Export Controls and Compliance

Export controls are often a topic of serious dread to US companies, in part because the regulations can be confusing and the penalties quite severe. Even so, it all boils down to just 4 key questions from 3 government agencies.

This article provides a very broad overview of the export control and compliance process. However, throughout the narrative we provide links to official government sites with much more detailed information. Read on; or if you prefer check out our free video on the subject.

Do I need an export license?

Two of the most frequent questions we hear from new exporters are:

  • Q1: Will my products be subject to US export control regulations?
  • A1: Yes, all exports are “subject” to U.S. Export Regulations.
  • Q2: Do I need a government license to export?
  • A2: Probably not, though you may need a license to export certain products to specific countries, companies, or people.

This article is designed to help you understand the export control process by providing a broad overview of the regulations and agencies enforcing them. However, if you are uncertain of your own situation, we strongly recommend contacting your local U.S. Commercial Service for assistance.

Key Questions

  1. What are you exporting?
  2. Where is the end destination?
  3. Who is the end customer?
  4. What will it be used for?

Of course, it’s not quite that simple. Export compliance isn’t just four big things—it’s a bunch little things. That’s why it’s important to make sure you have a good understanding of the different enforcment agencies and their control procedures; even missing one, could set off a bad chain reaction.

Key Agencies

  1. Directorate of Defense Control (State Department)
  2. Office of Foreign Assess Control (Treasury Department)
  3. Bureau of Industry & Security (Commerce Department)

Each agency has a different mandate and control procedures. However, violating any of these can invite serious penalties. The fines can be HUGE, and can literally put a company out of business. In the most severe cases, people can be locked up.

Definition of an “Export”

As used in the context of export controls, the term “export” covers a broad range of activities that include the export of products, services or information. In general, an export occurs when there is any transfer to any non-U.S. person, either within or outside of the U.S., of controlled commodities, technology, or software, by physical, electronic, oral, or visual means, with the knowledge or intent that the items will be shipped, transferred, or transmitted outside of the U.S.

1. Directorate of Defense Trade Controls

(ITAR regulations on military equipment)

Directorate of Defense Trade Controls(DDTC) within the State Department administers the International Traffic in Arms Regulations (ITAR), which govern the export of all types of military weapons and technology.

Note: If you are shipping things like military equipment, knowhow, or nuclear material, which are all ITAR regulated products, you probably need an export license, and your company must be registered with the DDTC.

Goods and services regulated by ITAR are contained in the munitions list and are subject to export licensing by the State Department.  They include all sorts of military weapons and equipment. ITAR regulations also include an expanded list of embargoed destinations beyond BIS or OFAC sanctions or embargoes. The DDTC also allows for a process of statutory debarment through its debarred parties list.

Companies engaged at any level within the defense industry are cautioned about outsourcing production to other countries or exporting any of their goods or services before reviewing the ITAR. The Understanding ITAR article by Shipping Solutions provides a detailed explanation of ITAR.

2. Office of Foreign Assets Control (OFAC)

(Boycotts, embargos, sanctions, end-uses and bad-boys)

OFAC is an agency within the Treasury Department that administers and enforces economic and trade sanctions based on United States’ foreign policy and national security goals. These target foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.”

OFAC publishes a Specially Designated Nationals (SDN or “bad boys”) list.  These lists restrict trade with people such as Vladimir Putin and his inner circle, plus companies they own or control, and with people or groups like terrorists and narcotics smugglers. These lists also contain bad-boys acting on behalf of targeted countries.

Several other government agencies maintain “bad-boy” lists of people, organizations and countries to whom you cannot export, but these Restricted Party Screening Lists change frequently so it’s good to check each time before exporting. A more comprehensive listing is available the Consolidated Screening List Search Engine.

U.S. Sanctioned countries now number more than 30, including CubaIranNorth KoreaSudan, and Syria. And just know that there are other countries that carry selective sanctions, as not all are comprehensive.

