I. INTRODUCTION

The United States Department of Commerce, Bureau of the Census (Census) has revised the Foreign Trade Statistics Regulations, 15 C.F.R. Part 30, republishing them and renaming them as the Foreign Trade Regulations (FTR).

The new regulations mandate that all export information be filed electronically, via the Automated Export System (AES) and amends various technical provisions of the regulations. In addition, they contain expanded formal provisions allowing exporters to make "voluntary disclosures" of errors compliance with the regulations AES filings.

The new regulations have an effective date of July 2, 2008, but Census will delay implementation until September 30, 2008, to give parties more time to come into compliance with the new rule.

This Memorandum transmits and briefly explains the amended regulations.

II. PRINCIPAL CHANGES TO THE FTRs

The principal changes to the regulations may be summarized as follows:

1. All export information for which a Shipper's Export Declaration (SED) is required must now be filed electronically, using the Automated Export System (AES) (including Census' online AES Direct system;
2. Option 4 Post-Departure filing of AES information - a right previously
   given to selected companies - will remain suspended;
3. Obligations of "authorized agents" in "routed" export transactions are clarified. Where a United States Principal Party in Interest (USPPI) allows the appointed agent of a Foreign Principal Party in Interest (FPPI) to file AES information, the USPPI need not furnish the foreign
   party's agent with a power of attorney or other authorization.
4. Parties submitting electronic export information (EEl) must retain documents pertain to the export shipment for at least five years from the
   date of export, or such longer period as the Department of State or other agency may specify for transactions under their jurisdictions.
5. Clarifies that the Internal Transaction Number (lTN) is the only acceptable proof of filing citation for AES. The External Transaction Number (ETN) will no longer be accepted as proof of filing.
6. Adds a new regulation [15 C.ER. §30.74] setting out procedures for making "voluntary self disclosures" to Census of violations of the FTRs.
7. Increases penalties for violations of the FTRs to reflect inflation adjustments permitted by law.

III. ANALYSIS OF CHANGES

The changes to the FTRs address a wide range of areas. These are briefly explained as follows:

Goods Moving Under CBP Bond Between Puerto Rico and US or US and Possessions

Section 30.2(a)(iii) of the FTRs are amended by providing that goods previously admitted to customs bonded warehouses or Foreign Trade Zones (FTZs) moving between Puerto Rico and the United States and from the United States to the U.S. Virgin Islands must be covered by an AES statement.

Changes in Routed Export Transactions

"Routed" export transactions are those in which the USPPI sells goods to a FPPI on "ex works" or other terms under which the FPPI, or its designated forwarder, takes responsibility for sending the goods outside the country. In these cases, the USPPI still has principal responsibility for filing the AES record, but the responsibility may be assumed, by mutual consent, by a United States-based agent designated by the FPPI for the purposes

Section 30.3(e)(l) of the FTRs has been amended to address situations in "routed" export transactions where the FPPI assumes responsibility for filing the AES record, but allows the USPPI to file some of the Electronic Export Information (EEl) required to complete the report. In these cases, the FPPI must issue a written authorization to the USPPI to permit the filing of this information. The USPPI may elect an agent to submit the EEL In cases where a USPPI files electronic information in a routed export transaction, it must maintain documentation to support the information submitted.

Section 30.3(e)(2) of the FTRs has been amended to provide that where the FPPI appoints an agent to file AES information on its behalf, it must issue a "power of attorney or written authorization" for the agent to act.

The other obligations of USPPls and FPPls to each other and to their respective agents in routed export transaction situations are unchanged.

Data to be Report in AES

Section 30.6(b)(18) is amended to require that where goods which would have been eligible for export from the United States under a NAFfA duty deferral entry (which needs to be filed 10 days after export and completed within 60 days after export), are instead entered into the United States and then exported, the entry number must be reported in AES.

