really a good best practice to consider vetting your customers. Who are you doing business with on the whole. Are your customers above board, I guess, for a lack of a better word. Do you have a good business relationship with them. Do they pay you on time. Are they forthcoming with information, all of that kind of stuff that can help provide risk assessment outside of even just regulatory control, but from a business perspective, if you want to be doing business with a particular party or not. So it's just a really good idea to understand who it is you're selling to, who they are selling your items to, things like that. The bigger the picture of the supply chain you can get, the better prepared you can be. Okay. Next step is why. So bear with me. This question probably should be more of a how or what, but I really wanted to keep why in our 5W questions represented here. But ultimately, we're asking here, why was the item purchased, okay? How is that item going to be used by the party that you sold it to. Are they going to be using it for military purposes? Are they going to be using it for research purposes, civilian purposes. There's a number of reasons they could be using it. But several regulations in the U.S. for export controls actually do consider end use of a particular item a factor in the control. So again, another horrific example, apologies in advance. But if we take our basic cotton T-shirt and you want to send that to anywhere in the world, right, it's a T-shirt, people want to wear it, no big deal. Let's say, you get a call from a company and they say, oh, amazing. This is the perfect T-shirt that can help aid in my facility's production of heavy water. Okay. I'm not a physicist, please don't come for me. I realize that a T-shirt probably cannot be used in heavy water production. But I just want to highlight, right, that heavy water production would definitely fall into a nuclear end-use space. And that is going to be heavily restricted, if not fully prohibited by the EAR, the Bureau of Industry and securities regulations, okay? So again, you're benign T-shirt that seems like just a T-shirt. If it's going to be used for a purpose that falls into a more restricted category, again, that could put you in a licensable space or a prohibited transaction space. And then our last set of questions here deals with when. So when are your items being sold? When is the item going to export? Maybe when is that item going to get to the destination. There's a number of reasons that you want to keep things like this in mind. The first thing is when new regulations are published by various agencies, at times, they will contain what's known as a savings clause. So a savings cause is kind of like a stipulation or an allowance for the trade, where the government might be prohibiting a certain set of business, but they realize that there might already be transactions that are happening within that business space. So a savings clause essentially allows a company that has any types of transactions in flight that might fall into this new regulation to continue. So you can complete those transactions. However, a lot of those transactions have to have been sold by a certain date, maybe before a certain date, and they also have to be completed by a certain date. So they might have to export the United States within a certain period of time. They may have to reach their ultimate destination by a certain period of time. There's a number of different criteria that can exist in a savings clause. But understanding the sales process, when these regulations come out and how long you have to finish any open contracts or orders you might have can be really helpful. Another thing to keep in mind is licenses. If you have a license or a permit from the government, chances are that, that has an effective date and an end date. The period of time can vary depending on the agency you get it from. Some are onetime use, some are good for 4 years. There's a various -- it depends -- it really depends on the type of permit you have. But understanding when your licenses and managing your licenses can really help in your customer service, right, or your contract fulfillment. You have an ongoing long-term sales order with a particular customer, let's say, for aircraft parts and you need export licenses in order to complete those orders. It's a really good idea to probably manage when your licenses will expire to avoid a lapse in service. You can always apply for a new license, right, but that does take time to get a new license. So if you're trying to provide constant service to your customers, it's a really good idea to keep an eye on your license management. It's also really good just to understand, hey, we have to fulfill this contract by the expiration date of the license. The more people that know about that, the less frantic. Hopefully, it will be to get all of those items exported within a certain time frame before the license expires and then perhaps those items actually aren't able to be exported anymore. Okay. Another thing to kind of think about in this when space or really overall is keep an eye on regulations that might be coming down the pipe. We're going to talk about this a little bit more in our best practices slide, but it's a really good idea to really listen to what the government is talking about, what areas they might be focused on, either technology areas, perhaps regions that they're focused on, perhaps specific topics they're focused on, that often will inform what regulations might be coming down the line, which can turn around and inform how you want to devise your sales strategy, how quickly you might want to sell goods. Maybe you want to stop selling goods ahead to try to cut off any potential exposure in the future, right? There's a lot of things you can do with that information. But really taking what might be coming down and considering that in relation to when you're exporting can be really helpful. One other thing I do want to highlight. It does happen on occasion. It's unfortunate when it does, it doesn't happen too, too often. But every once in a while, you may be in the middle of a transaction, you may have already sold goods and they're on their way to your customer and the regulations change. Or maybe that customer gets added to one of the lists that I mentioned earlier. And that creates kind of an interesting situation. When I say interesting, it's probably really more of a frustrating situation for everyone involved, but it can happen where a government puts in a new regulation while you have a transaction in flight. And sometimes, those goods might need to be seized. Sometimes, you might not be able to fill the contract. You might not be able to complete the transaction. So not every new set of regulations comes with a savings clause. So the more you can be attuned to what the government is focused on, the better you can try to get ahead of that. Okay. So we've asked all sorts