Understanding Exporter Liability for Re-Exports

Apr. 30, 2024
By: Marvin E. McPherson

A frequent question arises regarding the liability surrounding an exporters liability of re-exported controlled items. As emphasized in Non-U.S.- Based Parties Aren't Exempt From U.S Sanctions and Export Controls, export controls of dual use items follow the goods. This creates important due diligence responsibilities and consequences that exporters encounter in re-export transactions.

A U.S. exporter may be liable under U.S sanctions and export laws if they knew or had reason to know that the items were intended for re-export to a prohibited destination. Additionally, a U.S. exporter may be subject to strict liability under some sanctions programs even if the items never reach the intended destination.

A crucial concept in understanding exporter liability is identifying the types of re-export transactions that expose an exporter to liability. Applicable re-export transactions include re-exports of goods and deemed re-exports. Deemed re-exports occurs when controlled U.S. technology is transferred to a third-country national overseas, even within the same foreign country.

It is important to note that re-exporters shoulder various responsibilities as well, including proper classification of products per EAR, screening parties against denied party lists, and confirming the end-user's identity and intentions. Importantly, re-exporters are accountable for violations, even if they delegate functions or utilize freight forwarders in the transaction.

Epsilon Electronics v. United States Department of Treasury serves as a notable precedent illustrating exporter liability for re-exports. The company faced allegations of violating U.S. sanctions regulations by exporting goods to a company in Dubai, which subsequently re-exported them to Iran. Despite the goods not ultimately reaching Iran in some instances, the court upheld liability due to the exporter's knowledge or reason to know of the intended re-export.

The case underscores the strict liability standard imposed on exporters regarding re-exports under U.S. sanctions laws. It emphasizes the importance of due diligence in transactional scrutiny and customer assessment to prevent sanctions violations. Exporters must be vigilant in ensuring compliance, as negligence or knowledge of illegal re-export transctions can result in liability.

Exporter liability for re-exports is an high risk aspect of U.S. export control regulations, as highlighted by past caselaw. Understanding and adhering to these regulations is imperative for exporters to avoid severe penalties and safeguard their privileges. Through diligent compliance measures, exporters can mitigate risks and maintain integrity in international trade practices.

If you have any questions surrounding the applicability of sanctions or export controls on your company or a particular transaction, please contact any attorney at Barnes Richardson and Colburn.