| Enforcement of US Export Control Laws against Non-US Companies Module |  |  |  | |
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| | Enforcement of US Export Control Laws against Non-US Companies
By Mogens Vind, partner, Eversheds
The U.S. Government has increasingly expanded its enforcement of U.S. export control laws beyond its territorial borders. As a result, non-U.S. companies are increasingly targeted for violations of U.S. export control regulations. |
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 | Overview of U.S. Export Control Regulations
It is important for non-U.S. companies to understand their compliance responsibilities under the different U.S. export control laws in order to minimize their potential exposure.
The most prominent export control laws are:
(1) The International Traffic in Arms Regulations (ITAR);
(2) The Export Administration Regulations (EAR); and
(3) Regulations concerning economic sanctions imposed against various countries and entities by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC).
The ITAR govern exports and re-exports of defense articles and defense services.
In order to export or re-export ITAR-controlled commodities or technical data it is necessary to obtain an authorization from the U.S. Department of State.
Penalties for violations of the ITAR can be severe and can include: (1) administrative debarment that prohibits companies from participating directly or indirectly in the export of defense commodities or services; (2) civil penalties of up to $500,000 per violation; and/or (3) criminal penalties of up to $1,000,000 for each violation, and/or imprisonment for up to 10 years.
The EAR applies to exports and re-exports of commercial and dual-use (i.e. commercial and military) U.S.-origin commodities and technology. An export license is required to export or re-export commodities or technology if the item is classified on the Commerce Control List and designated on the Commerce Country Chart for the country to which the item will be exported or re-exported.
Penalties for violations of the EAR can be significant and can include: (1) administrative debarment that prohibits entities from participating directly or indirectly in the export of commodities and technology; (2) civil penalties of up to the greater of $250,000 or twice the value of the transaction; and/or (3) criminal penalties of up to $1,000,000 for each violation, and/or imprisonment for up to 20 years.
The OFAC regulations relate to countries that are subject to comprehensive U.S. embargoes (e.g., Cuba, Iran, and Sudan) and limited embargoes (e.g., Balkans, Belarus, Burma, Côte d’Ivoire, Iraq, Liberia, North Korea, and Zimbabwe), as well as certain countries relating to list-based sanctions programs.
Each of the embargoed countries and list-based sanctions programs is governed by its own set of regulations that differ in terms of scope and substance. In most cases, if the U.S. has imposed a comprehensive embargo against a country, U.S. persons are prohibited from engaging in virtually all trade, investment, and commercial activities with nationals from that country.
Penalties for violations of many of the OFAC Regulations can be harsh and can include: (1) civil penalties of up to the greater of $250,000 or twice the value of the transaction; and/or (2) criminal penalties of up to $1,000,000 for each violation, imprisonment for up to 20 years, or both.
Complying with U.S. Export Control Regulations
In order to comply with U.S. export control regulations, companies should always consider taking the following steps before proceeding with re-exporting U.S.-origin commodities or technology or exporting foreign-made products containing U.S.-origin commodities or technology:
Step 1. Determine whether the U.S.-origin commodity or technology is listed on the U.S. Munitions List. If so, unless an exemption applies, it will be necessary to obtain appropriate authorization from U.S. Department of State in order to re-export the commodity or technology or to export foreign products containing such U.S.-origin items.
Step 2. Perform export screening of the proposed customer. If the customer is identified on any of the US Government’s proscribed entity lists, or if it is known that the customer will utilize the commodity or technology for a prohibited end-use, do not proceed. Likewise, if the customer is located in one of the countries subject to comprehensive U.S. sanctions or is a national of any such country, do not proceed with the transaction, unless the de minimis requirements set forth in step 3 are satisfied.
Step 3. Determine whether the value of all U.S.-origin commodities and technology is 10% or less of the total value of the foreign-made product or technology. If so, the U.S.-origin content is deemed to be de minimis, and no license is necessary provided that a one-time report is submitted to the Bureau of Industry and Security to confirm that the de minimis requirements are satisfied in the case of software and technology.
Step 4. Determine whether the U.S.-origin commodity or technology is listed on the Control List, and if so, refer to the Commerce Country Chart to determine whether a license is required from the Bureau of Industry and Security to re-export the commodity or technology to the proposed customer. If the U.S.-origin commodity or technology is not listed, or if it is listed but reference to the Commerce Country Chart indicates that no license is required, then it is not necessary to obtain a license.
Step 5. Determine whether one of the license exceptions set forth under the EAR may be utilized. If not, a license must be obtained from the Bureau of Industry and Security.
It follows from the above that determining whether a commodity or technology is caught by the export control regulation, or whether a license exemption or a license exception applies, can be very complex, and as such, it is often useful and necessary to seek guidance from practitioners experienced in the area of U.S. export control regulations.
Examples of recent export control cases
Significant penalties have recently been imposed on non-U.S. companies for violations of U.S. export control laws:
• In early 2009, it was announced that Lloyds TSB Bank, a United Kingdom-based corporation, agreed to pay U.S. $350 million to resolve its liability for processing payments through U.S. banks on behalf of entities from various countries subject to U.S. sanctions, including Iran and Sudan.
• More recently, a fine of over U.S. $400,000 was levied against Stena Bulk, a U.S. company, for actions taken by its foreign affiliates in connection with providing transportation-related services for the transportation of oil to Sudan and the exportation of Sudanese-origin oil without the required license.
In addition to fines, U.S. authorities are becoming increasingly aggressive in terms of pursuing criminal charges for serious violations of U.S. export laws and regulations. Recently, the U.S. Department of Justice (DOJ) announced that more than 145 defendants, including both corporations and individuals, had been charged with criminal violations of U.S. export laws in 2008.
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Eversheds International
www.eversheds.dk
Eversheds International is one of the largest full service law firms in the world. We have 47 offices in 29 countries across Europe, Middle East, Africa and Asia and select pre-qualified partners in other relevant jurisdictions where we do not have own offices. The office in Copenhagen offers corporate full service and advises within all aspects of law applicable to corporates generally including banking, finance, M&A, competition, procurement, property, HR, tax and energy. Our clients can trust us to handle all their jobs of any size. With our geographical spread we can cover most relevant jurisdictions with our own offices. Eversheds has developed effective project management tools and makes use of bespoke IT solutions (client and project extranets) to increase speed and communication efficiency. All offices work to the same protocols no matter what jurisdiction they operate in.
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samjalaei@eversheds.com,
Tel +45 33 75 05 43
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www.eversheds.com
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