3. Bureau of Industry and Security (BIS)

(EAR regulations of “dual-use” items and technology )

BIS is housed within the Commerce Departmentwhere it oversees the Export Administration Regulations (EAR). These regulations cover items with a commercial function that could also be used in applications or destinations the U.S. does not approve of. They include (but are not limited to) technology, technical data, machinery, plans, and manuals. Also, any civilian products with potential military applications, like off-road vehicles, may be considered as “dual-use” items under EAR regulations.

(Just a side note: Several years ago, Sony PlayStations were considered dual-use, since they were thought capable of controlling guided missiles. Cow manure, when processed into a fertilizer, can be used an explosive and thus potentially considered dual-use.)

Most commercial shipments are subject to the EAR Regulations, which the Commerce Control List (CCL) explains in great detail. They use a coding system to identify dual-use items called Export Control Classification Numbers (ECCN).

All items under BIS jurisdiction and not on the CCL are classified at EAR99. These are generally low-level technology, consumer type goods, etc., which typically don’t require an export license. However, even EAR99 goods may require a license if they are destined to an embargoed country, to an end-user of concern (“bad-boy’), or to a prohibited end-use.

Even a pickup truck may be considered dual use if it can be mounted with a gun platform.

Red Flags, are basically indicators that “abnormal circumstances in a transaction may indicate your export is destined for an inappropriate end-use or end-user.” BIS provides a Red Flag Checklist of things to look for, and guidance on what to do if red flags are raised.

Finally, EAR uses the term “Deemed Exports” to cover items transferred to a foreign person (visually, electronically or in any other medium) of technology, data, expertise, or training, which is related to export-controlled goods. The foreign person may actually be in the U.S. — for example, at a trade show or conference. The subject is quite tricky, since deemed exports can make you an exporter even if you are not aware of it!

“I wonder if I’ll need an export license?”

Export Licenses

As previously noted, when you are exporting commonplace non-military items to US-friendly markets, you probably don’t need a license.  However, you may if the item is considered “dual-use” by BIS, or if shipping to specific countries, companies, people, or for specific end uses not approved by OFAC.

General trade items not requiring a license are categorized by BIS as EAR99. However, even an EAR99 item cannot be sold without a license to an embargoed or sanctioned country, to a “party-of-concern,” or in support of a prohibited end-use.

An export license authorizes the export of specific goods in specific quantities to a specific end destination. Examples of export license certificates include those issued by the Department of Commerce’s Bureau of Industry and Security (dual use articles), the State Department’s Directorate of Defense Trade Controls (defense articles), the Nuclear Regulatory Commission (nuclear materials), and the U.S. Drug Enforcement Administration (controlled substances and precursor chemicals).

Several videos are available on export licenses, including: Export Compliance Introduction, Exporting Commercial Items: ECCNs and EAR99, The Commerce Control List and Self-Classification, and Exporting EAR99 Items: Screening Your Transaction, Lists to Check and Red Flags.

Destination Control Statements

A Destination Control Statement (DCS) is required for exports from the United States for items on the Commerce Control List that are outside of EAR99 (products for which no license is required) or controlled under the International Traffic in Arms Regulations (ITAR).

The DCS appears on the commercial invoice, ocean bill of lading, or airway bill to notify the carrier and all foreign parties that the item can be exported only to certain destinations.

Here are some a couple of typical control statements:

ITAR CONTROLLED DOCUMENT – DO NOT EXPORT- This document contains technical data as defined in ITAR Part 120. 10 and thus is controlled by the U.S. Department of State”

COMMERCE DESTINATION CONTROL STATEMENT – The export of these commodities, technology or software are subject to the U.S. Export Laws and Regulations in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.” (Usually appears on title page but may be on internal pages too. If ITAR/EAR markings appear just on the document title page, assume the entire document is controlled and do not share all or part of it with non-licensed foreign nationals.”