Despite the glib title of this blog article, we have been noticing a trend in companies using Freight Forwarders directed by their foreign customers. The goal, in many cases, seems to be for the seller to avoid being the “Exporter of Record.” Although Freight Forwarders are authorized agents for exporting U.S. shipments to foreign destinations and they are authorized to make Automated Export System (AES) filings on behalf of U.S. companies, they are not the Exporter of Record.
But what if our foreign customer pays the freight forwarder and authorizes them to file AES? They are not our Freight Forwarder but an agent of the foreign customer, right?
Partially right. The Foreign Principal Party of Interest (FPPI) may not clear the export outbound, so there must be a designated U.S. agent to do so for them. This is called a routed order and represents a cost and logistics problem for the foreign buyer.
Consequently, U.S. agents in these cases often try to designate you (the U.S. Seller) as the “Exporter of Record.” This can occur without your authorization or even knowledge. Ignorance is not bliss and being named unknowingly as the Exporter of Record is not something to be taken lightly. You could be exposing your company to fines, debarment, or liability should the shipment not arrive at its destination, should the U.S. agent violate U.S. export laws and regulations through diversion back into the U.S. market or to a proscribed destination. Add to that, your customer not paying you for your goods because they did not receive them, and you could also be facing adverse contractual and financial ramifications.
Even if you are successful in dodging the “Exporter of Record” bullet, you could be liable for failure to perform under a letter of credit that depends upon producing a bill of lading or waybill if the forwarder or U.S. agent does not provide one to you. The absence of the correct proof of exportation could create problems with drawback claims, Foreign Sales Corporation benefits, and leave you vulnerable for sales taxes on the shipment to boot!
“But, if we are not the Exporter of Record, we are not held accountable for export compliance for that shipment, right?”
Not exactly true. According to the U.S. Department of Commerce, Bureau of the Census: “… a U.S. seller will be liable for an export violation if the U.S. seller fails to exercise due diligence and proceeds with an ExW to a foreign buyer when the U.S. seller knows / believes or has reason to know / believe that an export violation has occurred, is about to occur or is intended to occur.”
If you are the USPPI (i.e., “Exporter of Record”) then you are required to prepare the EEI record or authorize the Freight Forwarder (or other US. Agent) with written authorization (Power of Attorney). Of course, you must keep a detailed record of the support documentation and the AES information.
If you find your company being the exporter in a routed order, you must provide the necessary information for the EEI record (i.e., Name, EIN, Schedule B, and Value, but NOT who the Ultimate Consignee is). You will also not be required to provide written authorization or Power of Attorney to the Freight Forwarder.
All things considered, if it sounds too good to be true, it probably is. Know who all the parties are, their roles, their authorizations, and above all, whether you are on the chopping block for violations or other unpleasant occurrences.
Knowing all of this, wouldn’t you rather be a fire fighter, a doctor, or a fighter pilot when you grow up instead?
If this blog raises more questions for you than answers, or if you had to look up one or more of the terms we have used, you might best be served by seeking the advice of your company’s Empowered Official (EO), or some other Subject Matter Expert. We can also help! Contact us today for a no-charge consultation.
Tom Reynolds is the Vice President of Operations for Export Solutions, a consultancy firm which specializes in ITAR and EAR compliance.