EP sat down with Chuck Schroeder of Textron Aviation to reflect on and discuss some the changes he's seen in his three-decade career in Aerospace Export Compliance.
From the day I started my trade compliance career, I have enjoyed doing this type of work. Really, I mean it. Back in those days you did not get trained for a Trade/export compliance job, you were self-taught. There was nowhere to go for any type of formal operational training, so you just learned the scope of the regulatory world as part of the job.
I have had what most may consider to be an incredibly good career. It has certainly been great and equally rewarding for me. I have been involved with super people, mentors, and programs, ranging from supporting NORAD, NATO F-16 deployment, then to Boeing and NASA, where I was involved with launching the shuttle for the International Space Station, and then to Seattle for the 787 and P-8 programs, and now the work in Wichita at Textron Aviation on our Business Jets, Prop aircraft, etc.
I can go down that list another time, but for me it has always been more about relationships, the people, and my employees as they are the folks that made the job truly rewarding. As I reflect, it was my employee’s selfless dedication and hours of demanding work that helped pave the way for me and to whom I am forever grateful.
Textron Aviation is a wonderful place to work and the products we build are just plain fun. I mean, everybody grew up learning to fly with their Cessna. Customers love coming out to our factories to look at the little birds being built. Some still come out just to see what we are doing on the bizjets, and often leave saying, Oh goodness gracious what great aircraft. But as you may not know, there is a bit more to Textron Aviation than just Cessna, we also have Beechcraft products, defense, and special mission product lines as well. We have a huge after-market business, and maintenance operations with worldwide reach, it is a full-time job.
So, what has changed?
U.S. export trade policies has undergone several significant shifts in focus over the past two or three decades with atrend towards a more restrictive trade framework overall, the most recent being the emphasis on end-use and end-user controls.
Numerous factors have driven it, a change from unilateral to multilateral controls, new dual-use technologies, the increasing complexity of global supply chains in general, and the growing threat of unauthorized technology transfers. Put together, these shifts have caused a significant expansion of U.S. trade and export controls, but the basics are still the basics, that has not really changed:
In the past the U.S. unilateral controls were primarily focused just on physical goods. However, as technology has advanced, the focus has shifted to controlling the export of intangible technologies as well, which is often easier to export and are harder to track. Thus, the U.S. government’s recent shift placed on the importance of End-Use and End-User Controls designed to prevent the use of sensitive technologies for unauthorized purposes, regardless of the destination.
The U.S. is increasingly using targeted sanctions, such as the Specially Designated Nationals and Blocked Persons List (SDN List), to control the export of sensitive technologies. No one talked about the Office of Foreign Assets Control (OFAC) twenty years ago, now it plays a significant role in U.S. export trade policy.
Articles – As mentioned, the U.S. government has also expanded the list of controlled articles, goods and services subject to export regulations. This expansion has been driven by the growing complexity of technology, which has made it easier for dual-use goods to be used for both civilian and military purposes. The stringency of these regulations has fluctuated over time, with periods of tightening and loosening of the controls, but we are still able to classify the products and programs with ECCN’s or ITAR designations, etc. for articles we do not want exported without review.
Entities - The U.S. government is increasingly using these OFAC entities-based controls to restrict the export of goods and services for national security purposes. Tied together with the End-Use and End-User Controls requiring U.S. exporters and foreign re-exporters to vet all potential customers more carefully. This shift towards end-use and end-user controls has had a significant impact. We must now be more diligent in vetting potential customers and in ensuring that their goods and technologies are not used for unauthorized purposes.
Whenever you get into discussions about customers, it quickly turns into a sensitive subject in any business. Businesses are very protective of their customers and supply chain base information. Products, well they don’t care about them as much as they are not “personal.” But when you start asking about a customer’s proof of ownership of a business, financing, trust companies and who they are partnering or collaborating with, it is taking compliance to a different level.
It is largely all manual work, where your peers are asked and must add value. So now more than ever Compliance is everyone's job, but isn’t that what we have always heard? Well now, it is turning increasingly into “compliance is everyone's job.” Communication has become hugely important nowadays because IT based tools simply do not keep up with the times. We often instruct people who have never had to worry about such things.
