UPDATE- Section 301 (Tranche 3) Duties as of May 10, 2019

Yesterday, May 9, 2019, U.S. Customs and Border Protection (“CBP”) clarified that the Section 301 tariffs apply only to merchandise exported on or after May 10, 2019. Today, May 10, 2019, CBP provided updated guidance of the following (CSMS #19-000238):

  • Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, the rate of additional duties on imported articles classified in a subheading covered by the September 21, 2018 Federal Register notice, as amended, will be 25 percent ad valorem.
  • For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, report the following HTS numbers and duty rates:

  HTS: 9903.88.03 and 9903.88.04

  Duty Rate: 25 percent 

  • For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and before June 1, 2019, and exported to the United States before May 10, 2019, report the following HTS number and duty rate:

  HTS: 9903.88.09

  Duty Rate: 10 percent 

  • The subject imports of China that are entered into the United States on or after June 1, 2019 are subject to the 25 percent rate of additional duty under HTS 9903.88.03 and 9903.88.04.
  • The Section 301 duties only apply to products of China, and are based on the country of origin, not country of export.

                Accordingly, goods exported before May 10, 2019 must be entered in the U.S. or withdrawn from warehouse before June 1, 2019 in order to qualify for the lower 10% additional duty rate. Goods entered on June 1, 2019 or later will be subject to a 25% additional duty rate irrespective of the date of export.

                If you have any questions, please feel free to contact us.

Most Recent Update on Section 301 List 3 Tariffs

Following up with yesterday’s blog on Section 301. Today the USTR published in the Federal Register the formal notice to increase the additional tariffs on List 3 products. The Notice reads:

“Effective with respect to goods (i) entered for consumption, or withdrawn from warehouse for  consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019, subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified …”

Due to the confusion this language creates, this afternoon, Customs Customs and Border Protection (“CBP”) held an ACE Trade Call where representatives from CBP Trade Remedy team clarified that the increased tariff only applies to goods exported on or after May 10, 2019. Because ACE does not currently have a duty rate/tariff classification tied to export dates, importers who have Chinese origin goods subject to List 3 Section 301 tariffs can choose to do one of the following:

  • File the entry summary and pay 25%, then apply for a Post Summary Collection (“PSC”) to then possibly collect a refund; or
  • Do not file entry summary immediately (under CBP regulations, importers can file entry summaries within 10 business days after the time of entry), hopefully within this period, CBP has promulgated a clear filing instruction by which the importers can file entry summary using 10% tariff.

This topic is evolving, and we will keep close watch on this. If you have any questions regarding how to legally avoid paying Section 301 tariff, please feel free to contact us.

Update on Section 301 List 3 Tariffs

On May 5, 2019, President Trump tweeted that the U.S. would raise the Section 301 tariffs on List 3 products (i.e., $200 billion of goods) from 10 percent to 25 percent. The President also hinted that tariffs on a fourth list of products ($325 billion of goods) would be forthcoming. On May 7, the U.S. Trade Representative (“USTR”) confirmed that the tariffs on List 3 products would be increased to 25 percent. The increase came as a result of stalled trade negotiations between China and the U.S, but more specifically Chinese officials were allegedly attempting to change the language on a deal they had previously discussed.

On May 8, the USTR issued a notice confirming that the List 3 products will be subject to an increased tariff rate of 25% ad valorem, effective on goods: (1) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern time, Friday, May 10, 2019, and (2) exported to the United States on or after May 10, 2019.

Pursuant to 19 C.F.R. 141.68(a)(3), importers can use the date of a vessel’s arrival in the port limits as the entry date. Therefore, this strategy can be used for goods that are scheduled to arrive in the United States before May 10, 2019, to avoid the duty increase. The importer must make specific requests to have the date of arrival deemed the date of entry when the entry documentation is filed with U.S. Customs and Border Protection. Importers should contact their customs brokers to arrange such filing.

