Export Compliance

Export Compliance and Personal Liability: Why Individuals are at Risk

What is your role in your company’s export compliance program? Do you perform the restricted/denied party screening on your corporation’s customers and vendors? Do you handle your research facility’s deemed export procedures?

 

Once upon a time, regardless of your role, the concept of “personal liability” was pretty much unheard of in terms of export compliance. If unlicensed products were shipped erroneously because of an incorrect ECCN, the penalty was not the responsibility of “Joe Smith” on the compliance team. The government would go after the company, even if Joe was the one who made the ill-fated typo.

 

Things are changing, though. The recent case of Trek Leather, a small company in New Jersey, has raised concerns about individuals facing civil liability (in the form of severe monetary penalties) for their company’s compliance violations.

 

Trek Leather illegally imported suits into the United States. U.S. Customs and Border Protection went after both the company and its President, Harish Shadadpuri. Shadadpuri argued he was not personally responsible, because Trek Leather – not him – was the importer of record. In other words, he wasn’t the one filling out the forms. The court disagreed, though, applying the laws of agency. In short, an agent who commits a civil wrong – in this case Shadadpuri – is generally liable for the act along with the principal – in this case, Trek Leather. Therefore, corporate officers may be held personally liable for civil penalties. Shadadpuri’s lawyers are appealing to the Supreme Court.

 

Shadadpuri likely could have avoided his costly ($577,000 in penalties) troubles with an airtight compliance program, but one big factor in the court’s decision was completely out of the defendant’s control: his status as a person. The law states that “no person, by fraud, gross negligence, or negligence, may enter or attempt to enter merchandise into the commerce of the United States…by means of a document or electronically transmitted data which is material and false, or by any omission of information that is material.”

 

If you’re wondering why the unfortunate case of this importer matters to exporters, it turns out that exporters are “persons”, too. Export violations statutes are worded the same as Customs law, and recent trends in government enforcement have made exporters more and more vulnerable to the risk of personal liability. For one thing, public outcry is making the government stand up and listen – “going soft” on executives is highly frowned upon and mercilessly chastised in the media. In response, federal agencies like the Justice Department and FinCen (a bureau of the U.S. Department of the Treasury that focuses on the detection and prevention of financial crime) are starting to assess personal liability in a range of situations.

 

So who is a “person” the government might go after? According to the experts it’s not just senior executives. It could be the person who’s responsible for export compliance in their company. It could be someone much lower on the corporate ladder, the person that actually made the compliance error. It could be anyone.

 

If your company has a history of non-compliance, you may be personally at risk of being hit with an unimaginable financial penalty. What can you do about it? Stay tuned for our next blog concerning this issue.