Key Players

Exporter

The key points in brief:

  • The exporter is the key player, that is effected by export controls
  • For him, it is crucial to comply with export control laws and compliance standards

Explanations:

Exporter shall mean any natural or legal person or partnership:

  • on whose behalf an export declaration is made, that is to say the person who, at the time when the declaration is accepted, holds the contract with the consignee in the third country and has the power for determining the sending of the item out of the customs territory of the EU. If no export contract has been concluded or if the holder of the contract does not act on its own behalf, the exporter shall mean the person who has the power for determining the sending of the item out of the customs territory of the EU;
  • which decides to transmit or make available software or technology by electronic media including by fax, telephone, electronic mail or by any other electronic means to a destination outside the Community.

To determine the function of the exporter is essential to identify the person or entity which is responsible to apply export controls in the first place. It is the exporter who is entitled to apply for an export license and who is obliged to hold an export license if necessary. It is not possible for a third party within a supply chain or as a bank to apply for an export license on behalf of the exporter. It is as well the exporter who is entitled to apply at the relevant authority to be issued a certificate of no license required.

Again it is the exporter who has to apply catch-all-clauses, obligations to give notice to the relevant authority if he knows that a good is or may be intended to be used in a sensitive way, especially in case of proliferation.

Consequently it is the exporter who has to provide an internal compliance program to make sure to comply with all export control regulations.

The function of the exporter is determined by the definition mentioned above. In most cases the exporter is the person who holds the contract that is the base and reason for the cross border transaction, the contract with the first person on the other side of the border. It does not matter which kind of contract this is whether this is a purchase or lease contract and whether the good is transported across the border to remain permanently there.

Only in cases in which the export of the goods is not based on a contract, exporter is the person who has the power for determining the sending of the item.

The seat of the exporter (administration headquarters) determines the local jurisdiction of the licensing authority.


Special Involvement of a Bank

The key points in brief:

The special involvement in export controls of a third party such as a bank can be defined as follows:

  • Personal involvement of the personnel by aiding and abetting a breach of law of a contract partner by proceeding finance transaction
  • Reputational risks by taking part in a criminal action
  • In embargo contexts, the financial and credit institution can play an independent role as being party in an administrative proceeding to apply for a license

Explanations:

It is the customer in the first place to make sure not to contravene national and international export control regulations. The responsibility lies with the customer as all relevant information to decide about the legality of an intended deal should be with the direct parties. Nevertheless there are obligations to third parties such as financial institutions to make sure not to take part into criminal action like a breach of foreign trade regulations. Basically, those obligations can be deducted from basic legal rules that a third party would not be allowed to contribute to a breach of law if this context is obvious, e.g. exporting weapons or other military good to an embargo destination.

These obligations are not limited to cases in which a breach of law is obvious. Compliance law expects financial institutions to provide appropriate risk analysis to find out whether the institution is performing any service that may be a contribution to a breach of export control law. The question is to what extend one considers controls of customers’ action as necessary and appropriate.

Supervisory authorities like the British Financial Conduct Authority (FCA) require that banks establish and maintain effective systems and controls to prevent the risk that they might be used to further financial crime. For the British legal situation this is deducted from Money Laundering Regulations 2007 and Proceeds of Crime Act 2002. In the law of other relevant countries similar regulations exist as those are internationally coordinated.

Consequently, examples of good practice are set up for due diligence of the customer being:

  • Banks’ written procedures are clear about what due diligence checks are necessary on the instructing parties. They take account of the bank’s role in a transaction, and when it is appropriate to apply due diligence checks to others, including non-client beneficiaries (or recipients) of an LC or BC.
  • Ensuring staff is aware of dual-use goods issues, common types of goods that have a dual use, and staff is capable of identifying red flags that suggest that dual-use goods are in danger of being supplied for illicit purposes.
  • Confirming with the exporter in higher risk situations whether a government license is required for the transaction and seeking a copy of the license where required.

FCA: Financial Crime - A Guide for Firms

Not only risks of personal involvement of an individual by aiding and abetting criminal action by assisting in proceeding financial transaction do trigger the introduction of appropriate measures to prevent any involvements of bank’s staff but as well the risk of damage in reputation of the bank. It is of high importance to keep away of those trade actions which may result in any bad reputation.
The situation seems to be clearer in cases in which embargo countries or listed persons or entities are involved in a transaction. In those cases, further obligation exists directly addressing banks, resulting from the very embargo regulation. It can well be that the embargo regulation sets up an individual licensing proceeding in which the banks are party of a licensing proceeding. This was e.g. done in the last EU-Embargo against Iran, Council Regulation 267/2012 before the amendment of 2016 in order to implement the JCPOA. In this the transfer of funds required a license by the responsible authority in the EU Member State.
In order to meet the requirements banks have maintain proportionate and adequate means and procedures to ensure compliance with the provisions.