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Complying with the EAR

Overview of the EAR process

There are five steps a company should take when determining export licensing requirements:

• determine if there are any prohibitions against exporting to the destination country
• screen the receiver of the shipment against various denied persons lists to ensure he or she is not prohibited from participating in export transactions
• check if any end-use restrictions apply
• inquire further if the transaction raises any red flags
• determine if there are any exceptions to license requirements for the shipment

Where is the export going?

First, consult the CCL to find the reasons for controlling the item and the Commerce Country Chart reference.

Next, refer to the Commerce Country Chart. The chart lists each country on the vertical axis and reason for control codes on the horizontal axis. If there is an X in the box based on the reason for control of your item and the country of destination, then a license is required, unless a license exception is available. If there is no X, then a license will not be needed for that export based on the country of destination.

Who and what is the export for?

The next step in determining license requirements is to run a denied persons check. Denied persons are those individuals or businesses that have been denied export privileges by the Commerce Department. Companies are required to screen their export transactions for parties of concern. In other words, they have to determine not only if the ultimate end user, but also if any parties involved in the export transaction, is a person or company that's been denied export privileges.

Denied person prohibitions apply to all items subject to the EAR. There are no license exceptions to such denial orders. The only way to overcome a denied person prohibition is by a specific authorization from BIS, which is rarely granted.

The third step for determining license requirements is to check for end-use restrictions that may apply. Some end uses are prohibited, and others require a license. In addition to the license requirements for items specified on the CCL, it's prohibited to export or re-export EAR-controlled items to any destination without a license if you know they will be directly or indirectly used for certain activities. These activities include those related to nuclear technology, missile technology, and chemical and biological weapons. The intent of these restrictions is to limit proliferation of weapons of mass destruction.

Items designated EAR99 are those that are subject to the EAR but not listed in the CCL. Generally, no export license is required for these items. However, if the item is to be exported to an embargoed or sanctioned country, to an end user of concern, or in support of a prohibited end use, a license may be required.

Consider red flags

Examining a transaction for any red flags is the fourth step in determining if a license is required. A red flag does not create an automatic license requirement, but indicates that further scrutiny is needed. For example, an end user listed on the Unverified List is a red flag that should prompt the exporter to gather more information. Red flags can indicate that an export may be destined for an inappropriate end user or end use. The BIS web site has a list of 13 red flags to watch out for. Consider the specifics of five of them:

• the customer's name or address is similar to those of a party found on the Denied Persons List
• the customer's purchasing agent is reluctant to discuss the end use of the item
• the purchaser's business seems inconsistent with the order
• the customer declines routine services that are included in the sale price
• a freight forwarding firm is listed as the product's final destination

Are there relevant exceptions?

The fifth and final step to determining license requirements is to check if any exceptions apply. A license exception is an authorization to export or re-export an EAR-controlled item that would otherwise require a license. Eligibility to use such an exception may depend on the nature of the item being exported, the ultimate destination for the item, the end use or end user of the item, or other circumstances related to the export.

There are general restrictions that apply to the use of license exceptions. For example, exceptions cannot be used in two circumstances:

• when the item is controlled to its destination for purposes of Crime Control
• when the item is controlled for Missile Technology reasons

Also, any particular license exception will usually have terms and conditions attached that may prohibit exporting the item to certain countries. Countries are divided into four categories: regime member, less restricted, countries of concern, and terrorist supporting. For example, one term of a license exception might be that it doesn't apply to countries in the terrorist supporting category.

There are two types of exceptions: CCL-based license exceptions and transaction-based exceptions. CCL-based exceptions are given in the CCL as part of the specific ECCN entry. They specify the criteria – such as country group, value of shipment, and end use – to qualify for the exception.

Transaction-based exceptions may be available for transactions involving temporary exports and re-exports, service and replacement of parts and equipment, or unrestricted technology and software. Two general exceptions discussed earlier also apply to EAR-controlled items. These are the publicly available technology exception and the "use" exception.

Documentation and record-keeping

Following the steps that have been outlined so far helps ensure compliance for EAR-controlled exports. However, the EAR, like ITAR, also imposes specific record-keeping requirements. One requirement is that records of all export transactions must be kept for a period of five years. This includes exports made under license exceptions. Among the records to keep are commercial invoices, copies of Shipper's Export Declarations, and airway bills or bills of lading.

In short, record-keeping is itself a requirement of ITAR and EAR. Knowledge of record-keeping requirements is therefore indispensable to compliance with export regulations.