All right. I think we'll let people keep trickling in here, and we'll get started. Welcome, everyone, to our Getting it Right: EEI Basics and Denied Party Screening webinar. We are super excited for you guys to be here. There's some great content prepared. Before I kick it off to our host or our speakers to proceed with content, we will just make sure that we have some housekeeping items out of the way. I'm your host, Alex, along with Nathalia Juan and Cherokee Ford. We will be in the background just monitoring everything. If you have any questions, you can direct them to us afterwards. But content-wise, expect it'll be about 45 minutes - 50 minutes with a little bit of time at the end for questions. Please submit your questions in the Q&A box.
It should be on the bottom of your screen by the React and the chat in the Q&A. Direct your questions there. We'll be monitoring throughout as we go, but we will be answering them at the end. If we don't answer your question for whatever reason, we will make sure that we'll be able to follow up with you. The webinar will be recorded, and you will get access to a recording of the materials right when we send a feedback survey after the webinar. That should come out within a couple of hours after we're done. You'll see that invite come from Cherokee Ford. We really appreciate you guys taking the time to fill that out. It helps us plan content in the future that's relevant to your supply chain needs.
Please be sure to take that, and then you'll get a copy of the webinar and a copy of the PDF presentation. Watch out for that. If for whatever reason you don't get it, again, you can reach out to myself, Cherokee Ford, or Nathalia Juan or your Expeditors representative, and we will get those over to you. I think that's all for me.
Okay, I'll start with introductions. My name is Kahnee Rodriguez, and I am the Region Trade Compliance Manager based in Miami, Florida. I cover the Southeast region. Been with Expeditors for 26 years, and I'm a licensed customs broker, but I'm also here to hopefully present on denied party screening to help you out in your customs, in your business. I'm going to turn it over now to Sila to introduce herself. Thank you.
Hi, everyone. I'm so excited to be here supporting Sarah and Kahnee on this webinar. My name is Sila Barr, and I am the U.S. Export Customs Compliance Manager. I'm actually based at our corporate office in Seattle, but I'm really just here for support and to answer questions for you guys. I'm going to be probably helping in the background answering questions. At the end, I'll be facilitating some Q&A if there's any questions and we have time. I'll be pitching some questions to our lovely hosts so that they can help get the answers that you guys need. So happy to be here. Sarah, why don't you kick us off into this presentation?
Perfect. Thank you, Sila. Hi. Hello, everyone. My name is Sarah Smith. I'm the Regional Trade Compliance Manager for our South Central region. I sit in Houston, Texas. Been with the company for about 14 years, almost 10 of which have been in compliance with Expeditors, and I'm very excited to be with you today, talk about a really great foundational topic in the export landscape, both with EEI basics and party screening. With that, we're going to get going. I'm very excited to be talking about this material today. The agenda looks a little long. Bear with us. It's going to be as exciting as we can make it. But we're going to have some building blocks within EEI basics and party screening, and we're going to get started with denied party or EEI basics.
As I mentioned, foundational information, almost like a bunch of puzzle pieces that are going to build put together to then kind of paint the picture of EEIs, okay? And I'll get to the lovely, elusive EEI and some definitions here in a minute. But for starters, want to talk about some governing authorities that are involved with this process. This isn't an exhaustive list, but these are some of the main players that we wanted to discuss. First, you have the U.S. Census Bureau. The U.S. Census Bureau, you may or may not recognize within the U.S., is both involved with people statistics and economic statistics. Their involvement here is just that. It is to collect statistical information regarding exports from the U.S., and they regulate that through the EEI and through their Foreign Trade Regulations or the FTR.
Similar to what they're doing with collecting information about statistics on households, incomes, population, things of that nature, it's very similar on the export side with the transaction of where are things going, who's it going to, how much of it's going there. Next, you have the Bureau of Industry and Security, and they do their governance via the Export Administration Regulations. In particular, this is to control the export of dual use items. Dual use items are material or technology that have both commercial and military application. An example that I like to use here is a drone. Let's say you can go to Best Buy and buy a drone, fly it in your backyard, fly it in your park. Nobody's really the wiser, not really an issue potentially at hand. But let's say an entity wanted to export drones to a foreign entity, foreign country.
There may be military application for that drone, therefore that drone may be controlled under these regulations, and that would be something that would be pertinent in the EEI process. Next, you have the Office of Foreign Assets Control. They administer and enforce economic and trade sanctions based on our U.S. policies, security goals, et cetera. This is going to be something that is going to be pertinent to what Kahnee is talking about later in terms of party screening and different lists. The main list with Office of Foreign Assets Control is your SDN, maybe you've heard of that, or Specially Designated Nationals list. That's going to be where those come into play. Additionally, you have Department of State. Department of State is regulating defense article and the exports thereof.
