In today’s global economy, many companies are already doing business internationally or at least have opportunities to do business internationally. All US organizations and individuals exporting goods, software, or technology from the US are required to comply with export regulations. These regulations are intended to: (1) protect national security; (2) control items that are in short supply; (3) comply with multilateral arrangements, nonproliferation agreements, and UN sanctions; and (4) prevent proliferation of technology and weapons to supporters of international terrorism.
Export regulations cover a broad range of activities beyond just the sale of a product into another country. For example, export regulations and corresponding license requirements address the sharing of technical information with non-US persons whether physically present inside or outside the US. Moreover, companies are subject to export regulations even if the non-US person is an employee of the company and receives the technical information through the normal course of their employment.
Unfortunately, making faulty assumptions about exporting that turn out to be costly and even life-altering is not an uncommon occurrence. The burden and obligation of knowing and complying with export regulations falls on the company and key employees. Claiming ignorance of export requirements does not protect you or your organization from civil or criminal penalties for violations. It is critical that you and your organization understand the finer points of export regulation compliance since the penalties for violations include substantial financial penalties and incarceration.
Below are six key points to help you get started with export regulation compliance:
#1: There are Multiple US laws, Regulations, and Agencies that Oversee Exports
Primary sets of export regulations include: (1) Export Administration Regulations, administered by the Bureau of Industry and Security of the US Department of Commerce; (2) International Traffic in Arms Regulations, administered by the Directorate of Defense Trade Controls of the US Department of State; (3) The Foreign Trade Regulations, administered by the Census Bureau of the Commerce Department and enforced by US Customs and Border Protection; (4) The Foreign Assets Control Regulations, which set forth various embargoes and economic sanctions programs administered by the Office of Foreign Assets Control of the Department of Treasury; and (5) Antiboycott Laws and regulations enforced by the Commerce Department’s Office of Antiboycott Compliance and the Treasury Department’s Internal Revenue Service. It is common that a given transaction requires compliance with multiple regulations and oversight by more than one agency.
#2: Understanding what "Exporting" Means
Selling a product or facilitating the sale of a product overseas is generally understood to be an export. Further, US export regulations also applies to the transfer of software code and technology itself outside of the US in any manner, a key point that is often overlooked in company export compliance policies. Additionally, a “deemed export”, which is the release or transfer of technology or software code to a foreign person or entity in the US, is also considered an export.
#3: Dual-Use Products Can Be Problematic
Prior to becoming a business attorney, I worked with technology used to manufacture biopharmaceuticals. While biopharmaceuticals have improved healthcare across the world, the same technology used to produce biologically based cancer treatments can also be used for the production of biologics for nefarious purposes. Therefore, fully understanding export regulations when working with dual use technology, even when you know the end user is only interested in the proper use of your dual use technology, is paramount.
#4: Be Careful About Knowledge Transfer
In reference to the meaning of an export discussed above, be extra careful when dealing with technology and knowledge transfer. This can come in the form of opening a subsidiary, allowing access to your technology in the US, transfers by email to overseas partners, and any other method of communication. Many aspects of regular, ordinary business practices may require an export license that is not initially obvious when first considered.
#5: Understand Who the End Users Are
It is important to understand who the ultimate end user of your export is when determining if an export license is required. There are export restrictions based on the country of ultimate use, specific end user entities, specific individuals, the end use activity, and value/size of the transaction. Also, the exporter is responsible for knowing all the parties in the supply chain before the product reaches the ultimate end user. Therefore, knowing the ultimate end user beforehand when reviewing export requirements will mitigate risk related to export non-compliance.
#6: Get Help
State and federal level departments of commerce provide some amount of assistance, but it is often limited in scope. Generally speaking, government commerce officials can point you in a general direction or help you get started with the export review process, but ultimately, you are on your own and responsible for making the right decision. Reviewing, understanding, and complying with exporting and export license requirements yourself, especially with limited experience, is a difficult and daunting task. If your business makes a mistake regarding export license compliance, the consequences are severe. Therefore, working with an attorney knowledgeable about export compliance requirements that can readily navigate through the various bodies of regulations is well worth the expense when compared to the alternative.
Bottom line, understanding the nuances of export licensing is critical, because if not, mistakes are likely and can lead to adverse consequences. To avoid these consequences, strongly consider seeking assistance from an attorney experienced with export license requirements before “exporting” or conducting business internationally.