DHS, State Reserve Right to Criminally Pursue USPPIs in Routed Export Transaction Violations, Say Panelists

The U.S. principal party in interest (USPPI) may be criminally culpable for export control violations associated with “routed export transactions,” such as improper licenses or classifications, said Obama administration officials with the Departments of Homeland Security and State at a June 27 panel hosted by the Washington Foreign Law Society. “Routed export transactions” involve the foreign principal party in interest (FPPI) as the party responsible for the export. The Export Administration Regulations and the Foreign Trade Regulations have slightly different definitions for “routed export transactions,” which has caused confusion among exporters (see 14020524).

Criminal culpability boils down to whether the USPPI is apprised of or should be apprised of a likely violation, said William Argue, unit chief of the counter-proliferation investigations program at Immigration and Customs Enforcement. “If you have the power of attorney transferring the authority to the foreign PPI [and] if the USPPI knows or has reason to know that a violation is about to occur, then we’re going to look at them as a responsible party,” said Argue. “If we can show knowledge and specific intent then we’re going to pursue it criminally.”

The Commerce Department’s Bureau of Industry and Security recently proposed a rule to replace the term “routed export transaction” with “Foreign Principal Party Controlled Export Transaction" in the Export Administration Regulations in order to eliminate that confusion among exporters. The proposal, which was followed by a comment period that concluded on April 7, would set new requirements for authorizing the FPPI to handle certain mandates and documentation. The proposal would also permit the FPPI’s designated U.S. agent to obtain an export license if the agent obtains a written assumption of responsibility and power of attorney designation, and if it meets information sharing requirements (see 14020524).

But if the U.S. agent obtains a license on behalf of the FPPI, the State Department’s Directorate of Defense Trade Controls reserves the right to investigate potential criminal involvement in violations, said Chief Enforcement Division at DDTC Glenn Smith during the panel. “At the State Department, the onus is all on the exporter,” said Smith. “Whether the exporter is going to invoke an exemption or utilize a license for the export, all that responsibility lies on the exporter. They can’t divorce themselves of that. They can’t pass on any liability. It’s clearly on their shoulders.”

The export transaction is “cradle to grave,” said Smith, indicating that potential culpability is never removed from consideration. “So if there’s a misstep by somebody and its ten years after the export occurred, we’ll still go back to the applicant and say ‘look into it for us,’” said Smith. “And we’re not necessarily go to accuse them [and] get heavy handed with exporter, but rather ‘you’re the one with all the records. You’re the one responsible. Go take a look at this thing.’” American Association of Exporters and Importers President Marianne Rowden criticized the Commerce rule in comments, saying the USPPI would have to waste resources to determine the U.S. agent’s compliance filings (see 14041021).

Administration Officials Tout Smooth Export Control Reform Rollout

The Obama administration is forging ahead with Export Control Reform (ECR), and the third phase of U.S. Munitions List (USML) transfers to the Commerce Control List take effect on July 2 (see 14062625). The State Department, which oversees the USML, is seeing only a slight decrease in license registrations, said Smith. "We’re down by 800 companies and individuals. Right now there are 11,300 manufacturers and exporters who are registered with us … 1,200 brokers, of those 800 were U.S. and 400 were foreign,” said Smith. “We haven’t really seen an impact.” The most significant problem associated with ECR, however, is inaccurate jurisdiction determinations, Smith added, while encouraging exporters to submit commodity jurisdictions if they are uncertain about the jurisdiction.

The administration is ultimately striving through ECR to create a single control list, a single licensing agency and a single information technology system for export controls, said Argue. The reform effort will benefit from increased coordination, he added. More resources in that regard could compliment coordination progress made through the Export Enforcement Coordination Center (E2C2), an initiative launched in 2010 that includes 18 government agencies involved in export control. “Of the 2600 de-confliction requests that have been submitted to the E2C2, 57 percent of the time, there are multiple agencies that are already engaged on that issue,” said Argue. -- Brian Dabbs