Ensuring full compliance with export control laws can be complex and onerous, especially if doing business in politically unstable parts of the world. It is therefore important to identify what restrictions may apply to a proposed transaction. For many companies, export controls are only relevant to certain areas of the business, but when applicable, they may prevent transactions from taking place, or require that they be licensed.
Export controls are measures imposed by governments to regulate the transfer of goods to other states. There are several reasons why governments aim to control the export of goods, depending on the nature, recipient, destinations and future use of the proposed export.
Strategic items (goods, software and technology) include most items that have been specially designed or modified for military use, as well as dual-use items which can be used for civil or military purposes. These items are listed in the military and dual-use control lists.
There is also a requirement to obtain an export licence for items not listed in the controls lists, that are, or may be, intended for uses in connection with weapons of mass destruction (WMD), or in military equipment in an embargoed destination, or for use as parts of military goods illegally obtained from the UK, irrespective of destination.
In the UK, the Export Control Joint Unit (ECJU) is responsible for regulating export controls. The ECJU is part of the Department for International Trade (DIT).
The US Export Administration Regulations (EAR) controls the export and re-export of most commercial items (goods, software, and technology) and certain munitions that have been transferred from the ITAR (US Military List).
Items subject to the EAR generally includes:
- All items in the US, including items:
- in a US Foreign Trade Zone; or
- moving in transit in the US from one foreign country to another.
- All US origin items wherever they are located.
- Foreign-made (not made in the US) commodities that either incorporate controlled US origin commodities or are bundled with controlled US origin software in quantities that exceed specified levels.
- Certain foreign-made direct products of US origin technology or software.
- Certain commodities produced by any plant or major component of a plant located outside the US that is a direct product of US origin technology or software.
The US International Traffic in Arms Regulations (ITAR) controls the manufacture, sale and distribution of military and space related items (goods, technology and software), and services specified in the United States Munitions List.
These controls may therefore result in exporters having to consider export control laws and licensing requirements of the United States, as well as those laws of their own country.
The UK enforces its export control regime rigorously. Exporters who commit export control offences in the United Kingdom are investigated by HMRC. In serious cases, HMRC officials may refer a matter to the Crown Prosecution Service which may decide to prosecute offences in the criminal courts.
Exporting any item without the relevant licence where the exporter deliberately does so in order to evade export control law, is chargeable with a fine or a custodial sentence of up to ten years’ imprisonment. Many other offences are offences of strict liability, meaning that a person may be found liable, even if unaware that a licence was required.
Failure to comply with the US Export Administration Regulations may result in criminal or civil penalties, as well as denial of export privileges, revocation of US export licences and secondary sanctions. A denial of export privilege, prevents the direct or indirect participation in any transaction subject to the EAR. Furthermore, a party (company or individual) may not participate in any export transaction which is subject to the EAR, where another party to that transaction is a denied party.
Criminal penalties under the Export Administration Regulations (EAR) can include up to 20 years imprisonment and up to $1 million in fines per violation, or both. Civil penalties for failing to comply with the EAR can reach the greater of $300,000 in fines, or twice the transaction value, per violation.
Andrew Skinner is an experienced regulatory trade lawyer (Solicitor) and has worked as an in-house lawyer for a global technology company, as well as in private practice. He is also a professionally qualified engineer and registered with the UK’s Engineering Council as a Chartered Engineer (CEng). Andrew advises clients on a range of trade compliance issues in various sectors, including electronics, aerospace & defence, cosmetics, IT, automotive, nuclear engineering and industrial engineering, delivering timely pragmatic advice in a way that recognises the commercial demands faced by clients.