ITAR-Related Court Ruling Won't Affect Export Enforcement of Intangible Goods, Lawyers Say

A recent federal district court ruling limiting the U.S. anti-smuggling statute to physical goods won't affect export control enforcement efforts on data and other intangible exports sent digitally across borders, lawyers said in interviews. Although the U.S. District Court in Kentucky said a statute barring the unlicensed export of certain merchandise, articles or objects didn't apply to an email with magnet schematics sent to Chinese manufacturers (see 2407290046), lawyers noted that U.S. export control agencies have their own, specific enforcement authorities to regulate those digital transmissions.

Lisa Mays, associate at Sheppard Mullin, said that 18 U.S.C. Section 554, the statute referenced by the court, is fundamentally a "customs statute," and is meant to regulate the flow of physical goods into and out of the U.S. With this context, the Kentucky court's ruling "doesn't feel too surprising," Mays said. While any limitation put on U.S. laws that "exclude non-physical technology feels a bit dated," it's in line with the law's purpose and history as found by the court, she said.

"In today's world, it does feel wild, and I think the references to export controlled information make it a little unnerving," Mays said. "But I would fully expect the next decision and the full decision in this case to find that the counts were valid for export control violations," she said, assuming the exports were subject to the International Traffic in Arms Regulations and illegally sent without a license.

"That feels cut and dry," she said.

Mays said that, per the Bureau of Industry and Security's 2021 report to Congress, all uses of Section 554 were for physical goods and not technology.

As part of its decision, the Kentucky court said that the word "article" in the statute doesn't include nontangible items. Mays said the decision aligned with how she views "defense articles" under the ITAR and Arms Export Control Act: as a "physical item."

Christopher Skinner, partner at Williams Mullen, said that the ITAR and the Commerce Department's Export Administration Regulations "have their own enforcement authorities separate and apart from the smuggling provisions at Section 554 that are the subject of the criminal enforcement action" in the Kentucky case.

For instance, ITAR is established under Section 38 of the AECA, which contains its "own civil and criminal enforcement authorities," Skinner said. "I expect that a prosecution for violations of the AECA due to exports of technical data would not need bring charges under Section 554."