Q. Am I subject to U.S. Export Controls?

A. This will depend on a number of factors. As a general rule, any export from the United States is potentially subject to certain restrictions or controls by any number of U.S. government departments and agencies.  These include the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), which administers controls against certain countries that are the object of sanctions, and the Drug Enforcement Administration’s Office of Diversion Control, which regulates drugs and chemicals.  However, the primary agency responsible for administering the export laws is the Department of Commerce’s Bureau of Industry and Security (“BIS”).  Unless another federal agency has exclusive jurisdiction over a particular item, the BIS will have jurisdiction.  This article will focus on “dual use” exports (i.e. items that solely have non-military uses, or that can be used in both commercial and military applications) which are controlled by the Export Administration Act of 1979, as amended, 50 U.S.C. app. 2401-2420 (“EAA”), and the Export Administration Regulations (“EAR”) promulgated thereunder.  The EAR is accessible at http://www.access.gpo.gov/bis/ear/ear_data.html.

1. The Export Administration Regulations.

The core of the EAR concerns exports of dual use items from the United States.  Items can be both tangible and intangible, including commodities, software or technical data.  Under the EAR, “export” is fairly broad, applying to transactions both within and outside the United States, as well as activities that might not otherwise constitute “exports” in the usual sense.  Under the EAR, “export” includes (1) any shipment out of the United States, (2) any electronic transmission out of the United States, and (3) any release of technology to a foreign national within the United States (termed “deemed exports”). 

With regard to the latter, businesses should be cautious about inadvertently violating the EAR by releasing U.S. technology or software through such innocuous activities as giving tours of laboratories or by granting access to controlled items to employees who are foreign nationals, even if the employee is located within the United States. 

Also incorporated within the purview of “exports” are “reexports,” which include (1) any shipment of a U.S. origin item from one foreign country to another, (2) any shipment of a foreign produced item containing U.S. origin parts, from one foreign country to another, and (3) any shipment from one foreign country to another of an item manufactured abroad based on U.S. origin technology. 

2. Applying the EAR.

The first step in determining your obligations under the EAR is to identify five key facts:

1. What is my item? What an item is, for export control purposes, depends on its classification, which is its place on the Commerce Control List. 
2. Where is it going? The country of ultimate destination for an export or reexport also determines licensing requirements.
3. Who will receive it? The ultimate end-user of your item cannot be a prohibited end-user.
4. What will be the end-use? The ultimate end-use of your item cannot be a prohibited end-use.
5. What else do they do? End-user conduct such as contracting, financing, and freight forwarding in support of a nuclear proliferation project may prevent you from dealing with someone.

As a general rule, all items in the U.S., except publicly available technology and software (except encryption), is subject to the EAR.  

A. The Commerce Control List

The Commerce Control List (“CCL”) can be found at Part 744 of the EAR.  It contains lists of items subject to the licensing authority of BIS.  Each item is assigned an Export Control Classification Number (“ECCN”).  Once the ECCN of the item is determined, the CCL will provide (1) the license requirements applicable to that item, and (2) what license exceptions are available.  Key to determining the licensing requirements is knowing where the item is going and what its intended end-use will be.

B. Additional Lists to Check.

Once it is determined that the item is subject to the EAR, and that a license either is or is not needed to export the item based on its ECCN, the exporter should then check the following lists (all accessible via the BIS website at http://www.bis.doc.gov), to see if any additional prohibitions apply:

(1) the Denied Persons List;
(2) the Entity List;
(3) the Unverified List;
(4) the Specially Designated Nationals List;
(5) the Debarred List;
(6) the Nonproliferation Sanctions List; and
(7) the General Orders. 

C. Restrictions on Certain End-Uses.

In addition to the license requirements for items specified on the CCL, you may not knowingly export or reexport to an end-use or end user prohibited by Part 744 of the EAR without a license or license exception.  Part 744 deals primarily with nuclear proliferation, missile technology and chemical/biological weapons.  Accordingly, it is always recommended that exporters investigate who they are exporting to, and what their recipient intends to do with the item.

D. Restrictions on Exports to Embargoed Countries.

In addition to the license requirements for items specified on the CCL, you may not knowingly export or reexport items to the embargoed countries described in Part 746, currently Cuba, Iran and Sudan, without a license or license exception.

E. Restrictions on Weapons Proliferation Activities.

In addition to the license requirements for items specified on the CCL, you may not support weapons proliferation activities, which includes financing, transportation, freight forwarding, performance of contract, service or employment, and providing technical assistance in developing encryption items outside the U.S.  Accordingly, it is always recommended that exporters investigate what activities their intended recipient is involved in. 

F. Restrictions on Transit.

In addition to the license requirements for items specified on the CCL, you may not export or reexport items through (i.e. transit through) certain listed countries without a license or license exception.  These countries currently are Albania, Armenia, Azerbaijan, Belarus, Cambodia, Cuba, Georgia, Kazakhstan, Kyrgyzstan, Laos, Mongolia, North Korea, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam. 

3.  Penalties.

The penalties for exports or reexports in violation of the EAR can be severe.  Criminal penalties include a jail term of up to 20 years and a $250,000 fine (or $1,000,000 for a corporation).  Civil penalties include up to $250,000 per violation or two times the value of the export, and a denial of export privileges. 

4. The Exporter’s Responsibilties.

Exporters must take responsibility for:

1. Knowing their responsibilities under the EAR.  Critical to this is properly classifying their item under the correct ECCN.
2. Knowing and verifying the identities of all parties to a transaction.  In particular, exporters should verify and investigate all intermediaries and the ultimate consignee on the export records.
3. Ensure that all parties know their compliance responsibilities.  For example, exporters should use import certificates and provide end-use statements where appropriate, and obtain signed statements by the ultimate consignee and purchaser regarding their intended end-use prior to shipping.

Complying with U.S. export controls can be a complicated process, and an effective export management compliance program can be key in ensuring proper compliance with the export laws.  Businesses should consider consulting an attorney to determine their obligations under the export laws.

Last revised Oct. 20, 2009.

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

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