Dual Use Export Licensing Under the EAR

Dual Use Export Licensing Under the EAR


Under the Export Administration Regulations (EAR), the Bureau of Industry and Security – of the US Department of Commerce – regulates the export of commercial items that have both commercial and military applications, or that otherwise have strategic value to the United States.  These items are commonly referred to as “dual-use” items.


It is worth noting that the EAR does not exclusively control the export, re-export, or transfer of dual-use items.  The EAR controls items with purely commercial application, items with mixed commercial and military application, and items with purely military application.


Certain regulated dual-use items must be licensed for legal export, re-export, or transfer.  Dual-use export licensing under the EAR can be a bit complicated, however, so let’s try and understand the process step-by-step.


Licensing Under the EAR


Unlike licensing under the International Traffic in Arms Regulations (ITAR), which focuses primarily on the product classification of the export-ready item, licensing under the EAR is somewhat more complex.  Whether a dual-use license under the EAR is required depends on a variety of factors, including but not limited to the product classification, technical characteristics, the export destination, and the end-use and end-user activity.


Though exporters are encouraged to self-classify their export items, they are entitled to request the Directorate of Defense Trade Controls (which implements ITAR) to make a decision on whether a particular item falls under ITAR or EAR jurisdiction.


Bear in mind that registration is not required in order to seek export authorization under the EAR.  You can apply for export authorization directly.


The Commerce Control List


The Commerce Control List (CCL) serves as an entry-point for determining whether a particular item must be licensed for export or re-export under the EAR.  If a particular item’s category appears on the CCL, then it likely requires a license for legal export.  The CCL can be accessed directly through the website of the Bureau of Industry and Security.


Do be aware that there is some overlap between the United States Munitions List (regulated by ITAR) and the CCL.  If an item appears in both lists, then the Munitions List (and ITAR) will take precedence.


If the category for a particular export item is listed on the CCL and comes under the ambit of the EAR, then the next step is to determine the Export Control Classification Number (ECCN) for the item, which indicates the item category, sub-category, and item order.  The ECCN itself determines the particular license requirements and controls that the item will be subject to.  The ECCN is generally self-identified by the exporter, but if you are confused about the correct ECCN designation for a particular item, you can request the Bureau of Industry and Security to send an advisory opinion on classification (and even on licensing requirements).


Not Listed on the CCL


If an item that you intend to export is not listed on the CCL, it may be designated as an EAR99 item.  EAR99 items generally don’t require a license based off their classification, but may require a license depending on a number of other factors, including but not limited to the following…


Country of Import

Certain countries (i.e., embargoed countries) require licensing even if the item would not normally require a license for export.


Prohibited End-User

There are certain entities that are “prohibited end-users.”  Even if the item is being exported to a country for which a license is not required, the ultimate end-user may be counted among prohibited entities under current regulation.  The list of parties/entities whose presence can trigger a license requirement under the EAR may be found here.


Prohibited Activities

If the dual-use item will be used for certain prohibited activities, such as those relating to the development of missile or chemical weaponry, then a license will be required – even if the item is not listed on the CCL.


No License Required (NLR) Countries


Even if a particular dual-use item is listed on the CCL, you may not have to obtain a license for export if the country that will receive the export is deemed an NLR country.  Applicable NLR countries are listed in the Commerce Country Chart, which can be found here.


License Exceptions


Before you continue with the process of obtaining a license, you should make sure that no license exceptions apply to your particular item and circumstances.   There are several license exceptions that may apply, so keep them in mind as you move forward.  The following is a non-exhaustive list.


Limited Value Items

As per the EAR, export items that are valued below a certain amount do not require a license.  Use the ECCN as a reference once you have determined the correct ECCN number for the item you intend to export.


Civilian End-User in Certain Countries

Items (controlled for national security reasons) exported to civilian end-users in specified countries may be eligible for a license exception.


Transit of Items

Items being moved in transit may qualify for a license exception so long as they return to the United States, as such activity constitutes a “temporary” export.


Exhibition of Items

Exhibitions and demonstrations of certain items may be eligible for a license exception, so long as you are able to maintain possession of the regulated item while outside of the United States.


Maintenance and Repair

Depending on the circumstances and the item classification, you may be able to get a license exception for sending replacement parts, maintenance tools, and other supplementary repair items for an already-exported item.

Deemed Export Regulations: Introduction

Under both the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), the ability of persons or entities to release of controlled technology and technical data to foreign persons (including those physically located within the United States) is significantly limited without relevant licensing and/or authorization.


