Why “non-exporters” need export compliance.

“We don’t export anything.”

This is something we hear all the time.  Sometimes, it’s followed by: “Well, we do ship stuff to Canada.  Does that count?”  (Pro Tip:  Yes, it counts.)  But other times, our clients really don’t put something in a box and send it to a foreign country.  Yet, they still need help.

At first, you may think to yourself: “That’s weird.  Why would a company that doesn’t export need a compliance program for exports?”  However, there are certain scenarios when even those businesses that don’t “export” in the traditional sense still need to think about export control laws and regulations.  Let’s look at a few.

Deemed Exports

Did you know that an export can be more than just a tangible item that is put into a box and shipped to another country?

An export can also take place within the United States to a foreign person. This is known as a “deemed export”. The EAR (EAR 734.13(a)(2)) and the ITAR (ITAR 120.50(a)(2)) have laid out what constitutes a “deemed export.”

In both, they define a deemed export as the release or transferring of technology to a foreign person in the United States. It can take on various forms such as, visually, orally or made available by practice or application under the guidance of persons with knowledge of the technology.

How would you know if you have a “deemed export”?  Here are some questions to consider:

• Do you have a foreign person working for you that is not a U.S. citizen or Permanent Resident? Do they have access to restricted technology?
• Do you work with a foreign company on any defense services, even if you do not export a tangible item?
• Do you provide defense articles to a foreign embassy or consulate in the United States?
• Do you provide defense services or provide training on infantry tactics to a non-U.S. military located in the United States or overseas?

If you have answered “YES” to any of these questions, then you do export, just not in the way you imagined.  Your company needs policies and procedures around these areas to ensure compliance.

DDTC Registration

Another area that non-exporting U.S. companies may not be aware of is registration for domestic activities with the Directorate of Defense Trade Controls (DDTC). The International Traffic in Arms Regulations (ITAR) spells out the requirements on businesses required to register (ITAR 122.1). The DDTC requires registration if you are involved with the manufacture or temporary import of defense articles and services. Manufacturing entails any part of the manufacturing process. This would include designing, fabricating, machining, coating, or adding value to a part, among other things.

Some businesses think they don’t need to register because they aren’t the OEM.  Or because they only make one little component that’s on the United States Munitions List (USML).  Or because they don’t export the finished product.  However, they are wrong.  DDTC views the business as a defense manufacturer and therefore they are required to register and have a written policy for compliance.

Prohibited Domestic Activities

There are some instances where even domestic activities can be prohibited.

General Prohibition 10 of the Export Administration Regulations (EAR) is a no-nonsense law.  In essence, if you proceed with a transaction knowing that a violation of any kind is going to occur or about to occur, then you are in violation of this General Prohibition.

Let’s say you’re a U.S. company that doesn’t export, but you have a domestic sale to another U.S. company.  You know this company is going to export the product to a prohibited country, but you continue with the sale anyway.  You have just violated General Prohibition 10.

This General Prohibition is more than just exporting of a good. It states:

You may not sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service, in whole or in part, any item subject to the EAR and exported, reexported, or transferred (in-country) or to be exported, reexported, or transferred (in-country) with knowledge that a violation of the Export Administration Regulations, the Export Control Reform Act of 2018, or any order, license, license exception, or other authorization issued thereunder has occurred, is about to occur, or is intended to occur in connection with the item.

This is a long way of saying that you can’t take part in any transaction if you know or suspect that a violation will occur.  There are also no license exceptions to General Prohibition 10.

So, protect your organization by knowing who you are doing business with and what they are doing with the item after you make the sale.  Sometimes, if it feels wrong … it just might be wrong.

Another good thing is to check if any denial orders have been issued on a U.S. or non-U.S. entity that you are going to do business with.  Even if you are hiring for a job.  The Bureau of Industry and Security (BIS), which administers the EAR, issues these denial orders. So, what does a denial order entail?

• The denied person is prohibited from participating directly or indirectly in any transaction involving the export of any item subject to the EAR—and may not benefit from any such transaction.
• Other people are prohibited from assisting the denied person in exporting any item subject to the EAR or taking any action that might assist the denied person.

There are several ways to screen for denied persons or even denied companies. One way is using the Consolidated Screening List CSL Search (trade.gov) or having denied party screening software from a provider.

We ship “Ex Works” … no problem, right?

We also hear this one a lot.  “Ex Works” (EXW) is an international trade term that describes when a seller makes a product available at a designated location, and the buyer of the product takes care of all the transportation costs. Often this means hiring and coordinating a freight forwarder to pick up the item at the U.S. seller’s location and handle all the transporting to the foreign buyer from there.

However, just because your U.S. company ships “Ex Works” doesn’t mean you are not an exporter.  Or that you are relieved from all responsibilities under U.S. export laws and regulations.  Very often in these situations, your company will still be listed as the Exporter of Record.  This means you are responsible for understanding and complying with all of the export regulations – the same as you would under a traditional export scenario.

So, now that you’ve determined that you don’t export, never will export, and never have exported … do you think it might still be good to have a policy in place to protect your business?

Just as my parents used to say, “it’s a privilege not a right.”  The same is true of exporting.  Don’t let your privilege be revoked just because you haven’t bothered to fully comprehend the laws and taken steps to comply.