EAR Consulting Team Lead – Timothy E. Allen | Former Special Agent (U.S. Secret Service & DOJ-OIG)
When you export goods that could be used for military purposes in the destination country, the transaction triggers strict U.S. regulations that are meant to protect America’s national security and its interests abroad. Dual-use goods – those that could be used commercially or militarily – are subject to the Export Administration Regulations (EAR), though some purely commercial or purely military items may also fall under EAR jurisdiction.
Complying with these regulations is not easy and the costs of noncompliance are steep. The EAR compliance consultants at Corporate Investigation Consulting can walk you through the process so you can take the steps necessary to protect your company from legal liability.
What are the Export Administration Regulations and How Do They Work?
Export Administration Regulations (EAR) are a set of export guidelines and requirements. They are a fundamental aspect of U.S. import/export law and are implemented and enforced by the Bureau of Industry and Security (BIS) at the U.S. Department of Commerce.
The EAR applies to certain items that are exported from the United States.
These “items” can be:
- Commodities, like clothing, circuit boards, or machine parts
- Technology or intellectual property, like blueprints or software
These items are deemed to be “exported” if they leave the United States. This includes:
- Flying, mailing, shipping, or otherwise sending a physical good abroad
- Faxing, uploading, or downloading information to a party outside the U.S.
- Commodities or technologies that are brought outside of the country temporarily, or even if they are not for sale
- Items sent from the U.S. to a wholly-owned U.S. subsidiary in another country
- Items made in a foreign country that pass through the U.S., including items that were imported to the U.S. but are now being returned
Occasionally, the nature of the item being exported will trigger the EAR. If it does, you will need a license in order to export it. Whether the item falls under the EAR and requires a license depends on four things:
- What the item is
- Where it is being exported to
- Who will receive it
- What it will be used for
1. What the Item Is
Items are categorized under the Export Control Classification Number (ECCN) set, which is listed on the Commerce Control List (CCL).
These listings are extremely technical. Nevertheless, correctly categorizing the item your company is exporting is extremely important, as it can dictate whether you need a license to export it. If there is no adequate ECCN classification for the item you are exporting, it is designated as an EAR99 item.
2. Where It is Being Exported
Many items are only allowed to be exported without a license to certain destination countries. If this is the case with your item, you will need to cross-reference the item’s listing on the ECCN with the Commerce Country Chart. If the Chart has an X in the column specified by its ECCN listing, then either a license is needed or there has to be a license exception.
Even if there is no X in the appropriate column, you may still need a BIS license before exporting the item if the item’s end user or its likely use raise any red flags.
3. Who Will Receive It
Certain individuals and entities are not allowed to receive U.S. items, or may only receive those that have been licensed. These prohibited end users of the item can be listed by any of the following U.S. agencies:
- U.S. Department of State
- U.S. Department of the Treasury
- U.S. Department of Commerce
The International Trade Administration at the Department of Commerce has a consolidated screening list that includes the prohibited parties from all three agencies.
There are various designations that these lists use, any one of which can alter your company’s compliance obligations before exporting the item.
4. What It Will Be Used For
Finally, certain end uses are either prohibited by the EAR or require a license to complete the transaction.
Both of these issues – a suspicious end user or end use – are governed by Part 744 of the EAR.
EAR Compliance is Extremely Important
Given the complexity and the technicality of the EAR, coming into compliance with its requirements can be difficult, especially for companies that export items that could potentially be used in problematic ways or that export a lot of items every year. Those compliance protocols should include:
- Policy manuals
- A Corporate Commitment Policy
- Employee training and retraining
- Recordkeeping policies
- Ongoing risk assessments
- Auditing
- Procedures for reporting export violations
- Policies on how to take corrective actions when violations are discovered
The compliance professionals at Corporate Investigation Consulting can help company decision-makers figure out what their needs are and come up with a way to meet those needs in an efficient way.
