Export compliance can sometimes feel like a jigsaw puzzle that keeps adding pieces faster than you can find out where they go. In recent years, these regulations continue to change and become more complex. (Just count the pages in the Federal Register notices. They keep piling up!) Now more than ever, it’s crucial to understand these rules and regulations, why they are important, who is enforcing them, and what are the consequences. Oftentimes, the answers to these questions only seem to lead to more questions.
Here are some ways the regulations are growing in complexity, and what you can do to stay ahead of the game.
Many different requirements
U.S. export control laws contain thousands of requirements and those requirements themselves are often complex. In fact, many can seem counterintuitive. For example, consider that exports can take the form of oral, written, electronic, or visual disclosure, shipment, transfer, or transmission. This can mean not only technology leaving the shores of the United States (including transfer to a US citizen abroad), but also transmitting the technology to an individual other than a US citizen or permanent resident within the United States. Is your head spinning yet?
That said, exporting is lucrative and can gain an organization access to 80% of the global market. Each year, billions of dollars in dual-use items (those with both commercial and military applications), as well as defense items, are exported from the United States. To protect its interests, the U.S. government controls the export of these items to a wide range of foreign destinations, end users and end uses. International trade compliance poses a significant challenge for global businesses, given the constantly changing regulatory landscape. The regulations and laws that govern trade controls are becoming increasingly complex and choosing to ship material around the world adds a layer of difficulty that can be daunting for some companies trying to figure them out. Selling to St. Petersburg, Florida is not the same as selling to St. Petersburg, Russia. The imposition of new large-scale sanctions (like the ones in Russia, for example) require vigilant monitoring.
Change, change … change!
There is also an export control reform initiative in the U.S. that is rewriting and changing many export control regulations. This means a rapid evolution in the laws and regulations, usually resulting in more complexity and nuance. These regulations prohibit the unlicensed export of certain commodities or information for reasons of national security or trade protections, to advance foreign policy interests, prevent terrorism and the thwart the proliferation of weapons of mass destruction. They are also a tool to help preserve U.S. economic competitiveness.
With such complex regulations and sanctions, companies are trying to get a handle on where U.S. law and regulations come down on their organization and how to navigate the thorny questions of legality. International law continues to shape export expectations and the goal is to make sure stakeholders clearly understand the policies, market forces and societal implications.
Consider this: U.S. goods and services exported to China top $180 billion, while exports to China remain a top enforcement target of U.S. export regulators. In fact, half of all Directorate of Defense Trade Controls (DDTC) consent agreements since 2012 have involved China-related violations and exports involving China are more likely to result in serious consequences. This means proceeding with caution with these transactions to avoid trouble is more important now than ever before. Also, while countries like Russia, China, and Iran continue to be high-risk countries, it’s important to note that bad actors exist in countries far and wide. A company can find itself in trouble for shipping to so-called “safe” countries like Canada or the EU (just to name two).
Multiple agencies are responsible for export enforcement. The Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions. The Department of State’s International Traffic in Arms Regulations (ITAR) implements the Arms Export Control Act (AECA) and the Department of Commerce’s Export Administration Regulations (EAR) is administered by the Bureau of Industry and Security. Some of the areas of enforcement focus come down to:
- What is the nature of this export? Does it have actual or potential military applications or economic protection issues?
- What is the destination country, organization, or individual? Where is it going? Is there a diversion risk that it might end up somewhere else?
- What is the declared or suspected end use for the export? What assurance do we have that the stated end use is the actual end use?
Export controls are serious business and violations can result in individual, corporate, and civil penalties of up to $1m+ in fines per violation and 20 years in prison for ITAR, EAR, and OFAC penalties. Collateral and administrative penalties should also be considered for reputational harm, denials of export privileges, debarment from government contracting, asset blocking, and independent monitoring.
With these government regulators tightening their enforcement of regulations, increasing the focus on accountability of senior management, and imposing ever-growing penalties, export controls and sanctions compliance is quickly becoming a top strategic issue for many businesses. Complex topics of export regulation, homeland security, inspection, international trade restriction, law enforcement, licenses, policy evaluation, and regulatory agencies have many companies partnering with advisors to assist in the determination process and to provide support in navigating the complexity of export regulations.
A great team of consultants can help you navigate through all the different regulations and requirements. They can “connect the dots” for your business in a way that is understandable and easy to implement. The Export Solutions team regularly advises companies on all aspects of trade controls, including the ITAR, EAR and OFAC rules.
Compliance is complex, but it is achievable. We are here to help. Schedule a no-charge consultation with our team today and let’s get started.
Laura Schellhorn is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm that specializes in helping companies comply with U.S. and international import/export regulations.