By Maya Lester KC & Michael O’Kane

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By Maya Lester KC & Michael O’Kane

US Export Controls

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Thank you to Fieldfisher for their help with this page.

Introduction to Export Controls

US Export Controls aim to manage the risks of international transfers of sensitive items that could be misused to undermine national security or to fuel conflict, terrorism, crime, human rights violations or the proliferation of Weapons of Mass Destruction (“WMD”).

The controls require the authorisation/licensing of the export, and in some cases the brokering or transhipment, of sensitive goods, software and technology (‘items’) including:

  • Military items: items that have been specially designed or modified for military use or are otherwise listed in the respective lists of military items (“Military Lists”);
  • Dual-use items: items that have been designed for civilian use but which have  potential military or security uses and are specified in the respective lists of dual-use items subject to controls (“Dual-use Lists”). The main categories include: nuclear; advanced machine tools; pathogens and toxins; toxic and high energy chemicals; high strength materials; high specification semiconductors, electronics, computers and telecommunications; cryptography; lasers, optics and sonar; navigation and avionics; submersibles; and aerospace and space;
  • End-use controls: any item intended: for use in a WMD programme; for use with military items exported without authorisation; for military use in a country subject to an arms embargo; or certain other uses in some instances (e.g. police, security, intelligence, cyber surveillance, terrorism). WMD programmes concern nuclear, chemical or biological weapons, or missiles capable of delivering them;
  • Civilian firearms and ammunition;
  • Torture items: items that could be used for capital punishment, torture, or cruel and inhuman or degrading treatment or punishment.

 

The EU, UK and US Military and Dual-Use Lists all share a common core of items agreed internationally by the four multilateral ‘Export Control Regime’ groups of countries that coordinate efforts to regulate the export of sensitive items:

  • Wassenaar Arrangement: lists all conventional military and most dual-use items;
  • Nuclear Suppliers Group: lists all items designed for use in the nuclear fuel cycle (the ‘Trigger List’) and other items with potential use in nuclear weapons programmes;
  • Australia Group: lists items with potential use in chemical or biological weapons programmes;
  • Missile Technology Control Regime: lists military and dual-use items with potential use in programmes for the means of delivery of WMD and advanced conventional weapons.

 

The US adds further items to its lists on a national basis.

In contrast to trade sanctions, export controls generally apply to exports of controlled items to all destinations. However, the licensing architecture focuses the closest scrutiny on transactions that pose the highest risks while enabling lower risk business to be pursued with a reduced regulatory burden.

Goods, software and technology subject to export controls are listed on US Control Lists (see below).

 

Items

Items subject to export controls include the following:

  • Goods: these can take the form of equipment, components, materials, samples, chemicals and biological agents, etc.. The controls apply to finished products, to components specially designed for such products and to components that meet the definitions in the control lists in their own right;
  • Software: that is specially designed for the development, production or use of controlled goods, whether military or dual-use, as well as software that is specifically listed as subject to controls;
  • Technology or technical data: this is generally defined as the specific information required for the development, production or use of controlled goods or software. Controlled technology can take any form including data, research papers, designs, manuals and formulae.

 

Activities

Activities subject to export controls include the following:

  • Physical exports: export of controlled goods, on a permanent or temporary basis, including very small quantities, repairs and replacements. Exports include hand carrying controlled software or technology on paper or on a laptop, mobile phone or memory device when travelling;
  • Electronic transfers: transfers out of a country of controlled software or technology by any means. This includes email, phone, video conference, and download or access of documents by a person located overseas. ‘Software-as-a-Service’ via the cloud is not generally considered to be an export provided that no executable software is transferred. Similarly, transferring controlled software outside a country to be stored on a cloud server is not generally considered to be an export provided that its transfer and storage securely prevents access to it by anyone outside the country of origin (e.g. end-to-end encryption and identity management);
  • Technical assistance/services, generally defined as repairs, development, manufacture, assembly, testing, maintenance, or any other technical service related to controlled goods;
  • Brokering: facilitating the transfer of military and end-use controlled items from one third country to another;
  • Transit and trans-shipment: shipping military and end-use controlled items through a country from one third country to another;
  • Release of security classified information: some military and other sensitive items may be subject to national security classifications. Such items and information related to them may require separate authorisations, in addition to export licences, before they may be released or exported. These controls vary on a national basis and are not addressed further in this guidance.