Importantly, these limitations apply to the employer-employee relationship as well.  Under the EAR and ITAR, an employer cannot release controlled technology or technical data to a foreign employee, even if the employee is physically located within the United States and does not move or otherwise transfer such technology/data outside of the country.

Deemed Export Regulations: Controlled Technology and Technical Data

Licensing or other authorization is not required in situations where the technology or technical data is controlled for export/release to foreign persons.  Technology or technical data that is not controlled is therefore exempt from EAR and ITAR licensing and authorization requirements.


It is worth noting that the EAR governs controlled technology, and ITAR governs controlled technical data, though there can be a great deal of overlap in some circumstances.


For an easy reference to assess your potential regulatory load, check out the Commerce Control List (CCL) and the United States Munitions List (USML).  Any technology or technical data subject to export/release controls will be listed on the EAR’s CCL and ITAR’s USML.


Technical data will typically be controlled if it is directly linked to regulated defense articles.


Technology will typically be controlled if it is directly linked to the development, manufacture, and use of products with both civil and military applications.

Deemed Export Regulations: Who Qualifies as a Foreign Person?

A foreign person is any:

  • Person who is not a US Citizen, US permanent resident, legal refugee, or other similarly-authorized individual;
  • Employees on H1B1, H1B, L1, and O1A visas are therefore considered foreign persons under EAR and ITAR. This can increase the administrative overhead quite substantially if you and your organization are unprepared.
  • Entity that is not incorporated or organized under US law; or
  • Foreign government or agency/department of a foreign government.


If you export/release controlled technology or technical data to a foreign person, entity, or government, you will have violated the deemed export rule, thus exposing you and your firm to substantial criminal fines and imprisonment (in certain circumstances).

Deemed Export Regulations: What Constitutes a Release?

Release need not be concerted, voluntary, or even intentional.  Conduct qualifying as a “release” under EAR and ITAR includes, but is not limited to: a) allowing a foreign person to visually inspect or otherwise view the technology or data; and b) oral discussions, whether over the phone, through a video-conferencing program, or in-person.


Under EAR and ITAR, the release of controlled technology or technical data is usually not a function of intentional, organized effort to violate deemed export regulations.  As all of this terminology may be somewhat confusing at first, let’s consider an example to help clarify.


Suppose that you invite a group of foreign clients to visit your US facility.  You have a few meetings to discuss a potential sale of non-controlled technology.  Later, you ask an employee to give the clients a tour of the facility to engender a sense of trust in the clients.  As the clients are touring the facility, however, they are accidentally taken to an area where certain controlled technology is located.  The clients see the technology.


Despite the fact that this was not a “planned” viewing of the technology, the foreign clients’ introduction to the controlled technology constitutes a violation of deemed export regulations under EAR and ITAR.  Any fines levied against you and your firm will likely take into account the lack of intention, of course.


Visual inspection or viewing is not limited to a direct in-person glimpse of the technology or data at-issue.  If a foreign person sees a photograph or other representation of the technology/data (in an email, PowerPoint slides, text messages, among various other formats), then the viewing still qualifies as a release under EAR and ITAR.  As such, all communications containing information related to the controlled technology or technical data should be separated in a manner that prevents unwanted disclosures to foreign persons.

Deemed Export Regulations: Licensing and Other Compliance

Though most technology and technical data is not controlled for export or release to foreign persons, entities, and governments, if the technology or technical is in fact controlled, then a license may be required.


To ensure that such technology/data can be released or exported to foreign persons, the petitioner must apply for a license with the US Department of Commerce and/or the State Department.


Under existing US law, the exporter or discloser of controlled technology/technical data must determine whether export or release licenses are required for the specific technology/technical data that they intend to provide to foreign persons.  If an exporter or discloser fails to acquire the required licenses, the blame (and corresponding punishment) falls squarely on them.


This requires the submittal of a of a “deemed export” certification.


Do bear in mind that there are additional complications if your firm employs foreign persons.  Though you may not currently require licensing for release to such foreign persons, if these employees take on additional responsibilities or if their role is changed, then you will likely have to submit a form to notify the relevant government departments, and if necessary, apply for a license.

Deemed Export Regulations: Punishment

The EAR and ITAR subject violators to separate fines for violations, which – depending on criminal or civil liability – can run up to $1M or $250K per violation, respectively.  How does this work?


Suppose that (without a license) you accidentally send design documents for controlled technology to a foreign client.  It was a mistake, but you sent three different design documents for three different controlled technologies.  Given that the disclosure was a mistake, the violation will likely only subject you to civil penalties.  There were three violations, so in total, you could potentially be subject to $750K in fines for one mistaken disclosure.