These are items that are inherently military in nature, therefore, the Department of State via the ITAR regulations, the International Traffic in Arms Regulations, want to govern those commodities and where they're going and the nature of the transaction. Lastly, you have the U.S. Customs and Border Protection. U.S. Customs, USCBP, CBP, they get called different things, and there's lots of acronyms and alphabet soup, so I'm going to do my best to make those less elusive. U.S. Customs and Border Protection enforces export regulations on behalf of these agencies. Okay? As mentioned at the top, this is not an exhaustive list. This is not the only entities that are involved. Depending on the nature of your goods, there may be DEA, or the Drug Enforcement Agency, or the NRC, the Nuclear Regulatory Commission, right?
You are an expert on your goods that you're exporting, and knowing what entity would be involved with a transaction is a key part of exporting compliantly. From here, we're going to talk about some EEI fundamentals. I like to think of these as building blocks as well in a process, right? What is an export? Simply put, to send or transport goods out of the country. Right? It sounds simple enough. In the nature of it is a simple concept. What does that mean when exporting out of the U.S.? That is where the EEI, or the Electronic Export Information, comes into play. The EEI is an electronic declaration required by the U.S. government for exports of certain goods. Okay?
You know you're exporting, you know your goods qualify to need an EEI, and we're going to talk about some of that as we go on in the slide deck. Like I said, it's puzzle pieces that fit together as we go. You know you need to do an EEI. Where does that EEI need to be filed with the government? That's the Automated Export System, or AES. That's the centralized digital system used by exporters to electronically declare their international shipments. Census and USCBP are the ones that manage that system. Okay? From there, once you've filed an AES, you get an Internal Transaction Number or an ITN. Think of it kind of like your tracking number. This is a number that's generated automatically and assigned to the shipment, and it's proof of filing. Okay? That is your receipt.
A couple of major call-outs here overall is, you know you have an export. You know you need to file that EEI. In AES, where it is filed, while you are able to potentially file direct in the AES system, for example, like Expeditors, we do not file directly in their system. We have the ability through software connections to file systemically in our system and transmit to the government to file that EEI and get those ITNs back. This is the kind of map, if you will, of the steps of the process, but we are going to really focus just on the EEI itself and some of the details surrounding EEIs. So when is an EEI required? Major caveat, it can be sometimes, it can be all the time. It is an it depends. There are a lot of different elements and nuances to this information.
When is an EEI required? Simply put, if you are exporting to a foreign country from the U.S., from Puerto Rico, or from the Virgin Islands, you more than likely need an EEI. You always want to kind of start there. But also, if you are exporting from the U.S. to Puerto Rico or the U.S. to the Virgin Islands or from Puerto Rico to the U.S. or Puerto Rico to the Virgin Islands, you may also need an EEI. Those are U.S. territories that are involved here and mentioned, and you may be wondering why. Simply put, there is still statistical interest between the transactions between the countries. So, keeping in mind these certain elements on the left, and let us say you are exporting from the U.S. to a foreign destination, you know you need an EEI. Well, there are the potential for exemptions.
Now, we do not want to put the cart before the horse. These are simple examples of a few available exemptions, not an exhaustive list. But let us say the value of the goods that you are exporting per Schedule B is less than $2,500. Well, if it is less than $2,500 and not licensable, that is always the big asterisk caveat that we want to call out, you may not need to file. If your shipment is going to Canada, you may not need to file. And if it is traveling in bond, you may not need to file. But there are exceptions to these exemptions or exemptions to the exemptions. Do not say that five times fast. But they do not apply to shipments requiring a license, shipments subject to ITAR, DEA permits, et cetera.
There are certain nuances depending on your commodity, where the exemption, while may at face value seem applicable, if you go maybe to tier 2 of your export transaction and more complex elements, the elements that we are maybe not going to hit on too much today, it may not be applicable. So overarchingly, when is an EEI required? Exporting from the U.S., Puerto Rico, the Virgin Islands, and if you do not have an available exemption. So we know you need to file an EEI. What parties are involved in this export transaction and impact the EEI? We are going to go through these four basic parties. We are going to start with the USPPI or U.S. Principal Party in Interest. This is the person in the U.S. that receives the primary benefit, monetary or otherwise, from the export transaction.
Can be the seller, can be the manufacturer, can be the order party. The main thing that we like to call out when people are kind of first getting their feet wet into the EEI world is all the money, all the monetary transaction. The seller, the USPPI, let's align that there with the idea of the FPPI, your Foreign Principal Party in Interest. This is the person located abroad who purchases the goods for export or to whom final delivery of the goods will be made. So again, your purchaser. For the sake of this conversation, and again, keeping these things very foundational and back to basics, USPPI is your seller, your FPPI is very often your buyer. Next, you have an authorized U.S. agent.
This is an individual or entity physically located in or otherwise governed under the jurisdiction of the U.S. that has some sort of power of attorney or written authorization from a USPPI or from an FPPI to act on their behalf to complete the EEI filing. While it is possible for a USPPI to do their own filing, it's not always necessarily the activity a USPPI wants to partake in or wants to be responsible for, so they can authorize a U.S. agent to do it on their behalf, and that may be where Expeditors could come into play, right? We could act as a U.S. authorized agent on behalf of a USPPI or an FPPI to help complete that EEI transaction. Lastly, you have your ultimate consignee.