In the May 8, 2019 Notice, the USTR also announces that the long-awaited exclusion process for List 3 Products will be published in a separate notice. Interested persons can request products on List 3 be excluded from the additional duties or to oppose exclusion requests.

There are different ways to legally avoid the Section 301 tariffs, such as:

  1.  submitting an exclusion request;
  2. redesigning or repackaging the products (i.e., tariff engineering by which the importer can fashion merchandise to obtain the lowest rate of duty and the most favorable treatment because merchandise is classifiable in its condition as imported and the processing subsequent to importation is generally not relevant);
  3. reclassifying goods if goods were previously misclassified;
  4. utilizing foreign trade zones or bonded warehouse to defer entry or if goods will be subsequently exported or can be stored until the punitive tariffs are removed;

If you are interested in participating in the exclusion process or exploring possibilities to minimize or eliminate Section 301 duties, please contact us.

More Duties and Tariffs

More Duties and Tariffs

1. New AD/CV Duties Possible on Ceramic Tile from China

A petition was filed on April 11, 2019, alleging that ceramic tiles from China is being sold at less than fair value in the U.S. market and benefitting from countervailable subsidies. The alleged average dumping margins are 178.22 percent to 428.58 percent.

This petition covers ceramic tiles regardless of the percent water absorption. The covered products include porcelain tile, vitreous tile, semi-vitreous tile, and non-vitreous tile, glazed and unglazed ceramic flooring and wall tile, countertop tile, paving tile, hearth tile, porcelain tile, mosaic cubes, finishing tile, and the like, whether or not the tile is on a backing. Imports of subject goods are classified under a number of subheadings in HTSUS headings 6905, 6907, and 6914.

Ceramic tiles produced in China that undergo processing in another country, including beveling, cutting, trimming, staining, painting, polishing, finishing, or other processing, before entering the United States are also covered.

Ceramic bricks properly classified under HTSUS 6904.10.00 through 6904.90.0000 are excluded from the scope of the petition.

The Department of Commerce and the International Trade Commission are still deciding whether or not to launch an investigation on the products mentioned in the petition. There are strict statutory deadlines associated with the investigation. If you are an importer, exporter, manufacturer of the covered products, or other concerned parties, you can contact us for more information.

2. Wooden Cabinets and Vanities from China

On March 6, 2019, a petition was filed by The American Kitchen Cabinet Alliance alleging that wooden cabinets and vanities from China are being sold at less than fair value in the U.S. market and benefitting from countervailable subsidies. The alleged average dumping margins are 175.50 percent to 259.99 percent.

The goods covered by this petition are cabinets and vanities made substantially of wood products, including solid wood and engineered wood products (including those made from wood particles, fibers, or other wooden materials such as plywood, strand board, block board, particle board, or fiberboard), or bamboo. Wooden cabinets and vanities with or without wood veneers; wood, paper, or other overlays; or laminates; with or without non-wood components or trim such as metal, marble, glass, plastic, or other resins; whether or not surface finished or unfinished; and whether or not assembled or completed are included.

The covered products serve the purpose and function of permanently affixed cabinetry typically found throughout the home, including kitchen and bath cabinetry, modular vanities, and pedestal vanities (which may or may not include a top composed of stone, plastic, or other material). Covered products can also be used in places other than in a home kitchen or bathroom, such as laundry room cabinets, home office, kitchen and bathroom in commercial buildings, apartments, hotels, assisted living or healthcare facilities, or other environments.

Covered products also include component parts of cabinets and vanities, including frames; boxes (which typically include a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks, and/or shelves); doors; drawers and drawer components (which typically include sides, backs, bottoms, and faces); back panels and end panels; and desks, shelves, and tables attached to or incorporated in the subject goods.

Wooden cabinets and vanities and in-scope components that have been further processed in a third country (including one or more of the following: trimming, cutting, notching, punching, drilling, painting, staining, finishing, assembly, or any other processing) can also be subject to the antidumping and countervailing duties.

