Export Controls and Sanctions Compliance

On 29 January 2019, Stefano Caldoro held again a lecture on “Export Controls and Sanctions Compliance” for the Certificate Program Compliance Management (CM-HSG) at the Executive School of Management, Technology and Law (ES-HSG) of the University of St. Gallen.

Entrepreneurs, board of directors, managing directors and compliance officers are responsible for the compliance with the export controls regulations and sanctions (trade compliance). With a strong experience in this practice area both as an external consultant and a former in-house compliance officer, Stefano Caldoro advises companies and supports them in developing and implementing a tailor-made and effective ICP.

Presentation (Link) and summary:

Swiss companies are subject to various requirements of the export controls and sanctions regulations. These entail restrictions on trading in certain goods and services due to security and foreign policy reasons. This has three aims: (i) the prevention of proliferation of weapons of mass destruction, (ii) the prevention of the uncontrolled spread of conventional arms and the trade regulation of goods that can be used for military and civil purposes, and (iii) the prevention of terrorism and other conducts in breach of international law through restrictions on trade.

The object of the export control regulations is the export, import, transit and brokerage of certain items (products, technologies, software) whereby they include the physical shipment as well as the intangible transfer of information (e.g. drawings that are transferred abroad via e-mail or download or in a notebook). In principle, these are items or categories of items included in specific lists of export-controlled goods. Items that are not included in the lists, however, may be subject to export control restrictions if the exporter knows or, due the circumstances, must have reason to believe that such items will be used for purposes prohibited by the export controls regulations (e.g. not listed machines which shall be used in a bioweapon factory). The Swiss law provides for licensing and reporting requirements as well as for monitoring measures. In general, the applicable export control regulations are those of the country from which an item is exported; in case of use of US-origin items (goods, components etc.), the US re-export control regulations may apply additionally. The “exporter” is who has the responsibility for the export of the concerned items: the manufacturer or the dealer who has ownership and authority to dispose of the export goods is deemed the responsible person and principal offender, while the service providers (forwarder, carrier, customs declarer, insurances, banks) come into consideration as accomplice if they (at least with conditional intent) support an intentional offense.

In principle, the international sanctions are issued on the basis of security and foreign policy concerns with certain persons, with industry sectors in a country or with certain countries. In general, the following instruments are applied: freezing of funds and other financial resources, transaction bans, investment restrictions, licensing and reporting requirements, restrictions on trade with certain goods and services, travel restrictions, diplomatic constraints. In particular, this regards the direct or indirect making funds or financial resources available to certain sanctioned persons or organizations. Besides the Swiss law, the rules of foreign legal systems with extraterritorial effect apply (e.g. applicability of third country’s sanctions to an employee based on the personality principle).

Violations against the export control regulations or the sanctions can have serious personal and economic consequences for companies and employees. They are prosecuted as criminal offences. The export control benefits of non-compliant companies can be withdrawn (e.g. revocation of licenses). Funds and economic resources (as well as the purchase prices of an export deal) can be frozen, seized or forfeited. Furthermore, the reputational damage can jeopardize the business capacity or even the existence of the company as the suppliers, customers, banks and other partners will take distance from the company.

The compliance with the relevant increasing regulations and requirements of various jurisdictions is a major challenge for companies. The development and the implementation of a trade compliance management system (called “internal control program” or “ICP”) are indispensable: this shall prevent violations of law through preventive introduction of adequate organizational measures. According to Swiss law, the proof of such reliable internal controls on compliance with the export control regulations are a condition for issuing export licenses. In principle, an effective ICP must meet the following criteria: (i) management commitment to “trade compliance”, (ii) ongoing risk analyses (identification and assessment in the light of the nature of the goods, business activities, customers, territories, distribution methods, dimension, structure and organization of the company etc.), (iii) organization and responsibilities, (iv) adequate human, technical and financial means, (v) setting up of processes (e.g. classification of items, export process, licensing, interactions between departments and with authorities, due diligence and screening processes, reporting, decision-making procedure), (vi) documentation, (vii) training and awareness, (viii) process and system related controls, (ix) corrective measures.

Stefano Caldoro