Export Control Compliance

Here is a cite to a great recent article on a very hot topic -- compliance with United States export
control laws:

Tara L. Dunn, Surviving United States Export Controls Post 9/11: A Model Compliance Program, 33 Denver Journal of International Law and Policy 435 (2005).

The author is a recent graduate of the University of Denver Sturm College of Law.  The beauty of
the article is that it collects a variety of compliance forms and checklists tailored to United States
export control laws.  Very useful.  Unfortunately, the article does not appear to be available
electronically for free – the excerpt posted below is from a pay online service.  So, you may have
to trudge to a brick and mortar library to find the book.

Here is a wonderful description of the article’s content and approach, which appears in a special
introduction to the article written by Mark Menefee, who is of counsel at Baker & McKenzie LLP
and the former director of the Office of Export Enforcement, Bureau of Industry and Security in
the United States Department of Commerce:

When a law enforcement officer looks at a company, one of the first questions he or she asks him or herself will be: "Are these people good guys or bad guys?" Much is at stake for the officer. Initial information about the company's activities helps the officer decide not only how to begin the inquiry but, more importantly, how best to protect the safety of the officer and his or her fellow officers when dealing with the company. An investigator approaching an unknown office building is taking a personal safety risk no less than a police officer approaching a car that has been pulled over on the highway. While an officer investigating a so-called "white collar crime" will be typically less likely to encounter a violent response from the person under investigation than, say, an officer investigating a drug smuggling operation, the training for federal criminal investigators emphasizes the possibly fatal consequences to the officer from making incorrect assumptions about the level of threat posed by a person who is the subject of the officer's initial questions.

If you were a federal agent charged with responsibility for investigating white collar crimes such as export control violations or securities fraud, and felt keenly the need to make a quick and accurate first assessment of whether a company consists of good guys who may have made a technical mistake, or terrorist supporters who wouldn't hesitate to defraud other companies in order to accomplish their mission, and who are completely willing to kill you in the process, what would be your test? On an interpersonal level, your initial "gut reaction" about the truthfulness of the people you meet and interview will tell you a great deal--but only about those individuals, not necessarily about the corporation as a whole. Is there some other information, at the corporate level, that could help you quickly assess the character of the whole organization?

At the initial stage of an investigation the single best indicator of whether a company is law abiding is whether the company has an effective compliance program. "According to available information, only 2 of the 865 corporations sentenced for federal crimes during the last eight years had effective compliance programs. Of the 143 organizations sentenced under Chapter 8 in 2002, not one maintained any type of compliance program whatsoever." These sentencing statistics must be understood properly. It does not follow from these statistics that a company can avoid possible criminal liability by merely officially adopting a compliance program. What does
follow is that there is a strong correlation between crimes committed by corporations and a complete disregard of their compliance responsibilities by the management of those corporations.

In other words, companies whose managers choose not to take their compliance responsibilities seriously are flying blind. They are significantly more likely to commit violations of complex regulatory regimes, such as those governing exports, than companies that maintain reasonably effective compliance programs. They also are much more likely to generate the sort of "smoking gun" memos and email that reveal full well their negligence or their knowing and willing intent to violate laws impeding their short term business plans. An experienced federal investigator knows that when he or she finds a company operating without an effective compliance program, the odds are in favor of discovering evidence of a crime.

The vast majority of business people have absolutely no desire to commit regulatory crimes. But small- and medium-sized companies must make difficult choices about how to come up with the money needed to insure a reasonable degree of compliance. Start-up companies find regulatory compliance to be especially difficult to fund. In the area of export controls, where the regulations are quite complex, the costs of running an effective compliance program can be very high. However, because export controls safeguard the national security of the United States and itsallies, the penalties for violations can be devastating. It is not uncommon for violators to be subject to criminal and civil fines as well as denials of export privileges; often penalties will be
imposed not only against the corporation but against the midlevel managers or senior executives as well. Small- and medium-sized firms, and their owners, are especially susceptible to multiple penalties.

Tara Dunn's model compliance program provides a great service to the international business community. Her program can help a smaller company, or a new start-up firm, reduce its initial export compliance costs while achieving a sophisticated level of compliance. If a company will take to heart the importance of complying with U.S. export controls and use Ms. Dunn's model program as its standard, it will be able to manage its risks effectively and economically.  Moreover, not only will the company detect potentially illegal transactions and avoid being pulled into diversion schemes, it also could use the compliance program as a form of strategic planning for potential overseas markets. Ms. Dunn's model program might strike a reader who is unfamiliar
with the nuances of export controls as being overly elaborate and complex, with too much technical terminology. It is not. In fact, the very careful and detailed legal analysis underlying her program needs to be understood by the management of a company when they consider implementing their own compliance program. Managers will need to take the model program and adapt it to fit their company's particular markets, product lines, and business processes. Then they will be able to simplify parts of the model program to fit the level of training and understanding of the employees who will actually implement the program. This is as it should be. What is important
is that they begin with a model program that actually gets the law right, and that provides the specific legal basis for particular components. This model compliance program does just that.

This excerpt might be good to copy and hand out to a company’s board of directors – there are
several observations that are important to remember.  First, I particularly like the observation that
a regulator approaching an unknown company does so knowing only that they see smoke (which
is what attracted the regulator’s attention), and that (usually) where there’s smoke, there’s fire.
Plus, you might add that post-Enron, regulators a bit skittish, as no one wants to be the person
who (through the clarity of 20-20 hindsight) missed the early warning signs of the next big
scandal.  So, being human, regulators are naturally (perhaps necessarily) skeptical when they
arrive a company’s doorstep.

Second, Mr. Menefee gives perhaps one of the best endorsements possible for a compliance
program.  When the skeptical regulator arrives, they may have the following in mind:  “At the
initial stage of an investigation the single best indicator of whether a company is law abiding is
whether the company has an effective compliance program.”  And this initial impression may
become the lens through which the government sees all the facts that follow.  When a fact equally
implies suspicious or benign conduct, the government’s assessment of the organization’s character
will drive which inference is ultimately drawn.