Compliance with U.S. Export Regulations

By Margaret M. Gatti, Esquire
May 1, 2000

In exporting products from the U.S., exporters are required to comply with all relevant export laws and regulations. Many of these laws and regulations have a strict liability standard, which means that an exporter's liability for violating such export law or regulation does not depend on proof of any intent by the exporter to violate the export law or regulation or proof of knowledge by the exporter that a violation of export law or regulation has occurred.

Instead, export laws and regulations that have a strict liability standard hold an exporter liable for an export violation based on the exporter's absolute duty to comply with such export law or regulation. The fact that an exporter who violates a strict liability export law or regulation did not know that such law or regulation existed is of no consequence - the exporter will be held liable for the violation without regard to the exporter's awareness of the export law or regulation.

Against this background, exporters are well advised to develop internal export compliance programs to identify all applicable export laws and regulations and to insure compliance with such laws and regulations.

To be effective, an internal export compliance program should formalize the process to be followed by an exporter in exporting products from the U.S.. This process should incorporate four principal elements: export controls, export behavior, export procedure and export records. The balance of this article will discuss each of these elements and provide exporters some guidance as to the issues that these elements should address.

Export Controls: The primary determination here is a determination as to the relevant export control jurisdiction for the exported product. Export control jurisdiction can be based on the product that is being exported, the place from which an export is made or the party that is making the export.

With regard to export control jurisdiction based on product, the choices are primarily either the export control jurisdiction of the U.S. Department of State or the export control jurisdiction of the U.S. Department of Commerce. The result is determined based on the nature of the exported product. In general, products that are specifically designed, developed, configured, adapted or modified for a military application are subject to the export jurisdiction of the State Department, whereas products that have a predominant (dual use items) or exclusive civil application are subject to the export jurisdiction of the Commerce Department.

Similar to export control jurisdiction based on product, export control jurisdiction based on the place from which an export is made or on the party that is making the export can point to the Commerce Department, but it can also point to the export control jurisdiction of the Treasury Department and its Office of Foreign Assets Control.

Determination of the relevant export control jurisdiction for exported products is a key component of any export compliance program because its sets the stage as to what U.S. exporters can and can not do (export prohibitions) and as to whether or not U.S. exporters face any export restrictions (export licensing requirements) in exporting their products.

Export Behavior: This element is also a key component of any export compliance program as it establishes how U.S. exporters must behave in negotiating and executing their export transactions. In general, U.S. exporters may not bribe foreign government officials for the purpose of obtaining an "improper advantage" or for the purpose of obtaining or retaining foreign government related export opportunities (the International Anti-Bribery and Fair Competition Act of 1998 and the Foreign Corrupt Practices Act). Additionally, U.S. exporters may not participate in other countries' boycotts of countries that are friendly to the U.S. and that are not subject to a boycott imposed by the U.S. (Anti-boycott Act).

Export Procedure: The export procedure element of an export compliance program documents the steps that must be followed in dealing with export restrictions for particular export transactions (applying for and obtaining any required export licenses) and in completing the paperwork required for particular export transactions (the SED, the commercial invoice marked with a destination control statement, the NAFTA origin certificate), etc. Obviously, this is a very important element of an export compliance program as it produces the proof which is typically the focus of most export compliance initiatives and which is generally used to substantiate the extent to which an exporter has achieved export compliance.

Export Record-Keeping: While the export procedure element of an export compliance program is responsible for the production of the proof used in substantiating the extent of an exporter's export compliance activities, the export record-keeping element of an export compliance program is responsible for safeguarding and providing accessibility to such proof. In general, U.S. exporters are required to keep their export records for a period of five years after an export is made.

Summary: While export compliance programs officially still remain optional for U.S. exporters, the fact that many export laws and regulations have a strict liability standard makes it clear that export compliance programs are important. Indeed, they are considered in many instances to have a mitigating effect in the case of an export violation. Against this background, U.S. exporters who fail to develop export compliance programs expose themselves to possible export violations and to the imposition of monetary fines and other penalties.