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The government is significantly stepping up its enforcement of export laws and regulations. Consider the following: • Fines for unintentional export violations have gone from $11,000 per violation in 2005 to $50,000 per violation in 2006 to the greater of $250,000 per violation or twice the value of the export transaction in 2007. Congress is currently reviewing proposed legislation that will further increase the fine for unintentional violations to $500,000. • Fines for intentional export violations have increased from $50,000 per violation to $1 million per violation. • The government recently has become much more aggressive in detecting and prosecuting export control violations, including hiring additional field agents and investigators. • Law enforcement and intelligence agencies have joined in a multi-agency task force to attack the export of restricted technology to foreign nations and terrorist organizations. • The Department of Justice has appointed an “export czar” to coordinate export regulatory enforcement among several federal agencies. Businesses engaged in international transactions have no choice: They must focus on complying with these export regulations. The government’s exceptionally coordinated and highly aggressive campaign to detect and prosecute export control violations has already led to a surge in export control prosecutions. More prosecutions are inevitable. Indeed, export prosecutions increased by 50 percent in fiscal year 2007. A review of some of these export prosecutions exemplifies the aggressiveness with which export violations are now being prosecuted and fined. One recent case involved a leading manufacturer of military night vision equipment that was fined $100 million for illegally exporting restricted night vision data to China, Singapore and the United Kingdom. Another recent case involved a New York company that was fined $470,000 because the mine-safety equipment it exported to the United Arab Emirates ended up in Iran. Exporters need to arm themselves. As a first step, they must do at least the following 10 things: First, exporters need to understand that an “export” can occur in the absence of anything being sent abroad, for example, when certain information or technology is disclosed within the United States to a foreign national. The legal term “export” is much broader than the common usage of the word. Second, exporters must comprehend that exports involve not only exports of goods but also services and technical data. Third, exporters need to appreciate that different export laws and regulations apply to different types of exports and that determining the applicable laws and regulations is extraordinarily complicated. The State Department’s Directorate of Defense Trade Controls has export jurisdiction when the exported items qualify as defense items and are included under broad general categories on something called the “munitions list.” The Commerce Department’s Bureau of Industry and Security (BIS) has export jurisdiction when the exported items qualify as “dual-use items” and have an export commodity control number that is either included in BIS’ Commerce Control List or that, by default, qualifies under a general (nonproduct-specific) control number. Fourth, exporters also need to realize that some export transactions are simply prohibited, such as exports to certain country destinations and exports to certain buyers/end-users. Fifth, exporters must implement effective export control policies and procedures. At a minimum, this means that exporters must have an export-compliance program based on the International Traffic in Arms Regulations (ITAR) when they are exporting defense articles; have an export-compliance program based on the Export Administration Regulations (EAR) when they are exporting dual use items; and have an export-compliance program that reflects both ITAR and EAR when they are exporting both defense articles and dual use items. Sixth, exporters must ensure that their employees and third-party agents working on their behalf are properly trained on and understand all export controls, including the definition of the word “export,” the fact that technical data and services (as well as goods) can be exported, and the fact that export control jurisdiction will vary based on whether the exporter is exporting defense articles, dual use items or a combination of defense articles and dual-use items. Seventh, exporters must regularly review and update their export-compliance policies and procedures to reflect changes in the law, the company’s business practices and the company’s products, services and technical data / technology. Eighth, exporters must make sure that they follow their export-compliance policies and procedures. There is nothing worse than adopting comprehensive policies and procedures and then ignoring them as this is frequently used by prosecutors as evidence of willful (i.e., criminal) violations. Ninth, exporters should voluntarily disclose improper exports to mitigate possible penalties or fines. In cases of unintentional export violations, it has been the State Department’s practice to close voluntary disclosures without further action, whereas the Commerce Department typically deals with voluntary disclosures by imposing a fine equal to one-half of the statutory fine. Tenth, exporters who fail to voluntarily disclose their export violations and whose violations are discovered must hire experienced counsel who can keep the situation from devolving into criminal charges or debarment. Exporters are sailing into a perfect storm of regulatory enforcement. To weather this storm, exporters must batten down their hatches in the ways described in this article. Otherwise, they will surely sink. Margaret M. Gatti is a partner at Dilworth Paxson and chairwoman of the firm’s international law group. Gatti focuses her practice exclusively in customs law, export control law, international trade law, the Foreign Corrupt Practices Act and international tax law. She counsels U.S. and foreign companies regarding compliance with import and export laws and provides her clients assistance with voluntary disclosure submissions as well as international legal contracts. Gatti can be reached at 215-575-7041 or [email protected]. David M. Laigaie, a partner at Dilworth Paxson, heads the corporate investigations and white collar group. His areas of practice include health care fraud, securities fraud, tax fraud, export violations, pharmaceutical marketing fraud, municipal corruption, defense procurement fraud and public finance fraud. He regularly conducts internal corporate investigations. He can be reached at 215-575-7168 or [email protected].

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