Export Control Regulations: Key Considerations

Export control regulations are of increasing importance in light of the heightened focus on supply chains and defence procurement. These rules do not apply solely to traditional defence contractors, but also to companies supplying components or other products that may be used for both civilian and military purposes.

For businesses supplying customers within the defence sector or operating as part of international supply chains, it is essential to determine whether their products fall within the scope of regulations governing military equipment (war materiel) or dual-use items, and to understand when export requires prior authorisation. The regulatory framework can be complex, and this article therefore provides an overview of:

• product classification
• when an export licence is required
• key considerations in the initial customer dialogue

What is export control?

Denmark, together with the other EU Member States, participates in international cooperation on export control. Both the EU and the United States have implemented regulatory regimes under which certain categories of goods – including weapons, military equipment and dual-use items – may only be exported subject to prior authorisation.

The objective is to ensure that goods and technologies which may have military applications, or otherwise pose a security risk, are not diverted for unintended or unlawful purposes.

In Denmark, export licences for weapons and military equipment are administered by the National Police, while dual-use items fall within the remit of the Danish Business Authority.

Military equipment or dual-use?

The starting point in any export control assessment is to determine the nature of the product.

A product will typically qualify as military equipment (war materiel) where it, for example:

• is specifically designed for military use and has no civilian application
• constitutes weapons or ammunition intended for military purposes (excluding hunting and sporting weapons)
• comprises components designed exclusively for incorporation into such equipment and which cannot be used for civilian purposes

Where a product qualifies as military equipment, export will generally require a licence from the National Police.

Where the product does not constitute military equipment, it may nevertheless qualify as a dual-use item, i.e. goods that can be used for both civilian and military purposes. Examples include certain electronic components, advanced materials, sensors and telecommunications equipment. Where a product is listed on the EU dual-use list, an export licence from the Danish Business Authority is required.

In practice, most suppliers do not produce complete weapons systems, but rather components forming part of larger systems or integrated solutions. It is therefore critical to assess whether a product forms part of a defence-related supply or is destined for customers within the defence industry.

The catch-all provision

A licence requirement may also arise even where a product is neither classified as military equipment nor listed as a dual-use item. This is the case where the Danish Business Authority informs the company – or the company is otherwise aware – that the product, in whole or in part, is intended for:

• use in connection with weapons of mass destruction (including chemical, biological or nuclear weapons) or delivery systems for such weapons
• military use in a country subject to an arms embargo
• incorporation into military equipment that has been exported without the required authorisation

Similar provisions apply to certain surveillance technologies.

Accordingly, each assessment must be conducted on a case-by-case basis, taking into account the product, the customer, the destination country and the stated end use.

Companies should be particularly alert to risk indicators such as customers linked to military activities in non-Western jurisdictions, unwillingness to provide end-user declarations, unusual payment or delivery arrangements, or other atypical circumstances. Where such indicators arise, further due diligence should be undertaken and, where appropriate, the Danish Business Authority should be consulted.

The company’s responsibility

Companies bear an independent obligation to assess whether their products are subject to export control regulations. It is not sufficient to rely solely on information provided by the customer.

Accordingly, companies should undertake and document an assessment of:

• the nature and classification of the product
• the identity of the customer and end-user
• the intended end use
• the potentially applicable export control regime

In practice, export control considerations often arise at an early stage, including during the initial customer dialogue. Companies should therefore remain alert to indications that a product may be destined for use within the defence sector, form part of a military system, or otherwise fall within the scope of export control.

Our recommendations

Export control regulations impose significant requirements on internal compliance processes and documentation. Companies supplying components or other products to the defence sector should implement robust procedures for product classification, customer due diligence and the management of export control issues at an early stage in the sales and contracting process.

In addition, export control clauses in commercial agreements should be reviewed carefully prior to execution to avoid assuming unnecessary – and often extensive – contractual obligations.

Should you require advice on export control regulations or defence and security-related legal matters more generally, we would be pleased to assist.