OFAC's Updated Reporting Requirements Unclear, Burdensome, NCBFAA Says

The Office of Foreign Assets Control’s amendments to its reporting, procedures and penalties regulations are unnecessary, unclear and “overly burdensome” on the U.S. forwarding industry, the National Customs Brokers & Forwarders Association of America said in comments to the agency. The comments stem from OFAC’s June 21 interim final rule on the regulations’ amendments, which expands the scope of certain transactions that must be reported to the Treasury (see 1906200036). The American Association of Exporters and Importers also criticized the amendments, saying they have caused U.S. companies a “great deal of confusion” (see 1907230054).

In its July 22 comments, the NCBFAA said the regulations are not necessary for forwarding services, “not clear in their application” to forwarding services and would be burdensome to both the forwarding industry and OFAC. Along with the AAEI, NCBFAA also criticized the “lack of a clear definition” for rejected transactions, which may leave companies, forwarders, brokers and others guessing at which transactions they must report. The association said the lack of definition is especially unclear for forwarders, which “unlike banks … have no easy way to distinguish between an ‘inquiry’ and a ‘transaction.’”

“Forwarders would need to make case-by-case determinations for whether each possible instance of rejecting, opting out, or simply not selecting a problematic shipment is reportable,” the NCBFAA said. “Under the amended rule, forwarders may need to report every arrangement they reject from their contractors.”

The complex nature of forwarding would require forwarders to oversee too many transactions, the association said. “The uncertainty here is exacerbated by the facts that forwarders handle high volumes of shipments and it is not uncommon for shipments to be subject to revised routes or rearrangements,” the comments said. Forwarders also “do not use vast automated systems like online banking platforms through which customers transmit strict written instructions,” but instead receive instructions from talking with customers over the phone or email. “This manner of doing business is fluid and dynamic, and the existing guidance on distinguishing ‘inquiries’ from ‘reject items’ does not provide sufficient clarity for forwarders to determine what activity is reportable,” the association said.

The NCBFAA also said forwarders sometimes reject transactions on suspicions before they have all the information, like a “description of the property.” Under OFAC’s proposed reporting regulations, forwarders would be required to report the transaction, but would not be able to comply with the regulations’ other requirements because they sometimes reject a transaction before they have all of the transactions’ relevant information. The association suggested that OFAC fix this issue by requiring that a “reportable event is only triggered if a U.S. company receives all of the ‘required information to be reported’” or that “U.S. companies are only required to report informational items that are in their possession.”

Aside from the unclear requirements in the regulations, the NCBFAA said OFAC is asking for more information than it can handle. “While the Association does not have any empirical evidence on the number of shipments that are rejected by forwarders, the Association anticipates that OFAC may receive thousands of filings from forwarders each week if even a fraction of one percent of shipments per day are rejected,” the association said. To avoid a “logistical nightmare,” OFAC should alter a section of the regulations to narrow the scope of “reportable rejected transactions, clarify the definitions, or, preferably, to provide an exemption for freight forwarders.”

Lastly, the NCBFAA said the reporting requirements are unnecessary for forwarders because they “already work closely with various U.S. government agencies” and are “already required to submit numerous reports containing information on virtually every U.S. export and import.” OFAC’s new reporting requirements, requiring “forwarders to report not just on the shipments they handle, but on the shipments they opted not to handle,” would be “unprecedented for the forwarding industry,” the NCBFAA said. The association also pointed to exemptions specified by the Directorate of Defense Trade Controls, which said in regulations that “registration, approval, recordkeeping, and reporting under this section are not required for ... [p]ersons exclusively in the business of ... transporting, customs brokering, or freight forwarding, whose activities do not extend beyond ... transporting, customs brokering, or freight forwarding.”