of questions. We now have all sorts of information about our transactions. What do we do with it? Unfortunately, the simple answer is a lot more research usually needs to happen. These questions are very high level and basic. And as we have alluded to, the regulations are many and complex. But a lot of the information you have can help inform a number of things. So first, it can help tell you if that transaction can even occur at all in the first place, which is a really good thing to know if you would like to export goods. It helps to understand if you can even export those goods. Really helpful to know. Nobody really wants to break the law, the first place to start. It can also really help determine any export license or permit requirements. Again, as Kim mentioned, there's all sorts of agencies that regulate exports. There's items controlled for dual-use purposes. DEA has export controls. EPA even has a few export controls, Fish and Wildlife, there's a number of permits you might need to get your goods out of the country. So having all this information can really help inform what agencies do you might be dealing with and then what export license requirements might apply? Or there might be an available license exemption or license exception or a scenario that allows you to not apply for a license when one otherwise might be required, okay? Often those exemptions have quite a few criteria that need to be met. So it's really good to understand, again, the full picture of what your transaction is so you can determine then if one of those exemptions might be able to apply. All this information can also help identify red flags. We talked about this a little bit. I kind of think of red flags as maybe items that -- or things, feelings you get that don't make you feel really good about doing business with a person or an entity. That's not really a great caveat. Everyone is going to have a very different line for what makes them feel uncomfortable, right? But the BIS actually has a lot of information on red flags on their website. We've included a link to this on their slide, on our resources slide. We have a whole section -- or they have a whole section on their website that's called Know Your Customer, and it talks a lot about that customer vetting. BIS is obviously very concerned with a very specific set of things. They're concerned about diversion to certain countries, particularly Russia right now. They're concerned about diversion of items to China. They're concerned about making sure that items don't get sold to people that are on lists, right? So again, they're concerned more on are the companies that you're working with going to somehow circumvent any of their regulations in some way. But all this information again can really help you identify if there might be a red flag on a transaction that you need to be looking out for. And then one of the biggest things that I think a lot of this information can do, and one of the most important things that I think often gets overlooked is this information can really help inform strategy in a number of ways. You don't have to take an item, give it to your compliance person and say, hey, we sold this to China, figure out how to make it go. That's going to be a little bit contentious potentially for a lot of different people, depending on what the item is and how it's controlled. The earlier you can get all this stuff and the strategy of everything, the better, right? So you can inform shipping strategy, which could then turn around and inform pricing in certain cases. But maybe you want to ship this directly to a particular end user without stopping in any other countries, if that's possible. Maybe that's something that you want to pursue. Maybe it's an item that has a little bit less weights to it, meaning significance or secrecy, right, importance things like that. And you can just let it go on a boat trip around the world for a few weeks, and it will be okay. Understanding though the severity of the item you're shipping and how it's controlled absolutely may influence how you want to work with your carriers on getting those items to where they need to go. It can also help inform your sales strategy. There are a lot of markets that, perhaps based as on how your items are controlled, you don't even want to go into. Letting your salespeople know that they shouldn't be selling to particular countries or particular types of customers upfront can really be helpful in helping prevent uncomfortable situations for your company, right, on the back end once those sales have already been made. So again, getting all of this analysis done beforehand and getting it into the sales process can be super helpful. And as I mentioned before, take this information and you can apply it to your design strategy or maybe your manufacturing strategy, right? If there's an item that you have, if you just down design it a little bit and that might take it out of a dual-use control but that item will still be able to serve your customer base that you want to serve, that might be a viable option that you would like to make. Okay. And then also all this information helps assess risk. Look, I am a compliance person, that's my title. I've been doing this for a really long time. I'm a compliance person through and through, but I do understand that business is business. If I had my way, everyone would just be doing what they're supposed to be doing per the law all the time. And every CEO would hate it, right? Business has to happen. And the reality is, it can't always just be by the book 1,000% of the time. That's not the reality any of us live in. But being able to do an informed and valid risk assessment with all this information that you've gathered is going to make it so much easier for everyone to determine how much risk that they want to take on and what the actual exposure is that they're looking at in the first place, right? Everyone is going to have a different appetite for risk. Every individual, every company is going to be at a very different level for how much risk they want to take on. But the more information that can be used to do the risk assessment, the better. So all this information really, I think, can have compliance be more of a value, right, to the company overall. If you're implementing a lot of this stuff earlier in the process, earlier in the program, you're really helping enable certain types of business and you're providing a lot of value to the organization rather than being kind of a stopper, which often happens later in the process. Just some things to chew on. Okay. So now we've got all this information about our transactions, better business. How do we implement it? What do we do with it? How do we even navigate this control space? So Kim is going to walk us through some maybe best practices that you can do to keep on top of all the information you've gathered and again, how to understand and manage your export controls. So Kim, back to you.

