Export controls and economic sanctions compliance
Export controls and economic sanctions present a significant challenge for many industry sectors, resulting in an ever increasing compliance burden.
This comes as no surprise, considering the large and growing variety of goods, services and technologies subject to controls or restrictions, as well as the demanding complexity of national, European and international regulations. Combined with a recent focus on enforcement measures in certain jurisdictions, export controls and sanctions impact virtually every sector: automotive, chemical, banking, food & beverages, life sciences & new technologies are but a few examples of areas having to deal actively with compliance processes.
As a general rule, export controls and sanctions regulations impose prohibitions or restrictions, by means of authorizations and licenses, but do not regulate how businesses should comply with such prohibitions and restrictions. Companies are expected to find their own way towards compliance. As such they will have to anticipate whether they are shipping controlled items or servicing a restricted party and check whether a government authorisation is required or not.
Understanding the impact of export controls and sanctions is key. Therefore, we have highlighted the 5 common misunderstandings regarding export controls and economic sanctions.
1. We are not selling military items / We do not produce goods, so basically export controls and economic sanctions will not be applicable to our company.
A wide variety of goods are subject to control
The main two categories of export controls in the EU are the military controls and the so-called dual-use controls, i.e. controls on items that can be used for both civilian and military applications and/or can contribute to the proliferation of weapons of mass destruction. This means that even when a product is manufactured for purely commercial purposes, the products can still qualify as dual-use, e.g. certain carbon fibers, chemicals, certain steel products, etc. The list of dual-use items in the EU is more than 300 pages long.
Note that in future it is likely that the scope of dual-use items will be extended to items that can be used to violate human rights, such as cyber surveillance systems.
Certain goods of high risk (i.e. items listed on the Common EU list of Military Goods and dual-use goods of Annex IV of the EU Dual-Use list) are also subject to EU export controls if the goods are transferred from one EU member state to another.
In addition to these dual-use and military listed goods, certain items are also restricted under economic sanctions regulations if dispatched to certain end destinations and/or end-users. For instance economic sanctions regulations against Russia impose restrictions on goods used in the oil and gas sector.
But also services can be subject to controls
Even if you don’t own, produce or export goods, but you are merely performing services within the supply chain, for example as a freight forwarder, or you only conduct research activities without any intention to produce goods, for example as research centers of universities do, you might be subject to sanctions and export controls regulations.
Certain services related to military and dual-use goods such as the non-physical transmission of software and technology, technical assistance and brokering services are also controlled. Furthermore, service providers like insurance companies, logistics companies, and financial institutions may be targeted by specific economic sanction regulations.
Since services are non-tangible items, they will not physically cross borders or pass customs authorities and, therefore, they often lack a paper trail or any other structural record keeping. Because of this we suggest to document every controlled services or transmission of technology. For instance, an exchange of e-mails with a recipient outside the EU with respect to research of an item that is subject to dual-use controls can be controlled and considered as ‘export’ for dual-use purposes. Proper documentation of these e-mails is highly recommended in order to avoid future debate with the competent regulators.