CE CE Export Controls & Sanctions Compliance 2 — Questions and Answers
Question 1: What is the 'de minimis' rule under EAR and when does U.S. content in a foreign product trigger U.S. export controls?
- When U.S.-controlled content exceeds 25% of the total value (or 10% for certain countries) of a foreign-made item, U.S. export control jurisdiction may apply (Correct answer)
- When a product is entirely made in the U.S.
- When any U.S. component is incorporated regardless of percentage
- Only when the product is re-exported directly from the U.S.
Correct answer: When U.S.-controlled content exceeds 25% of the total value (or 10% for certain countries) of a foreign-made item, U.S. export control jurisdiction may apply
The EAR de minimis rule establishes thresholds (25% for most destinations, 10% for embargoed countries) above which U.S.-origin controlled content in a foreign product triggers U.S. re-export controls.
Question 2: What are 'red flags' in export compliance and what must a U.S. exporter do upon encountering them?
- Suspicious circumstances suggesting an export may violate the law; the exporter must stop the transaction, investigate, and resolve concerns before proceeding (Correct answer)
- Errors on shipping documents that require correction before departure
- Products that require new classification reviews
- Shipments flagged by the carrier for oversize or hazmat issues
Correct answer: Suspicious circumstances suggesting an export may violate the law; the exporter must stop the transaction, investigate, and resolve concerns before proceeding
BIS's 'Know Your Customer' guidance identifies red flags (e.g., buyer reluctance to provide end-use information, unusual payment terms, atypical shipping routes) that signal potential violations requiring investigation.
Question 3: What is a Denied Parties List screening and why is it required before every export transaction?
- A check against government lists of sanctioned/restricted entities to ensure the buyer, end-user, or intermediary is not prohibited from receiving U.S. exports (Correct answer)
- A quality control check of export packing lists
- A review of customs broker licensing
- An audit of the buyer's credit history
Correct answer: A check against government lists of sanctioned/restricted entities to ensure the buyer, end-user, or intermediary is not prohibited from receiving U.S. exports
Screening against denied parties lists (SDN, Entity List, Denied Persons List, etc.) before each transaction is a legal requirement and a core compliance best practice to avoid sanctions violations.
Question 4: What is a Voluntary Self-Disclosure (VSD) in EAR/OFAC compliance and what benefit does it provide?
- Proactively reporting potential export violations to BIS or OFAC before being investigated, which typically results in substantially reduced penalties (Correct answer)
- Voluntarily listing all exported products in a public database
- A program where companies can disclose trade secrets to obtain export licenses
- A requirement to file annual export compliance reports
Correct answer: Proactively reporting potential export violations to BIS or OFAC before being investigated, which typically results in substantially reduced penalties
Voluntary self-disclosure to BIS or OFAC for potential violations demonstrates good faith compliance and typically results in significantly reduced fines compared to violations discovered through investigation.
Question 5: What is the U.S. Foreign Corrupt Practices Act (FCPA) and how does it affect U.S. exporters operating internationally?
- A U.S. law prohibiting American companies from bribing foreign government officials to obtain or retain business contracts (Correct answer)
- A law requiring foreign companies to disclose corruption to U.S. authorities
- A regulation mandating anti-money laundering programs for exporters
- An import duty on goods produced by corrupt foreign governments
Correct answer: A U.S. law prohibiting American companies from bribing foreign government officials to obtain or retain business contracts
The FCPA prohibits U.S. companies and individuals from offering or paying bribes to foreign officials, with significant criminal and civil penalties; it applies globally to any person or entity with U.S. connections.
Question 6: What is the difference between a general license and a specific license under the Export Administration Regulations?
- A general license authorizes certain exports automatically without application; a specific license is an individually approved authorization issued by BIS for a particular transaction (Correct answer)
- A general license covers all products; a specific license covers only technology
- A general license is free; a specific license requires a fee
- A general license applies to allies only; a specific license applies to adversaries
Correct answer: A general license authorizes certain exports automatically without application; a specific license is an individually approved authorization issued by BIS for a particular transaction
General licenses (often called license exceptions) allow qualifying exports without BIS application, while specific licenses require an individual BIS application and approval for the particular export transaction.
CE CE Export Controls & Sanctions Compliance 2
What is the 'de minimis' rule under EAR and when does U.S. content in a foreign product trigger U.S. export controls?