Overview of U.S. Export Controls and Sanctions Issues Relating to ...

equipment, as well as related software and technology. The export controls prescribed by the
EAR will be applicable to the development and production of EVs, as a general rule.
(i)
Penalties for Violations of the EAR
The penalties for violations of the EAR can be both civil and/or criminal. Criminal
penalties (for willful violations) can reach as high as $1 million and include up to 20
years imprisonment. Civil penalties can reach $250,000 per violation or twice the
amount of the transaction that is the basis of the violation. Penalties may also include a
denial of export privileges or suspension/debarment from government contracting,
which can often prove to be more damaging to a company’s business and reputation
than a monetary fine.
According to published guidelines, the BIS will consider both aggravating and mitigating
factors in each case in deciding the particular penalty. Voluntary disclosure serves as a
primary mitigating factor in deciding penalties. The BIS aggressively enforces
noncompliance with the EAR, often with assistance from other U.S. government
agencies. In recent years, significant enforcement action has been taken against both
U.S. and foreign companies. See, e.g., BUREAU OF INDUSTRY AND SECURITY, U.S. DEP’T
OF COMMERCE, “OTHER RELATED ENFORCEMENT TOPICS,” www.bis.doc.gov/compliancean
denforcment/othereetopics.htm#penalties.
Recently, in March 2011, the BIS fined ArvinMeritor, a Michigan company, $100,000 for
shipping vehicle axles and seal assemblies controlled for national security reasons to
China and some other countries, notwithstanding the fact that ArvinMeritor had
voluntarily disclosed the violation, which significantly mitigated the penalties that
otherwise might have been imposed. BIS enforcement actions relating to the PRC are
not unusual. For example, in a September 2010 bulletin, entitled “Don’t Let This
Happen to You,” which highlighted recent BIS export enforcement actions, of the 103
cases summarized in the bulletin, approximately 23 percent (or 24 cases) involved
exports to China. Id. at www.bis.doc.gov/complianceandenforcement/dontletthishappen
toyou_2010.pdf.
(ii)
The Broad Extraterritorial Reach of the EAR
With limited exceptions, discussed below, all items in the U.S. are subject to the EAR,
as are most items of U.S. origin, wherever they are located. This includes U.S. origin
parts, components and materials integrated into foreign made products, commingled
U.S. origin software, commingled U.S. origin technology and in some cases foreign
products developed from U.S. technology. The only exception to this broad
extraterritorial reach is that the U.S. relinquishes control of EAR-controlled items and
technology (for most, but not all items), if they are considered “de minimis” to the
foreign product. To be considered de minimis, U.S. content must comprise no more
than 25 percent of the total value of the item, except if the item will be re-exported to an
embargoed country (i.e., Cuba, Iran, North Korea, Sudan or Syria), in which case the
value of U.S. content must be 10 percent or less than the total value of the item.
The EAR outlines a complicated formula that must be used to correctly determine the
valuation. 15 C.F.R. (hereinafter “EAR”) at § 734.4.
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