AEB International explain how to make the most of the U.S. Export Control Reform

 Compliance with U.S. export control regulations is a major challenge for any company dealing with either U.S-originating military goods, dual-use items or associated technology. Dual-use items are primarily commercial or civil in nature, but also have potential military applications, and technology includes technical data, software, and any associated services. U.S. re-export controls also apply when passing controlled U.S. originating articles from one country outside of the U.S. to another country – including traffic within the European Union.
Importers, exporters, freight forwarders, academic institutions and many other businesses can be impacted by U.S. regulations, regardless of where they are located because the U.S. claims extraterritorial jurisdiction for violations of U.S. export control laws. The ongoing U.S. Export Control Reform (ECR) is leading the current process to move some goods originally controlled under the International Traffic in Arms Regulations (ITAR) to control under the Export Administration Regulations (EAR). The first pair of ECR implementing rules went into force on 15th October, 2013 and the second set of rules will take effect on 6th January, 2014, with more to follow. This is adding a level of complexity for some companies, who didn’t have to consider EAR regulations prior to the ECR. The reform’s ultimate goal is to implement a single licensing agency with a single control list, and single IT system for all U.S. license applications.
This means significant changes for many UK companies that operate in a wide range of industry sectors including aerospace, automotive, defence, information technology, telecommunications, and software. Violations of export control regulations may result in severe criminal and/or civil penalties including fines and even imprisonment for responsible individuals, such as managing directors or members of the managing board. Non-compliance can also lead to cancellation of export privileges, preventing companies from participating in any business transaction subject to EAR. Companies could also find themselves on restricted party lists, which could bring about bad publicity and reputational damage. Once a company is listed on a sanction list, its entire international business is at risk too, as other businesses will refrain from trading with listed companies. Pleading ignorance to the law will not prevent prosecution for U.S. export control violations, as many successful prosecutions of non-U.S. companies demonstrate.
Modern supply chains are very complex and can involve dozens or even hundreds of parties, each having the responsibility to comply with both national and U.S. export control regulations and to pass on relevant information within the supply chain to ensure compliance can be achieved by all involved. Comprehensive global trade software solutions provide the foundation for the required visibility and collaboration across complex global networks, and offer background checks on all business transactions from procurement to fulfilment. This ensures compliance with applicable EU and U.S. law at every step of the way.
The identification of U.S. controlled materials and technical data is of utmost importance and ideally should be carried out at the point of purchasing, right at the beginning of the process. The supplier should advise that the articles are U.S. controlled, enabling the implementation of the right controls at the first point of receipt. Maintaining visibility of goods from order entry to fulfilment and at every stage in between is crucial for supply chain security. It facilitates proper management of controlled articles through transparency of whereabouts, origin and destination at any given point in time, and through real time alerts when the terms of a license are potentially being violated. A rigorously enforced, IT supported compliance programme will ensure the control of materials and intangible movements, such as conversations, in line with the terms of the applicable U.S. license, and provide virtual controls for data rights management and secure file storage. Demonstrating compliance to auditors is also of paramount importance in order to avoid potential penalties. Data capture, such as physical goods movement history, license usage, event logs and screening logs, are required to prove that effective controls are in place. Manual management of such complexity is not only impossible beyond a certain volume, but also error-prone and time-intensive.
Changes being introduced under the U.S. ECR open up new opportunities for businesses to save costs, standardise workflows and accelerate processes while ensuring compliance. Companies should therefore review their current export controls procedures and consider comprehensive global trade management solutions to secure their supply chains and avoid violations of EU and applicable U.S. law while increasing visibility, collaboration and performance throughout the supply chain.