Export Control

Export Control

The global economy has caused number of U.S based companies and organizations to reach out to new markets outside of the United States and export their goods, products and know-how to far away places, and to deal with a number of foreign third parties and new partners. Most export transactions do not require specific approval from the U.S. Government, however in certain circumstances an exporter must obtain, in advance, special export permission and license to legally do so. Export Licenses are required in certain situations involving national security, foreign policy, short supply, nuclear non-proliferations, missile technology, chemical and biological weapons, regional stability, crime control and terrorist concerns. In addition, certain places and designated persons are “off limits” and need to be avoided in exporting products.

Four U.S. Government Agencies have primary export licensing responsibilities: the Departments of Commerce, Energy, State and the Treasury. The U.S. Department of Commerce - Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and re-export of most commercial items. The government often refers to the items and products that BIS regulates as "dual-use" - items that have both commercial and military or proliferation applications - but purely commercial items without an obvious military use are also subject to the EAR.

The EAR does not control all goods, services, and technologies. Other U.S. government agencies regulate more specialized exports. For example, the U.S. Department of State has authority over defense articles and defense services. A list of other agencies involved in export controls can be found in Supplement No. 3 to Part 730 of the EAR which is available on the Government Printing Office Web site.       

Some technology and products may fall within the parameters of control items under the EAR.  In using the EAR, an exporting organization may want to first look at Part 732 for the steps to follow to determine its obligations.  The description of controlled technology items that need to be reviewed are covered in Part 774 of the Commerce Control List, and technical representatives within the exporting organizations, that have a fairly sophisticated understanding of the technologies and products, should review the regulation and Categories to determine if exporting organization’s technology or products are listed. 

If an item falls under U.S. Department of Commerce jurisdiction, it however may not be specifically listed on the Commerce Control List, and then it is designated as EAR99.  EAR99 items generally consist of low-technology consumer goods and do not require a license in many situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain a license.    

Restrictions vary from country to country. The most restricted destinations are embargoed countries and those countries designated as supporting terrorist activities, which currently including Cuba, Iran, North Korea, Sudan, and Syria, where no products can be exported. There are restrictions on some products, however, that are worldwide depending on the country of its destination.  

Any item that is sent from the United States to a foreign destination is an export. "Items" include commodities, software or technology, such as clothing, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages and technical information.  How an item is transported outside of the United States does not matter in determining export license requirements. For example, an item can be sent by regular mail or hand-carried on an airplane. A set of schematics can be sent via facsimile to a foreign destination, software can be uploaded to or downloaded from an Internet site, or technology can be transmitted via e-mail or during a telephone conversation. Regardless of the method used for the transfer, the transaction is considered an export for export control purposes.

An item is also considered an export even if it is leaving the United States temporarily, if it is leaving the United State but is not for sale, (e.g. a gift, or research project) or if it is going to a wholly owned U.S. subsidiary in a foreign country. Even a foreign-origin item exported from the United States, transmitted or trans-shipped through the United States, or being returned from the United States to its foreign country of origin is considered an export. Finally, release of technology or source code subject to the EAR to a foreign national in the United States is "deemed" to be an export to the home country of the foreign national under the EAR.

In addition to the restrictions on exports to embargoed countries, certain individuals and organizations are prohibited from receiving U.S. exports and others may only receive goods if they have been licensed, even items that do not normally require a license based on the ECCN and Commerce Country Chart or based on an EAR99 designation. Organizations that export their technology and products must also be aware of the following lists:

Entity List - EAR Part 744, Supplement 4 - A list of organizations identified by BIS as engaging in activities related to the proliferation of weapons of mass destruction. Depending on your item, you may be required to obtain a license to export to an organization on the Entity List even if one is not otherwise required.

Treasury Department Specially Designated Nationals and Blocked Persons List - EAR Part 764, Supplement 3 - A list maintained by the Department of Treasury’s Office of Foreign Assets Control comprising individuals and organizations deemed to represent restricted countries or known to be involved in terrorism and narcotics trafficking.

The Unverified List is composed of a firm for which BIS was unable to complete an end-use check. Firms on the unverified list present a “red flag” that exporters have a duty to inquire about before making an export to them.

Denied Persons - No organization may participate in an export or re-export transaction subject to the EAR with a person whose export privileges have been denied by the BIS. A list of those firms and individuals whose export privileges have been denied is available on the BIS Web site. Note that some denied persons are located within the United States.

A good starting point for information on export licensing requirements and the regulations is to attend one of the US Commerce export control seminars. A list of upcoming seminars is posted on the BIS Web site.  The following basic steps will assist in complying with the export regulations, rules and laws:

• Determine that your export is under U.S. Department of Commerce jurisdiction.
• Classify your item by reviewing the Commerce Control List.
• If an Export Control Classification Number (ECCN) classifies your item, identify the Reasons for Control on the Commerce Control List.
• Cross-reference the ECCN Controls against the Commerce Country Chart to see if a license is required. If yes, determine if a License Exception is available before applying for a license.
• Ensure that no proscribed end-users or end-uses are involved with your export transaction. If proscribed end-users or end-uses are involved, determine if you can proceed with the transaction or must apply for a license.
• Determine if any party involved in the exported item is listed on one of the foregoing lists.
• Export your item using the correct ECCN and the appropriate symbol (e.g., NLR, license exception, or license number and expiration date) on your export documentation (e.g., Shipper’s Export Declaration).

All exporting organizations should also be aware that in the later half of 2007, there were changes in US laws, regulations and policies affecting the EAR, the International Traffic in Arms Regulation ("ITAR") and the foreign Assets Control Regulations ("FACR").  The biggest changes are the significant increase in administrative and criminal penalties for export violations and the increasing criminal prosecution of export violations.  The Office of Foreign Assets Control ("OFAC") of the US Treasury Department, and the BIS of the US Department of Commerce are the two Federal agencies and units that administer and enforce these laws.

In October of 2007, President Bush signed the International Emergency Powers Act ("IEEPA") that significantly increases penalties for violations of the EAR and the embargoes that are administered by OFAC.  The civil penalties have been increased fivefold to $250,000.00 per violations or twice the transaction value, and criminal penalties are now $1 million per violation.  

The BIS and OFAC have indicated they are actively pursuing violations under these laws and increasing their efforts in enforcement. The biggest exposure for any organization is the monitoring its third party agents to assure that technology and products do not get exported into counties subject to US economic embargoes or to individuals/organizations listed in one of the government lists.   

All exporting organizations should also be aware that in the later half of 2007, there were changes in US laws, regulations and policies affecting the EAR, the International Traffic in Arms Regulation ("ITAR") and the foreign Assets Control Regulations ("FACR").  The biggest changes are the significant increase in administrative and criminal penalties for export violations and the increasing criminal prosecution of export violations. The Office of Foreign Assets Control ("OFAC") of the US Treasury Department, and the BIS of the US Department of Commerce are the two Federal agencies and units that administer and enforce these laws.

In October of 2007, President Bush signed the International Emergency Powers Act ("IEEPA") that significantly increases penalties for violations of the EAR and the embargoes that are administered by OFAC.  The civil penalties have been increased fivefold to $250,000.00 per violations or twice the transaction value, and criminal penalties are now $1 million per violation.  The BIS and OFAC have indicated they are actively pursuing violations under these laws and increasing their efforts in enforcement. The biggest exposure for any organization is the monitoring its third party agents to assure that technology and products do not get exported into counties subject to US economic embargoes or to individuals/organizations listed in one of the government lists.