In a Final Rule, published on December 23, 2020, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”) by creating a “Military End User (MEU) List”. The list includes the first tranche of 103 entities consisting of 58 military end-users in China and 45 in Russia. BIS determined that these companies are ‘military end users’ for purposes of the ‘military end user’ control in the EAR that applies to specified items for exports, reexports, or transfers (in-country) to China, Russia, and Venezuela when such items are destined for a prohibited ‘military end user.’
Prior to this final rule, exporters, reexporters, or transferors were responsible for identifying these entities as ‘military end users’ themselves, assuming they were not otherwise individually informed. The MEU List (which is now searchable on the consolidated screening list) allows the public to be informed of BIS’s determination so all potential exporters are informed simultaneously.
Export Compliance Obligations
Nevertheless, exporters are still be responsible for ensuring their transactions are in compliance with the license requirements set forth § 744.21 because BIS cannot list every ‘military end user’ or identify all situations which could lead to an item being used for a ‘military end use.’ Compliance remains the obligation of the exporter reexporters, or transferors. According to Commerce Secretary Wilbur Ross “This action establishes a new process to designate military end-users on the MEU List to assist exporters in screening their customers for military end-users.”
This is not an exhaustive list and does not imply that other parties not included on the list are exempt from regulatory prohibitions. BIS is also amending the EAR to provide clarity on the process it follows to add entities to the MEU List, to ensure consistent treatment of those parties, and to allow listed parties to request removal from the list. Exclusion from the MEU list is not indicative of whether or not a license is required. The BIS has the authority to inform the public of a license requirement for an item due to an unacceptable risk of diversion to a ‘military end user’ for the purpose if protecting U.S. national security.
End-User Review Committee
The final rule highlights the role of the End-User Review Committee (“ERC”) in identifying its members and their specific role in determining what entities can be added or removed from the MEU list. The ERC is chaired by Commerce and includes officials from the State, Defense, Energy and Treasury departments. It will be in charge of approving any modifications or removals that may be warranted to the MEU List after entities are added. Decisions to add entities to the MEU List will be informed by a majority vote and removing entities from either list will require a unanimous vote. Exporters are encouraged to conduct due diligence for parties not on this list in ensuring that their products are not intended for a “military end-use or user”.
Developing a Strong Export Compliance Plan
- Effective exports compliance program – A key foundation of proactive and effective export compliance requires the development of an export compliance plan.
An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security.
Diaz Trade Law helps businesses create export compliance manuals that help prove you have a process in place to vet proposed transactions and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing export compliance plans for organizations without plans. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
- Exports compliance training – A foundation of a strong export compliance program is export compliance training.
Training is important because it:
- Ensures that all employees understand the export regulations and reinforces internal policies and procedures,
- Demonstrates to federal government agencies that your business is proactive about export compliance, and
- Avoids your business from being subject to costly penalties and even criminal liability.
Fortunately, export compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A.
- Transaction vetting – Unsure whether a proposed transaction violates the (EAR) or the International Traffic in Arms Regulations (ITAR)? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
- Voluntary self-disclosures – If your business believes it may have violated EAR/ ITAR export regulations, it can be in your business’ strategic interest to submit a voluntary self-disclosure (“VSD”). BIS and State Department encourages anyone who may have violated EAR/ ITAR regulations to disclose the apparent violation to BIS voluntarily. Voluntary self-disclosure to BIS is considered a mitigating factor by BIS in enforcement actions, and pursuant to BIS’s Enforcement Guidelines, will result in a reduction in the base amount of any proposed civil penalty. Diaz Trade Law has significant experience filing VSDs and mitigating penalties.
- Exports authorization applications – Export authorization is an authorization from the BIS to engage in a transaction that otherwise would be prohibited. Businesses may apply for EAR/ ITAR specific licenses to release blocked funds, generally authorize transactions, permit travel to Cuba, and many other purposes. Diaz Trade Law has significant experience submitting specific license applications and receiving authorization for proposed transactions on behalf of our clients.
- Mitigation and corrective action – If your business has violated U.S. export laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with BIS on EAR matters and the Directorate of Defense Trade Controls on ITAR matters, as well as the U.S. Treasury Department’s Office of Foreign Assets Control.
Diaz Trade Law has significant experience in export compliance, including EAR, ITAR, and OFAC matters. Specifically, Diaz Trade Law has successfully assisted clients in:
- Submitting voluntary self-disclosures to mitigate penalties,
- Negotiated agreements with the U.S. Department of Commerce, and
- Building corrective action systems to help ensure that your business does not make the same violation again.
Diaz Trade Law offers export compliance training, can develop or improve your export compliance program, and vet proposed transactions to ensure they comply with U.S. export control regulations. If you have questions on export compliance matters, contact us today at email@example.com or call us at 305-456-3830.