For businesses engaged in cross-border trade or operating in multiple jurisdictions, each with their own export control and sanctions regime, trade compliance is becoming increasingly challenging, almost daunting. Businesses worldwide are underscoring compliance with their domestic export controls and sanctions regime, insisting on relevant contractual provisions and undertakings from their buyers/suppliers, eg., no-Russia clauses. Compliance safeguards businesses from severe penalties and also bolsters their reputation and operational resilience in an interconnected global market.

India’s export control laws are imposed to manage the export of sensitive items such as dual-use and military-grade goods, services, software, and technologies, including intellectual property and proprietary information. A comprehensive list of dual-use items is the Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) List. However, if the company knows or has reason to believe that a non-SCOMET item can potentially be diverted for use in weapons of mass destruction or in their missile system or military end use, the item gets covered under the export control laws (catch-all controls).

Entities that are part of the global supply chains, must look beyond the immediately applicable Indian laws and be compliant with other relevant jurisdictions as well. The criticality of this compliance has become evident in light of the ever-expanding Russia sanctions being imposed by the western countries. For instance, where an Indian manufacturer imports certain regulated parts and components from the United States and exports the end-product to a jurisdiction sanctioned by the US, it exposes itself to the US sanctions.

Compliance has become more complex in this digital age, where exports are not only tangible but also intangible, including the provision of services, sharing of information, uploading on the cloud, etc. Further, with emerging technologies coming to the forefront, including Artificial Intelligence, Machine Learning, Quantum Computing, Robotics and automation, biotechnology innovations, etc., and the regulatory regimes catching up from behind, having a compliance system helps companies that create the technologies and use the technologies stay ahead of the curve in ensuring national and international security.

Now, more than ever before, compliance with export control regulations is not just a legal obligation but is also a strategic imperative. Businesses need to comprehend the domestic and international regulatory regimes, create an internal compliance system, ensuring end-use and end-user screening, obtain relevant authorizations, when necessary, conduct regular risk assessments and audits, increase awareness by training within the company, leverage technology to further compliance and create a system for third-party due diligence.

Recently, the Directorate General Foreign Trade issued the procedure/ guidelines for voluntary self-disclosures, encouraging exporters to disclose any violations of the export control laws under the relevant legislation, including the Foreign Trade (Development and Regulation) Act, Weapon of Mass Destruction and Customs Act. Such disclosures will be a mitigating factor while determining administrative actions against the defaulter.

Indian businesses now have good reason to audit their business, self-identify previous violations, and have them regularized by making voluntary self-disclosure.

With a labyrinth of applicable, and at times conflicting, export control regulations and sanctions, compliance may seem like an expensive exercise, but if you think compliance is expensive, try non-compliance, particularly in this polarized world.