Exemptions from AES filing

Section 30.37 of the FTRs are amended to identify the following classes of transactions which are exempt from AES record filing:

(q) Temporary exports, except those that require licensing, whether shipped or hand carried, (e.g., carnet) that are exported from and returned to the United States in less than one year (12 months) from the date of export.

(r) Goods previously imported under a Temporary Import Bond for return in the same condition as when imported including: goods for testing, experimentation, or demonstration; goods imported for exhibition; samples and models imported for review or for taking orders; goods imported for participation in races or contests, and animals imported for breeding or exhibition and goods imported for use by representatives of foreign governments or international organizations or by members of the armed forces of a foreign country. Goods that were imported under bond for processing and reexportation are not covered by this exemption.

(s) Issued banknotes and securities, and coins in circulation exported as evidence of financial claims. The EEl must be filed for unissued bank notes and securities and coins not in circulation (such as banknotes printed in the United States and exported in fulfillment of the printing contract, or as parts of collections), which should be reported at their commercial or current value.

(t) Documents used in international transactions, documents moving out of the United States to facilitate international transactions including airline tickets, internal revenue stamps, liquor stamps, and advertising literature. Exports of such documents in fulfillment of a contract for their production, however, are not exempt and must be reported at the transaction value for their production.

Enhanced Penalties

Section 30.71 of the FTRs is amended to establish or clarify the following penalties for false or fraudulent reporting or misuse of the AES system:

Criminal Penalties

Civil Penalties

Voluntary Self- Disclosure Provisions

Section 30.74 of the FTRs creates a new "voluntary self-disclosure" procedure to be used for reporting violations of the FTRs. While Census says that its policy is to encourage voluntary self-disclosures, the making of a disclosure does not immunize a person from penalty liability; it is merely one factor to be taken into consideration in determining whether a mitigated penalty should be established.

Limitations of the self-disclosure mechanism are described as follows:

1. The provisions of this section apply only when information is provided to the Census Bureau for its review in determining whether to seek administrative action for violations of the FTR.
2. The provisions of this section apply only when information is received by the Census Bureau for review prior to the time that the Census Bureau, or any other agency of the United States Government, has learned the same or substantially similar information from another source and has commenced an investigation or inquiry in connection with that information.
3. 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 mitigatingeffect 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.
4. Any person, including USPPls, authorized agents, or carriers, will not be deemed to have made a voluntary self-disclosure under this section unless the individual making the disclosure did so with the full knowledge and authorization of senior management.
5. The provisions of this section do not, nor should they be relied on to, create, confer, or grant any rights, benefits, privileges, or protection enforceable at law or in equity by any person, business, or entity in any civil, criminal, administrative, or other matter.

Thus, a voluntary self-disclosure will not necessarily immunize the disclosing party from a civil penalty, or even prosecution. In addition, the disclosure must be accompanied by a certification signed by senior management of the disclosing party.

A voluntary self-disclosure should be in writing, and should incorporate the following information:

Initial Notification: The initial notification must include the name of the person making the disclosure and a brief description of the suspected violations. The notification should describe the general nature, circumstances, and extent of the violations. If the person making the disclosure subsequently completes the narrative account required by paragraph (c)(3) of the regulatory section, the disclosure will be deemed to have been made on the date of the initial notification.

After an initial disclosure is made, a narrative, providing additional detail concerning the violation must be submitted. The requirements for the narrative are as follows:

Narrative: After the initial notification, a thorough review should be conducted of all export transactions where possible violations of the FTR are suspected. The Census Bureau recommends that the review cover a period of five years prior to the date of the initial notification. If the review goes back less than five years, there is a risk that violations may not be discovered that later could become the subject of an investigation. Any violations not voluntarily disclosed do not receive consideration under this section. However, the failure to make such disclosures will not be treated as a separate violation unless some other section of the FTR or other provision of law requires disclosure. Upon completion of the review, the Census Bureau should be furnished with a narrative account that sufficiently describes the suspected violations so that their nature and gravity can be assessed. The narrative account should also describe the nature of the review conducted and measures that may have been taken to minimize the likelihood that violations will occur in the future.

