While it is commonly understood that physically sending an item out of the country is an export transaction, under U.S. export controls laws the actual scope of what constitutes an “export” is much broader. The effects of this broad concept of exporting upon businesses – including their sales and marketing activities – are significant. The possible penalties for export controls violations include large fines, jail time, loss of export privileges, and restrictions placed on government contract opportunities, with both companies and individuals at risk for being held liable for violations. Furthermore, certain compliance-related activities take time to implement and should be factored into business plans. Given that backdrop, understanding the rules is critical to avoiding violations and undue delays to business activities.
Pursuant to export controls regulations, including both the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), the concept of the types of actions that constitute export transactions include disclosing or transferring controlled technical information to a foreign person, whether in the U.S. or abroad. A foreign person is primarily anyone who is neither a U.S. citizen nor a lawful permanent resident. The EAR refer to such a transaction as a “deemed export” since the disclosure or transfer to the foreign person is “deemed” to be an export to his/her country or countries of origin.
Understanding the nature of activities that government regulators and law enforcement agencies consider as exports is of fundamental importance in complying with export controls laws since many export transactions require prior authorization from a government agency; either the Department of State for ITAR items and technology or the Department of Commerce for EAR items and technology. Disclosing or transferring export-controlled information without first obtaining required authorization is a violation of export controls laws.
There are obviously a vast number of ways in which information can be disclosed or transferred to a foreign person: orally, either through face-to-face or telephone conversations; visually, such as by e-mail or fax; or through observation or inspection. Which foreign persons might represent the greatest risk, perhaps, of such a “deemed export”? Employees of a foreign subsidiary or affiliated company, suppliers, service providers, visitors to U.S. plants and facilities, and foreign people and entities involved in international sales and distribution channels, such as customers, sales representatives, distributors, and consultants are all foreign parties that routinely participate in communications as part of daily business activities. With so many potential parties, and the ease with which communication can take place, the risk of an unauthorized disclosure, even an inadvertent one, can be significant.
For sales and marketing professionals involved in international business transactions, interaction with potential and existing customers, sales representatives, distributors and consultants is a fundamental necessity. The ability to have meaningful communications and engage in the free flow of information is critical to meeting forecasts and the success of business plans. Given that, let’s take a brief look at some of the ways the regulations can affect sales and marketing activities.
It’s worth noting that certain types of information are not controlled for export and therefore do not require authorization prior to disclosure. Such information includes information that is in the public domain, basic marketing information and systems descriptions, as well as information concerning general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities. While the ability to freely provide this type of information may be slightly helpful, the disclosure of any technology or other information that goes beyond high-level marketing information and contains greater detail will raise export controls concerns and trigger the need to determine whether prior approval, typically in the form of a license or an agreement, is required. One rule of thumb that is often used is to treat information and technology that your company considers confidential as being export-controlled.
Examples of instances of technical information disclosure where prior approval may be required include product development activities, participating in trade shows either abroad or in the U.S. where foreign persons may be in attendance, engaging in detailed pre-sale discussions and product demonstrations and presentations, responding to RFQs and RFPs, and providing post-sale information and support. Depending on whether the information involved is controlled under the ITAR or the EAR, various forms of licenses or other approvals may be available. For example, the Department of State may approve licenses for marketing activities that cover either a specific proposal or general marketing activities to specified foreign parties. Temporary export licenses may also be available that approve taking ITAR-controlled products overseas for demonstrations and trade shows. Additionally, there are certain exemptions and exceptions from ITAR and EAR license requirements that may be available for trade shows, other temporary exports, and other transfers if specific conditions and requirements can be satisfied.
No one wants to suffer a delay in executing a marketing plan or engaging in some other business activity while being forced to wait for licensing assessments or the receipt of necessary approvals. To avoid delays, it’s critical that sales and marketing personnel seek the guidance of compliance representatives as early as possible. When new projects, initiatives or contracts are contemplated, export compliance issues should be considered; to confirm the nature of the products and technology at issue and which government agency has jurisdiction over the contemplated activities, and to determine the level of controls for export purposes that might exist. Once that information is clarified, compliance personnel can then determine the form of authorization that might be necessary and/or that might be the best fit for the specific situation, and whether any exemptions or exceptions from licensing requirements may be available. Export compliance staff will also be able to assist managers with factoring these compliance tasks into project plans and timelines. The earlier that the export compliance analysis can be undertaken, and any required applications for authorizations sought and obtained, the less likely there will be an unforeseen delay in project activities.
Export controls requirements can affect a company at many stages of its business operations, including with respect to sales and marketing activities. However, understanding the broad scope of export-related transactions and seeking the assistance of compliance personnel at the earliest possible stages will help companies and their employees avoid delays and, even worse, violations of export controls laws.
Eric J. Rudolph is President of Rudolph Export Consulting, Inc. He can be reached at eric@rudolphexport.com.
