In the nearly eighteen months since the Russian invasion of Ukraine, many companies have had to reanalyze their export control compliance procedures, particularly with respect to countries with adversarial or strained relations with the United States, e.g., Russia and China. To facilitate this renewed push for compliance, we are refreshing and republishing this article related to compliance with Electronic Export Information (EEI) requirements of the Export Administration Regulations (EAR).

Industry should be aware of the final rule published on April 28, 2020 (Final Rule), by the U.S. Department of Commerce, Bureau of Industry and Security (BIS) that, among other changes, revises the EAR § 744.21 provision related to Military End Uses and Military End Users in the People’s Republic of China (China), Russia, or Venezuela, and significantly expands the license requirements on exports, reexports, and transfers (in-country) of such items. See our previous article for more details about the EAR revisions stipulated in the Final Rule.¹ Importantly, the Final Rule added the EEI filing requirement in the Automated Export System (AES) for exports to China, Russia, or Venezuela. Specific provisions of the Final Rule became effective on June 29, 2020, and other aspects took effect on September 27, 2020.

Background

Prior to the Final Rule, exporters were generally exempt from filing an EEI for shipments valued under $2,500 (unless an export license is required) and from providing the Export Control Classification Number (ECCN) in the EEI when the reason for control is only anti-terrorism (AT). But this is no longer the case.

New EEI Filing Requirement

EAR § 758.1 was revised to include new subparagraph (b)(10), requiring EEI filings for tangible items listed on the Commerce Control List (CCL) destined to China, Russia, or Venezuela regardless of the value of the shipment, unless the shipment is eligible for License Exception Governments and International Organizations (GOV) (see EAR § 740.11). In addition, § 758.1(g)(3) was revised to note that even if no license is required to ship an item to those three destinations, the EEI filing must include the correct ECCN regardless of reason for control. In other words, for an item destined to China, Russia, or Venezuela, the ECCN is now required even if only controlled for AT. The new EEI filing requirement only applies to items included in the CCL; therefore, it does not apply to EAR99 items. But EAR99 items will continue to require an EEI filing if a license is required (e.g., shipments for a restricted end-use or to a restricted end-user), or if the shipment value exceeds the $2,500 threshold.

Agency Guidance

Since September 27, 2020, BIS requires companies to fully comply with the Final Rule’s expansion of the EEI filing requirements for exports to China, Russia, or Venezuela. As a result, Census received multiple questions related to the implications of the EEI filing requirements found in § 758.1(b). Specifically, whether or not all exports to China, Russia, and Venezuela require an EEI filing. Therefore, Census reached out to BIS and received the following guidance:

• “Items on the Commerce Control List” includes any item having an Export Control Classification Number (ECCN), but does not include items that are designated as EAR99.

• Starting Sunday, September 27, 2020, EEI filing for exports to China, Russia, or Venezuela of items controlled by ECCNs is required regardless of value, unless the shipment is eligible for License Exception GOV.

• EAR99 items are not subject to BIS’s mandatory filing requirements under § 758.1(b)(10) and an AES exemption from the Foreign Trade Regulations (FTR) may apply.

• If EEI filing for exports to China, Russia, or Venezuela is required, then the ECCN must be reported in AES.

For example, an individual is exporting an item valued at $1,000 to China and needs to determine if filing EEI is required. The individual first needs to determine if filing is required under BIS’s mandatory filing requirements in § 758.1(b)(10) of the EAR by determining if the item has an ECCN or is EAR99, as well as any other mandatory filing requirement in § 758.1(b). In this example, the individual determines the item is EAR99. Because the item is EAR99 and destined to China, this export is not subject to the new filing requirement in § 758.1(b)(10). Therefore, an exemption from filing EEI under the FTR would apply, specifically the exemption in Section 30.37(a) of the FTR that applies to goods valued $2,500 or below per Schedule B, provided there are no other mandatory filing requirement in § 758.1(b). The individual in this example is not required to file EEI and the individual would provide the appropriate exemption annotation (i.e., NOEEI 30.37(a)) to the carrier.

Further, BIS issued a Frequently Asked Questions (FAQs) document related to the Final Rule and information related to the EEI filing requirement is found on pages 8-9 of the document.

How will exporters and freight forwarders be impacted?

As a result of these EEI filing requirements, exporters and freight forwarders have two additional export compliance requirements to implement. First, companies need to ensure employees understand the EEI filing process and requirements. Specifically, internal procedures need to include the requirements involving exports of tangible items listed on the CCL destined to China, Russia, or Venezuela. Second, companies should be prepared to obtain or determine correct export classifications for their products prior to export. This can include verifying the manufacturer or supplier is accurately classifying the items or conducting its own classification analysis.

Notably, companies should be cautious of the consequences resulting from export misclassifications. For example, if a company inaccurately determines that an item destined to China, Russia, or Venezuela is classified as EAR99, and consequently does not file an EEI filing, the company would be in violation of the export regulations. The failure to file an EEI or filing incorrect information is a violation under both the EAR and the U.S. Census Bureau’s (Census) Foreign Trade Regulations (FTR). Companies should be mindful that there is a higher risk of an enforcement action and penalties when a company has a large volume of repeated violations resulting from systemic issues. For example, violations resulting from having a flawed export compliance program and lack of resources, such as little or no training and ineffective or no compliance procedures in place. Therefore, upon discovering such violations the company may consider whether to disclose such violations in a Voluntary Self-Disclosure (VSD) to both BIS and Census. As part of the VSD process, the company would need to correct the EEI errors. A VSD would mitigate any potential penalties for the disclosed errors.

Many companies rely on freight forwarders to file the EEI filings in the AES on their behalf. Now more than ever, companies should verify that their freight forwarders have implemented updated procedures and that company personnel are providing them with accurate shipment information that will be reported in the EEI filings. Moreover, companies should not forget that in most export transactions, the company will likely be the principal party in interest even when contractually the company may have delegated the export clearance to its foreign buyer (e.g., Ex Works). Therefore, the company, not the freight forwarder filing the EEI, is primarily responsible for accurately reporting data in the EEI filings. When a freight forwarder fails to file the required EEI filing on the company’s behalf, or does not provide or reports the incorrect ECCN, the company (not the freight forwarder or the company’s foreign buyer) is responsible for such errors and potentially subject to severe penalties and fines involving two agencies, BIS and Census. To ensure the company is complying with the EEI filing requirements under both the EAR and FTR, we recommend that companies run an AES export report, which will detail the data reported in the EEI filings submitted.

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Overall, the revised EEI filing requirements included changes that companies need to incorporate in their export compliance procedures. These requirements can easily be overlooked and can increase the risk of potential export violations. We recommend that companies update and implement procedures and provide training to personnel to ensure that all EEI filing requirements are met.

Additionally, companies should also verify that their export classification database includes updated and accurate classifications for all product lines. For companies that do not have an export classification database, this is the time to begin developing one. One of the most important components of a successful export compliance program is having and using an updated export classification database. As a reminder, export misclassifications may trigger multiple export violations that could expose the company to serious penalties and fines.

In sum, there is an EEI filing requirement for all items on the CCL destined to China, Russia, or Venezuela, regardless of the shipment’s value, unless the GOV license exception applies. Additionally, if the EEI filing for exports to China, Russia, or Venezuela is required, then the ECCN must be reported in AES. If you have any questions about revisions to the EAR, or the impact on your operations, please feel free to contact the attorneys at Torres Trade Law.