The U.S. government views export control laws and regulations as serving a critical function in safeguarding national security and promoting foreign policy interests of the U.S.
“The regulatory regimes have imposed very significant penalties on certain companies and individuals for export control violations, so given the nature of how trade is conducted, and the threat of terrorism, there definitely seems to be greater scrutiny by regulators,” says Aneezal Mohamed, of counsel with Kegler, Brown, Hill & Ritter.
Smart Business spoke with Mohamed about how to ensure you are complying with export control laws.
Why should a company be concerned about export control laws?
Penalties for noncompliance could be very severe and hinge on how pervasive the noncompliance and violations are, whether the exporter has self-reported violations, etc. Penalties could include seizure of export and import shipments, criminal and civil penalties, appointment of a special compliance officer, debarment from exporting and employment ramifications.
Who administers the export control laws and who is subject to it?
Several agencies are involved, including the Department of State Directorate of Defense Trade Controls (DDTC), which administers the International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act that control items considered defense articles and services; the Department of Commerce Bureau of Industry and Security, which administers the Export Administration Regulations (EAR) that control dual use technologies; the Department of Energy; U.S. Customs and Border Protection; and the Bureau of Census.
Every ‘U.S. person’ must comply with export control laws and regulations. All U.S. individuals and companies, and green card holders are considered U.S. persons under these laws.
What type of registration is required under ITAR?
Under ITAR, if you manufacture or export defense articles, you have to register with the DDTC. The annual registration fee ranges from $2,250 to $2,750. Disclosures required by the registration statement are technical and detailed, so getting expert counsel to help would be in your best interest. If you’re exporting defense articles or services, you’ll need licensing and approval from the DDTC.
What is the meaning of ‘export?’
Exporting is not only transmitting something outside of the U.S. If someone who is not a U.S. citizen or a green card holder is employed in your U.S. office and views controlled information, you have exported that controlled information to that individual’s country of citizenship; it’s called a ‘deemed export,’ and it is a violation of export control laws.
Exporting also includes sending or taking defense articles outside the U.S.; transferring ownership or control to a foreign person; transferring or disclosing technical data to a foreign person inside or outside the U.S.; and performing a defense service for a foreign person inside or outside the U.S.
What defense articles and services are controlled under ITAR?
Defense articles are any article or service specifically designed, developed, configured, adopted or modified for a military application.
Defense service means furnishing training and assistance in the U.S., or outside the U.S., for the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles.
What articles and technical data are subject to ITAR and EAR regulations?
The U.S. Munitions List contains all defense articles subject to control under ITAR. There are 22 categories that are broadly interpreted by the DDTC. Technical data is information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles, and software for defense articles.
EAR controls dual use items such as those with primarily commercial uses that also have military applications.
Is it critical to determine if an item is controlled under EAR or ITAR?
Yes. Making the right determination is critical because if you incorrectly classify your item as being controlled by EAR and it is actually an ITAR controlled item, then you face disclosure, penalty and other sanctions. In the reverse case, you have created unnecessary work and an administrative burden.
What steps need to be taken before exporting?
The significant steps are classifying items as ITAR or EAR controlled; verifying if a license is required to export your item to the target country; verifying that no prohibited end-users (countries, groups, individuals, etc.) are involved with the export transaction; verifying that no prohibited end uses (intended purposes) are involved with the export transaction; if a license is required, determining if there are exceptions; and if no exceptions are available for your transaction, filing for and obtaining the appropriate license before exporting.
Are export control laws complex?
Export control laws are complex, but that is why you hire experts. If done right, they offer significant benefits. If done wrong, the penalties for noncompliance could be costly for the company and for individuals. It is best not to have to defend yourself from charges of jeopardizing U.S. national security and foreign policy interests.
Aneezal H. Mohamed is Of Counsel with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5476 or [email protected].
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