This is the person or entity located abroad who ultimately receives the export shipment, as known at time of export, and it's not the foreign forwarding agent or the intermediate consignee. So definitely want to call out there that if your transaction involves going to a foreign forwarding agent to then be actually delivered to the entity at the end of that transaction, your foreign forwarding agent is not your ultimate consignee. Your ultimate consignee is the person who's actually receiving that export shipment. So remember how I said building blocks? Okay. We've talked through the parties. Now we're going to go through the types of transactions to go through a couple of definitions that's going to help paint some pictures for us, okay? You have types of export transactions. You have standard and you have routed.
Standard is where the USPPI is going to authorize that U.S. agent that I mentioned on the previous slide to facilitate the completion of the EEI on their behalf. As you can see in this depiction here, the FPPI in blue is going to place an order with our USPPI there in green. That USPPI doesn't want to file their own EEI. They're electing to authorize a U.S. agent. They're going to contract that U.S. agent, provide the authorization, and provide the data for them to be able to file the EEI. And then that U.S. agent is going to file the EEI and perhaps if they're contracted to ship the goods, also ship the goods to the FPPI. So pretty standard circle of life there, in that type of transaction.
The only difference that we're going to go into next with the routed export transaction is there's an extra step involved from our FPPI. In a routed transaction, the FPPI is the one authorizing the U.S. agent to facilitate the export and/or the EEI. The FPPI is still placing the order with our USPPI, but the FPPI is the one electing that U.S. agent. Okay? And that U.S. agent is going to need to file that EEI and perhaps export the goods if they're contracted for the transportation. But the USPPI here is not completely absolved from any responsibility. There are certain data elements and involvement that needs to happen from the USPPI to the authorized agent for the agent to have everything that they need to be able to correctly and compliantly and timely file that EEI.
Routed export transactions are sometimes seen as a risk because it does shift the control of the movement of the goods and the filing of the EEI from the U.S. entity to the foreign entity. But if you so choose to do it, this is an applicable and available option to you with the type of transactions that are out there. We know our parties, we know our types. Now, what is each party involved in these transactions responsible for? We're going to go through some responsibilities, and we're going to start with the USPPI and then talk about the authorized agent. Our USPPI in a standard transaction, okay, that's our first example where it's pretty much circular, right? The USPPI is the one involved for the EEI filing.
They can either prepare and file that EEI themselves, as I mentioned, or authorize an agent to do it on their behalf. They have to provide a POA or a written authorization of some kind. They also have to provide the EEI information. That includes making the license determination and providing that to the U.S. authorized agent. And then the USPPI wants to retain documentation. You're going to see pretty consistently through all of these responsibilities through both parties, everybody needs to retain documentation for the elements that they're responsible for as part of the transaction. And inherently, typically it's about five years from the date of export that you want to retain your documentation, but it can differ, depending on the different controlling agency that may be involved with your type of transaction. But in a routed transaction, the USPPI responsibilities are a little less.
The FPPI can ask the USPPI actually to file the EEI, but if you so choose not to, they would then provide the authorization to the agent and therefore, as a USPPI, you'd only be responsible for providing the specific export information and retaining documentation. Again, not completely absolved of any activity in a routed transaction when you're a USPPI. You want to make sure you provide the accurate information to the agent for them to provide an accurate filing to the U.S. government when they file that EEI. From here, we're going to focus on the authorized U.S. agent responsibilities. This would be where perhaps an Expeditors could come into play as an authorized U.S. agent on behalf of a USPPI or an FPPI. In a standard transaction, we must first obtain authorization or POA from the USPPI.
This is important because we are not able to complete customs business on the behalf of any entity without certain authorization or POA in place. We would then provide, excuse me, prepare and file the EEI record accurately and timely, and then we would also retain documentation. Again, retaining those receipts of why we filed what we filed, what we received from certain parties, and have that backup in case we're ever audited, and need to have proof of what was filed on the EEI. In a router transaction, it's very similar. We would just be getting the authorization from the FPPI. In this case, we would still prepare and file the EEI record timely and accurately, and we would retain documentation accordingly.
Now, there are a couple of extra bullet points here at the bottom of, if we are requested, there is certain information that we would provide to the USPPI if requested at time of filing. Something to keep in mind there. So we know who the parties are, we know the types of transactions, we know the responsibilities of the parties involved. Now, what is actually on an EEI? Okay, let's kind of demystify that a little bit. So there are certain data elements that are required for every EEI. There are a lot of elements here. I'm not going to go through every one inherently, individually, but we're going to talk about them more holistically. So you have the who, the where, the what, and then the control and compliance that's involved in that export transaction. So for your who and your where, that's your parties that are involved.
