Originally published at US Law for Nordics website November 24th 2017.
Trade law is probably one of the things you as an entrepreneur want to spend the least time on. Still, in order to successfully run your business you need to know whether the goods or services you sell to or from the US market are subject to permits, licensing or contracting restrictions or regulations overseen by federal and state authorities. Also, you need to know if there are customs and fees applicable on your sales. Trade law is both technical and complex, and on top of that it’s international in nature. You must get it right in order to avoid fines and other sanctions, not only for your company but also for you as its founder and CEO. This blog post will give you a first overview of the legal system surrounding US export controls. It will be followed up by more hands-on advice in our future blog posts on Trade Law.
Who has the authority to regulate my international transactions?
Exporting from the United States is not a right protected by the Constitution, but rather a privilege governed by Congressional laws, Executive orders, and myriad regulations administered by numerous departments and agencies of the federal government. Sixteen agencies have authority to regulate or administer procedures involving exports, while another dozen or so have advisory or supporting roles.
What agencies are involved?
The three principal agencies having jurisdiction (i.e. the official power to make legal decisions and judgments) with respect to international transactions are the Commerce, State and Treasury Departments. The Commerce Department’s Bureau of Industry and Security has jurisdiction with respect to “dual use” items having both military and civilian applications described on its Commerce Control List. The State Department’s Directorate for Defense Trade Controls has jurisdiction with respect to “defense articles” and “defense services” described on its United States Munitions List. The Treasury Department’s Office of Foreign Assets Control has jurisdiction with respect to financial, economic and trade sanctions against certain listed individuals, companies and countries.
What agencies have specialized jurisdiction?
A longer list of specialized agencies retain jurisdiction with respect to specific industries. Life sciences companies frequently encounter the Departments of Agriculture, Health and Human Services and Interior. Energy companies frequently encounter the Department of Energy and the Nuclear Regulatory Commission. All technology companies encounter the Patent and Trademark Office’s licensing procedures when filing foreign counterpart patent applications. The list goes on.
What is a typical transaction like?
A typical transaction may invoke the overlapping jurisdiction and regulatory requirements of multiple federal agencies. Let’s consider the simple export of a computer with software to a party outside the United States. The computer may be a “dual use” item subject to the Commerce Department’s jurisdiction, but the software may be for the operation of a defense article subject to the State Department’s jurisdiction. The proposed recipient may be a person who is subject to sanctions by the Commerce, State or even the Treasury Department. The Census Bureau might require a filing through its automated export system, and the computer and software might be detained and seized at the port of departure by the Customs Service. The Justice Department might initiate a criminal investigation….
Furthermore, simply knowing which agency or agencies have direct regulatory authority is insufficient to advise companies with respect to regulatory risk. Multiple agencies sometimes have joint authority to make determinations that are critical to compliance. For example, the Departments of Commerce, Defense and State jointly review and decide whether a particular product or technology is “dual use” (and therefore subject to Commerce’s jurisdiction) or a “defense article” (and therefore subject to State’s jurisdiction). Some technologies have bounced back and forth between these two agencies, most famously commercial communications satellites and night vision technologies.
One infamous case, in which our firm represented the principal protagonist, involved the QRS-11 gyro chip, which ended up subject to the jurisdiction of both agencies simultaneously!
Even if the jurisdiction is determined to fall exclusively within the jurisdiction of a single agency, in many cases multiple agencies will be involved in decisions with respect to the issuance of licenses, permits or other approvals. For example, the Commerce Department consults with the Departments of Defense, Energy, Homeland Security, State and the intelligence community with respect to export license applications for “dual use” items, whether the intended recipient is located in a friendly country, like Canada, or a foe, like Cuba.
In the area of US export control, there are often overlapping jurisdictions, which can make it extremely difficult to know what rules will apply. In many cases, the trickiest part is to even realize when there is an export issue at hand, which needs to be looked into.
Posted by Roszel Thomsen
Roszel (Roz) Thomsen represents technology companies, from the “Fortune 100” to Startups, with respect to federal regulation of international technology transfers. Recognized as a leader among practitioners of export controls and economic sanctions law.