Export Controls
There are various regulations given the U.S. -origin product, software, and technology. The U.S. has federal agencies responsible for creating rules applicable to direct items. The vast majority are subject to the Export Administration Regulations (EAR). If an export is a commercial commodity, software or technology, or deal-use items are subject to the EAR, which has both a potential military and commercial or civilian application.
A U.S. company’s product, software, and technology are subject to the EAR. The EAR applies to items made in the U.S., items exported from the U.S. parts, technology, software, or know-how, and deemed exports, which are transfers or releases of controlled source code and technology to foreign nationals inside the U.S.
Depending on whether your items are categorized under the EAR, you might need a license if you plan to release or transfer technology or source code to non-U>S> citizens within the United States or when you are ready to start selling to foreign customers. Export is not only the physical shipment of a commodity. Still, it can also include the release of software as a service application or the transmission of an email containing product design specifications.
One of our knowledgeable lawyers can determine the appropriate export control classification numbers (ECCNs) for your products, software, and technology. Knowing ECCN can help determine where to open offices, hire staff, and target consumers.
Classifying technologies ahead of financing is essential because an investor will often ask for this information. Particularly regarding foreign investments, it is crucial to know whether your company is involved in any way with export-controlled items. As the product classification process can take time, getting this information can facilitate a more streamlined financing front and provide access to much-needed capital if knowing the EVVN is a financing requirement.
The Bureau of Industry and Security (BIS) focuses enforcement efforts on individuals and companies without prior engagement with BSI. The BIS conducted more than 658 enforcement outreach visits to individual and comp aides with no proper history of submitting applications for export licenses and initiated. The government can also impose a range of consequences for noncompliance with export control laws, including criminal and civil penalties, debarment from doing business with the government, and loss of export privileges.
Committee on Foreign Investment in the United States (CFIUS)
The CFIUS is a federal government interagency committee with broad authority to review, approve and block foreign investments in U.S. businesses, including startups and early-stage companies if the investment poses risks to national security.
The CFIUS activities and operations have grown in recent years. CFIUS reviewed 436 transactions in 2021. CFIUS is a group with the potential to influence where you can raise capital, who can sit on a board, and even who can acquire your company. With the proper preparation, CFIUS risk can be demystified, evaluated, and addressed. The CFIUS exercises heightened scrutiny over forging investors from high-risk countries. The key is to perform due diligence on the nationality of your investors and discuss with a lawyer the issues that could arise with CFIUS.
The CFIUS has jurisdiction over many foreign acquisitions and investments in U.S. businesses. CFIUS reviews transactions in each category depending on the specific right acquired. The CFIUS can also review any transactions that it deems are intended to evade its jurisdiction. The CFIUS will not review all foreign investments. A risk assessment during your financing can help to determine whether a CFIUS filing is mandatory or voluntary.
There are cases where the CRIUS has forced a company to divest from closed transactions even when it is years later. The best way to avoid this happening is to the voluntary filing. CFIUS has many investigators who use various tools, including proprietary and intelligence-based, to monitor and uncover non-notified transactions. Suppose you do not make a filing subject to CFIUS jurisdiction. In that case, no safe harbor is available, and the monitoring staff could compel a filing and impose various mitigation measures. Since there is no statute of limitation, you can be affected by transactions that closed months or even years ago. The CFIUS is actively reviewing transactions to identify issues.
The CFIUS recently expanded its jurisdiction to include certain non-controlling investments in companies that work with sensitive technologies or own, operate or support U.S. critical infrastructures such as financial services or telecommunication providers. They also watch companies that have sensitive personal data. U.S. businesses and foreign investors must revive certain non-passive rights.
The CFUIS will continue to focus on businesses with government contacts, those that operate in the infrastructure sector, or those with export-controlled technology. The CFIUS now has expanded focus to foreign invents in the TID U.S. business. These businesses include many early-stage technology companies working with data analytics, AI and machine learning, additive manufacturing, robotics, quantum computing, cyber security, financial technology, and biotechnology.
If your company is considering exporting to foreign countries or getting financing from foreign individuals talking with one of our lawyers will help you understand the possible consequences and how to reduce your risk of issues with the CFUIS.