Routed Transactions Out, Foreign Principal Party Controlled Export Transactions In

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.