 

Overview of US Export Controls

US export controls must be observed by non-US persons irrespective of whether there is any US nexus. The rules are complex but in summary US export controls apply to:

  • US-origin military and dual-use goods, software or technology;
  • Items made outside the US that incorporate any amount of ITAR-controlled content or technical data, or a de minimis level of EAR-controlled content (generally 25% of the total value, 10% in the case of exports to embargoed countries);
  • Foreign-made direct products of certain US-controlled technology if supplied to certain high-risk countries or recipients;
  • US-controlled items are prohibited to be supplied to certain US-sanctioned countries or entities, notably those included in the US Entity List and Military End-User List;
  • ‘Deemed Re-exports’: US controls apply not only to exports from one country to another but also to transfers within a country and to transfers of technology within an organisation to members of staff and visitors who are foreign or dual nationals.

 

Legislation

The main US export control legislation is as follows:

 

Export control classifications

Military and dual-use items are assigned an alphanumeric code based on the relevant entry in the military or dual-use lists if they meet the criteria defined in that entry. This code is referred to in the US as the Export Control Classification Number (“ECCN”).

Military

The US Munitions List has 21 categories, from Category I (“Firearms and Related Articles”) to Category XXI (“Articles, Technical Data, and Defense Services Not Otherwise Enumerated”).

Dual-use

The US Commerce Control List, like the EU and UK dual-use lists has ten categories:

  • Category 0: nuclear materials, facilities and equipment
  • Category 1: special materials and related equipment
  • Category 2: materials processing
  • Category 3: electronics
  • Category 4: computers
  • Category 5: telecommunications and information security
  • Category 6: sensors and lasers
  • Category 7: navigation and avionics
  • Category 8: marine; and
  • Category 9: aerospace and propulsion

It is largely identical to the EU and UK lists, but also includes certain additional items, notably the “500 series” (firearms and spacecraft), the “600 series” (weapons that were previously included in the US Munitions List) and items subject to US national controls.

Not listed

Items that are not listed in the Commerce Control List or US Munitions List but which are subject to US jurisdiction are designated as ‘EAR99’. This covers all items (goods, software and technology) that are not specifically listed as subject to export controls (i.e. the great majority of ordinary commercial and consumer goods). Such items are not subject to export controls except if they are intended to be exported for a prohibited end-use or if their export is prohibited by sanctions on the end-user or destination country.

 

Exceptions

Generally, the main exceptions to the controls apply to:

  • ‘In the public domain’: software and technology that is available without restriction upon further dissemination (no account being taken of restrictions arising solely from copyright);
  • ‘Basic scientific research’: technology (except for WMD programmes) that is experimental or theoretical work undertaken principally to acquire knowledge of the fundamental principles or phenomena or observable facts and not primarily directed towards a specific practical aim or objective;
  • Patents: transfers of technology (except nuclear technology) that is the minimum required for patent applications;
  • US Licence Exceptions/Exemptions: the EAR provides (in Part 740) for a range of Licence Exceptions under which no US licence is required provided that all the conditions are met. Under the ITAR, a more limited range of exemptions apply;
  • US ‘no licence required’: the US Commerce Control List sets out the ‘Reasons for Control’ in each listing of a controlled item. If the ‘Reasons for Control’ do not apply to the destination country, as listed in the Commerce Country Chart, then no US licence is required to export that item to that destination country unless the item is to be shipped to a prohibited end user or end use.

 

Export licences

Under the EAR, if a Licence Exception is not applicable, there is one type of licence which is tailored to the specific transactions that are proposed, covering the activity, item(s), end-use(s), and parties described in the licence application and any letters of explanation.

Under the ITAR, the main types of licences are the following:

  • Permanent export: Form DSP-5 for the export of unclassified hardware or technical data, hiring of foreign persons in the US, marketing activities, and the sale of software;
  • Temporary Export: Form DSP-73 for temporary unclassified exports such as for  displays at public trade shows;
  • Technical Assistance Agreement (“TAA”): these authorise the transfer of technical data and defence services, potentially covering multiple countries and parties;
  • Warehouse Distribution Agreement (“WDA”): for the establishment of a non-US warehouse for unclassified defence articles exported from the United States under a Form DSP-5 export licence, for distribution to entities in an approved sales territory.

 

Penalties

Breaching export controls is generally a criminal offence. In escalating order, the main penalties generally imposed for breaches are as follows:

  1. Warning letter: this generally applies to first-time offences that are minor or voluntarily disclosed;
  2. Withdrawal of export privileges: this may be applied in the event that compliance errors are repeated;
  3. Civil fine: in the US, violations of the EAR can be penalised by up to $364,992 per violation or twice the value of the transaction, whichever is greater; violations of the ITAR by $1 million per violation;
  4. Prosecution: this is generally reserved to instances of deliberate breaches. In the US, for both the EAR and ITAR, penalties range up to $1 million in fines and/or up to 20 years imprisonment per violation.

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