U.S. Export Controls
U.S. Export Controls
All U.S. origin goods, certain technology and certain technical services are controlled for export from the U.S. The U.S. export control laws also impose restrictions on the non-U.S. recipients with respect to re-exporting the controlled goods and technology to other countries, retransfers within the same countries and changes in end-use.
The U.S. International Traffic in Arms Regulations (ITAR) promulgated under the U.S. Arms Export Control Act (AECA) controls the goods and technology intended solely for military use and certain space technologies. Almost all other goods and technologies are controlled by the U.S. Export Administration Regulations (EAR) promulgated under the Export Administration Act (EAA).
The ITAR is the more stringent set of regulations. It contains the U.S. Munitions List (USML) which lists all of the goods – named “defense articles” and related technical data that are controlled by the ITAR. The ITAR is administered by the Directorate of Defense Trade Controls (DDTC) of the State Department. Almost all exports from the U.S. of ITAR controlled defense articles and technical data and retransfers and re-exports among non-U.S. parties, require export licenses or other appropriate approvals from DDTC, though there are some exceptions to licenses available in limited cases and most time only to the U.S. exporter. Certain technical assistance provided by U.S. persons to non-U.S. persons in connection with defense articles, known as defense services, are also controlled and require prior DDTC approval.
The EAR is administered by the Bureau of Industry and Security (BIS) of the Department of Commerce. Generally, BIS is the export licensing authority for all EAR controlled goods and technology, although the Nuclear Regulatory Commission of the Department of Energy is the licensing authority for certain nuclear related goods and technology and exports to certain embargoed destinations and sanctioned entities require the prior approval of the Office of Foreign Assets Control (OFAC) of the Treasury Department.
Goods and technology controlled by the EAR are either contained under an Export Control Classification Number (ECCN) in the Commerce Control List (CCL) or fall under a residuary category known as EAR99. Generally, items falling under EAR99 are the items requiring the least controls for export purposes and include simple civilian items.
The EAR is a much more flexible regime than the ITAR due to the fact it controls both items requiring a degree of stringent control and items considered far more benign and requiring very few export restrictions. Whether or not an export license is required from BIS for the export of a commodity or technology controlled by the EAR depends on a number of factors, such as under which ECCN the item falls, what is the intended destination of the item, what is the intended end-use of the item and who are the intended consignees and end-users of the items. Generally, items classed as EAR99 do not require export approvals except for in very limited circumstances for exports intended for embargoed countries or certain sanctioned entities.
As with the ITAR, the EAR imposes restrictions on non-U.S. recipients retransfer or re-export of EAR controlled commodities and technologies. However, while the ITAR’s requirements drill down into individual components and technology, thereby continuing to apply to non-U.S. made higher end products and systems if those systems contain even a single ITAR controlled component or technology, the EAR has a de minimis principal which releases many non-U.S. made products and systems from further control under the EAR if they do not contain U.S. origin content above certain thresholds of sale value compared to the sale value of the overall non-U.S. product or system.
U.S. export control laws seek to implement various international agreements and arrangements to which the U.S. is a signatory, particularly:
- The Missile Technology Control Regime (MTCR) – an informal and voluntary partnership among 35 countries to prevent the proliferation of missiles and missile technology (including unmanned aerial vehicles)
- The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies – a regime made up of 41 countries promoting greater transparency in the trade of military and dual use goods and technology.
- The Nuclear Suppliers Group – a group of 48 nuclear supplier countries that seek to prevent nuclear proliferation by controlling the export of materials, equipment and technology that can be used to manufacture nuclear weapons.
- The Australia Group – an informal regime of 42 countries aimed at controlling the proliferation of chemical and biological weapons
The U.S. export control regime can be quite complicated and confusing, even to U.S. exporters and advisers. Violations of the rules can result in criminal prosecutions, heavy fines, gaol terms in the worst cases, being black listed for further exports, closer scrutiny by the U.S. Government, a damaged reputation amongst U.S. partners and time and money dealing with costly U.S. Government investigations. The arms of the U.S. Government are long as far as U.S. export controls go and DDTC, BIS and OFAC regularly bring investigations and prosecutions against non-U.S. parties based outside of the U.S. for violations of U.S. export controls, sometimes resulting in sever penalties.
How Gil Rosen Law Can Help Your Non-U.S. Business in Connection U.S. Export Controls
I am very experienced in advising non-U.S. based businesses on compliance with the ITAR and the EAR. My work includes:
- Determining whether parts, components, software, products and technology that clients purchase from the U.S. are ITAR or EAR controlled and if EAR controlled, under which ECCN they fall
- Determining whether client products and technology developed and produced outside the U.S., containing U.S. content are ITAR or EAR controlled
- Devising for clients specially tailor made corporate compliance programs and procedures for personnel to follow in order to reduce the likelihood of violations of U.S. export control laws according to the risk factors associated with the specific businesses
- Providing training programs in U.S. export control compliance for personnel
- Advising clients on the information that must be provided to the U.S. exporters in order for the U.S. exporters to apply for suitable licenses
- Advising and negotiating on the contents of special forms of ITAR licenses called:
- Technical Assistance Agreements (TAA)
- Manufacturing License Agreements (MLA)
- Warehouse and Distribution Agreements (WDA).
- Advising clients in resolving U.S. export violations, including with the preparation of voluntary disclosures related to violations
- In connection with investments in U.S. company’s and in non-U.S. companies involved in ITAR or EAR controlled goods and technology, I perform audits of the target company’s U.S. export control compliance history in due diligence exercises.
- A client of mine is a local subsidiary of a large international defence contractor. The parent company was charged by DDTC for numerous ITAR violations and had sever fines imposed on it and many of its export privileges were revoked or suspended. As part of its rectification process, the parent company was required to ensure that all of its subsidiaries around the world audited their ITAR compliance processes and adopt suitable compliance procedures. I was retained by the subsidiary to perform an audit on its ITAR compliance history and to help it to adopt a suitable ITAR compliance program. After completing the work, U.S. officials visited the subsidiary to examine its new compliance procedures and processes. The subsidiary passed the examination with flying colours and the parent company even requested my permission to allow it to use the procedures that I had drafted for the subsidiary as a basis for suitable procedures for all of its other subsidiaries around the world.
- I have worked very closely with a client that is a large business engaged in the production of certain parts for firearms. The business is not based in the U.S. and the business’ core products were not developed or produced in the U.S. However, the business does purchase certain parts and components from the U.S. that are either ITAR controlled or EAR controlled and that are incorporated into its products. It was decided to perform a suitable risk assessment and then devise corporate wide U.S. export control compliance procedures and a training program. I worked with the business’ management and legal team over a period of time to form the most appropriate corporate wide U.S. export control procedures and then provided all relevant personnel with a suitable training to ensure that the procedures are properly followed.