U.S. Government controls on the export of goods and technical data are designed to protect the nation on two levels: to support U.S. national defense and to ensure the competitiveness of the nation’s industry and economy. All parties to U.S. export transactions must fully comply with the relevant statutory and regulatory requirements because of these controls.
In order to determine the applicable export control requirements, U.S. exporters must identify the item in question, the item’s intended end-destination, the item’s recipient and the item’s intended end-use.
An item’s classification as either a commercial good or a defense article is crucial in determining how to comply with U.S. Government regulations. There are two major categories that an item may fall under. First, items may be “dual-use” goods (i.e., items that are primarily civilian goods but may also be adapted for military purposes). “Dual-use” goods are regulated by the U.S. Department of Commerce (“DOC”). Second, items may be identified as defense commodities that are regulated by the U.S. Department of State (“DOS”). Depending on the item’s classification, there are two very different procedures an exporter must adhere to in order to comply with U.S. Government standards.
1. Exportation of “Dual-Use” Goods
The Bureau of Industry and Security (“BIS”) of the DOC is responsible for implementing and enforcing the Export Administration Regulations (“EAR”). The EAR regulate almost all commercial commodities. Items that are subject to the EAR are referred to as “dual-use” goods.
When an item is subject to the EAR, it must be determined if the item requires an export license. In order to make this determination, an exporter must consult the Commerce Control List (“CCL”), which is made up of Export Control Classification Numbers (“ECCNs”). The ECCNs identify particular items and indicate the specific controls related to those items.
Further, the item’s end-user and end-use must be identified. To determine an item’s license requirements, the Commerce Country Chart must be reviewed. This chart will determine license requirements based on the item’s destination and reason for control.
The transaction must also be screened against the Denied Persons List, the Entity List and the Unverified List. Entities listed on the Denied Persons List will be denied export privileges altogether. Entities listed on the Entities List or the Unverified List will be subject to additional license requirements.
2. Exportation of Defense Articles
The U.S. Government strictly regulates exports of defense articles as an integral part of safeguarding its national security. The Directorate of Defense Trade Controls (“DDTC”) of the Bureau of Political-Military Affairs (“PM”) is responsible for regulating the export of defense articles that are covered by the U.S. Munitions List (“USML”). The DDTC administers these regulations in accordance with the Arms Export Control Act (“AECA”) and the International Traffic in Arms Regulations (“ITAR”).
Since political and technological developments are ever-changing, these regulations are frequently revised, and the DOS, together with the U.S. Department of Defense (“DOD”), are responsible for determining the articles covered by the USML.
In order to comply with U.S. regulations, and before any export of a defense article may be made, it is paramount that exporters of defense articles take two required steps. First and foremost, as a prerequisite to any export privileges, U.S. exporters of defense articles must register with the DDTC. Second, exporters of defense articles must apply for a license to be approved by the DOS.
3. Penalties for Export Violations:
Both civil and criminal penalties may be imposed on export violators. Under the Export Administration Act of 1979 (“EAA”), criminal penalties include up to 20 years’ imprisonment and a $1 million sanction per violation. Civil penalties include up to an $11,000 fine per violation and up to a $120,000 fine per violation involving a defense article controlled for national security purposes.
Penalties may also be set under the International Emergency Economic Powers Act (“IEEPA”). When the IEEPA is in effect, criminal penalties include up to 20 years’ imprisonment and a $1 million sanction per violation. Civil penalties can reach the greater of $250,000 per violation or twice the amount of the transaction in violation.
For further information or assistance with exports, please contact us.