That's the routing of the goods. That's the method of transportation and the transportation details, right? That is information that the transportation provider would need to provide to whatever entity is filing the EEI, whether the USPPI is filing it themselves or they've contracted a U.S. agent, and perhaps that U.S. agent isn't also doing the transportation. However, if your U.S. agent is filing your EEI and doing the transportation, they very well should have and may have most of the information in terms of mode of transport and carrier information and the like. Now with the what, right? I mentioned earlier with Census, they want to know what we're sending and to whom. This is your classification. This is your Schedule B. This is your commodity description, your unit of measure, your value, the domestic or foreign indicator, right? What are the origin of the goods?
This is some of the statistical elements that Census is aware of, involved with, and tracking. And then lastly, you have control and compliance. This is a lot of technical flags that go into certain indicators that are involved in filing an EEI. But the main call-out here would be that license code or license exemption, right? Whether or not something is licensable, you must provide the information to the filer on whether or not it is licensable every single time. They need to be aware if something is licensable in order to make sure they're filing the EEI correctly and/or following the elements of that license correctly and compliantly as well. So these are the required data elements that are a part of every EEI filing.
Now we're going to talk about some conditional ones, just to kind of give you an idea of things to be on the lookout for. It's a little bit more of EEI 2.0, right? Not quite so basic, but I think it's important for you to understand to maybe have your spidey senses on of certain things that are involved in your transaction that may lead to other elements that would be important to be included. So special shipment scenarios. So whether it's coming from an FTZ or a bonded warehouse or it's a re-export of some kind, that may require certain information on the EEI. The export control and licensing data. Again, if your shipment is under a license, the number, the ECCN, the value, the license itself, right?
That information very well is required on the EEI, but may be required to be provided to your agent doing the filing so they can make sure they abide by the stipulations of that license as well. Then you have vehicle exports for used self-propelled vehicles, VIN numbers, title state and title number, certain, again, statistical information and tracking information there. And then you have ITAR and DDTC. I mentioned ITAR earlier, but DDTC is Directorate of Defense Trade Controls. This, again, is if you are shipping something that is military in nature and it is significant military equipment, it's on a military license. There are particulars that are involved in that would be potentially required as a part of the EEI data elements for your export filing. So we know we need to file an EEI. We know who's responsible for what.
We know what needs to be on the EEI, and we're going to close out with the timeliness for filing of these EEIs. We don't just get all the time in the world. There are regulations restricting the timeline in which EEIs are filed. And, quick call-out is that these timelines are non-ITAR in nature. Okay? ITAR and licensable in that nature are going to fall under different stipulations. But timing for EEI filings is split between pre-departure and post-departure. Pre-departure, as it sounds, is prior to the freight leaving. So whether the mode of transport is vessel, truck, by air or rail, there are certain stipulations and timelines that you are required to file the EEI by.
This is important to keep in mind because if you are authorizing a U.S. agent to file on your behalf, please keep in mind these timelines and make sure you're giving them the information far enough upstream for them to be able to file the EEI in time to meet these requirements to hopefully avoid any fines or penalties for a late filing. Okay? They are beholden to these as well as you are and need the ability to have the information from you, input it, file it, do it correctly, and do it timely, and that's definitely a group effort. Then you have post-departure. Post-departure is after export. So for all modes, it's 5 calendar days from the date of exportation. There's some major caveats that we want to provide here. The USPPI must obtain prior approval from Census before this is applicable.
Even if granted, not all types of shipments would qualify for post-departure. Most importantly, U.S. Census is not currently accepting any applications for post-departure filings at this time. Unless you are a USPPI who already has this authorization, you are not able to right now go in and apply to be able to use this option. Unless you already have this, you are living in a pre-departure land, and these pre-departure timelines would be the ones that would be applicable to you and your export transactions. I used the example of saying building blocks, puzzle pieces to kind of give you a strong foundation.
Every element that we talked about definitely seems like it could be individual in nature, but it does all build together to kind of lay the land of when an EEI is required, what needs to be on it, and the stipulations that you need to abide by when filing your EEIs. From here, I am going to be handing it over to Kahnee. She is going to be talking about party screening and the role that it plays in the export transaction in partnership with EEI filings.
All right. Thank you, Sarah. Very good information. I love the building block example, so I am going to use that as we continue on with party screening. Let us start off with before we even begin to review denied or restricted party screening, we must first review the 10 general provisions in the Export Administration Regulations or the EAR. I call these the Ten Commandments. These foundations are the foundation. I am sorry. These provisions are the foundations of U.S. export control regulations. They identify activities that are generally prohibited unless authorized by the appropriate government agency through either an export license or some other approval. At a high level, these prohibitions help ensure that controlled goods, technology, software, and services are not transferred to unauthorized destinations, end users, or end users. I will walk through this list using simple examples.
