You may ask yourself , “My only customers are the U.S. Government and a few trusted people; why should I be concerned with export control in the first place?” Or, “What’s the worst that could happen if my product or technology were exported without a license?” The first question leads directly to why we have export controls in the first place, and the second question leads directly to what could happen if you are found to have committed a violation of an export control law or regulation.
So, why all the fuss? Well, remember that the purpose of the U.S. export compliance apparatus is to prevent U.S.-sourced technology, goods and services (collectively, the “commodities”) from falling into the hands of persons or countries with interests hostile the U.S. and U.S. foreign policy. This basic purpose encompasses both commercial and military concerns. Commercially, the export compliance apparatus is designed to prevent the United States from having to compete against foreign technology that was developed here in the U.S. From a military perspective, the export compliance apparatus is designed to prevent U.S. military personnel from having to defend themselves against American-made weapons and combat technology (which would be disastrous).
These reasons, both commercial and military, supply the aspirational reasons (the “should” reasons) behind the U.S. export compliance regime. However, the U.S. export compliance regime also contains punitive measures (the “shall” or “must” reasons) to compel compliance; these measures include fines, prison terms, prohibitions against future exports, as well as debarment from government contracting. Next, I detail the penalties for violating some of the U.S. export compliance laws, including the International Traffic in Arms Regulations, 22 C.F.R., parts 120 – 130 (“ITAR”); the Export Administration Regulations, 15 C.F.R., parts 730-774 (the “EAR”); the Office of Foreign Assets Controls Regulations, 31 C.F.R., parts 500 – 598; and the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq.
1. Penalties for ITAR Violations:
Penalties for ITAR violations are quite severe. Under the Arms Export Control Act (the statute that ITAR implements), a person or organization that has been convicted of an ITAR violation may be fined up to $1 million, receive 10 years in federal prison, or both. See 22 U.S.C. § 2778(c). That provision also lays out, in detail, all of the things that might constitute an ITAR violation. In addition, a person or organization found to have committed an ITAR violation may also be prevented (debarred) from government contracting. See 22 C.F.R. § 127.7.
2. Penalties for EAR Violations:
Penalties for EAR violations are also quite severe. According to the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”), “[c]riminal penalties can reach $1,000,000 and 20 years imprisonment per violation and the administrative penalties can reach the greater of $250,000 per violation or twice the amount of the transaction that is the basis of the violation.” See the BIS Criminal and Civil Penalties page (last accessed December 6, 2011).
3. Penalties for OFAC Violations:
There are two basic classes of OFAC violations: engaging in prohibited transactions in prohibited countries, see the OFAC Sanctions Programs page, or engaging in prohibited transactions with persons on the Specially-Designated Nationals and Denied Entities List (the “SDN List”), or both. Penalties for OFAC-related violations are as follows: “[p]ersons who willfully violate any provision of TWEA or any license, rule, or regulation issued thereunder … shall, upon conviction, be fined not more than $1,000,000 or, if an individual, be fined not more than $100,000 or imprisoned for not more than 10 years, or both; and an officer, director, or agent of any corporation who knowingly participates in such violation shall, upon conviction, be fined not more than $100,000 or imprisoned for not more than 10 years, or both.” 31 C.F.R. § 501.701.
4. Penalties for FCPA Violations:
Penalties for FCPA violations are found at 15 U.S.C. § 78dd–2(g). Under that provision, any “domestic concern” (see § 78dd–2(h)) that is not a natural person may be fined up to $2 million per violation, while “[a]ny natural person that is an officer, director, employee, or agent of a domestic concern, or stockholder acting on behalf of such domestic concern” may be fined up to $100,000, receive 5 years in federal prison, or both. Finally, if an officer, director, employee or agent of a domestic concern is fined as described above, “such fine may not be paid, directly or indirectly, by such domestic concern.” § 78dd–2(g)(3).
Simon Courtman is a lawyer at Fluet Huber + Hoang, a full service law firm focused on the needs of growing government contractors. He previously served in the United States Air Force. You can reach him by email here.