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Export Compliance Protects Reputation, Not Just Bottom Line, Panelist Says

Export compliance is never going to be perfect, panelists said, but with constant education, companies can ensure that their mistakes only warrant warning letters, not fines. The American Association of Exporters and Importers held a panel Sept. 1 about how export compliance plays out in the real world.

John Pettibone, director of trade compliance at Saint-Gobain in North America, said when his company analyzed which actions drew warning letters, it wasn't what they expected. They had been looking at locations that exported many International Traffic in Arms Regulations-controlled and Commerce Control List goods. “There were few if any mistakes there,” Pettibone said. Instead, it was small locations, where all the goods didn't need export controls, save one, that had the stumbles.

Pettibone said changing corporate education on exports helped with that, and he gave an example. Before the new education strategy, most people at the smaller locations had not heard of Huawei. After the training, Pettibone got a question from someone that said a customer isn't on the Entity List, but it had one joint venture with a Huawei company. Saint-Gobain applied for a license, waited three months, and was ultimately denied, and that Huawei subsidiary was added to the Entity List.

“That was actually a very good result,” Pettibone said. The customer appreciated it, because it didn't want to be associated with anyone on the Entity List. And Saint-Gobain didn't want to be exporting, and later have to stop the flow because of the subsidiary being discovered by regulators.

Moderator Michelle Schulz, from Polsinelli, asked why companies should spend the money on compliance officers when generally fines are so small, they would amount to less money than the salaries needed to prevent the violations.

Pettibone replied, “Really, the company-killer aspects of the fines is something other than the money. It’s the damage to your reputation.” He said his company doesn't want to do business with companies that have had large fines, and when a company has a large fine, its competitors try to capitalize on that to take market share.

A former export control enforcement agent, Richard Modesette, told Shulz and Pettibone that small mistakes aren't what the Bureau of Industry and Security is looking for. He said he investigated more than 300 companies in his 20-year career at BIS, and the majority of the time, it was something extremely minor, a technical violation, or no violation at all. “Somebody uses the wrong license exemption, I don’t really care, have a nice day,” he said.

He said the line between an administrative fine and a criminal case is a bright line. “In all the criminal cases it was driven by the profit motive at the very top,” he said. He said these cases were not “inadvertent, it’s not human error, it’s deliberate.”

Still, companies that care about compliance do voluntary self-disclosures when they realize they misclassified an export. “If I don’t find a potential voluntary self-disclosure every 18 months or so, then I really get nervous,” Pettibone said.

It's not just shady players that have massive fines from BIS, however. Eight years ago, United Technologies Corp. agreed to a $75 million penalty for exporting both helicopter engines and engine controlling software to China that was used in Chinese attack helicopters, and pleaded guilty in a criminal case. In 2002 and 2003, UTC division Hamilton Sundstrand exported the software for what it had been told was a civilian helicopter program, and an engineer there in 2004 raised alarms that this could violate export controls, and that division refused to participate, but the Pratt & Whitney Canada Corp. engine division continued exporting the next year.

Export Compliance Daily asked what lessons companies can learn from this case. Pettibone said that company culture needs to encourage employees in all sorts of roles to ask questions on export compliance. He gave an example of a sales person who wanted to sell camouflage fabric, which would be sent to a distributor in Asia, and the sales person said it could be worth $50 million in the first year. But the sales person said, “My manager told me I had to clear this with you first.” When Pettibone pressed on who would buy the fabric once it was in the distributor's hands, the employee acknowledged it was the Chinese military. So Pettibone explained why that was wrong.

Modesette agreed. He said it's wrong to tell yourself, “well, if I look over there, I might find out something that would prohibit the sale, so I won’t look over there.” He added: “Companies do need to listen to employees that give them warning.”.