Though compliance is complex – and often expensive – there are substantial penalties associated with non-compliance.  You must make proper efforts to invest in compliance to ensure that you and your firm do not violate relevant deemed export regulations.

Penalties for ITAR Noncompliance

The International Traffic in Arms Regulations (ITAR) implemented by the State Department’s Directorate of Defense Trade Controls – in combination with the Export Administration Regulations (EAR) implemented by the Department of Commerce – applies controls to the export/import of defense articles and defense-related services. Though necessary, the regulations set up by ITAR places a heavy burden on covered exporters. Compliance can be a rather complicated matter given the numerous and varied controls, and the dynamic nature of ITAR regulation, and penalties are often severe.

Legal compliance requires constant monitoring of the state of ITAR regulation. As new regulations are implemented (and old regulations are amended), covered exporters must adapt or risk being penalized for noncompliance.

ITAR contemplates the ever-changing landscape of defense article export/import regulation, and places restrictions on covered exporters to ensure that there is sufficient organizational infrastructure to maintain compliance. Exporters of defense articles and defense-related services must employ a dedicated compliance officer to serve as an Empowered Official (see ITAR section 120.25). Compliance departments are recommended for larger exporters.

Empowered Officials not only function as the legal agent of the cover exporter for executing applications and approvals, verifying deal information, and conducting compliance inquiries, but are also responsible for keeping up with compliance requirements and penalties.

As compliance infrastructure is required by law, the penalties for noncompliance are correspondingly significant to incentivize further development of efficient internal compliance systems. Under the ITAR, even “mistaken” – not willful – compliance failures are met with heavy penalties.

Typical Compliance Violations

Even exporters with excellent compliance programs may violate ITAR law on occasion. The following is a non-exhaustive list of compliance violations that are commonly seen.

Willful Failure to Comply with ITAR
Knowing and willful violation of various ITAR provisions may result in both civil and criminal penalties worth millions of dollars (and depending on the violation, may result in imprisonment). If an exporter becomes aware of an applicable ITAR provision, they must comply. If they fail to comply after becoming aware of the applicable provision(s), they risk being found in willful violation of the law.

Unintended Mistake
Unintended mistakes are common in the ITAR exporter industry, given the complexity and breadth of applicable regulations. Mere mistakes are generally subject to significant civil penalties, but it’s worth noting that ITAR provides an alternative disclosure program that allows for reduced/no penalties if certain stringent reporting requirements (along with adequate restructuring of the compliance process) are met.

Misrepresentation and Factual Omissions
Noncompliance does not require violation of any specific compliance provisions of ITAR. If an exporter makes a factual omission of material information (or otherwise misrepresents facts) at any point in the registration, licensing, or reporting processes, then civil and criminal penalties may apply. Absolute honesty and accuracy is a non-negotiable requirement.

Penalties for Compliance Violations

Strategically speaking, exporters have nothing to gain and everything to lose from noncompliance. ITAR enforcement is exceptional, and the State Department collaborates with a number of domestic and foreign agencies to closely monitor compliance at every stage of the export process. Penalties are severe, with certain violations risking criminal penalties (including imprisonment) and/or debarment of the business itself.

Criminal penalties include fines of up to $1 million and up to 10 years imprisonment. Exporters found in violation of ITAR are generally only subjected to criminal penalties for willful noncompliance.

Civil penalties are more common, but in monetary terms, no less severe.

As of August 1, 2016, civil ITAR violations may result in monetary penalties up to $1.09 million in value (per violation). This inflation-adjusted penalty ceiling will be adjusted on an annual basis every January.

Civil penalties apply to each individual violation. A single locus of noncompliance can in fact be broken down into multiple violations, resulting in penalties in the range of tens of millions of dollars.

For example, suppose that an exporter mistakenly approves of delivery of defense articles to a particular destination. The destination control statement is also full of factual inaccuracies concerning the ultimate destination of the defense articles. Further, because the inaccuracies were not caught early, many different shipments of different defense articles were delivered. Though all of these violations arise from the same general mistake (regarding the ultimate destination), multiple violations were committed. The exporter in this situation may be subject to tens of millions of dollars in civil monetary penalties.

Importantly, civil penalties may be reduced at the discretion of the governing agency, but the exporter must adequately demonstrate that such reduction is justified by the weight of evidence.

Potential Debarment
Substantial monetary penalties can – in some cases – be absorbed by successful export businesses with the assets necessary to pay such penalties. On the other hand, debarment can ruin an established defense article exporter, no matter the success of the business or the availability of monetary assets.

