A Primer on the U.S. Export Control Laws

The current export control system is administered by two different departments, three different primary licensing agencies with differing policies, all operating under two different control lists, with fundamentally different approaches to defining controlled products.

The core distinction between the rules that govern exports is whether the controlled product or service is “commercial” or “defense-related.”  However, even this distinction can sometimes be blurry if the product or service is “dual use.”  Products or services with military or proliferation applications are regulated by the International Traffic in Arms Regulations (ITAR), and enforced by the U.S. State Department.  ITAR controlled products and services are not addressed in this series.

Exporting Commercial/Dual-Use Products & Services

The Export Administration Regulations (EAR) control the export and reexport of most commercial items.  They are enforced by the U.S. Department of Commerce through its Bureau of Industry and Security (BIS).  However many products and services are not purely commercial, meaning they have no obvious military use.  Commercial products and services may also have a military use.  Those having both commercial and military or proliferation applications are called “dual-use” and are also subject to the EAR.  EAR jurisdiction controls all items in the U.S., regardless of origin, certain items outside the U.S., certain activities of U.S. persons and releases of source code or technology to foreign national in the U.S. or abroad.  With such broad jurisdiction, it’s pretty simple to see that most items are subject to the EAR.  That said, the licensing requirements are fairly narrow.  Therefore a relatively small percentage of all U.S. exports and reexports require a BIS license unless the destination is embargoed or has been designated as supporting terrorist activities.

Certain individuals and organizations are prohibited from receiving U.S. exports.  Others may receive goods only if they (the recipients) are licensed, even if the items themselves would otherwise be license exempt.  Finally, some end-uses are prohibited while others may require a license.

To determine your export license requirements, you need to answer 4 basic questions:

• What are you exporting?
• Where is it going?
• Who will be the recipient?
• What will the recipient do with the item?

To ascertain if you need an export license, you must first consult the Commerce Control List (CCL) to determine your product’s CCL category and product group to establish if your product is specified by an Export Control Classification Number (ECCN).  Then cross-reference the ECCN with the Commerce Country Chart, which identifies the reason for the control with respect to the country of ultimate destination.  Then you must consult the Denied Persons List, the Unverified List, the Entity List, the Specially Designated Nationals List, the Debarred List and the Nonproliferation Sanctions List!  Despite the number and ominous-sounding lists, most EAR regulated exports from the United States do not require a license and are exported under the designation “NLR” – No License Required.  This is because the products are either not on the CCL (referred to as EAR99) or, if they are on the CCL, there is no “X” in the box(es) on the Country Chart for the country of destination with respect to the reason for control.
Why Bother if Most EAR Exports Are NLR?

The consequences of violating the EAR may be severe.  No finding of intent is necessary for administrative violations.  Therefore, cases may be brought in a wider variety of circumstances than criminal cases.  But violators may be subject to both criminal and administrative penalties – especially if the violation is willful or if the EAR have been disregarded. Civil penalties of $250,000 or twice the value of the transaction, whichever is greater, may be imposed for each violation.  Criminal violations may result in fines up to $1,000,000 and/or up to 20 years in jail.  Administrative penalties may also include denial of export privileges.  Not only will you be prohibited from export activities, but also others may not participate in an export transaction with you as a “denied person.”

Next Time:  What’s New in Export Control