Okay. Thanks for all that great information, Sila. So now you guys are armed with like all this awesome information about exports that you can wow your coworkers, your managers, your friends with at a party. But there's some really good things that you could do as take away from this with as best practices as how you can run your business better when it comes to exports. So the first thing is having an export compliance management program or ECMP. So the link here that's on the slide, which you will get access to these slides if you fill up the survey. But it's going to take you right to BIS' recommendations on this topic. So this is a great place to start if you do not currently have an ECMP or even to like review and see what BIS suggests in this area. Maybe you can boost up your ECMP that you have. So as previously discussed, the Quint-Seal note was a call to all trade parties to be responsible for assessing your risk profile and implementing rigorous risk-based internal compliance programs. So something else just to note is that if you have an ECMP but you haven't updated in a while, now would be a great time to actually look through it and make sure you do that as well. So a hint for if you're not sure if yours is updated or not, if you scan through it and you reference an SCD instead of an EEI, that could be a good flag that tells you that you need to refresh your ECMP. Also another thing is record keeping. So this is a really big one. So make sure that you have a system for keeping your records, make sure that this is your way to protect yourselves honestly. So the reason why you did what you did, that's what these records are going to show. So it could end up being the difference between a penalty and a warning. So make sure that you have a way to ensure those records are being kept, especially seeing that changes have been made recently to the record-keeping retirements. And then make sure that you're involving, as Sila just mentioned, involving all departments that may be a part in the export process. So I know that it's easier said than done at times, but reminding people that compliance is everyone's job. And I know that we all say that probably to exhaustion at times, but it truly is. One person can't go at this alone. And many times, you hear of companies that get themselves into trouble because an upstream departments such as engineering or even sales did something that they should not have done because, honestly, they didn't know. Unfortunately, ignorance is not a defense. So we need to make sure that we're moving this more upstream and make sure that everybody is aware of their role in the supply chain and how it fits in the export world. And then often, the earlier the compliance is considered in any of the processes that you have, the better the outcome is going to be. You also want to make sure that you're screening all relevant parties. So as mentioned, the denied party lists are growing every day. So you want to make sure that you have a way to screen against all of those relevant lists. And the use of technology to help with this where possible is the best way to do this, especially since the number of lists are growing. And it's just -- it's -- sometimes, it's not even possible to do this manually anymore. You really need a way to do this with the system's help. And then sanctions programs are becoming global in scale. So for instance, sanctions against Russia may not only apply to people and companies that are located in Russia. There might be more to it that you need to look into to make sure that you are not doing anything that goes against those sanctions. And then we mentioned this earlier, but keeping an eye on regulations that are forthcoming can help inform your sales and manufacturing decisions earlier in the process. So an example of this might be that if the U.S. at some point decides to sanction Canada. So most likely, this is a crazy scenario just like the T-shirt scenarios. But -- so if the U.S. decides to sanction Canada in the future, but it -- they are your largest export destination. You would want to make sure that you're in front of this and have a plan, so you have a way to pivot away from Canada if need be. So this is another reason you want to make sure that you're always in front of and paying attention to what's coming at you. And then also if you decide to continue to do business in complex countries or with complex types of goods, then you want to make sure that you keep pace with the revisions to any sanctions or restrictions that are in place. So if you study the initial restriction and you determine that you're okay to proceed, which is perfect, right? You did all your due diligence, you decided that, hey, I'm located to proceed with this transaction. But if you don't keep up with the revisions that happen in the future with those restrictions, and you might miss that your transaction is actually no longer allowed to continue. So always making sure that you're keeping up with whatever that restriction or sanction is, is a really good