In an increasingly global marketplace, exports have taken on greater importance for companies throughout the world and, for many, have become a routine part of business.
But exporters are sometimes surprised to learn that the U.S. government regulates and, in certain cases, flatly prohibits many export transactions. This has been true throughout U.S. history, during both wartime and peacetime.
With the increased focus on terrorism prevention, however, these regulations have come to the forefront as the United States and its allies look to them as a critical weapon in the war on terror.
Few would be surprised to learn that U.S. export restrictions applied in the case of a U.S. citizen who attempted to export a thermal imaging camera through Detroit’s Metropolitan Airport, intended for use by Hizballah in Lebanon.
But other situations are less obvious. Consider the Michigan company that agreed to a $64,000 civil penalty to settle allegations that the company illegally exported optical sighting devices for firearms to Argentina and South Africa, without obtaining the required export licenses.
Many dual use products that have ordinary commercial and consumer uses are, nonetheless, covered by the regulations because they can be used for other more nefarious purposes. Metal alloys, pipes, valves and bearings, computers and software, robots, shotgun shells, chemical compounds, electronics and telecommunications equipment are all regulated dual-use products.
While virtually all exports are prohibited to some countries, such as Cuba, most exports need to be evaluated against the following criteria.
- What is the product? For export control purposes, the critical first step is to find out whether the product fits any of the regulated classifications. Parts, components and related technology may be covered as well.
- Where is it going? The exporter will need to identify the country of ultimate destination to determine whether the product is subject to licensing requirements. Exports to close U.S. allies tend to be subject to fewer restrictions.
- Who will receive it? The ultimate end-user of the product cannot be a bad end-user.
- What will they do with it? The ultimate end-use cannot be a bad end-use.
- What else do they do? Regulations may bar dealings with someone if, for example, they engage in financing or freight forwarding activities that support weapons proliferation.
Although the regulations primarily affect exports in the traditional sense, they do cover other related transactions and activities. For example, disclosure of technology to a foreign national in the U.S. may be regulated. Sales in the United States or exports to a permitted destination with knowledge that the buyer intends to re-export to a prohibited destination will also be a problem.
Because many requirements of the regulations are based on knowledge of the end-use, end-user, ultimate destination and other facts related to a transaction or activity, exporters must know their customer and be alert for red flags.
Red flags include a customer that is reluctant to offer information about the product’s end-use or is evasive about whether the product is for domestic use, export or re-export; an order for a product that is inconsistent with the needs of the purchaser; a buyer that declines routine installation, training or maintenance services; or a request for equipment configurations that are incompatible with the stated destination, such as 220 volt equipment for a 120 volt country.
When red flags are present, the exporter has a duty to check out the suspicious circumstances and to inquire about the end-use, end-user, ultimate country of destination and other relevant facts. A policy of avoiding bad information will not provide insulation from liability, and would usually be considered an aggravating factor in an enforcement proceeding.
If inquiries do not resolve all concerns, then the exporter should either refrain from the transaction or apply for the appropriate export license. Penalties for violations include substantial fines and penalties of both a civil and criminal nature and, in some cases, a denial of export privileges.
Bruce C. Thelen focuses on international business and trade as a member in Dickinson Wright’s Detroit office. For further information, visit www.dickinsonwright.com.
