03-12265. Best Practices for Exporters/Re-Exporters and Trade Facilitation/Freight Forwarding Companies Regarding the Transit, Transshipment, and Reexport of Dual-Use Items

AGENCY:

Bureau of Industry and Security, Commerce.

ACTION:

Notice of Inquiry.

SUMMARY:

The Bureau of Industry and Security (BIS) is seeking public comments on the following proposed “Best Practices for Exporters/Re-exporters and Trade Facilitation/Freight Forwarding Companies Regarding the Transit, Transshipment, and Reexport of Dual-Use Items.” BIS will consider all comments timely submitted before finalizing these Best Practices.

DATES:

Comments must be received before June 16, 2003.

ADDRESSES:

Comments may be submitted by e-mail to [e-mail], by fax at [phone], or on paper to Rick Cupitt, Office of the Under Secretary for Industry and Security, Bureau of Industry and Security, Room H3898, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue, NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT:

Rick Cupitt, Office of the Under Secretary for Industry and Security at [e-mail] or [phone].

SUPPLEMENTARY INFORMATION:

Background

This document sets forth “best practices” for exporters/re-exporters and trade facilitation/freight forwarding companies regarding the transit, transshipment, and re-export of dual-use items. The best practices identified herein represent the types of practices that many companies already observe, which is consistent with the broader view of the Department of Commerce (DOC) that implementing effective export compliance programs is an important component of responsible corporate citizenship and good business practices generally.

Overview

Dual-use export control laws are predicated on the security and reliability of supply chains. Both the licensing of export transactions in dual-use items and the allowance of license-excepted transactions in such items are premised on the assurance that such items: (i) Will not be used for a prohibited end-use, (ii) will be in the possession of the person or organization contemplated as the end-user at the time of export, and (iii) will be utilized in the country contemplated as the country of end-use when the item is exported. The diversion of controlled goods or technologies—even inadvertently—from such contemplated end-use, end-user, or destination constitutes a serious threat to the efficacy of export control regimes. Such diversion undermines efforts to counter the proliferation of weapons of mass destruction, terrorism, and other threats to national and international security.

Global “transshipment hubs”—i.e., countries or areas that function as major hubs for the trading and shipment of cargo—pose special risks of diversion. The concentrated presence of commercial infrastructure (e.g., trading companies, brokerages, and free trade zones) that facilitates large volumes of transit, transshipment, import and re-export traffic through such points make transshipment hubs particularly vulnerable to the diversion of sensitive items to illicit purposes.

To combat this risk, the United States Government has implemented a number of initiatives to work with industry and foreign governments. DOC, for example, has launched the Transshipment Country Export Control Initiative (TECI). TECI seeks to channel existing and new export control practices toward countering the diversion of controlled items through global transshipment hubs. TECI has two principal prongs. Under the first prong, DOC seeks to improve cooperation and communication with relevant agencies in key transshipment hubs charged with administering export and trade control laws.^[1] Such efforts are already underway with respect to a number of key transshipment countries and will be launched with respect to others in the near future.

Under TECI's second prong, DOC seeks to work with the private sector businesses and individuals involved in the transshipment of goods to enhance their ability to prevent the diversion of controlled items. In the course of this dialogue, a number of organizations have noted the absence of a clearly stated set of export control “best practices” tailored to the particular activities and circumstances of entities that facilitate the export or re-export of dual-use items to, from, or through transshipment hubs (such “Trade Facilitators/Freight Forwarders” include freight forwarders, brokers, air and marine cargo carriers, express shipment carriers, port operators, and port authorities) as well as entities that export dual-use items to transhipment hubs or that re-export such items from such hubs (“Exporters/Re-exporters”). The absence of a single organization or forum representing these many diverse businesses involved in transshipment makes it unlikely that such a set of best practices would be developed without DOC coordination.

Set forth below, for public comment, is a draft set of best practices for use by Trade Facilitators/Freight Forwarders and Exporters/Re-Exporters in guiding the export control compliance activities of companies involved in the transshipment, transit, and re-export of dual-use items. They are based on input provided at DOC-sponsored export control compliance seminars and other events, and on the observations of best practices by DOC staff and export control practitioners involved in both the administration and enforcement of export controls.

The publication of these best practices creates no legal obligation to comply with such practices on the part of any person. Compliance with these best practices creates no defense to liability for the violation of export control laws. However, demonstrated compliance with these best practices by a company will be considered an important mitigating factor in administrative prosecutions arising out of violations of the Export Administration Regulations by that company.

Best Practices for Exporters/Re-Exporters and Trade Facilitation/Freight Forwarding Companies Regarding the Transit, Transshipment, and Reexport of Dual-Use Items

Purpose

To help industry, and in particular Trade Facilitators/Freight Forwarders and Exporters/Re-Exporters, contribute to a reduction in the illicit transshipment, transit, or re-export of dual-use items subject to U.S. and foreign export controls, and to facilitate legitimate global commerce by improving the capacity to distinguish between licit and illicit transactions.

Principles

1. Industry and government should work together to foster secure trade that reduces the risk of diversion of items subject to export controls.