However, when I say this would be restricted, I mean that the USPPI must determine whether or not an export license is required or whether a license exemption is available. So let us briefly review each provision. First one, export to restricted countries prohibits exporting controlled items to certain countries without required authorization. Each country has its own reason for control based on the EAR's Commerce Control List and Country Chart. If you recall that is like the tic-tac-toe list. The same item shipping to different countries may have restrictions. For example, a shipment to Canada will face no restrictions. However, the same shipment going to North Korea might face restrictions. Re-exports of controlled items controls the export of U.S. origin items when they transfer from one foreign country to another.
From a U.S. perspective, this concept is usually easy to understand because we routinely handle U.S.-controlled items and are familiar with the associated export regulations. However, it's important to remember that these regulations can also apply to certain transactions that occur entirely outside of the U.S. For example, a shipment of encrypted semiconductor microchips made with U.S. content from Korea to China could still be restricted if the items are subject to U.S. export controls. This highlights why it's important to evaluate not only the origin of the item, but also the destination, and also whether or not U.S. regulations apply to the items being transferred. Foreign-Direct Product Rule extends U.S. export controls to certain foreign-made products that are derived from a specific U.S. technology or software. Here's a simple example of the Foreign-Direct Product Rule.
Imagine a semiconductor manufacturer in Taiwan uses a U.S. origin chip design software and U.S. origin semiconductor manufacturing technology to produce advanced microchips. Even though the chips are manufactured outside of the U.S., they may still be subject to U.S. export controls because they are the direct product of specific U.S. technology or software. As a result, shipping these chips to certain restricted destinations or end users could require U.S. government authorization. To highlight, the Denied or Restricted Parties prohibits or restricts transactions with individuals, companies, or organizations that have been identified by government authorities as restricted entities. This rule is all about knowing who you are doing business with. Even if the product is allowed and the destination country is acceptable, the transaction could still be restricted if one of the parties involved is on a government restricted party list.
That's why screening customers, consignees, and end users is such an important role in the export compliance world. We will review this rule in depth during this webinar. I'm going to go on to the next provision. End use or end user restrictions prevents exports that support prohibited activities such as weapons programs, military uses, or prohibited end users. This is why knowing your customer isn't enough. As a USPPI, you also need to understand who will ultimately use the product and for what purpose. Even when the shipment is going to a non-restricted country and the customer is not on a restricted party list, the transaction could still be prohibited or require a license if the item supports a military application, a weapons program, or any other type of restricted activity. The key takeaway on this rule is simple.
Don't just ask, "Where is it going?" Ask, "Who is the final user, and what is it used for?" Those answers will help you determine whether or not the shipment is allowed. I remember a story from my initial export compliance training many moons ago that really highlights this prohibition. During the Iraq conflict, large industrial-grade stainless steel mixing bowls, baking bowls, were being imported into Iraq. At first glance, these appeared to be ordinary commercial items, right? Again, what's so unusual about large stainless steel baking bowls? The concern wasn't the item itself, but it was who was receiving it and how it would be used. It turns out that they needed these big stainless steel bowls to incorporate into their weapons arms program. This example highlights a key compliance principle.
An item that may appear to be low risk on its own can be highly sensitive depending on the end user and intended end use. Again, as a USPPI, it's not enough to know who you're shipping to. You also need to know who will use this item and how they'll receive it in the end. The answers to these questions, as I mentioned, may help you determine whether or not you need government authorization or some type of special permission to proceed. Embargoed or sanctioned destinations restricts business activities involving countries, regions, or jurisdictions subject to U.S. sanctions or embargoes. This rule is straightforward and simple. Again, items moving to an embargoed or sanctioned destination, especially anything of a military nature, are prohibited. One common misconception is that sanctions only apply to a handful of countries.
In reality, the U.S. maintains both comprehensive sanction programs and targeted sanction programs. Comprehensive sanctions, such as those involving Cuba, Iran, and North Korea, generally prohibit most transactions unless authorized. Other countries such as Russia, Belarus, and Venezuela may not necessarily be fully embargoed, but specific parties, industries, products, or even activities can still be heavily restricted. This is why screening the country, parties involved, and the end use is critical for every transaction. Violation of license conditions restricts strict compliance with the terms and conditions of any export license or authorization that's been granted. The next rule, in-transit and diversion violations, prohibits changing the destination, end user, or an intended end use of controlled items without proper authorization. Next one, acting with knowledge of a violation prohibits participation in a transaction when you know or have reason to know that a violation is occurring or will occur.
This actually is one of my favorite export compliance provision rules because it comes down to due diligence, professional judgment, and common sense. U.S. companies are expected to pay attention to red flags and cannot simply choose to ignore information that suggests a potential compliance issue. In other words, if you know something or something doesn't seem right, you have a responsibility to speak up and investigate further. A common defense after violation is, "Didn't know." However, for an experienced exporter, that explanation is unlikely to carry any weight. There is an expectation that exporters remain informed and exercise reasonable care throughout the entire transaction. As mentioned, export compliance doesn't stop once that shipment leaves your dock. You're expected to understand the transaction before the export, monitor for issues, identify any red flags, and respond appropriately. The key message again here is simple. Don't ignore warning signs.
