Export Controls – Party Time!

I know what you’re thinking: “Trademarks and copyrights are fun, but when do we get to the REALLY fun stuff?” Well, loyal reader, wait no longer: I give you…EXPORT CONTROL REGULATIONS!!!

No reaction? Well, you might want to reconsider that, since violations of export control regulations can carry severe penalties (criminal penalties can be up to 20 years imprisonment and $1 million per violation; administrative monetary penalties can reach $11,000 per violation, and $120,000 per violation in cases involving items controlled for national security reasons). Many businesses are unaware of the Export Administration Regulations (the “EAR”), which govern export control in the United States, and remain so potentially at their peril. Some recent changes have been made to streamline the EAR and compliance therewith, but this post is meant to provide a primer on “the basics.”

Without getting bogged down in definitions and specifics, when an item is “exported” from the U.S. to a foreign country, company, or citizen, it must be determined whether the transaction is subject to export controls and, if so, whether a license is needed to complete the export. With exceptions for particular items (e.g., weapons), review and issuance of these licenses is performed by the Department of Commerce’s Bureau of Industry and Security (“BIS”).

The initial analysis that an exporter should conduct is determining whether the particular item is subject to control under the EAR, or if another regulatory regime is applicable. If an item is controlled under the EAR, the next step is to classify the item and give it an export control classification number (“ECCN”), using the government’s commerce control list (“CCL”). Exporters can self-classify, or can request an official classification from the BIS. Manufacturers of controlled items may also be able to provide the ECCN for a product that they sell.

Whether a license is needed, or whether the export falls under one or more exceptions to the license requirement, will depend on the nature of the product (its ECCN), what the item will be used for, and its destination (both geographically and in terms of the identity of the receiving individual/company). If a license is needed, it can be requested online.

At Danielson Legal, we are well-versed in export control matters and assist clients with export control matters relating to hardware and software involving encryption of data, whether as a component or as the primary purpose of an item. Given the complexity of export control determination and compliance, and the potential penalties for non-compliance, any company sending items to foreign countries, companies, or citizens should at least be aware of potential export control issues and seek appropriate counsel to determine export control applicability and licensure requirements.