U.S. export laws and regulations are far-reaching and have become more so in recent years. Even large, sophisticated U.S. companies with substantial resources and compliance programs occasionally run afoul of the law and face time-consuming investigations and significant fines. In December 2003, Sun Microsystems and two of its subsidiaries agreed to pay $291,000 in fines to settle charges involving illegal exports of computers to military end-users in China and Egypt. In the same month, Honeywell International paid a penalty to settle changes that it illegally exported chemicals to Mexico. In February of this year, Morton International and its French and Japanese affiliates agreed to pay a $647,500 penalty to settle charges in connection with the export and reexport of chemical compounds in violation of U.S. regulations.
"The export control regime of the United States is one of the most complex in the world," says Barry A. Pupkin, Partner, Squire, Sanders & Dempsey LLP, Washington, De. Exports are regulated under several different statutes, including the Export Administration Act, the Arms Export Control Act, the International Emergency Economic Powers Act and the Trading with the Enemy Act. "At least ten federal government agencies are involved in export controls--issuing regulations, licenses and the like," he notes. "Given the complexity of the regulatory regime it is important that U.S. exporters take seriously the enforcement of export control laws."
Most U.S. export controls are administered by the Departments of Commerce and Treasury. The State Department regulates any product or technology considered a munitions item. The federal government can impose fines and suspend or revoke export privileges for any violation of export laws or regulations.
"U.S. exporters are required to comply with numerous regulation dealing with a wide range of topics," says Stephen D. Elison, a Partner in the Houston office of Gardere Wynne Sewell. "The Office of Foreign Assets Control, for example, enforces regulations affecting commerce between U.S. persons and certain embargoed countries. Not only does the list of embargoed countries change from time to time, but also the specific actions prohibited to U.S. persons are not uniform among the sanctioned countries. Consequently, any activity remotely connected to an embargoed country or national thereof must bc highly scrutinized to be certain that proper licensees have been obtained and that no U.S. person will be in violation of U.S. laws."
When assessed by the number of U.S. enforcement actions, the most common violations of export laws and regulations are direct and indirect shipments of equipment to embargoed destinations such as Cuba, Iran, Libya and Sudan. "For major multinationals, the most difficult compliance challenge is probably U.S. restrictions on 'deemed exports' of controlled software and technology to foreign nationals in the United States and 'deemed reexports' of software and technology within foreign countries," says Harry L. Clark, Partner in the International Trade Group of international law firm Dewey Ballantine LLP, Washington, DC.
Deemed export and deemed reexport controls are a particular challenge, even for large U.S. companies with experienced staff. "These restrictions impose a license requirement for releases of certain software and technology to foreign nationals other than permanent residents, even if the software or technology never crosses a national border," Clark reports. The transfer is "deemed" to be an export to the home country of the foreign national. "Deemed export/reexport controls are of most concern to technology-intensive firms in, for example, the microelectronics and computer sectors, such as Intel and IBM," he says. IBM maintains an extensive section on its web site to guide IBM partners through export compliance.
"Technology is 'released' for export when it is available to foreign nationals for visual inspection, such as reading technical specifications, plans or blueprints; is communicated orally; or is made available by practice or applications" Pupkin explains. …