Country Controls - The U.S. government also tightened country controls, typically implemented to prevent the proliferation of weapons of mass destruction or to punish countries for human rights abuses, particularly in response to the rise of China and the ongoing war in Ukraine.
And don’t forget about U.S. Political Controls – Politics has always had a significant impact on these policies as well. As technology continues to evolve and the global economy becomes more interconnected, it will be increasingly difficult to strike a balance between protecting national security and promoting economic growth.
This expansion of trade controls has had a significant impact on the U.S. businesses I have been involved with, as the export of goods or services subject to the rules are also required to obtain licenses from the U.S. government. This can be a very time-consuming and costly process, and it may be difficult for businesses to determine whether their products or services are subject to one or more of the controls. This uncertainty has made it more difficult for businesses to understand and compete in the global marketplace, especially when producing long-lead time articles.
Since 9/11, OFAC's sanctions programs have also had a significant impact. The U.S. government has increasingly used economic sanctions as a foreign policy tool, and this has led to a significant expansion of OFAC's authority. These regulations have become increasingly complex in recent years, requiring a greater understanding of both national security concerns and global trade dynamics.
Right now, I am also grappling with the new EU sanctions on Russian steel for our MRO activities. I want you to think about that for a second. We do maintenance and repair operations for all types of aircraft parts. When you are doing MRO activity for aircraft, these parts and aircraft are often 10 to 15 years old. So how are we best able to certify the total part when we did not even make the part being serviced originally? We can first try to go back to whoever did make it originally and ask them to please send mill certs for the part(s) so we can assess whether they included Russian steel. Remember there was a time when we loved and worked with Russia. Well sometimes they can and will send the documents, but more often they cannot or will not.
Lastly, the United States has also increased its scrutiny of foreign investment in recent years. This is in part due to concerns that foreign investors may acquire access to sensitive technologies that could be used to harm U.S. national security. The Committee on Foreign Investment in the United States (CFIUS) is responsible for reviewing foreign investment transactions and can block or impose conditions on transactions that are deemed to pose a threat to national security. These are just a few of the largest changes to U.S. export control policy over the past twenty years.
There is a lot of technology out there that has emerged over the past 10 or 15 years to help, correct?
Well, yes, and more to come, but I feel that for all I have seen, it only leads you down the trail so it may help reduce some of the variables. I will certainly give you that. But I do not believe the technology is mature enough to trust it, as it cannot definitively answer the yes or no or soft questions. It is still just a machine, and somebody must still look at it and make those types of determinations. So, no I am not ready to stake our entire compliance regime on ChatGPT or AI quite yet. The concept of vetting has not fully been defined yet so it has not expanded and permeated down to trade compliance operations which due to the nature of our products and shear transactional volume causes issues that ChatGPT or AI will not solve.
What you are describing has always been there. It is just not getting easier or simpler.
We are a support organization and are a cost center and without the business selling and shipping the product, we do not have a job. So, we must continually balance and navigate all the above with business politics as well.
You can communicate a pending issue or a needed change with your senior leadership, and they get it. But often during those discussions, you get into “something” that they have never had to consider or is still undefined by the regulators. This is by far one of the biggest changes I have seen in the export environment over the years. I am simply trying to say how much is too much for your company and people. What is the reasonable care threshold? How much is not enough? How much do we want and need to own, as a support function? Who else at the company may be responsible and how do we solve the political balance primarily for resources? And that often is what I would call tribal knowledge and perceived business needs that will win the debate in the end.
It has always been challenging, but that too is getting a bit harder nowadays as now the rules are often a little bit squishy. We have new laws on confidentiality and personal identification and that makes all that even more difficult. OEE comes to me and asks, how do you make the decision as to whether these are valid clients? Well, we know the people we have dealt with for 50+ years, which are all true blue. My senior leadership knows the good customers, they know the people that they have counted on, they know that they are honest and good to deal with.
