Export Controls: The Road to Export Compliance

Doing business in the international markets can get overwhelming quickly if you are not familiar with the critical concepts and requirements. Export controls and export compliance are some such concepts that you must know if you are planning to send goods overseas.

Export controls compliance is a vast space with plenty of acronyms and concepts. While experts can easily understand their way around the export administration regulations and associated concepts, beginners can get lost. And, the authorities don’t acquit violations for anyone. Non-export compliance comes with heavy penalties that can burn a big hole in a business’s revenue and reputation.

Thereby, to avoid any such pitfall, let us help you with understanding export controls and how to ensure complete compliance with export control laws.

What are export controls?

Rapid globalization and expansion of international commerce have faded the borders leading to higher movement of people and goods around. To curb the negative consequences that can emerge thereby, certain regulations have been put in place. One such set of regulations is called Export Controls.

Essentially, export controls are rules and laws meant for regulating specified items like goods, technology, and software on global, regional, or national levels. These controls vary for every country as they often align with different interests like national security, trade protectionism, foreign policy, intellectual property rights, etc.

For instance, dual-use goods like arms and munitions are usually controlled for exports to all countries. On the other hand, items related to technology or cyber operations may be controlled only by globally embargoed countries or terrorist regimes, etc.

What is export compliance?

Export compliance can be understood as a holistic framework for the regulation of all activities surrounding the export of wholly or partially controlled items. All individuals or organizations looking forward to exporting any kind of controlled items are required to ensure complete export compliance so that they do not fall prey to hefty penalties or even jail time.

Various kinds of export activities are subjected to export compliance. Some of them include (but are not limited to) the exchange of regulated information, trade of controlled goods, transfer of IP-regulated data to any unauthorized person, providing any kind of service to restricted parties, etc.

What entities are responsible for export compliance?

Different bodies and authorities exist at national or global levels that are responsible for regulating export control laws and overseeing export compliance. Simultaneously, the other parties equally responsible for ensuring complete compliance with the export controls include companies, businesses, non-profit organizations, research professionals, etc.

Following are some of the major national and international laws that deal with regulating export controls.

ITAR or International Traffic in Arms Regulations- The ITAR regulations are enforced by DDTC for the purpose of controlling defense weapons and technologies. The items regulated under ITAR are mentioned in USML or the United States Munitions List.

EAR or Export Administration Regulations- The EAR regulations are enforced by BIS for controlling dual-use items as well as other items not regulated under the ITAR. A list of items covered by EAR is called the Commerce Control List.

FACR or Foreign Assets Control Regulations- These regulations are enforced by the OFAC US for regulating the economic trade sanctions imposed by the US on other countries. The main aim of FACR is to uphold national security interests and embargoes on traffickers and terrorists.

While the regulations mentioned above are governed by US organizations, similar legislations and governing bodies exist in other parts of the world too. Some of the international bodies that oversee export compliance are United Nations, law agencies, central banks, etc.

How to ensure effective export control compliance?

The export controls and compliance requirements for every country vary. However, there are certain common checks every business must know to ensure full compliance. Here are the four things to check:

1. Nature of goods being exported

It is crucial to be aware of the commodity controls of the country of origin. These controls are meant to regulate the export of items. Thereby, businesses are needed to check the nature of their goods and if they can be exported to the destination country. For instance, if you are intending to export any dual-use goods, then you may need to obtain an export license and determine the Export Control Classification Number.

Read: What is ECCN and how to find it?

2. Destination country of the exports

Countries impose sanctions or embargoes on specific countries for different reasons including foreign policy, national security interests, protesting against terrorism, etc. This means that trading activities with the sanctioned or embargoed country are banned or restricted.

Thereby, you must check the list of embargoed countries to know if or not you can ship to the concerned country.

3. The receiver of the goods

It is equally important to check whether or not the company or entity you are going to export to is eligible. This necessitates the restricted party screening of the concerned entities. You can do so by manually checking the denied party lists on your government’s official websites.

If you find manually checking the denied party lists overwhelming, there is a way you can save effort and time. Trademo’s Sanctions Screener allows you to sift through the sanctions list and screen restricted & denied parties in just a click.

Learn More

4. The intended end use of the exports

It is also vital to be aware of how the final receiver of the goods is going to use them. You must ensure strictly appropriate usage of the goods and that they won’t be sent further for alternative misuse or any denied/restricted party. This can be achieved with advanced supply chain visibility and proper communication with the parties involved.

Why export controls compliance is crucial for your business?

Export control compliance is important simply because it is mandated by the law. The export controls are enforced, and thereby, fully supported by government agencies. Any entity involved in export activities is expected to be aware of the related laws and comply with them.

Proper compliance can help businesses and individuals avoid the repercussions as well as enjoy business benefits. Companies can rely on trade compliance solutions to ensure cost-effective export compliance while being able to allocate their resources, time, and labor to other business operations.

Are there any penalties for violating export controls?

Not complying with export controls is equivalent to breaking a national law. The penalties for non-compliance vary for every country and governing body. Also, the offenders can be punished on a civil or criminal level depending upon the purpose, nature, and extent of the violation.

However, there are certain common types of consequences one may have to suffer.

• Monetary fines are the most common imposition in both criminal and civil level export control violations. Hefty fines have been imposed on organizations of all sizes going up to $1 million. For serious violations, fines are accompanied by jail time too.

• Administrative penalties are imposed by the governing bodies for violation of export control laws and regulations. These are civil penalties only intended to punitively punish non-compliant entities. In many cases, the administrative bodies seize export privileges from the violators and impose monetary fines for every violation.

In addition to the above penalties, export non-compliance brings along various other consequences.

• Reputation and business damage can seriously hurt smaller or medium-sized businesses upon violating export controls. Media coverage of these events can irreparably harm a company’s brand value and loss of customer loyalty. The financial losses emanating from this can even push a company to the stage of an operational shutdown.

• Supply chain disruptions are the inevitable consequences that often go unnoticed as they happen at macro levels. As one company suffers financial loss or loses business after getting caught for non-compliance violations, its partners also have to deal with the loss of revenue or business.

In Conclusion

It may take more than expected time and resources to be aware and fully compliant with export controls. Dedicated compliance experts can help you get a good grip on export administration regulations and even ensure compliance with them. As international commerce expands and geopolitical gorges deepen, export compliance only seems to be complicated in the future. Thus, you must be prepared with full knowledge and the best expertise.

FAQs

What does ‘export’ mean?

Exports can simply be understood as items bound for shipment outside their country. A closely related term is ‘deemed export’ used to denote the transfer or release of technical data or technology to any foreign person or foreign country.

Are export controls different for every country?

That’s right. Each country follows its own set of export controls. This makes it crucial for exporters to be aware of their country’s export control laws along with import control laws of the destination country and other countries falling in the transit route.

What kinds of items are usually regulated by export controls?

A wide range of items can be subjected to export controls which can vary for different countries around the globe. Usually, goods like military-use goods, currency, rare metals, artifacts, IP technologies, research, etc. can be controlled for exports. The major purpose is to regulate dual-use goods that can be potentially misused in the destination country for harming the country of origin in any way.

Who is directly responsible for export control compliance?

The exporter is directly liable to ensure full export compliance. As per the general export control regulations, an organization, as well as an individual, can be held responsible for compliance regardless of the level of responsibility carried out by the concerned entity.

Is the penalty for all kinds of export control violations the same?

The different export control regulations mandate different kinds and degrees of penalties for violations. The ITAR, AECA, EAR, OFAC, and others levy hefty fines and even impose imprisonment in cases of serious violations. The fines can go up to $1 million per violation with jail time as long as 10 years or above.