Imports of subject goods are normally classified under HTSUS 9403.40.9060 and 9403.60.8081, and the subject component parts may be entered under HTSUS 9403.90.7080.

Commerce has initiated the investigation.  There are strict statutory deadlines associated with the investigation. If you are an importer, exporter, manufacturer of the covered products, or other concerned parties you can contact us for more information.

3. Quartz Surface Products from China Subject of New AD/CV Petition

The petition for antidumping and countervailing duty investigation concerning quartz surface products was filed on April 17, 2018. On November 20, 2018, Commerce issued a preliminary determination concerning antidumping duties (case A-570-084). Commerce also preliminarily determined that critical circumstances existed with respect to QSP from China for CQ International, Foshan Yixin Stone Co., Ltd. (Yixin Stone), and Guangzhou Hercules Quartz Stone Co., Ltd. (Hercules Quartz), all other separate rate companies and the China-wide entity.

On November 15, 2018, Commerce issued the preliminary affirmative determination of critical circumstances in the countervailing duty investigation (case C-570-085). Commerce preliminarily found that critical circumstances existed with respect to Foshan Hero Stone and Fasa Industrial, but did not exist with respect to Foshan Yixin or all-other rates companies.

The combined ADCVD rate varies from 270 – 500%.

It is expected that within the next few weeks, Commerce will issue its final determination as to antidumping, countervailing and their respective critical circumstances.

If you are an importer, exporter, manufacturer of the covered products, or other concerned parties you can contact us  for more information.

4. Possible Retaliatory Duties On Products From The European Union

The Section 301 Tariffs (aka Trump Tariffs) do not only apply to Chinese origin goods, but E.U. goods are now threatened to be subject up to 100% tariff. This threat came from a prolonged discussion on aircraft subsidies.  

A preliminary list has been published. It includes about 317 different tariff lines: from products in the aerospace sector to handbags to swordfish steaks and to guava jam. An arbitrator from the WTO is set to make a decision on the amount of countermeasures the U.S. may impose against the EU.

USTR is inviting public comments on any aspect of the proposed retaliation, including (1) products that should be retained, removed, or added; (2) how high tariffs should be raised; (3) the aggregate level of trade to be covered by additional tariffs; and (4) whether higher tariffs might harm U.S. stakeholders, including small businesses and consumers. The important dates are:

The relevant dates are as follows:

  • May 6, 2019 – Due date for submission of requests to appear at the public hearing and summary of testimony
  • May 15, 2019 – Public hearing convened by the Section 301 Committee
  • May 28, 2019 – Due date for submission of written comments, including post-hearing rebuttal comments

If you have any questions or would like to make comments to the USTR, please contact us.

Time is Running Out – Renew Your Registration of Food Facilities Now!

This is an old blog we lost during our transfer of site hosting.

The 2016 Food Facility Registration biennial renewal period is wrapping up! In January of 2011 the FDA Food Safety Modernization Act (“FSMA”) was signed into law. It designated a renewal period spanning from 12:00 AM on October 1st to 11:59 PM on December 31st. If an importer’s registration is not renewed during this time, it will be completely removed from the account due to expiration.

The registration renewal window occurs in the same October-December window of every even-numbered year. If you don’t renew in time there is no planned extension; This is not something to put on the back burner! Be sure to note that renewing a registration is a completely different process than updating a registration. You are unable to update without renewal first. On the FFRM main menu, the “Update Facility Registration” button will remain hidden until your registration renewal has been processed.

The main effect that the FSMA had on the shipping industry is that it mandated that any domestic or foreign facility that manufactures, processes, packs, or holds food for human or animal consumption in the United States must register with the FDA. If a company meets these requirements but doesn’t renew in time, all food imported from the source is subject to be held at the port upon arrival in the U.S. Because of the severity of this risk, import brokers are encouraged to take early action and contact any clients who import high-volume food shipments and be sure they are updated where they need to be. Clarify that the renewal status is properly associated with their shipments, confirm any new registration numbers, and do so before 2017 rolls around and you’ll be in the clear!