2. Secure trade will reduce the diversion of dual-use items to prohibited end-uses, end-users, and destinations.

3. Secure trade will encourage the more expeditious movement of legitimate trade through borders and ports.

4. Industry can achieve secure trade objectives through appropriate export management practices.

Scope

The best practices identified herein:

1. Are designed Trade Facilitators/Freight Forwarders and Exporters/Re-Exporters. The terms “Company” and “Companies”, when used herein, refer to all of these types of entities;

2. Are designed to apply to transactions subject to the jurisdiction of the Department of Commerce; and

3. Complement the set of Best Practices for Exporters/Shippers found in the U.S. Department of Commerce Export Management System. Additional information on the Export Management System resides on the BIS Web site at http://www.bis.doc.gov/​ExportManagementSystems/​Default.htm.

Company Policy and Company Management

1. Each Company should develop a written policy against allowing its exports or services to contribute to terrorism or programs of proliferation concern.

2. Each Company should identify one person, who reports to the Company's Chief Executive Officer, General Counsel, or other senior management official (but not to a sales or marketing official), as the ultimate party responsible for oversight of the Company's export control compliance program.

3. Each Company should create an export control compliance program. Companies should integrate this compliance program into its overall regulatory compliance, security, and ethics programs.

4. Each Company should ensure that relevant Company personnel receive regular training in export control compliance responsibilities, and should consider offering to its employees incentives for compliance (and disincentives for noncompliance) with their export control responsibilities.

5. Exporters/Re-Exporters should seek to utilize only those Trade Facilitators/Freight Forwarders that also observe these best practices.

Compliance Activities: General

6. An Exporter/Re-Exporter should classify each of its products according the requirements of the Export Administration Regulations (EAR), 15 CFR Parts 730-774 (2003), and should communicate the appropriate Export Control Classification Number (ECCN) or other classification information for each export to the Trade Facilitator/Freight Forwarder and the end-user involved in that export (even if the shipment is made under an EAR License Exception). Each Company involved in the transaction should also maintain a record of such classification for every export.

7. A Company should screen all parties to the transaction against all relevant lists (such as the Denied Persons List, Unverified List, Entities List, and lists of U.S. Government-sanctioned parties), and should maintain a record of such screening.

8. A Company should screen all exports/re-exports against a list of embargoed destinations, and should maintain a record of such screening.

Compliance Activities: Transshipment Hub ^[2] -Specific

9. With respect to transactions to, from, or through transshipment hubs, Exporters/Re-Exporters should take appropriate steps to know who the end-user is and to determine whether the item will be re-exported or incorporated in an item to be re-exported. An Exporter/Re-Exporter of a dual-use item under license should inform the end-user, distributor, or other appropriate recipient of the item of the license terms and conditions for such export.

10. With respect to transactions to, from, or through transshipment hubs, Companies should have in place compliance and/or business procedures to be immediately responsive to theft or unauthorized delivery. This include procedures—including documented confirmation—to ensure that the item exported has reached the proper end-user.

11. With respect to transactions to, from, or through transshipment hubs, Companies should pay heightened attention to the Red Flag Indicators on the BIS Web site (see http://www.bis.doc.gov/​Enforcement/​redflags.htm) and in the “Know Your Customer Guidance” set forth in Supplement 3 to part 732 of the EAR.

Responding to Suspicious Transactions

12. When a Company encounters a suspicious transaction, it should halt the shipment and consult with its export control compliance specialist. If the transaction is determined to involve a potential or actual violation of the EAR, the Company should contact BIS or another U.S. law enforcement agency immediately and maintain all relevant records.

Request for Comments

Parties submitting comments are asked to be as specific as possible. BIS encourages interested persons who wish to comment to do so at the earliest possible time. The period for submission of comments will close June 16, 2003. BIS will consider comments on any aspect or consequence of any part or all of this proposal. Comments received after the end of the comment period will be considered if possible, but their consideration cannot be assured. BIS will not accept comments accompanied by a request that a part or all of the material be treated confidentially because of its business proprietary nature or for any other reason. BIS will return such comments and materials to the persons submitting them and will not consider them in developing any final “Best Practices” document that it may publish. All comments on this proposal will be a matter of public record and will be available for public inspection and copying. All comments must be submitted in writing (including facsimile or e-mail).

The public record concerning these comments will be maintained in the Bureau of Industry and Security, Office of Administration, U.S. Department of Commerce, Room 6883, 14th and Constitution Avenue, NW., Washington, DC 20230; [phone]. This component does not maintain a separate public inspection facility. Requesters should first view BIS's FOIA website (which can be reached through http://www.bis.doc.gov/​foia). If the records sought cannot be located at this site, or if the requester does not have access to a computer, please call the phone number above for assistance.

Kenneth I. Juster,

Under Secretary for Industry and Security.

Footnotes

1.  A number of U.S. Government agencies, including the DOC, also work with the governments of those hubs to strengthen their indigenous export control regimes, including conducting technical assistance activities as part of the Export Control and Related Border Security Assistance (EXBS) Program managed by the U.S. Department of State.

2.  DOC's TECI has focused its efforts on the following transshipment hubs: Cyprus, Hong Kong, Malaysia, Malta, Panama, Singapore, Taiwan, Thailand, and the United Arab Emirates.