Historically, the U.S. Government has pursued civil and criminal actions against exporters for violating the Export Administration Regulations ("EAR") and International Traffic in Arms Regulations ("ITAR"), which govern exports of sensitive products and technologies from the U.S. All parties to an export transaction, including freight forwarders, are subject to the same rules, and as such must be cognizant of their requirements including destination controls, license exceptions or exemptions, and export classifications and licensing.
That may be changing. FedEx Corporation ("FedEx") has openly challenged the Bureau of Industry and Security's ("BIS") jurisdiction to enforce the EAR with respect to actions taken by freight forwarders.
On June 24, 2019, FedEx filed for injunctive relief from BIS's enforcement of the EAR, specifically from the license requirements under the Commerce Control List ("CCL"), prohibitions related to the Entity List, and other obligations under the EAR.
The foundation of FedEx's claim is that BIS's enforcement of the EAR violates the company's constitutional due process rights under the Fifth Amendment. Equally important, FedEx asserts that in enforcing the regulations, BIS exceeds its authority under the Export Control Reform Act.1
The suit claims that "the BIS Entity List imposes an overbroad, disproportionate burden on FedEx" and that the requirements of the EAR and the CCL "effectively force FedEx to police the contents of its packages on an almost infinitely broad scale."2 In support of its claim, FedEx cites safe harbor protections from criminal liability under similar U.S. statutes for controlled substances and its inability to know what is in the packages it forwards due to both lack of resources and privacy statutes.3
For freight forwarders, it is particularly challenging to comply with the EAR's classification provisions since shipping companies tend not to be the original classifier of the products, but this difficulty has not slowed enforcement. For example, in 2014, carrier Kintetsu World Express ("KWE") settled for $30,000 with BIS for acting as a freight forwarder for unauthorized shipments to China and Iran.4 KWE failed to adequately screen end users and destinations, and failed to review the export classifications for the products.
In spite of ongoing enforcement actions, FedEx argues that privacy concerns and cargo integrity prevent them from screening packages to determine whether a tendered package contains an "item subject to the EAR" for which it requires a license.5
For routed transactions where the forwarder has been granted authority to file in the Automated Export System on behalf of the Foreign Principal Party in Interest, the forwarder faces additional risk and responsibility. In fact, several forwarders have been subject to enforcement actions for routed transactions and inadequate export compliance, including General Logistics International which in 2015 received a civil penalty of $90,000 for enabling the unlicensed export of scrap steel to a party in Pakistan listed on the BIS Entity List. 6
The lawsuit is not FedEx's first adversarial encounter with BIS. FedEx is currently subject to a 2018 settlement agreement for facilitating unauthorized exports in violation of the EAR.7 BIS enforced a civil penalty of over $500,000 against FedEx for the export of "items subject to the EAR valued in total at approximately $58,091 from the United States to France and Pakistan without the required BIS licenses."8
The U.S. Government is traditionally granted broad latitude by the courts for the enforcement and application of laws and regulations promulgated in the interest of national security, like the EAR. Nevertheless, we are watching this case closely for any indication of a change in BIS authority.
1 Complaint at 11, FedEx Corporation v. U.S. Department of Commerce, No. 1:19-cv-01840 (D.D.C June 24, 2019), https://f.datasrvr.com/fr1/519/97413/FedEx_v_Dept._of_Commerce_Complaint.pdf.
2 Id. at 43-51.
3 Id. at 7.
4 Julio Fernandez, Freight Forwarders Often Targets of Export Control Enforcement Actions, Global Trade (Oct. 30, 2015), http://www.globaltrademag.com/global-trade-daily/commentary/freight-forwarders-often-targets-of-export-control-enforcement-actions/.
5 Complaint, supra note 1, at 6.
6 Julio Fernandez, supra note 4.
7 Id. at 52-54.
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