If you have any questions about renewal, updating, or whether or not you meet the requirements contact us and we will gladly help you navigate these regulations.

The Death of Intermediaries? Maersk’s Canary in the Coalmine.

This is an old blog we lost during our transfer of site hosting.

Maersk, the world’s leading container ship operator, and Alibaba, the owner of China’s biggest e-commerce platforms, have decided to join forces in what has traditionally been the domain of NVOCCs
and Freight Forwarders.  The two have established a portal to allow shippers/customers to use Alibaba to book space on Maersk vessels. This union illustrates the growing trend of e-commerce and logistics firms working together, and to me sounds very much like an early warning signal for the great diminishment, if not demise altogether, of NVOCCs and Freight Forwarders.

Effective December 22nd, 2016 Chinese shippers obtained the ability to reserve space through Alibaba’s OneTouch booking website. OneTouch is intended to cater to small and medium-sized Chinese exporters by providing online services including logistics and customs clearance. OneTouch also gives these exporters access to platforms where they can book air freight and parcel delivery services while still supporting the business-to-business marketplace that Alibaba is known for. Traditionally, shippers had gone through freight forwarders in order to book on container vessels.  However, vessel operators such as Maersk are beginning to streamline this process by allowing the beneficial owner of the cargo (the shipper, rather than the shipper’s intermediary) to book directly from the internet.

What does Alibaba gain from its involvement in this? In recent years, Alibaba has been making inroads into logistics services by buying warehouses and taking stakes in couriers.  E-commerce giants are increasingly venturing into logistics in order to enhance their control over the supply chain networks they work with.  Amazon, for example, has dedicated fleets of aircraft, drones, and stores (which are actually mini warehouses/distribution centers), and is rumored to be planning its own U.S. domestic delivery fleet.  Walmart will not remain far behind: its brick and mortar locations and existing truck fleet give it a strong start in the logistics arena.

When asked about the Alibaba partnership, Maersk said that this was part of the shipping line’s plan to provide digitized services to consumers and that it plans to initiate more pilot programs on third-party portals in the near future. Maersk stated that the launch of the service was not focused on bypassing the industry’s traditional middlemen (freight forwarders and NVOCCs), as the OneTouch platform still engages freight forwarders to offer some services, including haulage. Though it may not be the public goal of this joint venture, bypassing intermediaries will inevitably be an effect.

Many tech startups have launched services like this one, attempting to bypass third-party shipping services, but until now Amazon has been the only other high-profile company to venture into these waters. This new partnership between Alibaba and Maersk will add another big name to the list of e-commerce companies exploring a streamlined process, as well as giving carriers a chance to see how these online retail capabilities mesh with their shipping business.  Forwarders and NVOCCs are well-advised to watch this trend closely, and be careful about large investments in physical facilities. A look at today’s ghost towns which were formerly bustling shopping malls gives you a hint of what could be if intermediaries become very easily done without.

When the Broker Must be the Importer of Record

The Importer of Record, or “IOR” has a lot of liability for entry.  Any penalties resulting from discrepancies relating to classification of the goods or admissibility issues, and the duties to be paid, must be covered financially by the IOR.   Changed from when I got my Customs broker’s license in 1978 is the fact that today the IOR must have a financial interest in the merchandise. No longer can it just be a nominal consignee.  This is to guarantee Customs that the importer is not a straw man, but has sufficient knowledge of the import so as to identify its appropriate duty rate, etc.   The sole exception to the rule is that a licensed Customs broker an always serve as IOR, though most are justifiably loathe to do so.

