Nordic defence firms face export control challenges in NATO procurement: report
Nordic defence companies participating in NATO procurement must navigate an increasingly complex web of overlapping export control regimes from the US, UK and EU, with non-compliance potentially resulting in severe penalties including million-dollar fines and criminal prosecution, according to a comprehensive legal advisory published by White & Case, 7 April.
‘As NATO procurement expands, Nordic companies must carefully navigate the intersection between NATO acquisition processes and multiple export control regimes,’ the law firm warned, noting that Finland and Sweden’s NATO membership has created both new opportunities and compliance challenges.
The advisory highlights that US export controls present particularly strict challenges through the International Traffic in Arms Regulations (‘ITAR’) and Export Administration Regulations (‘EAR’), which have extensive extraterritorial reach.
‘“’Even indirect exposure to items subject to U.S. export controls can trigger compliance obligations, particularly when dealing with subcontractors or suppliers that fall under U.S. jurisdiction,’ the analysis notes. ‘Nordic companies engaging in NATO procurement may find themselves subject to these regulations if they deal in any controlled items, if they incorporate controlled U.S.-origin commodities or software into their products or services, or if their products or services are the direct product of certain controlled U.S. software, technology, or tooling.’
The consequences for violations can be severe, with the Department of State’s Directorate of Defense Trade Controls (‘DDTC’) and Department of Commerce’s Bureau of Industry and Security (‘BIS’) empowered to impose ‘civil fines that can reach over a million dollars (or twice the value of the transaction, whichever is greater) per violation, debarment from U.S. government contracts, denial of export privileges, and, in extreme cases, criminal prosecution of both companies and corporate officers,’ the international law firm said.
The EU regulatory framework presents additional complexity, with authorities able to impose ‘catch-all’ controls that ‘allow authorities to impose licensing requirements on non-listed items if they may be used for military applications, weapons proliferation, or human rights violations.’
The situation is further complicated by distinct national export control systems. Finland’s Ministry for Foreign Affairs, through its Export Control Unit, ‘places a strong emphasis on due diligence, requiring exporters to proactively assess and report potential risks, even for non-listed items that may have military applications.’ Sweden’s Inspectorate of Strategic Products (‘ISP’), meanwhile, enforces compliance with both EU regulations and ‘Sweden’s broader national security objectives and international treaty obligations.’
‘For Nordic companies participating in NATO procurement or engaging in defense-related exports, the challenge is not only understanding the nuances of U.S., UK, and EU export control laws but also navigating stringent national controls,’ the advisory stated, noting that ‘these overlapping requirements can create potential compliance pitfalls, especially when supply chains involve U.S.-origin components or dual-use technologies subject to multiple regulatory regimes.’
The law firm recommended five key actions for Nordic companies to mitigate export control risks: Comprehensive export classification of products, components and technology; supply chain due diligence to ensure no controlled items are improperly transferred; implementation of robust internal compliance programs; securing appropriate licenses and maintaining detailed documentation; and active regulatory engagement and monitoring of changing requirements.
‘Nordic companies must recognize that enforcement agencies in their home countries are increasingly cooperating with U.S. and EU regulators, meaning that non-compliance in one jurisdiction can lead to multi-jurisdictional enforcement actions,’ the advisory concluded, warning that failing to address these compliance challenges could jeopardise participation in NATO’s expanding defence supply chain.
