Co-Authored by Sharath Patil
Background on Export Administration Regulations
Over 95% of the world’s consumers are outside of the United States. Opportunities abound for U.S. companies that export. However, exporting is a privilege and not a right. U.S. exporters have an important responsibility to adhere to U.S. export control laws, including the Export Administration Regulations (“EAR”).
Administered by the U.S. Commerce Department, the EAR is a set of regulations which governs whether U.S. persons may export or transfer goods, software, and technology outside of the United States or to non-U.S. citizens. U.S. exporters have an important responsibility to adhere to the EAR. Violations of the EAR carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars in penalties, lose export privileges, and even be imprisoned.
Strategic Trade Authorization
If an EAR export license is ordinarily required for a proposed transaction, the EAR provides numerous license exceptions found in 15 CFR 740.
As part of comprehensive export control reforms under the Obama administration, the Commerce Department’s Bureau of Industry & Security (“BIS”) created a new license exception in 2011: Strategic Trade Authorization (“STA”). STA authorizes the export, reexport and in-country transfer of certain specified items on the Commerce Control List (“CCL”) to destinations that pose a low risk of unauthorized or impermissible use.
However, exporters should note that if they are using the STA license exception, 15 CFR 740.20(d) requires (1) special notification to the consignee and (2) a prior consignee statement to be obtained by exporters. While these notification and consignee conditions are not required for other EAR license exceptions, exporters who use the STA license exception must always adhere to these conditions. The purpose of these requirements is to safeguard against reexports to destinations that are not authorized by the STA license exception.
Special Notification Requirement
For each shipment under license exception STA, the STA special notification requirement requires exporters, reexporters, or transferors of shipments to notify the consignee in writing that the shipment is made pursuant to license exception STA. Furthermore, the notice must either specify which items are subject to license exception STA or state that the entire shipment is made pursuant to license exception STA. The notice must clearly identify the shipment to which it applies. The written notice may be transmitted hard-copy or electronically.
Prior Consignee Statement Requirement
Each party using license exception STA to export, reexport, or transfer controlled product must obtain a prior consignee statement in writing from its consignee(s) prior to exporting, reexporting, or transferring the item and must retain the statement. One statement may be used for multiple exports, reexports, or transfers of the same items between the same parties so long as the party names, the item descriptions, and the Export Control Classification Numbers (“ECCN”) are the same. A sample prior consignee statement is included in the regulations.
The STA license exception covers destinations that pose a low risk of authorized or impermissible use. As of this writing, the following 37 countries are covered by the STA license exception under 740.20(c)(1) group one, which authorizes exports, reexports, and in-country transfers of controlled items for multiple reasons for control:
Additionally, the following 8 countries are covered by the STA license exception under 740.20(c)(2) group two, which authorizes exports, reexports, and in-country transfers of controlled items for national security reasons only:
For more information on the STA license exception, be sure to consult the following resources:
What Should You Do
Any party exporting goods subject to EAR has significant responsibilities to ensure compliance. Adherence to EAR requirements ensures that your business contributes to safeguarding U.S. national security and avoiding costly penalties. Many U.S. businesses have paid hefty civil penalties for violating U.S. export control laws. L3Harris Technologies, for example, was fined $13 million for illicitly exporting defense technology and software. For more examples of costly civil and criminal penalties, check out BIS’ latest Don’t Let This Happen to You! Publication.
If you are exporting goods subject to EAR, you should:
- Developing an effective export compliance plan.
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 exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers 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 and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
- Engage in regular export compliance training.
A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) 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. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
- Thoroughly vet your proposed export transactions
Unsure whether a proposed export transaction violates the EAR? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
- Request authorization when necessary
BIS export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS authorization is required. Furthermore, Diaz Trade Law assists clients by filing BIS export license applications on their behalf on BIS’ SNAP-R portal.
- Engage in mitigation and corrective actions.
If your business has violated U.S. export control 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 the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.
Diaz Trade Law’s Upcoming Webinar: Introduction to Export Controls
On May 12, 2021 at 12:00 PM ET, Diaz Trade Law is hosting a webinar on Introduction to Export Controls. This one-hour webinar will provide an overview of U.S. export controls. Specifically, it discusses what sets of regulations exporters which exporters need to be aware of, explains the dangers of non-compliance, and covers how to build a robust export compliance plan.
In the webinar, you will learn:
- Exporting is a privilege not a right
- Obligations of exporters
- ITAR, EAR, OFAC, and FCPA
- Relevant case studies
- Penalties associated with noncompliance
- Best practices
- Developing an export compliance plan
- The importance of export compliance training
Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at firstname.lastname@example.org or call us at 305-456-3830.