Is Your Company Subject to Federal Export Laws and Regulations
Which Federal Export Laws and Regulations Are Your Company Subject To?
A multitude business owners and executives fail to realize that their operations subject them to federal export compliance. Is your company obligated to comply? Here’s what you need to know.
Exporting is a multi-trillion-dollar business. U.S. companies exported approximately $2.5 trillion in goods to companies around the world In 2018 alone. While numerous American corporations export tens or hundreds of millions of dollars of goods annually, smaller companies make their own contribution to this huge figure also. Critically, a number of these smaller companies are oblivious to the fact that they are subject to federal export laws and regulations.
Is your company obligated to comply? You may be shocked to learn the answer. While not each individual and company that ships items oversees is labeled as an “exporter,” far more businesses come under this category than owners and executives generally realize.
Lawyers Representing Companies of All Sizes Nationwide for Federal Export Compliance
Here at Spodek Law Group, we represent businesses large and small with respect to federal export compliance. The scope of our practice is nationwide, and our federal compliance team serves clients across all business sectors. If you are not clear as to whether your company’s operations carry federal export compliance implications, you need to determine this quickly.
What questions do you need answered about federal export compliance? You are encouraged to get in touch with us to ask and get answers. Our lawyers can study your company’s operations to figure out where and to what extent compliance is necessary. Once we have completed a thorough assessment of your company’s needs, we can help you put a custom-tailored export compliance program in place that is created to protect your company (and you) from the risk of federal prosecution.
What Defines “Export”?
Pursuant to federal law, an “export” takes place any time a physical item is shipped outside of the United States or an “oral, written, electronic, or visual disclosure” is transferred or transmitted from the United States to a foreign country. The definition applies to all sorts of tangible and intangible items, from oil and gas to software code and other forms of intellectual property (IP).
These are the five primary ways in which a company can “export” an item to a foreign country:
Shipment of a Product to a Recipient in Another Country – Usually, companies that export products do this by shipping them through a third-party delivery or freight service. Included in this are mailing items internationally via the U.S. Postal Service (USPS) and shipping internationally with carriers such as FedEx, DHL, or UPS.
Hand Carrying a Product to a Foreign Country – Some companies send their staff members overseas carrying goods. They may also be subject to export compliance obligations. While this generally covers delivering items to foreign clients in person, carrying electronics, laptops, and other equipment can possibly implicate federal export control laws and regulations also.
Transferring or Transmitting Data to a Foreign Country – Software code, proprietary information, or other data that is transmitted or transferred to a foreign country is another form of export that comes under federal oversight. Included in this are transmissions and transfers via phone, email, fax, file sharing, and other electronic means.
“Re-Export” of an Exported Product or Exported Data – If your company exports a tangible or intangible product overseas and then a person in that country subsequently dispatches it to a company or individual in yet a third country, this is referred to as a “re-export.” Under federal law, U.S. companies’ export compliance requirements “follow” products and data to all countries to which they are shipped.
Under each of these five sweeping categories, an “export” can take a multitude of formats. For instance, depending upon the specific circumstances involved, all of the following are examples of shipments, transmissions and transactions that could possibly raise export control compliance questions:
- Shipment of final products to a foreign country
- Transmission of proposals or marketing information to a foreign country
- Shipments containing materials, supplies, or specifications sent to a foreign country
- Allowing access to proprietary information, software code, or other data to one or more individuals who are situated in a foreign country
- Collaboration with internal personnel or external business partners whose offices are in a foreign country
- Furnishing “defense services” in any capacity, directly or indirectly, to foreign nationals
- Overseas travel carrying business equipment or supplies
How Does the United States Government Regulate Exports?
While not every export requires pre-approval from the U.S. government, virtually all products fall under federal export laws and regulations in one form or another. The specific items that are subject to government approval are referred to as “controlled” exports, and handling controlled exports involves unique compliance obligations. This may involve procuring a license from one or more of the following agencies:
U.S. Department of Commerce (DOC) Bureau of Industry and Security (BIS)
The State Department (U.S. Department of State, DOS)
The Office of Foreign Assets Control (OFAC)
The majority commercial exports are subject to the oversight of BIS. BIS is the administrator of the federal Export Administration Regulations (EAR). These regulations apply to physical products as well as transmittable data and technology assets. One of the critical aspects of EAR is the Commerce Control List (CCL). Under this CCL, all exports are assigned an Export Control Classification Number (ECCN). This is a five-digit alphanumeric code that identifies the category and tangible or intangible nature of the product. These are the 11 categories under the CCL and their five product groups.
(0) Nuclear and miscellaneous
(1) Materials, chemicals, microorganisms, and toxins
(2) Materials processing
(5 Part 1) Telecommunications
(5 Part 2) Information security
(6) Sensors and lasers
(7) Navigation and avionics
(9) Aerospace and propulsion
CCL Product Groups:
(A) Systems, equipment, and components
(B) Test, inspection, and production equipment
Exports that don’t come under a CCL category or product group are given an ECCN or “EAR 99”. In a multitude of cases, though not every one, exports designated as EAR99 are low-tech consumer goods that are not subject to BIS (or OFAC or DOS) licensing obligations.
Another primary set of legislation that governs U.S. exports is the International Traffic in Arms Regulations (ITAR). This applies to “defense articles,” “technical data,” and “defense services” supplied for military usage. Defense contractors and companies in the business of manufacturing and distributing technologies, weapons, and other defense assets, must treat compliance with ITAR as critically important.
Does Your Company Require a License to Export?
As pertains to exporting items and data from the United States, businesses have three primary options available. Their choices are (i) to get a license under EAR or ITAR, (ii) to depend on a license exception under EAR or ITAR, or (iii) to export under the EAR’s No License Required (NLR) provisions.
Under the EAR, 13 classifications of products and data exist. These are all subject to licensing through BIS:
AT – Anti-Terrorism
CB – Chemical & Biological Weapons
CC – Crime Control
CW – Chemical Weapons Convention
EI – Encryption Items
FC – Firearms Convention
MT – Missile Technology
NS – National Security
NP – Nuclear Nonproliferation
RS – Regional Security
SS – Short Supply
XP – Computers
SI – Significant Items
If an item or some electronically-stored information comes under one of these 13 classifications, then the Commerce Country Chart in 15 C.F.R. § 738 Supplement 1 must be checked to figure out if a license is necessary based upon the country to which the product or data will be exported.
According to ITAR, most technical data, defense articles, and defense services are subject to licensing; and, in almost every case, companies need to register with the Directorate of Defense Trade Controls (DDTC) within the Department of State. Once they register with DDTC, companies can submit applications for licenses or employ the license exemptions that are available.
The EAR licensing exceptions fall into18 categories, and certain products are eligible to be exported NLR (No License Required). This includes the majority of (but not all) products classified as EAR 99. It also includes numerous other products. Under EAR, there are licensing exceptions for:
LVS – Shipments of limited value
GBS – Shipments to Country Group B countries
CIV – Civil end-users
TSR – Technology and software under restriction
APP – Computers
TMP – Temporary imports, exports, re-exports, and transfers (in-country)
RPL – Servicing and replacement of parts and equipment
GOV – Governments, international organizations, and international inspections
GFT – Gift parcels and humanitarian donations
TSU – Technology and software – unrestricted
BAG – Baggage
AVS – Aircraft, vessels, and spacecraft
APR – Additional permissive exports
ENC – Encryption commodities, software, and technology
AGR – Agricultural commodities
CCD – Consumer communications devices
STA – Strategic Trade Authorization license exceptions
SCP – Support for the Cuban People