How to avoid common traps and pitfalls in export control compliance

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In 2017, Airbus reported ‘’inaccuracies’’ in past statements to the U.S. State Department over its sale of defence products and services.

The U.S. export rules that may have been broken in the process fall under the International Traffic in Arms Regulations (ITAR), which require any company managing controlled items such as Airbus to provide information on any third-party agents used to win export deals. To date, there has not been a decision on the Airbus case by the U.S. authorities yet.

The Airbus announcement underscores a rash of high-profile ITAR cases in recent years where companies have found themselves on the wrong side of U.S. trade compliance laws. There are quite common reasons for companies to get into trouble with regulators:

A conscious decision to circumvent ITAR regulations. A lack of understanding for recent changes to the regulations. A failure to understand that the laws not only cover the physical movement of goods but the transfer of sensitive data. Insufficient master data maintenance. Some companies don’t properly classify products under ITAR and other similar regulations. A lack of understanding by non-U.S. firms with regards to what is expected of them under U.S. law.

Most companies dealing with sensitive goods understand that they may require licenses for the export of these goods. But there is often confusion about which legislation applies, be it ITAR or EAR (Export Administration Regulations) – in addition to UK and EU regulations. And some are unaware that the control of sensitive data is as important as the control of physical goods.

Tracking compliance efforts has become a critical element of trade operations in recent years, and the business press is busy documenting cases of companies running afoul of ITAR or EAR regulations.

Generally, companies working with defence goods or services should be aware that export controls legislation applies to them. Those that deal with dual-use goods must also identify whether export licenses are required to ship their goods to specific countries. They also need to understand that U.S. export controls legislation is extra-territorial, i.e. companies outside the U.S. that incorporate US materials in their products must check whether they need US (re-)export licenses.

Here are a few examples:

In 2013, Texas-based Defense Distributed had uploaded computer-generated files that could have been used to create a 3D-printed gun. U.S. authorities ordered the files removed because they were a violation of ITAR, which prevents people from distributing data on the construction of arms to non-U.S. parties.

And in 2017 the State Department fined New Jersey-based Bright Lights USA $400,000 for exporting unauthorised defence components and technical data in violation of ITAR and the Arms Export Controls Act.

There are four key areas any exporter should focus on to ensure compliance and stay on the right side of the law – and off the authorities’ radar:

  • Understanding that correct classification of products is essential. Are the products military, dual-use or otherwise? The correct export control code (ML or ECCN) must be assigned to the product to ensure effective export controls compliance.

  • Correctly identifying which jurisdiction applies to any given product is also key. Companies must take note of changes that took place in the Export Control Reform (ECR) rules regarding transition of ITAR-related commodities or technology. That includes the State Department’s U.S. Munitions List and the Commerce Control List.

  • Also, care must be taken to ensure that not just the physical movement of goods is monitored and controlled, but that also non-physical transfer of sensitive data. Therefore, “deemed exports” and technology transfers must be as strictly monitored and controlled as the physical goods.

  • Finally, make sure your firm follows the guidelines issued by the Directorate of Defense Trade Controls (DDTC).

Hannah Beckett

Hannah Beckett is a Business Solutions Consultant at AEB (International) Ltd and has been working with the company since 2006, when she joined as a Sales Assistant. Her key focus and experience is within the Aerospace and Defence sector, advising companies on possible solutions for export controls and global trade compliance. Hannah has dealt with companies ranging from SME’s to multi-national companies.…

https://www.aeb.com/uk/

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