Express Carriers Ask BIS for Exemption From 50% Rule
The Bureau of Industry and Security shouldn't expect freight forwarders and logistics providers to carry out the same level of 50% rule due-diligence as exporters, which have much more visibility into the products being shipped and are better positioned to make sure they comply with the new regulations, logistics companies and trade groups told BIS in public comments released this month.
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The Express Association of America, which represents DHL, FedEx and UPS, said BIS should adopt the 50% rule -- which BIS suspended for one year before it was set to impose new license requirements on exports to subsidiaries of parties on the Entity List and other restricted party lists (see 2510310020) -- only for exporters. If BIS declines to carve out logistics providers entirely, it should at least consider exempting certain third-party companies from the rule’s “strict liability” standard if those companies don’t “have the same time and data as the exporter.”
Although exporters can “reasonably be expected” to screen their customers against restricted party lists before the shipment leaves a port, it would be “unrealistic” to expect logistics service providers, which “process millions of packages per day,” to do the same under the 50% rule, EAA said. “Due to the business model of express logistic service providers, time does not permit this complicated level of due diligence to be conducted on every shipment.”
The National Customs Brokers & Forwarders Association of America made similar points. The group said its freight forwarder members take export compliance “seriously,” and they rely on information from screening tools and the U.S. Principal Party in Interest to carry out as much due diligence as possible. But the NCBFAA also said there’s a “very short timeline” between when a forwarder becomes aware of a shipment and the actual deadline for filing Electronic Export Information, which makes a more comprehensive risk assessment difficult.
Forwarders also generally aren’t given complete sales contracts and may not receive complete sets of other shipping documents related to the transaction, which could help them glean information about the ownership of a foreign entity. “It is important to note as forwarders, our Members assist with the transportation for and export facilitation for shipments -- we are not parties to the underlying commercial transactions and often times have limited visibility on all parties to a deal, especially if it is a complex routing, involving a variety of entities,” the NCBFAA said.
The group added that forwarders are “simply” not in a position to carry out “extensive” due diligence on certain transactions and often don’t have the legal standing, including the consent of all parties, to verify ownership. And requiring forwarders to subscribe to third-party screening software providers -- as BIS recommended in guidance published one day after releasing the 50% rule (see 2509300049) -- would be “cost-prohibitive for many” of the NCBFAA’s members, the group said, especially smaller firms.
“While not intentional, the rule is highly likely in our view to adversely impact the forwarding sector by forcing companies of all sizes to consider whether the regulatory exposure outweighs the potential commercial opportunities -- this includes transactions that are ultimately deemed clean.”
EAA also said it’s "unrealistic" to expect logistics service providers to screen all shipment recipients’ ownership for compliance with the 50% rule in addition to screening against the Consolidated Screening List, the government-run list of parties subject to export controls.
“This is an unrealistic expectation since the private sector does not have the intelligence or technology the Government uses to make assignments to the CSL and keep it updated,” the association said. “BIS should continue to spend the time and resources required to keep the CSL updated, as that is the most accurate way for the private sector to screen transactions and maintain compliance.”
The NCBFAA added that it fears exporters will choose to stop international shipments entirely rather than risk violating the BIS rule or paying to subscribe to a costly third-party screening platform.
The group also said many exporters will likely be required to research the “very same” affiliate companies to check for compliance with the 50% rule because BIS won’t have a “centralized repository” of entities that meet the rule’s criteria. BIS can help with that by creating a “positive” list of “bad actors,” which the agency can add to when it discovers unlisted affiliates that are subject to the 50% rule, either through a license application or other means. This could help “eliminate the duplicative research of the same companies by several exporters, reexporters and transferors.”