Export Administration Regulation Situations

At every stage of the export compliance process, export controls can slow the march or stop it dead in its tracks. Below is a sample of a few situations that may trip a company up at any stage of the process. Consider the following real-world scenarios:

Stage 1 – Research:

John Roth, professor at the University of Tennessee, consults with former student’s company on a government contract for development of plasma actuators to control drone fighter-craft.  Despite warnings about potential violations of ITAR, the  International Traffic in Arms Regulations carries related technology to China and allows Iranian grad student to access it.  Result?  Jail time for the professor.

Stage 2 – Business Plan:

Commercial satellite technology in hand, MBA runs numbers and concludes that, by manufacturing in China, the company can be in the black by Year Three.  Venture capitalists impressed, fund two years of development.  Just before sending plans to Shanghai, the company learns it needs a license to do so under EAR, the Export Administration Regulations, and Commerce Department declined to grant it.  Result?  Backers are not pleased.

Stage 3 – Commercialization:

Company’s website puffs its CAD software as able to simulate missile aerodynamics, catches the eye of export control official who discovers that the company’s president applied for export license ten years ago but hasn’t applied since. President faces indictment for knowingly avoiding legal obligations until attorney convinces the government that the company is only attempting to develop missile capabilities, and the company never needed the license it erroneously applied for.  Result?  Thousands of dollars in legal fees.

Stage 4 – Cashing Out:

One eve of IPO and throwing the switch on new IT system granting technology access to engineering subs in twenty-four countries, HR asks whether the company can hire Chinese national and, in ensuing conversation with an attorney, discovers that company has, for years, needed licenses to disclose its technology to numerous foreign-person employees.  Result?  IT plans shelved, IPO is withdrawn until the company pays fines for hundreds of violations.

PS:  It’s not just the startup that loses when violations emerge in the financing context.  Purchasers must pay fines for a target’s pre-purchase violations, even if the violations go undiscovered until after the deal closes, and even if the deal was structured as an asset purchase rather than a merger.

Vincent Canzoneri, Attorney at Law, is an expert in Export Administration Regulations (EAR) law. Vincent proudly represents clients located in coastal towns through the United States. Visit our locations served page for more information, or contact us for legal representation.