The narrative account should include:

• The kind of violation involved, for example, failure to file EEl, failure to correct fatal errors, failure to file timely corrections;
• Describe all data required to be reported under the FTR that was either not reported or reported incorrectly;
• An explanation of when and how the violations occurred;
• The complete identities and addresses of all individuals and organizations, whether foreign or domestic, involved in the activities giving rise to the violations; and
• A description of any mitigating circumstances.

Census will provide the disclosing party with written confirmation of receipt of the disclosure and provide the disclosing party with a contact person in the agency. Census will, as soon as practicable, advise the disclosing party of actions to be taken, issue a warning letter setting out required corrective measures, or refer the matter to the agency's Office of Export Enforcement (OEE) for further action.

IV Program Changes

Census has also amended its regulations to reflect a number of "program changes" required by Public Law 107-228. The most important of these changes can be summarized as follows:

Renaming of Key Terms: As noted above, the "Foreign Trade Statistics Regulations of 15 C.F.R. Part 30 have been renamed the "Foreign Statistics Regulations". The term "Shipper's Export Declaration (SED) has been replaced by the term "Electronic Export Information" (EEl).

Listing of "Out-of-Scope" Transactions. The Regulations [15 c.F.R. §30.2(d)] has been amended to list export transactions outside the scope of the FTRs. These are:

1. Goods shipped under CBP bond through the United States, Puerto Rico, or the U.S. Virgin Islands from one foreign country or area to another where such goods do not enter the consumption channels of the United States.
2. Goods shipped from the U.S. territories and goods shipped between the United States and these territories do not require EEl filing. However, goods transiting U.S. territories to foreign
3. Electronic transmissions and intangible transfers. (See Subpart B of this part for export control requirements for these types of transactions.)
4. Goods shipped to Guantanamo Bay Naval Base in Cuba from the United States, Puerto Rico, or the U.S. Virgin Islands and from Guantanamo Bay Naval Base to the United States, Puerto Rico, or the U.S. Virgin Islands.

Routed Transaction Information: A routed export transaction indicator has been added to AES. In addition, the FTR have been amended to specify that the USPPI may file EEl as agent for the FPPI in routed export transactions.

Reporting U.S. Inland Freight and Insurance: Costs incurred in bringing goods to the point of exportation are required to be included in the AES-reported value of exported commodities. When goods are sold on delivery terms other than the place of exportation, these costs must be included in the AES reported value. If the costs are unknown, a reasonable estimate of the costs must be included in the reported value.

Goods Exported After Repair in U.S.: The regulations have been amended to clarify value reporting for goods exported from the United States after having been imported for repair and alterations. According to Census, only the value of "parts and labor" should be reported for such goods. In the case of goods exported as warranty replacements, the value of the article being exported should be reported.

Export Carrier and Manifest Issues: Subpart E of the new regulations consolidates requirements for submission of AES data with vessel manifests. Requirements for SEDs being attached to manifests have been replaced with requirements for AES proof of filing citations or exemptions to be noted on these documents.

Import Shipments. Subpart F of the FTRs contains provisions relating to the filing of statistical information on imported goods, particularly goods admitted into United States Foreign Trade Zones (FIZs). These requirements are currently contained in Census' "Automated Foreign Trade Zone Reporting System Manual".

Concordance Table. The new regulations feature a concordance table which correlates provisions of the FTRs with provisions of the former FTSRs.

V. CONCLUSION

In recent years, various United States government agencies have given expanded attention to export regulation. The FTRs govern the system by which much of the export statistical and enforcement information required by Federal agencies is governed. For a decade, Census has steadily strengthened reporting requirements for SED/AES data. The new Foreign Trade Regulations continue this trend, and deserve careful consideration by all exporters and FTZ operators,

Our firm stands ready to discuss these new regulations in further detail at your convenience. Best regards.

     

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