A U.S. district court has dismissed a case challenging the different levels of liability for export violations that attach to companies and individuals.

A major international carrier brought this case to challenge the rationality of the Export Administration Regulations imposing strict liability on common carriers when they ship a package to a party on the Entity List while holding customers liable only if they knowingly engage in a prohibited shipment. While the carrier maintains a “sophisticated proprietary risk-based compliance system” to screen for entities or persons on the Entity List, it argued that complying with restrictions on exports of items on the Commerce Control List to those on the Entity List effectively forces it to “police the content of its packages on an almost infinitely broad scale.” As a result, the carrier said its only options are to cease all business operations that create a reasonable risk of violating the EAR or to proceed with its operations and face a substantial risk that it will violate the EAR and be penalized.

However, the court responded that (1) it is not irrational to have a strict liability regime to prevent companies from aiding or abetting export violations that would jeopardize U.S. national security or foreign policy interests and (2) it is reasonable to hold carriers to a higher liability standard because they are “repeat players with the institutional knowledge and scale to navigate the EAR.”

In addition, while affirming that it does have authority to review whether the EAR exceed the authority provided by the underlying statute (currently the Export Control Reform Act), the court denied the carrier’s argument that such a situation exists in this case. The carrier asserted that the EAR’s strict liability regime conflicts with the ECRA’s stipulation that carriers face liability only for violating the regulations “with knowledge,” but the court said this represents a misreading of the law. While the statutory language “is not entirely elegant and may lead to some confusion,” the court said it cannot conclude that the government’s interpretation “constitutes a patent misreading of the statute.”

For more information, please contact Kristine Pirnia.

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