The Primerus Paradigm - Winter 2014 Page 21

W I N T E R 2 0 1 4

The ITAR, which are administered
by the State Department's Directorate
of Defense Trade Controls (DDTC),
strictly control items listed on the USML.
The USML generally includes military
and space items; certain related parts,
components, accessories, attachments and
technical data, as well as defense services.
All U.S. manufacturers (even those that do
not export) as well as exporters and brokers
of items listed on the USML must register
with the State Department. Virtually all
exports of items appearing on the USML
require export licenses.
The EAR regulations are administered
by the Department of Commerce's Bureau
of Industry and Security (BIS) and provide
for controls on the items listed on the
CCL. Before the recent reforms, the CCL
generally covered "dual-use" products (i.e.,
products and related materials, technology,
and software that have both commercial and
potential military applications). A basket
category under the CCL EAR99 covers
everything not specified or controlled
by another agency, including purely
commercial items. Items listed on the CCL
are subject to differing export licensing
controls depending upon their classification,
destination countries, end-users and
end-uses. The EAR also provides license
exceptions, which are not available under
the ITAR.
The new reforms are intended to limit
the items on the USML to those that are
inherently military or those that provide a
"critical military or intelligence advantage"
to the United States and are almost
exclusively available from the U.S. Other
items that are "specially designed" for
military applications but do not continue to
warrant the strict ITAR controls imposed
on the USML are being moved to the
CCL and subject to the less stringent, but
nonetheless complicated, controls of the
EAR. The items moved from the USML to
the CCL will appear in a new "600 series"
of the CCL, where many of them will now be
eligible for exceptions to the export license
requirements.
In many instances, license requirements
will be relaxed under the Reform Initiative,
which may present opportunities for
manufacturers and exporters. However,

they must still navigate complicated
codes, requirements and exceptions. For
example, anyone seeking to export an
item under the new "600 series" of the
CCL will have to determine the proper
classification of the item, the applicable
controls and any applicable license
exceptions based on value, use or end
users. A thorough fact-specific analysis
will be required for every relevant
product, and BIS has cautioned that
reliance on prior determinations may be
improper.
The first wave of reforms took effect on
October 15, 2013 and involved:

aircraft and associated equipment,

gas turbine engines and associated
equipment and

clarification of the new term "specially
designed," which will be used in
classifying items under the USML and
CCL.

On October 25, a new rule defining
"brokering" took effect, which should be
of particular interest to lawyers and others
facilitating export transactions.

And on

January 6, 2014, a second wave of major
reforms will take effect involving:

vessels of war,

navy equipment,

military vehicles,

auxiliary military equipment and

submersibles.

Further export control reforms may be
expected in 2014 in areas such as:

explosives,

training equipment,

satellites,

electronics with military applications
and

nuclear-related technologies and
materials.

Companies particularly at risk of
encountering problems in complying with
the revised regulations include:

Companies that produce parts,
components, accessories, attachments
and software for the items involved in
the reforms;

Companies that have not yet
implemented robust export compliance
programs; and

Companies that have relied on prior
agency determinations regarding which
controls are applicable to similar
products.

Penalties for Export Control
Violations

As currently enforced, a single ITAR
violation can result in civil penalties of up
to $500,000 and criminal fines of up to $1
million and/or imprisonment for up to 20
years, and an EAR violation can result in
civil penalties of up to $250,000 or twice the
value of the transaction, and criminal fines
of up to $1 million and/or imprisonment for
up to 20 years. Even unintentional violations
can result in denial of export privileges,
exclusion from practice and/or seizure and
forfeiture of goods.

Conclusion

It is critical that manufacturers, brokers,
companies and individuals responsible for
exporting understand and comply with the
changing export control rules. This requires
a close examination of the new rules and
a thorough analysis of the revised control
lists for the proper classification of each and
every product produced and/or exported. By
carefully ensuring that everything is right
before exporting, businesses and individuals
can avoid major penalties.

1 Press Release, U.S. Department of Justice, Pennsylvania

Man Sentenced to 42 Months in Prison for Export Viola-
tions (Jan. 17, 2013).

2 The ITAR appear at 22 C.F.R. Parts 120-130; the EAR

appear at 15 C.F.R. Parts 730-774. The Department of En-
ergy and the Nuclear Regulatory Commission administer
nuclear export controls, and the ATF administers controls
regarding permanent imports of items listed on the U.S.
Munitions Import List.

3 See Revisions to the Export Administration Regulations:

Initial Implementation of Export Control Reform, 73 Fed.
Reg. 22,660 (Dep't Commerce Apr. 16, 2013) (final rule);
Amendment to the International Traffic in Arms Regula-
tions: Initial Implementation of Export Control Reform, 73
Fed. Reg. 22,740 (Dep't State Apr. 16, 2013) (final rule).

4 See Amendment to the International Traffic in Arms Regula-

tions: Registration and Licensing of Brokers, Brokering
Activities, and Related Provisions, 73 Fed. Reg. 52,680,
52,690 (Dep't State Aug. 26, 2013) (interim final rule).

5 See Revisions to the Export Administration Regulations:

Military Vehicles; Vessels of War; Submersible Vessels,
Oceanographic Equipment; Related Items; and Auxiliary
and Miscellaneous Items That the President Determines No
Longer Warrant Control Under the United States Munitions
List, 73 Fed. Reg. 40,892 (Dep't Commerce July 8, 2013)
(final rule); Amendment to the International Traffic in Arms
Regulations: Continued Implementation of Export Control
Reform, 73 Fed. Reg. 40,992 (Dep't State July 8, 2013)
(final rule).