| Print | Back | Close |

What Are Export Controls?

Export control regulations

US export controls are regulations that govern the distribution of strategically important technology, services, and information to foreign nationals and countries. They are established for reasons of national security and foreign policy. In practice, this means that depending on what a company is exporting, and to whom, and for what end-uses, it may need a license from one or more US government departments. Two distinct bodies of export control regulations are:

• the Export Administration Regulations (EAR) – EAR has jurisdiction over the export or re-export of all commercial goods, technology, information, and services. A given item may be subject to restrictions under the EAR if it has been classified by the government as a "dual-use" item – that is, an item with both commercial and military applications. The EAR is administered by the Commerce Department's Bureau of Information and Statistics – BIS. EAR also contains anti-boycott provisions designed to prevent US citizens and companies from participating in economic boycotts and embargoes that the US government doesn't support.
• the International Traffic in Arms Regulations (ITAR) – ITAR controls the export of defense articles, defense services, and related technical data, including space and satellite-related items. ITAR is administered by the Directorate of Defense Trade Controls, known as the DDTC, an agency within the U.S. Department of State.

Every company in the United States involved in any way with the defense trade has to register with the Department of State. Part of the registration process is to appoint an individual or individuals to oversee the company's export controls program.

Another important part of the apparatus of export regulation is the Treasury Department's Office of Foreign Assets Control, also known as OFAC. OFAC administers and enforces economic and trade sanctions and embargoes against a variety of entities including targeted foreign countries and regimes; terrorists; international narcotics traffickers; those involved in proliferating weapons of mass destruction; and other threats to the national security, foreign policy, or economy of the United States.

What are exports?

An export is the transfer of commodities, technology, information, technical data or assistance, or software to a foreign location or to a foreign person in the United States. Under US regulations, an export doesn't necessarily have to be a tangible product – like an automobile; it could be technical data, such as specifications or design drawings, or even services, such as technical assistance delivered over the phone. A variety of transactions constitute exports for the purposes of the EAR or ITAR:

• an item may be sent by regular mail or carried by hand on an airplane
• an engineering drawing could be faxed to a foreign destination
• software might be uploaded to or downloaded through the internet
• technical data could be transmitted by e-mail or over the phone

Deemed exports

An item that doesn't even leave the United States may be subject to export controls. According to what is known as the "deemed export rule," the release or transfer of technology or source code subject to the EAR to a foreign person in the United States is a "deemed export." Such a transaction is regarded as an export to the home country of the foreign person. The deemed export rule hinges on the idea of a foreign person, a foreign national who does not belong to any of three categories:

• a US citizen – US citizens are excluded from the definition of foreign person. This includes natural-born citizens as well as individuals from other countries who have obtained US citizenship.
• a lawful permanent US resident – A person who has been issued a permanent resident visa, known as a "green card," is not considered a foreign person under the deemed export rule.
• a "protected" person as defined by the Immigration and Naturalization Act – Foreign nationals are not subject to the deemed export rule if they've been granted status as a protected person under the Immigration and Naturalization Act. Protected persons include political refugees and individuals who have been granted political asylum.

As with any kind of export, deemed exporting can happen in many ways: telephone and face-to-face discussions; photographs; e-mail; technical specifications, blueprints, or drawings; training sessions; collaboration with foreign persons; and access to databases that contain controlled technology.

Re-exporting

Another way in which export controls are broader than you might expect is that they cover "re-exports" – that is, items that are exported to one country and then exported again to another. This means, for example, that before a US company exports machine parts for assembly in another country, it may need to confirm, under the EAR's requirements, that the assembled items will not be re-exported to certain destinations. Most countries regulate exports. However, the United States is currently unique in that the EAR also exercises control over other countries, including control over the re-export of items from one foreign country to another. This applies especially to items – including technology – that could constitute a threat to the United States if particular countries or groups acquire them.

Consequences of noncompliance

It is a company's responsibility to put procedures and practices in place to ensure compliance with the EAR and ITAR. Failing to comply with export control regulations can have severe consequences for you personally and for your company.

Those who violate the EAR are subject to a range of penalties. The civil penalties include fines of up to $250,000 for each violation or twice the value of the transaction, whichever is greater, and denial of export privileges for items controlled by the EAR. Criminal penalties distinguish knowing offenses and willful offenses. For knowing offenses, a fine of $50,000 or five times the value of the exports, whichever is greater, can be imposed; also, violators face up to five years in jail. Willful offenses can be punished by imprisonment for up to 20 years for an individual and fines up to $1 million. In addition, other penalties can include seizure and forfeiture, as well as denial of licenses from other agencies.

Violations of ITAR also carry civil and criminal penalties. Civil penalties include fines of up to $500,000 per violation. A criminal conviction can carry a fine of up to $1 million or a ten-year prison sentence, or both, for each violation. In addition, the company at fault may be debarred from exporting defense articles or services in the future.

The civil penalties for OFAC violations can be fines of up to $250,000, or double the value of the transaction where the violation occurred, whichever is greater. In criminal cases, depending on the violation, fines of up to $1 million or 20 years in prison are available.

The term "export" is defined broadly for the purpose of export control regulations. Exports include intangible and tangible items, and are governed by EAR and ITAR regulations.