On June 2, 2008, the Department of Commerce Bureau of Census published its final mandatory Automated Export System (AES) rule in the Federal Register, 73 Fed. Reg. 31548 (June 2, 2008). The effective date for the rule is July 2, 2008. However the implementation date is September 30, 2008, giving exporters who have managed to avoid filing their export information via AES four (4) months to make the switch to electronic filing using AES.

The following is a summary of some of the highlights of the final regulation including some of the more interesting comments, and a description of the changes.

What the Rule Does — Bottom Line: Whenever a Shippers Export Declaration (SED) is required on an export, that SED export information must now be filed electronically through the Automated Export System (AES) or through AESDirect. 

Criminal and civil penalties have increased for violations with criminal penalties of $10,000 and/or up to 5 years of imprisonment per violation, and civil penalties of $1100 per day (for failure to file and delayed filing) and up to $10,000 per violation. Forfeiture penalties are also available.

Criminal violations include knowingly failing to file, knowingly submitting false or misleading information, and knowingly reporting any information or using AES to further any illegal activity. Civil violations include failure to file, delayed filing, filing false/misleading information, furtherance of illegal activities and any other violation of the FTR. 

Comments:

1) Filing requirements for Electronic Export Information (EEI): Several commentators asked if the filing requirements for mandatory AES had changed from those of the paper Shippers Export Declaration (SED). Answer: Nothing's changed.

2) Internal Transaction Number (ITN) v. External Transaction Number (XTN): Only the ITN will now be acceptable as the proof of filing citation.

3) Time frame for filing EEI via AES: For shipments subject to the International Traffic in Arms Regulations (ITAR), look to the ITAR. For all other shipments, it is as follows:

a) Vessels: File EEI and provide filing citation or exemption legend to exporting carrier 24 hours prior to loading the cargo on the vessel at the port;

b) Air: File EEI and provide filing citation or exemption legend to exporting carrier 2 hours prior to scheduled departure time of aircraft;

c) Truck: File EEI and provide filing citation or exemption legend to exporting carrier 1 hour prior to the arrival of the truck at the U.S. border;

d) Rail: File EEI and provide filing citation or exemption legend to exporting carrier 2 hours prior to the time the cargo arrives at the U.S. border;

e) Mail and Cargo shipped other methods: File EEI and provide filing citation or exemption legend to exporting carrier 2 hours prior to exportation;

f) Pipeline: File EEI and provide filing citation or exemption legend to the operator of the pipeline within 4 days following the end of each calendar month;

g) Postdeparture filing by approved US Principal Parties in Interest: File EEI and provide filing citation or exemption legend to exporting carrier no later than 10 calendar days from the date of export.  NOTE: This is possible only for USPPIs approved for postdeparture filing.

4) Postdeparture Filing Approvals: The moratorium on granting additional USPPIs permission to file EEI post-departure will remain in effect "pending further review of the postdeparture filing program."

5) $2500 Exemption Level: Some commentators suggested that Census remove the exemption which exempts from AES filings exports where total for any one Schedule B number is less than $2500 provided there is not a requirement for such a filing under other regulations (such as the ITAR or Export Administration Regulations ("EAR")). Census said, "No way!" In more official speak, "Census and CBP do not have the resources to process the additional workload."

6) Worries about AES Downtime: Commentators were worried that export shipments would be delayed if AES became unavailable. Census says that AES has been highly reliable and available to users 99% of the time. When the system is down, exporters of ITAR items will just have to wait. Exporters of non-ITAR items can use a downtime filing citation (section 30.4(b)(2)).

7) Who Will Enforce the Foreign Trade Regulations & Voluntary Disclosures: Some commentators were concerned about which agency would enforce the Foreign Trade Regulations (FTR). Census says that the Bureau of Industry and Security's (BIS) Office of Export Enforcement (OEE) and the Department of Homeland Security (DHS) will enforce the FTR, but Census has established a new section (30.74 in Subpart H) explaining the procedures for submitting notification disclosing a violation of the FTR. (See summary below).

8) Routed Export Transactions: Census has tinkered a bit with the routed export transaction section 30.3(e).

a) Agent of Foreign Principal Party in Interest (FPPI) Must Provide USPPI Copy of Power of Attorney or Written Authorization: Commentators were worried about the requirement that a USPPI must give certain information about the transaction to an agent of a FPPI in a routed export transaction (that is, one in which the FPPI assumes responsibility for filing EEI via AES and appoints a US agent to do this).  Census has revised section 30.3(e)(2) to require the agent to provide to the USPPI the power of attorney or other written authorization from the FPPI. In this way the USPPI can at least be sure that the agent is properly authorized by the FPPI to file the EEI via AES. The agent must also provide the USPPI with a copy of the data elements as filed through AES that the USPPI gave to the agent, thereby allowing the USPPI to check that the agent properly filed those elements of the AES that the USPPI remains responsible for. (But watch out! Agent can't supply USPPI with other elements without violating the FTR — see below.)

b) Routed Export Transactions where the USPPI Files the EEI on Behalf of the FPPI: The redrafted regulations also permit the USPPI to act as the FPPI's agent (instead of the FPPI engaging its own agent).  However, the FPPI must still provide the USPPI with a written authorization assuming responsibility for the filing.

