2024 Trade Update: Staying compliant through team effort

As if it had been planned, trade controls in 2024 had Olympic flair, with all sorts of twists and turns and new hurdles for logistics management professionals to overcome.

We saw much coordination between export control agencies—a trend that only continues to develop—and precision in the targeting of sensitive technologies and restricted parties. With that in mind, here’s a look at how some of the regulatory Olympics played out over the course of this year—and what we can be doing to comply.

No ‘I’ in team

Fans of gymnastics got a lesson in teamwork this summer, as Stephen Nedoroscik scored well enough in the pommel horse for the U.S. team to earn an Olympic bronze medal. Similarly, export control agencies continued to band together in 2024.

Just before the start of the year, the Departments of Commerce, Justice, Treasury, State, and Homeland Security issued a Quint-Seal Compliance Note to alert those “directly participating in and enabling the global transport of goods” of their responsibility to assess their risk profile and implement rigorous, risk-based internal compliance programs.

The note’s theme was “know your cargo,” and cited not only potential indicators of efforts to evade sanctions and export controls, but a list of best practices to stay ahead of these red flags. We can only expect the notes and guidance to continue.

Into the year ahead, logistics professionals should be considering opportunities for teamwork within their own organizations. You can start by asking the following questions.

• Have you developed compliance policies?
• Have you incorporated contractual language that prohibits dealings with restricted parties?
• Do you know your clients?
• Have you audited your supply chain?
• Have you updated your training materials to include the latest, more specific red flags?

Unbalanced competition

To prevent any one country from dominating the podium in Olympic gymnastics, this year the rules were changed to allow no more than two gymnasts per country to compete in the final. Similarly, the White House also announced they’re taking steps towards changing the rules around imports claiming the $800 de minimis exemption.

Noting that the majority of shipments claiming the import exemption originate from several China-founded e-commerce platforms, the White House is proposing impactful changes. Normally a de minimis shipment means the goods arrive at your doorstep duty-free and with little to do. However, under the new rules, the de minimis exemption might not be allowed for products to which Section 201, 301, and 232 duties might otherwise apply.

Further, additional data, such as the 10-digit tariff classification number, might have to be reported at the time of entry (a challenge to the everyday consumer who has no idea what a tariff classification code is). For consumer products, electronic Certificates of Compliance might be required to be filed with CBP and the Consumer Product Safety Commission at the time of entry.

Logistics professionals should brace themselves for the added paperwork and delays, but we also recommend conducting outreach to educate your clients about the proposed changes and anticipated impacts. Companies currently benefiting from the use of the de minimis exemption are highly encouraged to start surveying the landscape while the executive actions are being implemented through the federal regulatory process.

Questions to ask include:

• What would it mean if we could no longer use the exemption?
• If more duties were to be levied, how much more?
• If product classifications were required, who would provide them?
• If extra documentation is required, is there enough information to support the claims?

Preparing now could save time, money, product delays or seizures when the changes are implemented.

New controls in town

The 2024 Olympics saw the introduction of new sports like surfing, skateboarding, and everyone’s favorite, breaking. Following suit, the Bureau of Industry and Security introduced new Export Control Classification Numbers (ECCNs) for the latest products, software, and technologies of concern that they, in coordination with other countries, believe should be controlled to protect the national security and foreign policy objectives.

In September, BIS published an Interim Final Rule to introduce a new series of ECCNs they’re calling “900 series” ECCNs. If you’re saying: “Wait, I thought we already had 900 series ECCNs.” You’re right. However, these are not the friendly kind.

Gone are the days when exporters could say that 900 series ECCNs were only controlled for anti-terrorism reasons. Now exporters have to be more precise in the types of controls they implement for 900 series products, because failing to capture the differences between ECCNs like “2B910” (license required) and “2B991” (no license required) could be detrimental.

The new ECCNs relate to the semiconductor manufacturing, additive manufacturing, quantum computing, and high-performance computing industries. Logistics providers, who rely heavily on their clients to classify their own products and generate their own export documents, should be on the alert for clients who may not yet have implemented changes that took effect on September 6, 2024.

This may be because global trade management systems need updating, or perhaps they just missed it. Nevertheless, be on the alert. If your clients specialize in these industries, there’s a good chance they’re scrambling to catch up.

An entity by any other name…

At this point, we’ve lost track of how many gymnastic skills are named after Simone Biles. Is it still a “Biles” if you call it something else? This year, the Bureau of Industry and Security (BIS) tackled the problem of entities who have developed their own skill of changing their name, but not their address, to avoid sanctions.

In June, BIS published a Federal Register notice that included the implementation of changes to the structure of the Entity List, a BIS-issued compilation of foreign individuals, companies, and organizations deemed a national security concern, and therefore subject to export restrictions and licensing requirements.

Although the list has long been used to sanction entities by name, BIS is now also adding addresses only to the list. In its justification for the change, BIS pointed out that while a company co-located at the same address as a party on the Entity List has long been considered a red flag, “there are some situations where a more definite license requirement is warranted for addresses that are repeatedly used by companies engaged in activity contrary to U.S. national security or foreign policy interests.”

Enter the addition of high-risk addresses to the Entity List without an accompanying entity name, whereby anyone operating at that location is to be treated as a restricted party, whatever their name may be.

Screening against the multitude of lists out there is difficult enough. For years, agencies like BIS, OFAC, and the Department of State have published their own restricted parties lists, sometimes giving us names only to screen against.

As a result, automated screening programs have often been designed to give names heavier weight in screening algorithms. However, this “address only” approach to listings means that companies now must implement some form of screening that will flag an offending address, even if the party has a different name.

It may sound easy, but for those with a responsibility of resolving screening matches, it means there could be an increase in the number of matches to review and release or escalate, which takes more time and resources.

And the complexity of how to manage lists only grows. BIS has recently started to promote screening against a more informal list managed by the Trade Integrity Project (TIP). The TIP list identifies parties confirmed to be transshipping highly sensitive items to Russia.

Screening hits against TIP list parties don’t mandate a full stop, but companies must ensure that enough due diligence is conducted, or a license obtained, before transacting with these watch listed parties.

If you haven’t done so in a while, it may be a good time to sit down with your screening tool providers to understand what screening lists are available for you to subscribe to, and how quickly they’re updating the lists as changes are made by the government.

Round out compliance

To round out compliance, we also recommend a well-documented screening procedure and training on the procedure to teams who are responsible
for reviewing screening hits, both domestically
and internationally.

Trust your clients and partners, but implement the best practice of verifying that their transaction parties are authorized in order to minimize the risk to your own company.

Overall, the 2024 Regulatory Olympics have demonstrated that it’s no longer sufficient to just make it over the vault standing. You must now have the skills to jump, flip, twist, float and land on your two feet, backwards—and extra points if your eyes are closed.

Changes come quickly, and we need to stay nimble, alert, and keep up on our training and discipline to stay compliant while waiting to see what springs up in 2025.