So then when I mention a name, and they say, who is that? That is one of my biggest red flag indicators, as sometimes we do not know all the people at the level of detail required. Since our products are mobile this is what makes those types of discussion far more interesting. Sure, a home base can be anywhere for one of our customers, and they are calling up, as a longtime customer of ours and saying I am stuck in, you name it and I need a part to get out and fly. Because our product flies, right? Most people’s mindset and most of the laws are written for things that are not self-propelled like an aircraft so that adds a degree of complexity and urgency as an aircraft really is unaware of boundaries. For example, this person who is a UK citizen based in London and a good long-time customer, but now he must land his aircraft in what they consider “no man’s land,” a potential bad guy country. When you are trying to simply provide customer service, ship the needed part, to unknown intermediate parties that have not been vetted. Then you must resolve those issues manually and quickly.
How do you develop a consistent culture of compliance, is that your job or does that come down from legal? How do you evangelize your mission?
Anyway we can, frankly. Here at Textron Aviation, Legal is now Legal Operations and is made up of far more non-lawyers than lawyers. In legal operations we have trade compliance and contracts, the operational folks. My boss is general counsel, and of course we still do have lawyers. We now discuss a much wider variety of issues, litigations, trade regulatory changes, supplier issues, contract clauses and customer contract negotiations with staff.
It has caused an expansion to where our lawyers are no longer just lawyers. Much more now than it ever was before we are discussing situations and I ask the lawyers, in their mind, if we need to take it to court “is this defensible? and will you to be able to defend it with the information you have thus far?” So, they now look at the bona-fides of the language being provided at the planning stage. It is now much more about communication, and communication strategies and I find it to be a healthier compliance environment.
My boss, the general counsel, has said I expect you all to be out doing face-to-face training. Of course, we have all the high-level, basic web-based training modules. But the people taking the training do not get to ask questions of the training module. If you are standing in front of them in small groups, you know they will ask. For example, when we bring training to the avionics engineering folks, we do not train them on everything in the regs. we train them on the “What” parameters in the avionics section of the Commerce regs and ask, “Do these units rise to these levels?” The answer is either yes or no. We did not tell them about all the people, the who, that is for the general modules. Our training was solely about product classification the “What.” Everybody already fully knows they can go to jail. Everybody also knows they need to comply. So, how do you make it applicable and practical for them?
What used to be standard run-of-the-mill Blue Lantern checks. If you're familiar with Blue Lantern, it used to be a less formal affair. We would hear, hey nothing on you folks. We just want to know if you can send us the shipping documents for something that we want to talk to these people about. Now you may get sued. We deal with people who really do not want other people to know where they fly, or what they are flying. So, we sign confidentiality agreements with them, and when the government comes knocking, we must now ask for subpoenas, which makes it very stuffy and formal. In the old days, it was much more casual and far less legally driven.
What you are describing is a technical and operational community that is not solely driven by lawyers, but legal is still part of the team, just not the be all and end all.
Yes, you are right on with that comment. On my staff I have licensed brokers, customs brokers who keep up with customs issues. I also have AP mechanics and aerospace engineers by college degree and practice that have been building our planes for 20 years. Both often field questions from our lawyers. We went out with a “Know Your Customer” training campaign. We purchased tools, some provide known military end users or 50/50 ownership, and high risk or embargoed countries information for our employees, but these tools do not decide it for them, right? So, we had to go out and do outreach for the company user employee base which now leverages several legal and operational issues at one time, and the lawyers alone, in all honesty, simply are not built in that way, and cannot train alone in a vacuum, the issues have become a bit to complex.
Chuck Schroeder has been involved in Aerospace Export Control since 1987, with Honeywell Solid State Electronics, GE Aircraft Engines and The Boeing Company. At year end, he retired as Trade Compliance Director after 20 years of service at Textron Aviation, Wichita, KS.
Textron Aviation includes the Beechcraft and Cessna brands with a range from business jets, turboprops, and piston aircraft to special mission, military trainer, and defense products, as well as the world’s largest general aviation OEM service network. Since 1927, Cessna has produced 160,000 single-engine piston aircraft, more than any other aircraft manufacturer in the world. With more than 8,000 Citations® delivered, one- third of the world’s business jets are a Citation.
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