Export Compliance

Export Controls Strengthened in Game-Changing Year that was 2020

This past year will go down in history as game-changing in how we live and work because of COVID-19.

But in the world of export controls it was business as usual as governments, especially in the U.S. and EU, stepped up their efforts to make sure that companies were not engaging in business transactions with denied parties or entities controlled by so-called bad actors.

Major, new development in export control regulations over the past 12 months included countering attempts to circumvent trade restrictions, as well as the modernization of existing legal codes, as was the case in the EU.

U.S. Export Controls Updates

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) kicked off 2020 by announcing that new export controls would be imposed on software designed to automate the analysis of geospatial imagery, because the technology could be used against the United States and its allies.

Commerce also strengthened End-Use measures aimed at preventing China, Russia and Venezuela from purchasing goods from U.S. companies under civilian-use pretenses and then diverting those goods for military applications. It expanded Military End Use/User (MEU) Controls covering items such as semiconductor equipment, sensors, among others and removed export license exceptions for Civil End Users (CIV) in countries deemed a national security concern.

In response to China enacting national security laws that tightened its control over Hong Kong, Washington ended license exceptions for the export, re-export and transfer of defense equipment and dual use technologies to Hong Kong. These exceptions were previously allowed because of the city’s status as a special administrative region with a high-degree of autonomy from Chinese rule – terms that were negotiated between Beijing and London prior to the 1997 handover of sovereignty to China.

Meanwhile, BIS added 11 Chinese companies to the Denied Party Entity List for alleged human rights abuses in the northwest province of Xinjiang. That move came as the Department of Commerce, along with State, Treasury, and Homeland Security issued a Xinjiang Supply Chain Business Advisory highlighting the risks of becoming involved with entities engaged in forced labor in Xinjiang.

Developments in the EU and UK

The European Parliament, after months of negotiations, agreed on a plan to modernize EU export controls on existing and emerging dual-use goods and technologies. Following the landmark  agreement, the European Commission said in a statement that it “will work closely with Member States and the European Parliament to implement the new Regulation effectively. We will also interact closely with industry, which is the first line of defense to guard against proliferators and other malevolent actors”.

The United Kingdom’s separation from the EU in the New Year under Brexit will add to the upcoming complexities in Europe. Once the Brexit transition period ends, UK businesses would need to apply for appropriate export licenses to ship dual use items to the EU and vice versa.

Increased Sanctions on Embargoed Countries

Iran, Syria, Venezuela and North Korea continued to be the focus of new export control initiatives. In Iran, the construction, mining, manufacturing and textiles industries were designated by the State Department as off-limits to U.S. businesses because of Tehran’s continued nuclear ambitions. In Venezuela, the Office of Foreign Assets Control (OFAC) further increased the restriction of trade with the South American nation’s oil industry, which came hard on the heels of Department of Justice indictments against Venezuelan President Maduro and his close associates for alleged drug trafficking, money laundering, corruption, and sanctions-busting.

New sanctions went into effect against foreign individuals and entities who provide support to the Syrian government to “promote accountability for brutal acts against the Assad regime and its foreign enablers.” U.S. sanctions advisories were also issued against North Korea for its alleged illicit cyber activities and attempts to circumvent trade restrictions.

Export Controls will Likely Become More Stringent

In the more turbulent world we live in, export controls are expected to become tougher as time goes by, as rogue nations, terrorists and other similar organizations continue to further their illicit objectives. Under such a scenario, meeting ever stricter requirements become more complex for businesses.

Rules and regulations have reached new levels of sophistication that compliance by manual, labor-intensive means is no longer possible. Businesses realize that to comply effectively, they need to rely on technology.

To help companies with their export compliance work, software solutions exist for restricted party screening and export classification and license determination. Others include those for global trade intelligence and solutions that strengthen logistics and supply chain productivity.