U.S. exporters have an important responsibility to adhere to U.S. export control laws, including the Export Administration Regulations (“EAR”). Administered by the U.S. Commerce Department, the EAR is a set of regulations which governs whether U.S. persons may export or transfer goods, software, and technology outside of the United States or to non-U.S. citizens. U.S. exporters have an important responsibility to adhere to the EAR. Violations of the EAR carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars in penalties, lose export privileges, and even be imprisoned.
Licensing Exception for “Servicing and Replacement of Parts and Equipment” (RPL)
An export license under the EAR is not necessary if the License Exception for “Servicing and Replacement of Parts and Equipment” (“RPL”) applies. License Exception RPL is described under Part 740.10 of the EAR. RPL is known as a transaction-based exception because the availability/applicability of the exception is based on the terms of the transaction.
According to BIS guidance, the RPL License Exception may be used for the two following scenarios:
- Replacement Parts – This authorizes the export and reexport of replacement parts for the immediate repair of previously exported, reexported or foreign made equipment incorporating U.S. origin parts on a one-for-one replacement basis. It also authorizes the export and reexport of stock spare parts that were authorized to accompany the export of equipment.
- Servicing and Replacement – Replacements for defective or unacceptable U.S.-origin equipment. (a) The commodity or software to be replaced must have been previously exported or reexported in its present form under a license or authorization such as NLR. (b) No commodity or software may be exported or reexported to replace equipment that is worn out from normal use.
However, there are certain limitations which apply to the use of the RPL License Exception:
- Items that improve or change the basic design characteristics of the equipment upon which they are installed are not deemed to be replacement parts; and
- Obsolete parts that are being replaced must either be destroyed abroad or returned to the United States. (If the part was destroyed, it is a best practice to get a signed statement from the end-user confirming that the part was destroyed, ideally with proof of destruction from the scrap yard or recycling facility).
RPL is eligible for all legally exported, reexported, and foreign purchased items, even if the original item was not shipped under a license at the time of exportation. So, if an export license was not previously required for the entire equipment, but an export license is now required for that equipment, the RPL License Exception could result in exporters not needing an export license for the current part shipment. Furthermore, exporters should note that when using the RPL License Exception, stating on the underlying ECCN in EEI filings is mandatory.
What You Can Do
Exporters have significant responsibilities to ensure compliance, to avoid penalties and/or jail time (i.e., your compliance manager deserves a raise!). Proper adherence to EAR requirements ensures that your business contributes to safeguarding U.S. national security and avoiding costly penalties. Many U.S. businesses have paid hefty civil penalties for violating U.S. export control laws. L3Harris Technologies, for example, was fined $13 million for illicitly exporting defense technology and software. For more examples of costly civil and criminal penalties, check out BIS’ latest Don’t Let This Happen to You! Publication.
If you are exporting goods subject to EAR, we propose you should:
- Develop an effective export compliance plan.
A key foundation of proactive and effective export compliance requires the development of an export compliance plan. An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
- Engage in regular export compliance training.
A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
- Thoroughly vet your proposed export transactions
Unsure whether a proposed export transaction violates the EAR? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
- Request authorization when necessary
BIS export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS authorization is required. Furthermore, Diaz Trade Law assists clients by filing BIS export license applications on their behalf on BIS’ SNAP-R portal.
- Engage in mitigation and corrective actions.
If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.
Contact Us
Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.
