By Nick Larsen
A recent news story highlights the risk faced by companies that fail to comply with the Export Administration Regulations (EAR). The Commerce Department’s U.S. Bureau of Industry and Security (BIS) levied one of the highest fines ever against EMD Biosciences, Inc. (EMD) of San Diego, California. The charges were brought after the company exported biological toxins to Canada without the required export license. The fine was part of a settlement that also included a two year ban on EMD’s export privileges.
EMD claimed that its failure to comply with the regulations was simply because the company was unaware of recent changes in export law. EMD mistakenly believed it was complying with export regulations because it was exporting to Canada, which until recently did not require a license for biological shipments. Interestingly enough, this is not the first time EMD has run into trouble for illegal exporting activities. In 1999, the Commerce Department fined EMD $700,000 for exporting materials to Europe without a license. With so much at stake, EMD has decided the best way to deal with the risk is to stop exporting biological toxins.
An exporter must understand that it is the exporter’s responsibility to conduct the necessary research to determine whether a license is required for a particular export transaction. As can be seen from EMD’s experience, pleading ignorance will not bypass the penalties of non-compliance with exporting regulations.
In determining whether a license is necessary for a particular item, one of the first steps is for an exporter to determine which US Government agency is responsible for regulating an item. What makes this confusing is that the Commerce Department’s BIS is just one of several US government agencies that regulates exports. Other agencies involved in export regulation include the Departments of Energy and State, and the Treasury. These agencies are responsible for regulating exports that involve “national security, foreign policy, short-supply, nuclear non-proliferation, missile technology, chemical and biological weapons, regional stability, crime control, or terrorist concerns.” Where an agency has jurisdiction, it will evaluate the possible end-uses of an item as well as its destination and possible end-users. Items that are regulated by the EAR are identified by an Export Control Classification Number (ECCN). To accurately determine which EAR regulations apply, it is necessary to identify which ECCN applies. EMD was fined because it was not aware that the licensing requirements under ECCN that applied to its export item had changed.
Of course, the EAR do not apply to all export items so if an exporter is unclear about the licensing requirements for a particular item, it can contact the BIS at the Commerce Department or the State Department’s Office of Defense Trade Controls to request a “commodity jurisdiction” determination to clarify which agency regulates that particular item.
In conclusion, it is important for an exporter to include in its business strategy a plan to ensure compliance with the EAR requirements, as well as all other export regulations. The fines paid by EMD are just one example of the adverse consequences that can be faced by a company that fails to do so. An exporter that ignores these requirements does so at its own peril--both civil and criminal penalties can be imposed.
For further information on export issues, please contact Conan Grames at cgrames@kmclaw.com.