Thanks to all speakers and participants who made our US Export Control seminar a great success!

We discussed current trends in enforcement of export control laws, how US sanctions apply to the European Union, and how companies can implement a solid compliance policy and properly carry out risk management practices. Here’s a summary of some of the most important topics discussed. Although it’s not an exhaustive report of the day, we hope it will give you a taste of the important information shared.

Nine trends in enforcement are:
1. Higher Fines
2. Increasing use of criminal penalties
3. Increasing extraterritorial application
4. Increasing focus on Iran and China (half of current fines result from exports to these two countries)
5. An integrated approach to enforcement (companies which violate one law tend to have a bad compliance culture)
6. Increased cross-border cooperation (increased risk of investigation due to information sharing)
7. Increased focus on a product’s end users (know your customer). The increased threat of terrorism makes this even more important today.
8. Increased focus on technology and information
9. The US government often uses jail as a threat in order to get a company to settle for a fine.

There are three main categories regulating US export controls and sanctions:

The Office of Foreign Assets Control (OFAC) gives executive orders prohibiting transactions with specific countries and “blocked persons”. Under OFAC, extra-territorial applications include:

1. Cuba sanctions and direct coverage of subsidiaries
2. Concepts of facilitation and agency
3. Employment by foreign companies of US nationals
4. Application to US-origin goods
5. Mergers and acquisitions involving US entities

The Department of Export Administration Regulations (EAR) controls items that are intended for civilian use but could also have a military application (or “dual-use” goods). Under EAR, extra-territorial applications include:

1. Jurisdiction over US-origin Goods
2. Jurisdiction over foreign companies that operate in the US
3. Items transiting through the US
4. Facilitation and Agency
5. Mergers and Acquisitions involving US entities

International Traffic in Arms Regulations (ITAR) controls defense articles and services.

1. Comprehensive jurisdiction over US-origin defense articles
2. Brokering of US-origin defense articles
3. Jurisdiction over companies that operate in the United States
4. Through dealings with US companies
5. Facilitating and agency
6. Mergers and acquisitions involving US Companies

Some current key US sanctions are: Cuba, Iran, Sudan, Syria, Balkans, Belarus, Burma, Ivory Coast, Iraq, Liberia, Libya, North Korea, and Zimbabwe. These change often, and companies should stay up-to-date with the status. Failing to keep track could potentially cause a company to either avoid exporting a product or idea that could have otherwise been executed or to mistakenly engage in an unlawful export deal. Lastly, merely sharing ideas and discussing technology is considered an export – it’s called a ‘deemed export’. Companies should consider this when sharing information, or even providing access to information via cross-border interactions and/or with foreign nationals.

Risk management is an integral part of export control and should be carried out regularly within companies. It involves addressing and avoiding intentional, unintentional, and negligent mistakes and teaching employees how to spot “red flags”. Companies should designate a compliance supervisor as well as an internal legal resource to support the risk management supervisor. These positions are valuable because they are objective in nature and will prevent a deal from going through if it is unlawful, no matter how tempting the deal may be. Companies should carry out regular internal audits and stay up to date with current sanctions, due to their ever-changing nature. And perhaps most importantly of all: educate, educate, educate. Train employees in a way that’s tailored to their job on a regular basis.

Suggested Risk Management Practices Include:

1. Tailoring compliance to the firm’s business and operating environments
2. Translating compliance materials into all relevant languages
3. Viewing compliance as part of corporate controls and as an essential risk-management tool
4. Unifying export compliance with other corporate programs
5. Regularly updating the program, adapting it from issues that arise
6. Incorporating compliance into performance reviews

Taking steps to eliminate legal errors in export control will create a healthy compliance culture within the company, which in turn will help a company avoid legal issues.