Five Critical Tips for Selling Internationally through Exporters

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By Jeffrey G. Grody

Do you sell firearms or ammunition to the international market through an exporter? This is a common practice in the industry for manufacturers who are unfamiliar with the ITAR. They want to work through someone who knows how to fulfill ITAR export requirements and who will be responsible for the logistical and financial challenges associated with selling product to foreign customers.

There’s nothing wrong with doing business in this fashion, but these arrangements are often handled in ways that leave the manufacturer far more exposed to liability for ITAR non-compliance than it realizes.

If you are a manufacturer serving non-U.S. customers in this fashion, here are some steps you should take to protect yourself.

1. Make it clear that the exporter is acting as “principal” in the export sale, not as your “agent.”

Is the exporter acting as the lead in these transactions or merely as your agent? Many times neither the manufacturer nor the exporter knows—or cares about—the answer to this question. The answer is very important, however, to determining who is truly responsible for ITAR compliance. If the exporter is deemed to be acting as the manufacturer’s agent, the manufacturer, not the exporter, is legally responsible for complying with the ITAR even though that is precisely what the manufacturer was intending to avoid.

2. Clarify that the exporter is responsible for vetting the foreign customer and any other parties to the transaction.

One of the prime tenets of ITAR compliance is “know your customer.” U.S. exporters of firearms and ammunition are expected to conduct due diligence on their foreign customers to ensure that they are not putting these products in the hands of terrorists, criminals or other “bad people.” In these three-party export scenarios, however, vetting the customer can fall through the cracks, with neither the manufacturer nor the exporter taking responsibility.

This puts you, as the manufacturer, at significant risk. If your guns, with your name on them, are used in terrorist, criminal or other violent acts in a foreign country because no one really checked out the customer, who do you think the authorities will look to first, you or the exporter? You want to be able to demonstrate to law enforcement that, as between you and the exporter, investigating the customer and other parties to the transaction was clearly the exporter’s responsibility.

3. Know your exporter.

All exporters are not created equal. Some are established companies with long track records as good, responsible citizens. Others are more opportunistic, newer entrants to the field whose greatest strengths are a can-do attitude and their desire to conclude a sale. If you really want to protect yourself from responsibility for ITAR compliance and for the other consequences of a transaction that goes bad, take the time to verify that you are working with a responsible and experienced exporter.

4. Have a written agreement with your exporter.

Enter into a written agreement with your exporter that clearly specifies the exporter’s role and responsibilities in the transaction. In the absence of a written agreement, it can be extremely difficult to demonstrate to law enforcement that you were not a participant in the export to the foreign customer if the transaction goes bad for some reason. In addition to covering the issues raised in points 1 and 2 above, the written agreement should state that the exporter is solely responsible for complying with all applicable U.S. export laws and regulations.

5. Don’t undercut the written agreement by acting in ways that are inconsistent with it.

As important as it is to have a written agreement with your importer, recognize that you can completely undermine its effectiveness if you and the exporter behave in ways that are inconsistent with the roles and responsibilities set out in the agreement. For instance, no contractual wording will protect you if all the contact with the foreign customer is through you rather than the exporter, if you tell the exporter that it doesn’t need to vet the customer because you have already done that, if you are involved in establishing the price the foreign customer pays to the exporter, etc. Export enforcement authorities are accustomed to looking past written agreements to the “real” structure of a transaction if the parties’ behavior follows a pattern that differs from the written agreement.

One final caveat . . . . complete insulation from responsibility for export compliance is very difficult to achieve if you play any role at all in the sale to the foreign customer or if your sale to the exporter is contingent on the exporter’s resale to the foreign customer. Consider seeking expert advice to maximize your protection.