2005 Articles

Business is up, in some cases sharply. Lead-free looms. The holiday season and all it brings (read: bills) is just around the corner. Like you needed anything else to worry about. And yet …

Readers may recall a couple years ago when Silicon Graphics Inc. was nailed on felony charges for exporting high performance computers to a Russian nuclear lab. The feds hit SGI with a $1 million fine, and handed the computing firm a suspended sentence that could have restricted SGI from exporting to Russia for three years if further violations occurred.

SGI was guilty of violating the International Traffic in Arms Regulations, known as ITAR. ITAR regulates the import and export of defense-related equipment and data to the U.S. It provides definitions of important terms, with information and procedures for registration, licenses, agreements, general policies, violations – and (of course) penalties. It’s important to note that “defense-related” is a relative and thorny term. While the notorious cases tend to center on glaring examples of misdeeds – such as Teledyne, which illegally exported nearly 270 tons of zirconium that was used to manufacture cluster bombs for Iraq – we hear of seemingly mundane transactions whose results are just as chilling. To wit: The U.S. businessman who exported septic tanks (insert your own joke here), only to land in jail when the systems were dug up, full of outlawed weapons, in Iraq.

Could it happen to you? According to the ITAR coordinator at one electronics supplier with whom I spoke, the onus is on the supplier to ask what the product is for, rather than on the customer to offer that information. Penalties for infractions can reach up to $1 million per violation per company, $250,000 per violation for an individual and up to 10 years of imprisonment per violation.

The U.S. Bureau of Industry and Security (BIS) maintains on its Website (bxa.doc.gov/about/reslinks.htm) a list of policies and regulations. You can also find the dirty laundry of the guilty. A glance at the list reveals plenty of violations by companies that provide computers or peripherals, including Dell, Compaq, Sun, EMC and Gateway. In many cases the offenders failed to obtain required Department of Commerce export licenses. Just as often, citations were issued for shipments to friendly or neutral countries, such as Singapore, Taiwan and South Korea.

The problem has grown tentacles everywhere. We’ve heard of PCB manufacturers that have bought boards offshore to fulfill domestic military orders, in violation of ITAR. One longtime manager of a government funded manufacturing center told me he thinks ITAR is being violated “left and right.”

eCustoms (ecustoms.com), a specialist in importing and exporting, lists on its Website several myths of overseas transactions. One common mistake, the firm says, is for U.S. companies to misunderstand the “broad meaning ascribed to the term ‘export’ ”:

This term can capture goods, commodities, services abroad or in the U.S., e-mails or faxes abroad containing controlled technologies, and the release of controlled technologies to non-exempt foreign nationals in the U.S. In addition, firms which sell goods in the U.S. that are later exported from the U.S. have an obligation to provide export- related information about those goods to the U.S. parties buying from them in order to facilitate the exporter’s completion of a Shipper’s Export Declaration. Travel to certain foreign countries for business reasons, in particular those which are embargoed, may also be regulated.

Be forewarned: Something as simple as transmitting a circuit board schematic to a subcontractor could be a violation. “U.S. embargoes often capture things as ‘simple’ as toys and office equipment,” eCustoms says.

In a presentation last year, John Sonderman, supervisory special agent in the Office of Export Enforcement, said that red flags should be sent up when the end-user or end-use is unknown, when there are multiple parties to a transaction or if the product classification is missing or incorrect. He warns companies to identify all parties to a transaction, and verify as legitimate intermediaries and ultimate consignees. As the code is written, the country designated as the “ultimate destination … must be the country of ultimate end-use. … End-use must be confirmed and should not be assumed.” Or, as the septic system salesman learned, be certain who is going to use your goods and what they will use it for.

In response, some suppliers are extra cautious, requesting customers fill out questionnaires as long as 15 pages – before they even issue a quote. What’s clear, however, is that the long lead-time required to comply with all the extra paperwork would likely cost a company business. To the vast majority of firms, that’s not acceptable.

I don’t want to scare anyone, but the following all of Commerce’s regulations is an overlooked task with truly expensive consequences.

And here we thought that jail was reserved for the Dennis Kozlowski’s of the world.

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