If something looks unusual, ask questions, perform additional due diligence before moving forward. The last provision, proceeding after a violation or the catch-all, requires parties to stop and address compliance concerns once a potential violation, red flag, or regulatory issue is identified. This, as I mentioned, is the catch-all because it applies whenever you become aware of information that, again, provides a potential compliance issue or a violation has occurred. You cannot simply proceed with the shipment and hope for the best. The expectation here is you stop, investigate, and resolve the concern before going forward. In many situations, this is where your export compliance team and your legal counsel become critical partners.
If there's a possibility that a violation has occurred or that regulations may have been breached, you will likely need guidance from an attorney to assess the risk, determine any reporting obligations, and advise on appropriate next steps. As stated, once a compliance concern is identified, please just don't ignore it. Pause the transaction, escalate the issue, and seek legal advice or expertise before proceeding. Last on this slide, we have these little globes that we added. I like to call them my little Girl Scout badges. These provisions highlight where the product is going, which Sarah mentioned is a very important EAR requirement. Now let's look at what is a denied party. A denied party can be an individual, company, organization, or vessel that has been restricted by a government agency from participating in certain trade activities.
Again, the EAR, the Export Administration Regulations, they tell us that we cannot conduct business with a denied or restricted party without appropriate authorization. The regulations do not tell us how to screen. They simply place the responsibility on us to ensure we do not transact with prohibited parties. Because of that obligation, companies must implement effective compliance and screening processes to identify potential matches before shipments actually move. Denied party screening is not optional. It is a proactive compliance control that helps us meet our obligations to avoid doing business with a restricted party. So let us now explore what is screening. On this slide, screening is the process of checking the parties involved in a transaction against a government-restricted party and sanctions list.
These lists are maintained by agencies such as Sarah mentioned in the beginning, Department of Commerce, Department of State, and the Department of the Treasury. Those are just a few to name some lists, and can include individuals, companies, organizations, and vessels. One important thing, too, is to understand here is, as I mentioned, the regulations do not tell us how to conduct screening. They just say you have to do it. Again, they don't prescribe a certain tool or mechanism or process. They just expect U.S. companies to have a procedure in place prior to handling the transaction. If a potential match is identified during your screening process, that doesn't automatically mean the transaction is prohibited. It does mean additional due diligence is required before proceeding. So first things first, we need to identify, is this party on the list?
Does it actually match the party to the transaction? Then again, do additional research. I always think of screening as one of our most basic and important compliance controls because before, again, you have to focus on the product, what is it? Where is it going? But now we focus on who we're doing business with. As I mentioned, a shipment that can be perfectly compliant from a product and country perspective, there's a party that's restricted, now that could be a prohibited transaction. This is also another area where your compliance impact involves your sales team. One of the best compliance collaborations is you can initiate from your side is understanding and sharing who the customer is before the sale happens. Proactive screening helps identify potential issues early, reducing risk and delays, avoid compliance violations, avoids costly investigations, as well as reputational damage.
When we're screening for denied or restricted parties, there's generally four types of parties. On the next slide, we have four different pillars here. I'm going to start with the first one, which is denied parties. Again, those are more straightforward. These are individuals that are, or organizations, sorry, with whom business is generally prohibited without government authorization. I always say denied party is like a red stop. Stop. Do not pass go. You cannot do business with them. If you have a situation with this type of party, immediately stop and get help. Restricted parties may not necessarily be completely prohibited, but transactions involving them can require a license or some special authorization before proceeding. A common example is you can import from this party, you can't export to that party. Parties of concern is another restricted party that warrant additional scrutiny.
Again, these can include unverified parties or entities that have been linked to activities involving weapon programs in certain countries or certain other sensitive areas. A match here doesn't necessarily mean you can't proceed, but it does mean you need to perform additional due diligence. Finally, many companies maintain an internal list. That's like a little gray box. These are parties that a company such as yourself has independently determined they pose some kind of risk, either a business risk, compliance risk, financial risk, or even a reputational risk. Even if a party is not on a government list, you, as a USPPI, may decide not to do business with them, and this is absolutely your right as an exporter to maintain. You may notice that screening for any match condition or just by name can be challenging and very subjective.
I'm going to share with you one of my favorite compliance stories when it comes to denied party screening because it illustrates, again, identifying red flags and why instincts matter. Once upon a time, a U.S. importer was preparing their very first export shipment. The order was simple enough. Again, it was a shipment of video game consoles going to Dubai. Nothing more. As part of our screening process, the overseas consignee was flagged as pending determination, which in our world, or in any case, it means a trained compliance professional needs to take a closer look. On the surface, there wasn't an exact match to any party. Nothing restricted, everything looked great, but something did not seem right.