We encountered a very unusual case in which a CHB was put in the position of being the only possible importer of a DDTC licensable product.  In this case, European aircraft parts were being imported by an American company. The American repair station requested that the basis for delivery be “DDP” which means that the seller would have sole responsibility for making sure that the product properly clears customs and was delivered, “duty paid”.  Because the agreement was that it would be DDP, the consignee repair station refused to be the IOR. However, the goods were DDTC licensable.  Because the a DDTC license is only given to U.S.-located companies, the European seller could not be the IOR either. This leaves only one individual who is able to accomplish both: the Customs Broker.

The customs broker was left in the unenviable position of having to serve as the IOR for their European client.  Given the broker’s understandable lack of knowledge of the intricacies of aviation spares, it runs the risk of being responsible for any penalties from a mistake on the entry it files. In order to avoid this, we recommended indemnification.  Indemnification ensures that if something goes wrong, the broker will be put in the same position they’d have been in had they not agreed to assist- meaning that the seller will cover any monetary penalties, legal fees, etc. in the event of any demand.

The below paragraph was the language we suggested to our client’s customs broker, in order to make them feel comfortable that they are indemnified against all liabilities arising from the  agreement to serve as IOR. This absolves the broker from any responsibility if the duty is found to be incorrect or other problems arise, and it is among standard CHB terms and conditions.

Where a bond is required by U.S. Customs to be given for the production of any document or the performance of any act, the Customer shall be deemed bound by the terms of the bond notwithstanding the fact that the bond has been executed by the Company as principal, it being understood that the Company entered into such undertaking at the instance and on behalf of the Customer, and the Customer shall indemnify and hold the Company harmless for the consequences of any breach of the terms of the bond. (b) On an export at a reasonable time prior to the exportation of the shipment the Customer shall furnish to the Company the commercial invoice in proper form and number, a proper consular declaration, weights, measures, values and other information in the language of and as may be required by the laws and regulations of the U.S. and the country of destination of the goods. (c) On an export or import the Company shall not in any way be responsible or liable for increased duty, penalty, fine or expense unless caused by the negligence or other fault of the Company, in which event its liability to the Customer shall be governed by the provisions of paragraphs 8 – 10 below. The Customer shall be bound by and warrant the accuracy of all invoices, documents and information furnished to the Company by the Customer or its agent for export, entry or other purposes and the Customer agrees to indemnify and hold harmless the Company against any increased duty, penalty, fine or expense including attorneys’ fees, resulting from any inaccuracy, incomplete statement, omission or any failure to make timely presentation, even if not due to any negligence of the Customer.

Trade Expansion Act Investigations

This is an old blog we lost during our transfer of site hosting.

On April 20, 2017, President Trump directed the U.S. Department of Commerce (DOC) to conduct an investigation into the effects of steel imports on U.S. national security. (Presidential Memorandum Can Be Seen Here). On April 27, 2017, the President directed DOC to conduct an investigation into the effects of aluminum imports on U.S. national security. On these respective dates, DOC self-initiated investigations under section 232 of the Trade Expansion Act of 1962 to determine whether increasing imports of foreign-made steel and aluminum threaten the U.S. economic security and military preparedness.

Section 232 investigations include consideration of factors such as the amount of domestic production needed for projected national defense requirements and whether imports impair the domestic industry’s ability to meet those needs, the effect of foreign competition on the domestic industry, and any detrimental impacts from the displacement of domestic products by excessive imports. DOC last conducted an investigation under Section 232 of the Trade Expansion Act in 2001, when it examined whether U.S. imports of iron ore and semi finished steel threatened to impair national security. DOC found that they did not, and the President took no action to restraint imports. Past investigations under Section 232 have only rarely led to the imposition of import restraints. The most recent such occurrence was in the early 1990s, when an investigation regarding imports of certain machine tools culminated in voluntary restraint agreements (VRAs) with Japan and Taiwan.

