US firms their foreign subsidiaries or foreign firms that are licensees of US technology cannot sell a product to a country in which the sale is considered by the US government to affect national security. Further responsibility extends to the final destination of the product regardless of the number of intermediaries that may be involved in the transfer of goods.
An extensive export control system was created to slow the spread of sensitive technologies to the former Soviet Union, China, and other communist countries that were viewed as major threats to US security. The control of the sale of goods considered to have a strategic and military value was extremely strict. But with the end of the Cold War, export controls were systematically dismantled until 1999, when a congressional committee reported Chinese espionage activities in American aerospace companies transferring sensitive technology irresponsibly. Following the report, legislation was passed again restricting the export of products or technologies that might be used by other countries for defense applications.
The events of September 11, 2001, added another set of restrictions related to weapons of mass destruction (WMD). Unfortunately, many of the products used in WMD are difficult to control since they have dual purposes; that is, they have legitimate uses as well as being important manufacturing WMD. For example, Iraq, which was allowed to import medical equipment despite a UN embargo purchased under the pretext of medical benefits six machines that destroy kidney stones. The manufacturer accepted the claim that Saddam Hussein was concerned about kidney stones in the Iraqi population and began shipping the machines. However, integral components of these machines are high precision electronic switches that are also used to set off the chain reaction in thermonuclear weapons. When 120 addition switches as spare parts were ordered a red flag went up and the shipments were stopped.
Countless numbers of dual purpose technologies are exported from the US. A sticking point with dual purpose exports is the intent of the buyer. Silicon Graphics Inc.(SGI) sold computer equipment to a Russian nuclear laboratory that contented it was for non military use, which would have been legal. However, the Department of Justice ruled that since the sale was made to a government operated facility involved in both civil and non civil activities, SGI should have applied for the correct export license. SI paid a fine of $1 million plus $ 500,000 fine for each of the export violations. National security laws prohibit a US company, its subsidiaries joint ventures, or licensees to sell controlled products without special permission from the US government. The consequences of violation of the Trading with the Enemy Act can be severe fines, prison sentences and, in the case of foreign companies, economic sanctions.
Exports are controlled for the protection and promotion of human rights, as a means of enforcing foreign policy, because of national shortages, to control technology, and for a host of other reasons the US government deems necessary to protect its best interest. In the past, the government restricted trade with South Africa (human rights) and restricted the sale of wheat to the Soviet Union in retaliation for its invasion of Afghanistan (foreign policy). Currently, the government restricts trade with Iran (foreign policy) and the sale of leading edge electronics (control of technology) and it prohibits the export of pesticides that have not been approved for use in the United States (to avoid the return of residue of unauthorized pesticides in imported food and protect US consumers from the so called circle of poison). In each of these cases, US law binds US businesses regardless of where they operate.