EXPORT CONTROLS & SANCTIONS
Ensuring full compliance with export control laws and sanctions can be complex and onerous, especially if operating in or doing business in certain less stable parts of the world. It is therefore important to identify what restrictions may apply to a proposed transaction. For many companies, sanctions and export controls are relevant only to certain areas of the business, but when applicable they may prevent transactions taking place or require that they be licensed.
United States (U.S.) export control law imposes licensing requirements on certain transactions controlled by the U.S. Export Administration Regulation ('subject to the EAR'). U.S. export control law has extra-territorial effect, thereby governing the export, re-export and in some cases the in-country transfer of goods, technology and software by companies and individuals in non U.S. locations.
The U.S. International Traffic in Arms Regulations (ITAR) controls the manufacture, sale and distribution of military and space related articles (goods, technology and software), and services specified in the United States Munitions List.
These controls may therefore result in foreign (non U.S.) exporters having to consider export control laws and licensing requirements of the United States, as well as those laws of their own country.
Further restrictions are also looming following 'Brexit', and from 1 January 2021 exporters will be required to licence all shipments of dual-use controlled goods, software and technology (items) leaving the UK for any European Union (EU) destination, and similarly from the EU to the UK. Failing to properly licence controlled exports is a strict liability criminal offence in UK law.
Breaches of sanctions and export controls can have many detrimental effects including, damage to reputation, contractual penalties and lost business, as well as seizure of goods, substantial fines and even prison sentences.
Breaches of U.S. sanctions and export control laws may result in criminal or civil penalties, as well as denial of export privileges, revocation of U.S. export licenses, secondary sanctions etc....
Criminal penalties can include up to 20 years in prison and up to $1 million in fines per violation, or both.
Civil penalties for failing to comply with the Export Administration Regulations (EAR) can reach the greater of $300,000 in fines, or twice the transaction value, per violation.
Companies which trade in military or dual-use goods, or with countries where restrictions apply, are strongly advised to conduct regular audits of their export control and sanctions compliance procedures. Such audits are essential to ensure that compliance procedures remain robust and up to date, to identify any breaches and to manage their disclosure to the regulators to minimise the effect on the business.
How can I help?
What are export controls?
Export Controls are designed to restrict the export and communication of sensitive goods, technology or software (items), with the aim of preventing Weapons of Mass Destruction (WMD) proliferation and countering international threats, such as terrorism. Items may be subject to export controls due to their technical specification, end destination, end-user or end-use.
What are extraterritorial export controls?
Extraterritorial export controls apply to any person or entity located outside the country imposing the controls, thereby subjecting that person or entity to licensing provisions and export controls of that country. These rules are complex and may apply to foreign-made items that contain originating materials, or that are a direct product of technology or software or equipment of the originating country. The United States imposes extraterritorial export controls.
What is the EAR?
The US Department of Commerce’s Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR) (15 CFR Parts 730-774), which regulate the export, reexport, and transfer (in-country) of most commercial and some military items. The EAR contains the commerce control list (dual-use list), as well as end-use controls.
What is an ECCN?
An Export Control Classification Number (ECCN) is an alphanumeric designation (e.g., 3A001 or 6A003) used in EU/UK and US dual-use control lists, as well as certain other countries to identify items for export control purposes. An ECCN categorises items based on the nature of the product, i.e. type of goods, technology or software and its respective technical parameters.
What are dual-use controls?
Dual-use items are goods, software, technology, documents and diagrams which can be used for both civil and military applications. They can range from raw materials to components and complete systems, such as aluminium alloys, electronic components, bearings, or lasers. They could also be items used in the production or development of military goods, such as machine tools, chemical manufacturing equipment or computers.
What are sanctions?
Sanctions and embargoes are political trade restrictions put in place against target countries with the aim of maintaining or restoring international peace and security. Sanctions measures include financial restrictions, arms embargoes and other trade control restrictions.
Will I need an export licence at the end of the Brexit transition period?
There will be no changes to controls on the export of military items from the UK other than minor legislative fixes. You will need to continue to apply for licences as you do now. You will need a new export licence if you are exporting dual-use items from the UK to the EU or the Channel Islands, issued by the UK. The Export Control Joint Unit (ECJU) has published the 'Open General Export Licence (OGEL) for exports of dual-use items to EU countries'. This licence also covers exports to the Channel Islands.
Contact AM Skinner Solicitors for expert legal advice in all areas of trade law, including export controls and sanctions, import & customs controls, Brexit, anti-bribery, ethics, commercial contracts, supply chain and other domestic and international trade law matters.