Citing the more than 150 antidumping and countervailing orders currently in place on steel products imported from various countries, the Presidential Memorandum announced the investigation claims that U.S. steel producers continue to be harmed by continued unfair trade practices, such as subsidies provided by foreign governments and excess production capacity in producing countries. These systemic trade abuses, according to the Presidential Memorandum, jeopardize long-term investment in the U.S. industry and weaken the pool of qualified workers for this strategic industry.

Under Section 232, the Secretary of Commerce is required to report the findings and recommendations resulting from DOC’s investigation to the President within 270 days. In this case, however, the Trump administration is seeking to complete DOC’s report on an expedited schedule, well in advance of the maximum statutory time frame permitted by Section 232.

Within 90 days of receiving the Secretary’s report, the President must determine whether he agrees with the Secretary’s findings and recommendations, but he is free to take action to restrict the imports at issue regardless of those findings and recommendations. Within 30 days of the President’s decision, pursuant to Section 232, he is required to report his actions to Congress. In a Federal Register notice that will be published, the DOC announced that it will hold a hearing on May 24, 2017, and will consider written submissions received by May 31, 2017.

The Trump administration’s resort to Section 232 of the Trade Expansion Act now is controversial for various reasons, including because Section 232 predates the trading rules and obligations to which the United States and almost all of its major trading partners agreed to in joining the World Trade Organization (WTO). Thus, reliance by the United States on Section 232 to limit imports of steel could trigger challenges by steel-exporting countries in the WTO dispute settlement process. For example, Article XXI of the General Agreement on Tariffs and Trade (GATT) provides for a national security exception that a WTO member may lawfully rely upon to justify a restraint on trade that might otherwise violate WTO obligations. It is unclear whether the Trump administration could adequately justify any import restraints on steel resulting from the current Section 232 investigation under the Article XXI national security exception.

Additionally, Article XI of the GATT contains a strong presumption against quantitative restrictions on trade, which an import restraint under Section 232 may violate, depending on its terms. Other WTO rules may also be implicated by U.S. action under Section 232, including the national treatment requirement under GATT Article III, or the provisions of the WTO Anti-Dumping and Subsidies and Countervailing Measures Agreements that limit action against alleged dumping and subsidies to the measures specified in those agreements.

Finally, the Presidential Memorandum announcing the investigation identifies the aluminum, vehicle, aircraft, shipbuilding and semiconductor industries, along with steel, as other “core industries” that are vital to the U.S. manufacturing and defense industrial base and thus may warrant protection against alleged foreign trade abuses. The Presidential Memorandum thus signals that the Trump administration may be contemplating comparable action to potentially restrain imports in these other industrial sectors.

Trademark Now – or Turmoil Later

While running your business, you have a million things to think about.  Customers, employees, taxes, transactions – the list is endless.  But what about protecting the company’s very identity, goodwill, and brand?  A company’s name and logo are vital to success from a marketing standpoint, and as such you should be doing everything possible to protect them.  A great place to start is by making a promise to yourself and your business that this year all of your identifiers will be properly trademarked.

Trademarking is actually a fairly simple process, and we are here to help.  The first step to registering your trademark is making sure that no one else already owns it. Using the TESS (hyperlink site) page on the US Patent and Trademark Office you can search both words and designs and be sure no one has an identical or strikingly similar business mark for the same category of goods and services offered by your company.   If you don’t own your mark, then anyone can use it and ride on your goodwill, or even damage it.

After determining your brand’s legal standing, a registration must be submitted with all of the details of your mark and specific limits on how you will use it. Ideally, the USPTO should respond to you with approval within 6 months of filing your application.  But what if you find that your mark – or a similar one – is already being used?  Even if you have been using it for a longer period of time, your registration will likely be contested.  These are tough waters to navigate, but do not fret, we are quite familiar with them. If you find yourself in this situation, give us a call immediately and we will see how we can help you to move forward in getting your business protected.

