Can't touch it, can't see it? It's still subject to export controls
Regulatory compliance is now one of the most important topics for companies operating in modern business environments. It is becoming ever more important for companies to ensure they are trading legally, ethically and responsibly - especially given the hefty fines and prison sentences that export control violations can lead to.
Export control is a complex matter, and companies need to scrutinise their trading relationships and business transactions regardless of whether they are doing business domestically, within the European Union, or internationally. Export control compliance includes important topics such as restricted parties, country embargoes, dual-use and military goods, critical end-use, and US re-export controls in accordance with applicable national, EU and US laws.
Considering the sheer volumes of available denied-party lists worldwide that companies need to screen all their business partners against, or the different scenarios in which US export controls can apply to businesses exclusively distributing products within the EU, it becomes clear that global trade compliance is a tremendous challenge that must be taken seriously to succeed both in domestic and global markets.
Unfortunately, the challenges don’t stop there. Interestingly, it’s not just physical goods’ movements that are subject to export control regulations and applicable licence requirements by different authorities, but in fact also intangible goods, such as software or technical information.
Just because something cannot be touched, or even be seen, does not mean it is permitted to be transferred from one party to another without complying with certain regulations, or applying for an export licence before engaging in any such transfers.
The United Kingdom and other key supplier countries around the world control the transfers of ‘technology’ not in the public domain, i.e. information required for the development, production, or use of controlled materials, in the very same ways as the transfers of physical goods, or commodities, are controlled. Such controlled technology includes, but is not limited to, software, instructions (written or recorded), working knowledge, design drawings, models, operational manuals, skills training and parts catalogues.
Any movements or transfers of controlled materials in the UK are subject to the Export Control Act 2002, which sets out the legislative framework for the control of strategic goods and technology. Before this Act came into force in 2004, transfers of military technology by tangible means, and tangible and electronic transfers of dual-use technology, were already controlled in the UK, however, the transfers of military technology by electronic means were not.
In the UK, an electronic transfer includes transfer by any electronic means, including fax, e-mail, or telephone, from within the UK to a person or place abroad. Export controls on transfers by telephone only apply where the transfer involves reading out the contents (whether in part or whole) of a document containing controlled technology, or describing its contents in such a way as to achieve substantially the same result.
In a world based on complex international networks, increasing business use of social media platforms, and globe-spanning communication on all company levels, this certainly adds to the existing challenges of complying with UK, EU and US export controls.
Of course, US export controls of both tangible and intangible goods must be considered as well, because any re-export of sensitive materials or technology with US origin is subject to US control. Materials made outside the US may also be subject to US trade controls if the end-product is sensitive in nature and based on, or derived from, sensitive US-origin technology. In US law, the authority to control certain technology is contained in the relevant pieces of export control legislation, and is elaborated upon by implementing regulations.
It is important to note that the US Government makes no legal distinction between the means of transfer of controlled technology. In addition to controls on technical data transferred by tangible means such as e-mail, faxes and paper documents, the US government also seeks to control technical data that is passed on through oral or visual means such as during telephone conversations, web conferences, meetings, and skills training. This stands in direct contrast to the UK, which doesn’t control visual exchanges with a foreign person, and limits the control of oral exchanges to very specific kinds of telephone conversations as detailed above.
This effectively means that under US law, an export licence may even be required to make technical data or software available to, for example, a foreign business partner during a telephone conference. Further complicating the matter is the 'deemed export' (or, deemed re-export) rule. The US government considers the release of software or technology to a person who is not a US citizen or permanent resident (i.e. green card holder) to be the equivalent of a physical export to that person’s country whether the transfer takes place in the US or not.
Also, US export controls applicable to technology transfers through intangible means don’t just affect manufacturers and exporters. Companies outside of the US that are involved in research and development (R&D) activities should also evaluate their operations - they may require a re-export licence if using US-originating export-controlled software or technology, as the outcome of the R&D itself could become subject to US export control laws.
Given the far-ranging nature of US controls, it becomes obvious how important it is for companies to have effective compliance programmes in place throughout the organisation, including business units such as sales, marketing, customer support, and research and development. It also demonstrates that export control compliance with applicable national, EU and US laws for both tangible and intangible controlled goods, which can be transferred through either tangible or intangible means, truly is a highly challenging task subject to serious consequences in case of violations.
The volumes of materials and accompanying information, and the number of parties involved in today’s supply chains make it virtually impossible to manage global trade compliance programmes effectively and efficiently without implementing software solutions to support the business through automation of all required export controls checks.
Regulatory compliance affects all areas of global supply chains and has a direct impact on operational performance, fulfilment time frames, companies’ cash flows, brand reputation and competitive market edge. Comprehensive global trade solutions facilitate automated processes and information exchanges throughout the supply chain to ensure export control compliance with all applicable laws and regulations, and they add additional value to the business by increasing operational efficiency, reducing costs and mitigating risks at the same time.
In addition to implementing software support, it is of crucial importance to continuously raise the awareness of export control obligations and consequences of violations in every mind that takes part in transferring controlled materials across global supply chain networks. Software solutions have become essential for operating effective compliance programmes today, and they successfully manage all aspects of export control requirements through incorporating updated, applicable legislation, standardising processes, preventing transactions, recording activities and flagging critical persons, materials or actions. They largely automate all export control activities and guide entire organisations through their obligations on a global level.
Yet ultimately the final choice to load a piece of cargo on a truck, post an envelope with blue prints to a potential foreign business partner, or share some details of the latest design details over the phone, comes down to every individual involved, regardless of which restrictions and instructions a computer screen displays. It is the combination of solutions and education that represents the key to success, and leads the way to secure and compliant global trade.