The one lesson that I've learned over my many years and many moons is always to pay attention to your gut and your instinct when something seems a little bit off. Again, some additional due diligence was performed. The company name was searched online, and I found a website. Beautiful. Interestingly enough, this website with the exact same company name, came back with a website completely in Farsi, which is the primary language spoken where? In Iran, which is a sanctioned country in the U.S. Right? This site also had various products. I was able to look through their website, and I found, guess what? Video game consoles. At this point, these are red flags that we address with our customer. "Hey, U.S. exporter, this is a red flag.
Who is the end user?" They actually went back and requested an end-user certificate to better understand who would ultimately receive and use this product. Their response raised even more questions. The buyer said, "Oh, that's not the name. Different name, same address." That's really odd, right? When your story starts changing, that's also another indication to slow down. Based on the information available, the party wasn't a restricted party. There were just a lot of concerns with who was involved and where it was going. The decision from the exporter side was to not proceed with the shipment. They canceled the order.
It was because it might end up in Iran, and that might was big enough to say, "Hey, we're not going to handle this shipment." The best part of this was this U.S. exporter actually attended one of our seminars, and we talked about denied party screening, and this was a really good lesson that they took home, saying, "Hey, wow, that was really important." Okay, let's move on to looking at some ways to ensure compliance and risk mitigation. The denied party screening, as I mentioned, is one of the most effective ways to reduce compliance risk and you know who you're doing business with. But the best practice here is to screen early, as soon as you know who the parties are, rather than waiting until the shipment is ready to move. As I mentioned early, you want to collaborate with your internal stakeholders.
Compliance is a team effort. Sales, logistics, your transportation team, and your compliance team should all be involved in identifying potential issues before the transaction happens. Usually, your sales team, they know who the customer is first, right? Your operations team handles all the details, and then your logistics teams coordinate that final movement. Each group in your company needs to understand what screening is required and what potential red flags look like. Training must be part of your company compliance culture. The regulations place the responsibility on companies to avoid doing business with denied or restricted parties, but they don't, they don't tell you how to do that, okay? That is why ongoing training is so important. Employees at all levels must understand the company's procedures, policies, as well as their role in the shipping process. Training reinforces screening, the importance of screening early.
The sooner the party is identified and screened, the easier it is to address potential issues. You want to do this before the orders are accepted or booked or shipments could get possibly delayed. Investing in compliance upfront is far less costly than dealing with the violations later. Speaking of violations, let's explore some consequences of not screening. There are several costly consequences for failing to perform denied party screening. The most common enforcement action is a monetary penalty. While fines can be significant, they are often not the most damaging outcome. Honestly, penalties are the easy part, okay? A shipment can be detained, seized, and all of this results in delays, right? Delays to your customer, delays in the sale, additional costs, disrupts your supply chain, and ultimately, you can even lose the customer.
Now, in more serious cases, the Department of Commerce can suspend or revoke exporting privileges, preventing a company from participating in certain export activities altogether. Individuals involved in willful violations, they also face criminal penalties, including jail time. One consequence that often gets overlooked is the possibility of being placed on a denial order by the Department of Commerce. If that happens, the impact goes far beyond a fine. A denied person or company is prohibited from participating in any export transaction, as well as all other U.S. parties are prohibited to also deal in transactions with them as well. Again, for many businesses, a denial order can basically put them out of business. Okay. Now, let's talk about why denied party screening is so important. As I mentioned, the goal here is not to just avoid a penalty.
The goal is to protect your company's ability to conduct business and maintain its reputation in the global market. As you look at this long list, the financial penalties, again, they're significant. But the reputational consequences often have the greatest long-term impact. The Bureau of Industry and Security publishes a well-known compliance publication called "Don't Let This Happen to You!" There's a little image of that on the screen as well. They highlight real export enforcement cases, and there's also a whole section on denied party violations, by the way. Now, the purpose of these case studies is not necessarily to embarrass anybody. Actually, they serve as a reminder that violations occur in ordinary transactions. If it can happen to a company similar to your industry, guess what? It can happen to you. Again, hence the name.
Let's share a real-world example that highlights why the regulations matter. In one enforcement case, U.S. authorities, they shared this in a seminar, and I love sharing this story. It's from Miami. Okay, so there was an exporter shipping aviation-related parts from Miami to Bulgaria. Great. That's great. No issues. However, Bulgaria was not the true end destination. These parts were ultimately being shipped to Bulgaria to then be diverted to Syria, which is a sanctioned destination, okay? This is known as transshipment or diversion. Again, they concealed the end user as well as the end destination. As a result, the company faced significant enforcement action, including substantial financial penalties. What stood out to me when they shared this story with the group was the individuals involved reportedly begged not to be placed on the denied persons list.