Registering your mark is not really optional any longer.  Confusingly similar or counterfeit websites, email addresses, and other indicia are rampant.  Surely if you’ve owned “Great Shipping” for 20 years and gained a reputation in your industry, a new business called “Ship Great” can’t open its doors down the road from you in the same exact field? Though that may seem to be common sense, it is not the law. Unfortunately, unless copyrighted or trademarked, a name that is clearly playing off another brand cannot be challenged legally – no matter how similar.  State trademarking, by the way, is generally useless in our opinion.   Only a Federally recognized mark has substantial business protection value.

Be proactive and give us a call today to see how we can help you keep your business, its goodwill, and its identity, safe and uniquely tied to you alone.

Have A Billion Dollar Export Penalty? Let’s Not.

        
This is an old blog we lost during our transfer of site hosting.  

   A record-setting payment of $1,190,000,000.00 by ZTE Corporation of Richardson, Texas (“ZTE”) shows the enormous risks today of underestimating U.S. export enforcement. The International Emergency Economic Powers Act gives the President of the United States broad authority to regulate international transactions and exports.. Pursuant to two Executive Orders issued by President Clinton in the mid 1990’s, the Iranian Transactions and Sanctions Regulations (“ITSR”)  was created that prohibit, among other things, exportation or re-exportation of U.S. products to Iran without a license from the Office of Foreign Asset Control (“OFAC”).

Almost a year ago,  the Obama administration accused ZTE of violating ITSR and the Export Administration Regulations (“EAR”), restricting the export of products that could make a significant military contribution to Iran or other countries. Fast forward to today, and, ZTE has pleaded guilty to charges of unlawful conspiracy to export U.S. goods (to both North Korea and Iran), obstruction of justice and knowingly and willfully making a materially false statement during the investigation. ZTE settled the lawsuit for the largest sanctions penalty in history: $1.19 billion divided between the U.S. Department of Justice, OFAC and the Bureau of Industry and Service (“BIS”). Below are some ideas of how to avoid becoming the record holder for the largest trade sanctions penalty:

What ZTE did: Senior management was aware of, and even condoned, illegal activities and non-compliance with trade laws.

Best Practices: Create a company culture of honesty and compliance, starting with top level management. It is up to senior management to establish clear company policies regarding compliance with all export policies because they, better than anybody else, understand the high risks associated with non-compliance. Senior management behavior is an example for the rest of the company so it should clearly show what are acceptable export practices.

What ZTE did: ZTE sought out and used “isolation companies” to re-export U.S. products to embargoed countries in order to hide ZTE’s involvement.

Best Practices: Take a look at the process third parties which you may employ use to complete their business.  Request written verification that they comply with trade laws and memorialize this via a contract in which the third party commits to complying with U.S. trade laws. The main point is to create and maintain transparency – with teeth –  regarding interactions between your company and any third party involved in your business transactions.

What ZTE did:  Incredibly, once the investigation had begun, ZTE asked its employees to sign nondisclosure agreements to conceal the illegal trade with Iran.

Best Practices:  Concealment is almost always worse than the initial crime! Create a company plan that empowers employees to report compliance issues. Even if it turns out there is no compliance issue at the moment, you are given the chance to address a minor problem before it turns into a major (record setting) compliance issue.  See our January 20, 2016 post regarding Voluntary Disclosures, which can greatly lessen or even eliminate penalties  (“New BIS Export Enforcement Guidelines”.)

What ZTE did: After learning of the impending charges, ZTE instituted a “contract data induction team” whose purpose was to identify and remove data related to the Iran transactions.

Best Practices:  Again, the concealment activity failed and brought on a Billion Dollar (!) penalty. When establishing an effective compliance plan for your company, it should include a method of safe and reliable record keeping. The plan should include the types of records to keep and when they can be destroyed as well as steps to be taken should the company face an accusation of violating laws.

            Ultimately, your goal should be to establish company policies that respect and enforce compliance best practices.  If an issue should arise, the company is then prepared to assist with and minimize the effect of any violation and/or investigation, rather than hinder and thereby compound it.