ALP: My company is ready to do business internationally. What has changed since 9/11?
Since the events of 9/11, the United States government has placed renewed emphasis on regulating international trade. Much of the regulatory legislation applicable to international trade compliance was drafted to protect U.S. interests during the Cold War era. However, following the demise of the Soviet Union , enforcement was often lax and funding for regulatory agencies was inadequate. In our current international climate, enforcement has once again become a priority, and funding for agencies such as the Bureau of Industry and Security (“BIS”), the Directorate of Defense Trade Controls (“DDTC”), and the Office of Foreign Assets Control has been dramatically increased. All U.S.-based businesses with international customers, subsidiaries, manufacturing facilities, and/or sales must be cognizant of the vast array of rules and regulations that could potentially impact their companies’ compliance with United States law. Failure to comply may result in civil or criminal prosecution.
Export Control Law
A number of executive agencies in the U.S. federal government have responsibilities for regulating exports from the United States . The BIS implements export controls for the Department of Commerce through the Export Administration Regulations (“EAR”). Other federal agencies with a role in export control include the State Department, which controls arms exports, the Department of Energy, which controls export and re-exports of technology related to the production of special nuclear materials, and the Department of Treasury, which administers certain embargoes.
Companies engaging in the international export of their products should adopt a code of best practices and have trade counsel prepare a written policy for export compliance. These practices and policies should be re-enforced through employee training, and should be overseen by regular audits conducted by the Company’s Export Compliance Officer. In establishing this kind of internal compliance framework, the Company clearly sets forth its commitment to compliance with United States International Trade Laws and Regulations.
State Sponsors of Terrorism
The United States maintains comprehensive export controls against countries sponsoring terrorism. Many exports to these countries, even of ordinary commercial items such as sunglasses, may require authorization from the U.S. government. The Department of Treasury’s Office of Foreign Assets Control (“OFAC”) works to enforce these controls. State sponsors of terrorism include Cuba , Iran , North Korea , Sudan , and Syria .
Transshipment and Re-export
Parties to an export transaction cannot bypass the EAR by shipping items through a third country. The transshipment, re-export, or diversion of goods and technologies in international commerce may be a violation of U.S. law. For example, an exporter cannot bypass the U.S. embargo against Iran by shipping an item to a distributor in the United Kingdom and asking that distributor to transship the item to a customer in Iran .
Export License Requirement
The export of many items, including software and technology, requires a license from BIS. It is the responsibility of the exporter to apply for a license when one is required under the EAR. License requirements are based on a number of factors, including technical characteristics of the item to be exported, end use, and end users. Obviously, high-end technology and defense articles will require an export license. However, seemingly innocuous items such as mattresses or shoes may require an export license, depending on the end-use and end-user. As a result, all clients with international business dealings should seek professional counsel to make an export license determination. In order to determine whether an export license is required for the transaction, counsel will require answers to the questions like: What is being exported? Where is it being exported? Who will receive it? How will it be used?
Under the EAR, the release of technology or source code to a foreign national, even if the foreign national is in the United States , is also “deemed” to be an export to the home country or countries of the foreign national. Consequently, such transaction may require a license under the EAR. Note that Technology can be released through a variety of formal and informal means, including visual inspection, oral exchanges of information, or the application to situations abroad of personal knowledge or technical experience acquired in the United States .
Consequences for Violating the EAR
Violations of the EAR are subject to both criminal, civil, and administrative penalties. Fines for export violations can reach up to $1 million per violation in criminal cases and may result in prison time. Additionally, significant civil penalties exist while administrative penalties may include the denial of export privileges.