Forwarder Pleads Guilty

OK freight forwarders, this one’s for you.

In the news recently is a Mr. Ulrich Davis, former manager of an as yet unnamed freight forwarder in the Netherlands.  He pleaded guilty for conspiring to export certain acrylic adhesives and spray paint coatings from the U.S. to Iran without the required export license(s).  You can read the details at the Bureau of Industry and Security (BIS) web site.  Apparently that may not be all, because his initial arrest at Newark airport as he was boarding a flight to the Netherlands, included more of the same type of activity, but for aircraft attitude direction indicators, various parts for a C-130, and a fuel control unit for a Boeing 747, which you can read about here at the BIS web site.  I guess the Government is still prosecuting these violations, so perhaps we haven’t heard the last of Mr. Davis.

So how did he go about this?

Mr. Davis had a customer, also as yet unnamed, and I would guess a front company for the Iranians, that procured the items from U.S. suppliers.  He had his agent, a freight forwarding partner in the U.S., pick up the goods, and ship them on air waybills to the Netherlands.  Once there, Davis issue new air waybills to move them on to Iran.  This is what the BIS calls diversion, the illegal transshipment of goods from their alleged destination.

So why am I talking to U.S. freight forwarders?

This was what is known as a routed export transaction, routed not by the U.S. shipper, but by their foreign buyer, in this case, Mr. Davis’ customer.  The U.S. shipper may or may not know that the buyer was connected with Iran, or perhaps even a known restricted party for whom the U.S. shipper failed to screen – note that the U.S. shipper is also as yet unnamed.  But more importantly, in a routed export, the U.S. forwarder, as agent for the foreign consignee that’s running the show, is the exporter for Export Administration Regulations purposes.  This means that the U.S. shipper is, more or less, off the hook for much of the export compliance, and that the U.S. freight forwarder has the responsibility to make the export license determination and, if a license is required, obtain that license, presumably in his own name.

If you don’t believe me, take a look at the Export Administration Regulations of the BIS at 15 CFR 758.3(b).  And note further that the U.S. freight forwarder is yet another party unnamed in all of this.  More heads may very well roll.

So, what’s an honest, hard-working, straight-n-narrow forwarder to do?

• Understand that, in routed exports, the U.S. freight forwarder takes on considerably more responsibility, and risk.  You are the exporter.
• Know how to do a license determination, not just for the BIS but for the International Traffic in Arms Regulations (ITAR) and the Office of Foreign Assets Control (OFAC) as well.  If a license is required, decide if you are willing and legally able to obtain that license.
• Know all the parties to the transaction.  If your agent in the Netherlands or wherever is vague, push harder.  Then screen all of these parties again restricted parties lists.  Screen all intermediate and ultimate consignees, foreign freight forwarders, and banks if under a letter of credit.
• Don’t be afraid to turn the business down.  The penalties can be in the hundreds of thousands of dollars.