By OGJ editors
HOUSTON, Jan. 13 -- Businesses currently operating in the UK Continental Shelf—particularly oil and natural gas companies—may be "unknowingly" violating new UK export controls, and therefore placing themselves at risk for stiff fines, said Ernst & Young in a recent report.
According to Stacey Lax of E&Y's global export control services group, the policy changes that have taken place regarding operating in the UKCS "have not been very well communicated to industry and as a result, most UKCS suppliers don't realize their new obligations."
Export controls are restrictions on the export of certain goods, services, software, and technology to certain countries, companies, and individuals. Controls are in place to guard national security and to prevent the development of weapons of mass destruction, E&Y noted.
Companies unfamiliar with export control standards face a number of situations that may pose certain liability traps, E&Y said. "In the UK, movements from mainland UK to the UKCS fall under the scope of export controls. Due to recent changes in UK policy, movements to the UKCS involving dual-use or military items are potentially licensable," E&Y added.
Lax said, "The oil industry uses a lot of dual-use items offshore, such as optical sensor and laser equipment, as well as [remotely operated vehicles] and certain components that generally require licenses."
New rules
Based on newly imposed rules, the applicant must first determine which products require a license, E&Y explained. "If an item is allocated under the regulations with a control number, it requires a license to be exported to the UKCS. Upon receipt of the license, holders must have appropriate compliance procedures in place to meet the conditions of the license.
"Holders may be reviewed every 18 months to ensure compliance with license conditions and if errors are found, the license may be revoked," E&Y added.
Lax said, "The rules have arisen from a concern over the risk of diversion offshore. In the 1990s, the Iraqi super gun incident (case involving the alleged export of machine tools to Iraq) led to the Scott Report (the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions).
The Scott Report called for an increase in the transparency and accountability of decisions about export licenses while criticizing UK export controls that were then in place. "As a result, the [Department of Trade and Industry] issued open licenses to most operators in the North Sea. These licenses were not specific to any products and gave the DTI no additional transparency or control over sensitive exports. This lack of transparency led to the recent changes and many of the old licenses have been revoked," Lax said.
Additionally, a number of UK-based oil companies are subject to US re-export controls when exporting from the UK because the US imposes export control jurisdiction over persons, technology, and products from the US wherever located, Lax noted. "These rules potentially limit the activities of companies employing US persons, or re-exporting US products," Lax said, adding, "The US generally imposes tighter restrictions than the UK on exports to countries where the oil industry is active," such as Libya and Iran.
"In addition to the significant monetary penalties, the US government can deny a company's export privileges. Any noncompliance is therefore a direct threat to a company's business, reputation, and ability to compete effectively," Lax said.
Recently, a major oil service firm was fined more than $3 million for unauthorised exports of oil field equipment," Lax cited.
"With an emphasis on corporate governance and the greater risk of terrorism, understanding your company's export control responsibilities and managing them appropriately is essential for any company in the international marketplace today," Lax warned.
"After all, prevention is better than cure," said Lax.
