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The law profession (people, mostly lawyers and judges, tell me it's not a business) pretends that lawyers don't, or at least, should't give out business advice. Tut tut, we only do law. You know, we stay above the fray while invoking obscure legal precedent. But other than the pro bono I've done, I can't remember a single case where money was not the crux of the matter. I appreciate why lawyers try to segregate legal advice from business advice (for example, to safeguard the attorney-client privilege), but I initiated a few lawsuits for clients who claimed to be motivated solely by principle and who vowed to spend whatever was needed to attain justice. It's funny how the pursuit of justice wilts under the weight of a couple a months of heavy billing even when success appears certain.
What lawyers do impacts, and sometimes dictates, the bottom line. That is why companies are reluctant to comply with laws, and do so only upon threat of near certain discovery and sanction by enforcement authorities. Our nation's foreign trade laws are all about money. It does not take a PhD in history or economics to know that nations, and increasingly blocs of nations, seek to control the flow of international trade for their own benefit and someone else's detriment. That there are winners and losers should not surprise any proponents of a market system. Just as there are no free meals, there is no free trade. When people say "free trade", what they really mean is that they want to rearrange duty rates and investment laws to benefit their preferred industries. Neither goods nor people travel unimpeded over national borders (yes, I know, the EU is somewhat of an exception). There is certainly little freedom to be found at our nation's borders. In fact, as those who travel overseas can attest, under the U.S. Supreme Court schema our constitutional freedoms and rights lose potency as we approach the border, you know, where you need them the most. Governments prefer constraining the populace, not themselves. They want the license to punish citizens and to those transacting with citizens. The assertion of authority is jurisdictional, which means countries reserve the legal means to extend their reach as much as possible to be able to whack you for perceived violations of their Our country, the good old USA, has extended its jurisdictional reach far beyond what other countries could ever dream or have the capacity of doing, but evidently not far enough. Which is why our government officially discourages the use of Foreign Principal Party Controlled Export Transactions (FPPCETs, presumably pronounced feppesets, or maybe not). Never heard of an FPPCET? I can't blame you. That's the new name that export authorities want to give for a routed export transaction. I'm happy for the name change. Routed transaction was always a stupid term. What shipment isn't routed? No one says, "Don't worry. We managed to ship your merchandise without any routing." Maybe when someone finally invents a Star Trek teleporter they'll be able to actually avoid moving merchandise to get it somewhere else, but until then, routing seems to an inevitable component, if not the embodiment, of any shipment. But maybe you don't know what an export routed transaction is either. In an FPPCET or routed export transaction, a foreign purchaser uses its own freight forwarder to arrange shipment from the domestic seller. What deceivingly looks like a domestic sale turns out to be an export when the party controlling and paying for the shipment is in a foreign country and thus beyond the reach of our enforcement authorities, which explains the antipathy from said authorities. But this type of transaction is too popular to overturn by regulatory edict, so our export authorities devised byzantine means to stay in the game, but fortunately some clarity is on the way. Under proposed revisions of both the Export Administration Regulations and the Foreign Trade Regulations, FPPCETs will be allowed if the Foreign Principal Party in Interest or FPPI hires a forwarder in the USA and signs over a power of attorney to the forwarder to do the export licensing work and clearance that is needed. The FPPI must deliver the name of its forwarder and a copy of the power of attorney to the US Principal Party in Interest or USPPI. The USPPI assigns in writing primary responsibility for determining licensing requirements and obtaining license authority to the FPPI and the FPPI acknowledges in writing that it is assuming this responsibility. Absence these steps, the USPPI remains the exporter. Now that the parties are fully apprised as to who is on first base, the USPPI must provide sufficient information to the FPPI or its forwarder to determine export licensing, but does not make that call itself. The proposed revisions to the regulations should improve awareness and compliance, although foot dragging is to be expected. Some USPPIs may howl that these new requirements are onerous, but all they really do is make sure that the parties communicate to each other and create a written record of who is controlling the shipment and who is on the hook if anything goes wrong. Forwarders may not like that their liability is so plainly agreed to and recorded by the parties thinking, wrongly, that they are merely and solely logistics providers. The uncomfortable truth is that the forwarder becomes the exporter by virtue of its domestic presence and the power of attorney from the FPPI. That clarity of roles should stem silly demands from forwarders asking USPPIs for licensing determinations and should encourage USPPIs to more visibly paper their interactions with foreign customers if they want to avoid being the exporters and all the attendant liability of these transactions. Will the proposed revisions to the regulations impact the bottom line of all parties to these transactions? Will it discourage the use of this kind of transaction or perhaps even reduce the volume of exports from our country? Don't ask me. I'm just a lawyer. You can find the BIS's proposed revisions on its website, by its citation (79 Fed. Reg. 7105 (February 6, 2014) , or by requesting a copy from yours truly.