9) Exemption from filing EEI for Temporary Exports including Carnets: Commentators said that temporary exports are exempt from EEI filing requirements. Census agreed but noted that temporary exports that require an export license, are destined for Country Group E:1 set forth in Supplement 1 to 15 CFR 740 or are subject to an ITAR licensing exemption are not exempt.

10) Mexico and Canada: A commentator was confused about whether SEDs are required for Mexico and Canada. All export shipments to Mexico valued above $2500, shipments requiring a license or license exemption, or a Kimberly Process Certificate for rough diamonds must be reported through AES. Export shipments to Canada are not required to be reported through AES unless they require a license, a license exemption or, or a Kimberly Process Certificate for rough diamonds.

11) Intangible exports of software and technology are exempt from EEI requirements: Census confirms that its FTR does not require the reporting of intangible exports of software and technology. Census notes however, that the Departments of State and Commerce may require separate filings for intangible exports of software and technology and technical data that require a license.

12) Awesome New Appendices: Only Washington wonks and real exporters would get excited about this, but Census has added some very useful new appendices:

a) AES Filing Codes: Census has created a new Appendix B which lists all the filing codes in one handy reference place.

b) Summary of Exemptions and Exclusions from EEI filing: Census has added a new Appendix C summarizing all FTR exemptions and exclusions. 

c) AES Filing Citation, Exemption and Exclusion Legends: Census has created a new Appendix D to the FTR which lists AES filing, exemption and exclusion legends which will certainly come in handy!

d) FTSR to FTR (and Vice Versa) Appendices: In Appendices E and F, Census has provided crosswalks to take you from the old regulations to the new regulations and back again.

Three Cheers for Handy Census Appendices!!!

13) Warning for Truck and Rail Exporting Carriers: Census has added regulations stating that truck and rail exporting carriers may not accept paper SEDs "under any circumstances nor cross the border into a foreign country without a proof of filing citations, exemption or exclusion legends for cargo being exported as provided for in Appendix D." Census explained that any truck or tail carriers without such a proof in their possession will be subject to the FTR penalties under         Subpart H.

14) Confidentiality of EEI Stressed: Census has revised section 30.60 regarding the confidentiality of Electronic Export Information, explaining EEI can be provided for official purposes, such as supply federal agencies for official purposes such as, verification and investigation of export shipments, providing proof of export, statistical purposes and circumstances determined to be in the national interest. It can also be supplied to the USPPI, authorized agents of the USPPI and carriers for compliance and audit purposes — but the disclosure must be limited to that information provided to the AES by each party. Supplying EEI for "nonofficial purposes" are strictly no-nos. Nonofficial purposes listed in the final regulation include:

a) for federal or state tax authorities to persuade them as to an exemption from taxes;

b) by the IRS for purposes not related to export control or compliance;

c) by state or local government agencies, and nongovernmental entities or individuals for any purpose;

d) by foreign governments for any purpose.

Any disclosure of EEI that does not conform renders the persons subject to civil penalties under subpart H.

15) Criminal penalties as applied to corporate officers:  The revised regulation (section 30.70) states that officers, directors or agents of any corporation "who willfully participate{} in {a} violation" may be imprisoned for up to 10 years. 

16) New Voluntary Disclosure Section (30.74): As noted above, there is a new voluntary disclosure section, which bears a resemblance to the BIS voluntary disclosure section. It recommends a 5-year look-back, like BIS, and permits an initial notification filing prior to that look back. It also contains the usual warnings, with references to BIS to indicate that it is likely that administrative penalties will be imposed by BIS:

While voluntary self-disclosure is a mitigating factor in determining what corrective actions will be required by the Census Bureau and/or whether the violation will be referred to the BIS to determine what administrative sanctions, if any, will be sought, it is a factor that is considered together with all other factors in a case.  The weight given to voluntary self-disclosure is within the discretion of the Census Bureau and the BIS, and the mitigating effect of voluntary self-disclosure may be outweighed by aggravating factors. Voluntary self-disclosure does not prevent transactions from being referred to the Department of Justice (DOJ) for criminal prosecution.  In such a case, the BIS or the DHS would notify the DOJ of the voluntary self-disclosure, but the consideration of that factor is within the discretion of the DOJ.

The final Census voluntary disclosure narrative account should include:

(i) The kind of violation involved, for example, failure to file EEI, failure to correct fatal errors, failure to file timely corrections;

(ii) Describe all data required to be reported under the FTR that was either not reported or reported incorrectly;

(iii) An explanation of when and how the violations occurred;

(iv) The complete identities and addresses of all individuals and organizations, whether foreign or domestic, involved in the activities giving rise to the violations; and

(v) A description of any mitigating circumstances.

Address:  With the exception of voluntary disclosures of manifest violations under Sec. 30.47 (c), the information constituting a voluntary self-disclosure or any other correspondence pertaining to a voluntary self-disclosure may be submitted to: Chief, Foreign Trade Division, U.S. Census Bureau, Room 6K032, Washington, DC 20233-6700, by phone 1-800-549-0595, by fax (301) 763-8835, or by e-mail FTDRegs@census.gov.
Must Also Fix EEI filed through AES:  Interestingly, in addition to filing the voluntary disclosure, any data that was not reported to AES, and any corrections to previously reported data must ALSO be made through the AES.

For questions or additional information, contact:

Kay C. Georgi
georgi.kay@arentfox.com
202.857.6293