They took that as a far more severe consequence than being, again, fined. They even told, at my understanding, they also faced jail time. Again, they'd rather pay a penalty, go to jail, than being placed on a denied order list. I thought that was really wild. That was shocking to me. Again, if they had been placed on the denied order list, that's it. They would have been out of business. So, always remember, don't ever ignore red flags. Make sure your cargo is not being diverted. In any case, you just definitely don't want to be placed in this publication. Now let's wrap up today with just, again, Sarah and I would like to leave you with a few resources that we regularly use when researching export regulations as well as denied party screening requirements.
One of the most important things to remember here is compliance is not about memorizing every regulation. It's about finding reliable information and understanding how it can impact your business. As I mentioned, these references here on the slide are to help you stay informed, validate any information you need, and understand your obligations under the Export Administration Regulations, as well as other government agencies. I encourage you to read, "Don't Let This Happen to You!" There are some good stories in there. As I mentioned, these real-world examples provide valuable lessons on compliance issues, how failures occur, and most importantly, how they can be prevented. It doesn't matter where you are in your organization.
If you're in sales, operations, logistics, or compliance, maintaining a culture of awareness and continuous learning is one of the most effective ways to reduce risk and protect your organization. Today, on behalf of Sarah and myself, thank you so much for taking the time to join us today. We appreciate you, and thank you for your commitment to compliance. We hope that you found everything very valuable in today's webinar. Now let's open up our Q&A session for any questions we've received so far. Thank you.
Kahnee, it's Sila. Kahnee, let's stick with the denied party screening for a second. A lot of the slides that you were covering seemed pretty specific to the EAR.
Is BIS the only party that maintains denied party lists or lists of parties of concern, or do other agencies maintain these lists as well?
There's multiple government agencies out there. I generally refer to the U.S. because we're based in the U.S., but I know there's multiple. So you have other governments, like there's a Japanese Proliferation Concerns list. The U.K. has a list. I know the Department of the Treasury has a list. So what a lot of customers use is a software provider that has subscription access to all of the various lists out there, and you choose as an organization what information is pertinent to your business. Like, if you want financial stuff, there's that out there as well. But yeah, there's multiple lists out there for multiple government agencies in the U.S. as well as around the world.
Awesome. Thanks for clarifying that. A couple of questions came up in the chat with regard to value to report on an EEI. Kind of going back to EEI filing. Sarah, maybe you can answer this one, but generally speaking, there can be lots of parties involved in an export transaction, right? So what value, which transaction, ultimately, should people be reporting the value of in their EEI filings?
Yeah, great question. To keep it as straightforward as we can, it's just between the USPPI and the foreign buyer, right? You're following that monetary transaction between the USPPI and most likely your FPPI. But it's the amount with that transaction between those parties.
Great. Okay. And then another one that popped up a couple of times that I kind of wanted to speak to is there's a few questions that are around the concept of in a routed export transaction, right? You're a USPPI, and you're working with a foreign buyer, and that foreign buyer is the one who's selecting the agent that you're going to use to be able to get these goods out of the U.S. So in those cases, do you have any specific information you can provide around maybe how to maintain a relationship with that EEI filer? Maybe who's responsible for keeping information, just some things like that in a routed export transaction.
Yeah, that's a great question. Because routed transactions can get kind of tricky. I feel like you have extra hands in this cookie jar, kind of. There's a lot more players in the EEI specifically being filed itself. If you're a USPPI and you become aware that maybe something wasn't filed correctly on an EEI on a routed export transaction, that is not the authorized agent that you picked, right? Your FPPI picked it.
You can do your best to definitely try and have some sort of relationship and kind of use them as a resource to get those updated, because the filer is going to need to be the one that typically makes that update. You're going to need to do your best to also have contact there. But selfishly, I also want to take it as a chance to mention that oftentimes, if the USPPI is wanting to guarantee to the best of their ability that things are filed correctly, accurately, timely, your standard transaction type is going to be the more appropriate type. Because it does become harder when you are then having to not only work with your FPPI, but also have to keep track of their authorized agent that they have in play and what they're doing. It gets a little-
Yeah, definitely.
It gets a little hairy, but both are viable.
Yeah, and just to add on to that, too, I think it's, because another question came in just as we were talking about it, and someone had asked if the USPPI has responsibility for record keeping in a routed transaction, and absolutely, you do. I think a lot of, in my experience, no one on this call would ever be in this camp, but in my experience, a lot of people who are the USPPI in a routed transaction, I think, are really hoping that that kind of gets them off the hook, right? For lack of a better word, in their responsibilities of acting as a USPPI, and that's not the case. The USPPIs are still responsible for the data transmitted in the EEI. They're still responsible for if there's licensing determination, making sure they have that in place.
There's a lot of things that you still need to keep track of. So agree with Sarah. It's a really good idea to know, at the very least, know who your FPPIs are working with as their agents in a routed transaction, so you can try to maintain a relationship with them as well.
Perfect. I think, do we have any other questions in the queue, Sila?
There are a couple that I will try to tie up that are a little bit more specific that I'll try to tie up before the end of the webinar. Nathalia, I believe I'm going to go ahead and turn this over to you, so you can help bring us home here.
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