The Penalties of Noncompliance
Failing to comply with the EAR can lead to a violation of U.S. export law. The penalties for that violation can be severe, and are laid out in 15 C.F.R. § 764 et seq. and amended by the Export Control Reform Act of 2018.
Violations can be prosecuted either as criminal offenses or as administrative violations.
Criminal penalties are up to $1 million in criminal fines as well as up to 20 years in prison for willful violations. Administrative cases carry fines in the amount of up to $300,000 per violation committed or twice the value of the transaction, whichever one is higher. This amount is adjusted for inflation, so the actual fine may be slightly higher in the future.
Additionally, violators are likely to lose their export privileges and get listed as a “denied person” on the lists of prohibited end users, preventing them from receiving exported items as well.
Put our highly experienced team on your side
Roger Bach
Former Special Agent (OIG)
Timothy E. Allen
Former Senior Special Agent U.S. Secret Service
Chris J. Quick
Former Special Agent (FBI & IRS-CI)
Maura Kelley
Former Special Agent (FBI)
Ray Yuen
Former Supervisory Special Agent (FBI)
Michael S. Koslow
Former Supervisory Special Agent (DOD-OIG)
Marquis D. Pickett
Special Agent U.S. Secret Service (ret.)
5 Frequently Asked Questions About EAR Law, Compliance, and Corporate Investigation Consulting
1. What is the Difference Between EAR and ITAR?
Both the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) are export laws that set rules for how, or whether, U.S. items can be shipped abroad. The ITAR, though, governs military-grade items and services that are included in the United States Munitions List (USML). The EAR covers so-called dual-use items that can be used militarily or commercially. Additionally, the ITAR is implemented and enforced by a different federal agency – the Directorate of Defense Trade Controls (DDTC) at the U.S. Department of State.
In short, they are both export laws, but ITAR regulates the export of goods that are more dangerous than the EAR.
2. What Items are Regulated by the EAR?
The full list of dual-use items that are regulated by the EAR is massive. However, it includes things that fall in the following categories:
- Nuclear materials, equipment, and facilities
- Electronics
- Computers
- Telecommunications
- Information security
- Sensors
- Lasers
- Navigation and avionic devices
- Aerospace and propulsion materials and information
Correctly classifying the items that you want to export is critical. Misclassifying them can lead to investigations and allegations of noncompliance.
3. What is an EAR99?
EAR99 is the classification for items that are not listed in the Commerce Control List and are not regulated by the EAR. However, you may still have to get a license to export them if they are going to go to a country or party that is under U.S. sanctions or if they would be used for a prohibited end use.
4. What is a Temporary Denial Order?
A Temporary Denial Order from the Assistant Secretary for Export Enforcement at the BIS is a demand that the recipient stops its exporting activities for a period of time. They are often issued after an ongoing export control violation has been discovered by the agency or if one appears to be imminent. They are issued ex parte so you cannot defend against them before they are issued – you can only appeal them. They generally last for 180 days and can be renewed.
In addition to cutting off your exporting privileges, they also add you to the list of prohibited end users as a denied person, preventing you from receiving U.S. exports as well.
5. What Makes Corporate Investigation Consulting the Best for My Company’s Compliance Needs?
Corporate Investigation Consulting is staffed with extremely experienced investigators and compliance personnel. Many of our professionals only came to our compliance firm after spending many years working in some of the largest investigatory agencies in the world, including the Department of Justice (DOJ), the State Department, and the Department of the Treasury. We know what federal investigators look for when they scrutinize your exporting practices because we used to be the ones doing the scrutiny.
Contact Corporate Investigation Consulting Today
Complying with the EAR is not easy. There are numerous steps that must be taken to ensure that your company is complying with the law, and it can be easy to lose vigilance if exporting items is a normal occurrence for your business.
The compliance professionals, consultants, and experts at Corporate Investigation Consulting have helped numerous companies in the U.S. and abroad comply with the EAR and other important U.S. import/export laws. Contact them online or call their office at (866) 352-9324 to tap into their experience in this complex field of the law.