Debarment is required when exporters violate the Arms Export Control Act (AECA). It is not required – but may be invoked by regulators – for ITAR violations.

Debarment results in the loss of ITAR export licensing privileges. Further, if the debarred exporter has any government contracts, those contracts are rendered forfeit. Debarment could spell the end of a successful exportation business. After debarment, the exporter will be placed on a federal debarred list – other businesses will thus be put on notice not to do business with the debarred exporter.

Debarment prevents both direct and indirect participation in the exportation of defense articles. The debarred business cannot participate at any step of the exportation process.

Debarment is not necessarily final, however. After some time, specific exceptions may be approved to allow debarred exporters to participate again in a limited capacity.

Though ITAR compliance can be difficult to consistently implement and maintain, it is a crucial requirement for the successful, long-term exportation of defense articles. ITAR noncompliance brings with it severe criminal and civil penalties that can end an export business.

Broker Registration Renewal and Reporting

Once a broker has been registered, there are numerous additional requirements in order to maintain their status as a registered broker.


Material Changes Must Be Reported

When there have been changes to the circumstances such that the registration is materially affected (the details of brokering activity have changed) then the DDTC will have to be notified of the changes in order for a broker’s registration status to be maintained.


If it’s a US broker, then notice must be given within 5 days of the material change in circumstances.  If it’s a foreign broker, then notice must be given within 60 days of the material change in circumstances.


“Material” changes typically include, but are not limited to, changes in eligibility status (due to citizenship changes, employment status changes, etc.), name, location info, hierarchical changes in firm structure, changes in the defense articles exported and services rendered, and more.


Annual Reporting is Required

Registered brokers are required to provide an annual brokering activity report to the DDTC.  The annual report must include detailed information on brokering activities (such as the dollar value, quantity, category, type, and more).


An annual report is due even if the broker has not been engaged in brokering activities during the previous year.


Annual Registration is Required

In addition to annual reporting, brokers are required to annually renew their registration by filing a statement of registration between 30-60 days before expiration date.  Both the renewal registration and the annual brokering activity report are due in the same month.  Failure to file a statement of registration (to renew) will result in the suspension of registration status.



Under the ITAR, brokers must follow strict guidelines to ensure that they can engage in brokering activity for defense articles and services.  Depending on the circumstances, a broker will have to register and obtain approval from the DDTC, or may qualify for an exemption.

Exemptions from the Registration Requirement

There are numerous provisions in the ITAR that carve out exemptions for specific persons and entities to reduce the administrative burden of having to register as a broker (and subsequently obtain an approval for brokering activities).


US Connection Predecessor to Registration

Broker registration requirements require substantial links to the United States.  They apply only to US persons, foreign persons located in the United States, or and foreign persons outside of the United States but in a position where their decisionmaking authority (or securities ownership of their firm) is controlled by US persons.  To put it simply: a foreign broker whose brokering firm is foreign-owned will not be subject to ITAR broker registration requirements.


“On Behalf Of” Requirement

The ITAR imposes a registration and approval requirement only on brokers that engage in brokering activities “on behalf of” another person or entity.  This language specifically implicates independent brokers and brokering firms, and excepts broker-employees of an arms manufacturer or exporter.  As such, internal brokering activities need not precipitate the registration requirement, saving defense article manufacturers and service providers from the administrative headache of doing so.


Government Employees are Exempt

The brokering provisions carve out an exemption for employees of the government – both foreign and domestic governments – but only when such employees are acting in their official capacity.  An employee of a government (foreign or domestic) cannot independently broker defense article and service exports.


Does Not Apply to Administrative Services

Facilitation in the administrative sense is exempt.  Purely administrative services – including but not limited to real estate, visa, translation, company promotion, and attorney services – does not activate the brokering registration requirements.  This makes it much easier for individuals and entities to work with ITAR-compliant firms without having to step-up their processing burden.


Does Not Apply to Certain Exclusive Activities

Section 129.3(b)(2) of the ITAR carves out an exemption for persons engaged in activities that are not associated with the defense export content itself – in other words, for those whose business is not reliant on the fact that the exportation is a defense article.  This exemption applies specifically to persons who are exclusively engaged in financing, insurance, transportation, customs brokering, and freight forwarding, despite the fact that these activities are considered “brokering activities” according to the section 129.2(b) definition.  No further engagement (beyond what is standard for the industry) is allowed.


It is worth noting that even one-time engagement in brokering activities will precipitate the broker classification.  Continuous brokering activity is not a pre-requisite to registration.