best practice. And in the next slide, we'll also show resources for how to get notifications of new regulations. You also want to make sure that you're a part of the regulatory process where you can be. So provide feedback for any proposed rules if the changes may infect your company, be a part of that change. So if there's things that are coming at you that you see through different news articles or news casts that you see that could possibly affect your company, read into it, look into it and then make sure that you provide feedback. And then making sure that you're not going at it alone. So if needed, seek assistance from outside parties such as trade consultants, trade buyers, BIS, maybe internal counsel, whatever. Whoever that might be, make sure that you're reaching out if you need help on a different -- on a certain topic. And then making sure that you're controlling your transactions where possible. So you want to limit your routed transactions. Remember that you are the closest one to the U.S. government. So if there's an issue, they're going to contact those that are easiest to reach. So that's not saying that they're not going to try to contact that party that's located overseas. But most likely, it's going to end up back to you. So other things to keep in mind when it comes to a routed transaction, most likely, you'll have no relationship with the forwarder. So getting your backup information, so you -- that's required for recordkeeping can be very difficult. You might ask and ask and ask and you never receive. And then also you won't have any control over the routing most likely. And you don't know how well versed that forwarder is in handling your items. So mistakes could happen, right? So because of that, I'm going to circle back to my first point about that topic. The government is going to reach out to and contact those that are easiest to reach. So mistakes happen, they're going to come back to you anyways. So with all of these best practices, the more you can bake the expectations into your policies, utilize systems where possible and implement compliance into the process, the better off you're going to be. So next slide. So here, as we mentioned throughout, this is just a listing of the resources that either we've referenced throughout the slide deck or just some other ones that we find that could be helpful in the export transaction. They're all here for ease of use. So with that, I'm going to turn it back over to Sila to wrap things up.

Awesome. Thanks so much, Kim. So hopefully, lots to chew on. We have some good questions coming in to the Q&A. Please keep those questions coming. Before we get to the Q&A, I do just want to highlight that this webinar has been accredited by NCB FAA for their CES certification program. So if you are CES certified with NEI at NCB FAA, so many letters, this webinar is good for one credit towards your program. Awesome. So with that, I believe we have quite a few questions. We may not have time to get to all of them, but we will try to get to as many as possible.

So the first one I see here, and I feel like I have not attended any webinar where there isn't some sort of question that asks people to predict the future. But the first question here says, do the panelists believe that in the future, there will be an evolution or more scrutiny around rules of origin for components used in products when determining an export declaration. It's a great question. I don't know the answer to that. I think certainly, it's interesting if you just peel back and look at some of the other activities that are happening in the trade space overall, there are a lot of things that indicate that some government agencies are becoming more and more interested in layers of a supply chain, right? So we see that not to go too deep on the import side, a, because this is an export webinar and b, because I can't talk about it too deeply. But there are a number of programs for importing goods into the United States such as UFLPA that are starting to have companies vet their transactions deeper and deeper down the supply chain. The same thing, forgive me, I can't remember the name of it. I believe it's the carbon border adjustment mechanism in Europe. The governments in the EU are starting to push back and want to understand the carbon footprint that was initially emitted, right, with the very first part of the mining or of the generation of certain types of items. So I think that there's indication kind of globally that many government agencies tend to be going this direction. I do know that Sensus has in the past also proposed rulemaking to include country of origin as a specific data element on export declarations. The trade very, very vocally responded to that particular notice of proposed rulemaking. And I have not seen anything from that sense. So it's possible that it could happen in the future, but it's hard to say what the government might start focusing on here. Kim, do you have anything to add to that one?

No, I don't think so. I think you hit it up perfectly.