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If you have ever exported, you know that the regulations are horribly written, overlapping, and open to a great deal of subjective interpretation. President Obama has been claiming for some time now that our export laws need revamping, and last week he took his first concrete steps towards realizing this goal by issuing a slew of new changes in export regulations. He calls his effort the Export Control Reform Initiative.
One of the most important proposed revisions is the creation of a new license exception called Strategic Trade Authorization (STA). A license exception is exactly what is sounds like. If the Export Administration Regulations require an export license to ship to a particular destination, there are a few loopholes available. This latest proposal seeks to create the most sweeping license exception ever. STA appears to be a license exception that swallows up the current licensing scheme for many controlled items. It effectively removes a bunch of items from the Commerce Control List so that an export license is required only for the most sensitive items. The interesting part is that President Obama is making these changes through executive fiat, by amending the regulations. Obama, like a couple presidents before them, just can’t convince Congress to amend the export statutes (good luck with the IRS code). The problem is that when presidents bypass Congress, sometimes they get called on the carpet, they can get challenged, especially by those who stand to suffer from the changes in the law. But maybe I’m not giving the President sufficient credit. It is hard to imagine that many exporters will argue against this huge liberalization of US export controls that this proposed amendment would make. Exporters must report to the BIS whenever they invoke the STA exception, which is different and an additional step from most license exceptions. Exporters also have to go back and forth with the consignee regarding some information, a new wrinkle in terms of license exceptions. STA will also require a special Destination Control Statement on your export documents. The exporter informs the consignee of certain information, including the ECCN. The exporter can ship after the consignee provides a written acknowledgment, a written commitment to comply with the EAR, and a promise to furnish information about the transaction if the US Government ever asks. People have until February 7, 2011 to submit comments to the BIS. How do you appeal a penalty from the Bureau of Industry and Security (BIS) for perceived violations of the Export Administration Regulations (EAR)? Companies and individuals rarely challenge the BIS, preferring to negotiate a settlement. The courts get involved generally only if there are criminal indictments. But there is a mechanism to challenge the BIS when it imposes civil penalties, and everyone, including the Bureau of Industry, agreed that would be done by appealing to the United States Court of Appeals for the District of Columbia Circuit (the DC Circuit). You may not have heard of the DC Circuit, but it is one of our nation’s most influential courts because it directly decides appeals from federal agencies, skipping an appellant’s need to first go through a federal district court.
That arrangement/hierarch, however, was revised in Micei International vs. Department of Commerce, 613 F3d 1147 (C.A.D.C. 2010). The BIS imposed on Micei a $125,000 fine and a five-year suspension of export privileges, and, following the BIS’s instructions, Micei appealed to the DC Circuit. Apparently on its initiative, the DC Circuit decided that, because of the Export Administration Regulations convoluted history and questionable legitimacy (and thanks to a recent amendment to the regulations that this case triggered), it had no jurisdiction over the appeal, and transferred the case to the federal district court. Why is this important? Well, there is the issue of finality. Having a district court decide a case adds another level of adjudication and thereby increases the amount of time and money it will take to finally decide an export penalty case. Often the most direct and quickest way to have the Bureau of Industry and Security (BIS) respond to your export questions is through the telephone. Indeed, the BIS likes to tout the service as a wonderful benefit to the world.
There are drawbacks, however. If you are calling to the BIS's general counselor desk (agency does not list the contact information of all the various counselors and officials, so the general help desk is sometimes all you have) it can be a complete crap shoot. Some counselor will talk to you only if you identify both yourself and your company completely. The counselor may have only superficial or incorrect knowledge about your issue. Indeed, the information and advice given might be contradicted by the information and advice that another BIS officer may have offered. Worse still, unless you have taped the conversation (which may be illegal), you have no proof of what was said to you. If the export goes wrong or you are accused of violating the law, again, you will have no proof about what was to told to you. Exporters should use the BIS's help desk, but should not rely on it unconditionally. You must make your own independent confirmation of the state of the law. By the way, is emailing the BIS or filling out its online contact form any better? Sure. A written response is much better. There is a downside, however. You still need to identify yourself and your company, a condition that can compromise your ability to be frank. Ideally, you should hire a third party, preferably a lawyer, when you need to contact government officials. |
Oscar Gonzalez
Principal and a founding member of GRVR Attorneys. Archives
September 2016
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