Understanding export controls for SMEs
Exporters of all sizes need to be aware of US export control regulations, but for small and medium size enterprises (SMEs), compliance failures can be especially disruptive. Penalties regularly reach into the six figure range, and the resulting disruption, legal fees, and bad publicity can sink even profitable companies. Do you know the regulations and risks? Continue reading below and learn if your products are subject to export controls.
EAR
Set out in law at 15 CFR Parts 730-780, the Export Administration Regulations (EAR) comprise an extraordinarily broad regulatory regime, controlling all items that are of U.S. origin, made with U.S. materials, technology, or knowledge, or located in the U.S. In practice, this covers all trade involving the United States, but is most frequently applied to exports of dual-use items (items that are designed for commercial use but have military applications) and related technologies delineated on the Commerce Control List (CCL). Items on the CCL are of less sensitivity than defense-related products but for which there is still a need to control destinations and/or end users. Specific items on the CCL are assigned Export Control Classification Numbers, or ECCNs.
The EAR is intended to balance national security needs with commercial and research objectives by reviewing prospective transactions. Nevertheless, penalties for violations of the EAR can be just as severe. Even violations without intent can result in civil fines of $250,000 or twice the value of the transaction (whichever is larger) as well as denial of export privileges.
Who should be aware: All exporters, but most especially government contractors, electronics manufacturers and distributors, energy sector manufacturers, outdoor sports retailers, and freight forwarders, as well as service providers to those companies.
ITAR
The International Traffic in Arms Regulations (ITAR, pronounced “eye-tar”) are set out in law in the Code of Federal Regulations Title 22, Parts 120-130, and are administered by the Directorate of Defense Trade Controls under the Department of State’s Bureau of Political Military Affairs.
Products and services subject to export controls under ITAR are on the United States Munitions List (USML), which broadly covers “articles, services and related technical data […] designated as defense articles and defense services”. A quick look at the categories (such as “Firearms, Close Assault Weapons and Combat Shotguns” and “Nuclear Weapons, Design and Testing Related Items“) makes this clear, but there is more overlap with civilian industries than one might expect. Semiautomatic firearms, the first item on the USML, are easily available at many sporting goods stores, and ITAR-controlled thermal optics are available for sale on U.S.-based retailers’ websites. Importantly, technical data related to any item on the USML is also controlled, movement of which can be much more difficult to regulate than phyiscal articles.
Unlike the EAR, ITAR is considered a “strict regulatory regime”, meaning there is no balancing of commercial objectives against security interests. Penalties for ITAR violations are consequently severe, with maximum civil penalties set at $500,000 per violation and criminal penalties at $1 million per violation and up to 20 years in federal prison.
Who should be aware: Government contractors (especially those with defense-specific contracts), companies involved in trade in defense-adjacent industries such as aerospace, marine construction, firearms and gun accessories manufacturing, as well as service providers to those companies.