Overview
In the second entry in Steptoe LLP’s series on nuclear EPC contracts, we focus on the key US civil (non-military) export controls considerations for nuclear EPC and power projects.
I. Introduction
As the world turns to civil nuclear power to satisfy growing energy demands, civil nuclear power project developers, contractors, and suppliers around the globe are increasingly navigating complex US export control laws and regulations. These requirements often arise long before any equipment is shipped and persist long after the power plant is operational.
From feasibility studies and bid preparation to engineering, construction, installation, commissioning, and operations, the transfer of commodities (e.g., material, equipment, or components), software, technology, technical data, and technical assistance can trigger US export control requirements. These export control requirements for the nuclear sector, if not strictly adhered to, can carry significant legal and commercial consequences. Specifically, US export control violations are subject to strict liability civil penalties, meaning an agency may impose penalties for each violation, even absent willful or intentional misconduct or for omissions. Moreover, export control violations could result in the US government limiting the use of key export authorizations, which can affect operations and activities outside of the United States.
In a recent client alert, we examined several key issues facing engineering, procurement, and construction (EPC) contractors undertaking nuclear projects, including the allocation of regulatory risk, liability considerations, and damages exposure. In this article, we provide an overview of the principal US export control regimes facing EPC contractors undertaking civil nuclear power projects outside the United States, highlight common areas where export control authorization and licensing risks arise throughout the project lifecycle, and discuss practical considerations for managing US regulatory compliance and enforcement risks.
II. Key US Export Control Regimes for Nuclear Exports
Civil nuclear power projects outside the United States can implicate multiple US export control regimes and licensing requirements governing exports, reexports, and, in some cases, transfers (within a country outside of the United States) of both tangible and intangible items (i.e., hardware and software) and information (i.e., technology, technical data, and technical assistance).
Such regulated exports may occur by tangible shipment from the United States, through intangible electronic transmissions or in-person transfers to any foreign person (wherever located), or by releasing or providing access to controlled technology.
The reach of US export control regimes is broader than many persons expect. US export controls apply to not only US-origin items, but also certain foreign-made items subject to US jurisdiction, such as where non-US produced items incorporate, bundle, or commingle US-export controlled components, software, or technology. In addition, export controls apply to the release or transfer of controlled technology, technical data, or technical assistance to non-US persons while employed or working in the United States (a “deemed export”) or in a third country (a “deemed reexport”). Certain information that is published or publicly available is not regulated under US export controls, but these exclusions must be carefully considered.
Not only are the US export controls applicable to civil nuclear power projects broad, but they also vary in their implementation as they are administered under three separate regulatory regimes. Although all three of these regimes are informed by international nonproliferation and export control frameworks, including the Nuclear Suppliers Group (NSG) Guidelines Annex I (i.e., the “Trigger List”) and Annex II, it is important for industry participants to be aware of their differences.
DOE - Part 810. The National Nuclear Security Administration (NNSA) of the US Department of Energy (DOE) regulates, under 10 C.F.R. Part 810, the transfer of certain civil nuclear technology and technical assistance to any foreign person regarding the development or production of special nuclear material outside the United States (generally corresponding to the NSG Trigger List).
Part 810 applies to technology for the nuclear steam supply system and related activities such as fuel fabrication, mixed oxide fuel processing, and nuclear material enrichment, conversion, or reprocessing that generally correspond to commodities regulated by the US Nuclear Regulatory Commission (NRC) discussed next.
Due to Part 810’s export controls regarding such technology, the regime is particularly relevant during feasibility studies, project development, engineering, design, training, operational support, and repair activities. Depending on the destination, recipient, and activity, a general authorization may be available; alternatively, a specific authorization from the DOE Secretary may be necessary.
NRC - Part 110. The NRC regulates exports from the United States and imports into the United States of commodities such as nuclear reactors, major reactor components, nuclear materials, and specified nuclear equipment under 10 C.F.R. Part 110, also corresponding to the Trigger List. In certain cases, software or technology embedded or incorporated into or with such commodities may be authorized for export (or import) by the NRC. Transactions involving controlled nuclear hardware or materials may require either an NRC general or specific license.
BIS - EAR. The US Department of Commerce's Bureau of Industry and Security (BIS) administers the Export Administration Regulations (EAR). The EAR controls, for non-proliferation reasons, many items (i.e., commodities, software, and technology) with potential nuclear applications (correlating to Annex II of the NSG) that also have broader industrial and civil-military uses (i.e., dual-use applications).
The EAR primarily controls dual-use items that could contribute to the proliferation of nuclear items if diverted from authorized use, such as items described in Category 0 (Nuclear Materials, Facilities, and Equipment) and certain items elsewhere on the EAR’s Commerce Control List (i.e., a list of dual-use items subject to certain export restrictions). These items may apply to specialized civil nuclear power plants and activities related to spent nuclear fuel storage and disposal. A specific license granted by BIS or license exception under the EAR may be required for such items.
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A single nuclear project may implicate all three regimes (DOE – Part 810, NRC – Part 110, and BIS – EAR). For example, an EPC contractor may provide technical assistance subject to Part 810, provide export reactor-related equipment subject to Part 110, and transfer dual-use nuclear items controlled under the EAR. Accordingly, US and non-US companies should determine which agency has jurisdiction over particular items, technology, and activities before technical information or equipment is transferred, as compliance obligations and authorization requirements can differ significantly across the three regimes.
Note that these are not the only US export controls or economic sanctions that may apply to projects outside the United States or involving foreign persons, but for the sake of brevity, this article omits discussion of these other regimes.
III. Where Export Control Risks Arise
Export control issues can arise at every stage of a civil nuclear power project subject to US jurisdiction, often long before any equipment is shipped. Companies frequently focus on licensing requirements associated with reactor components and other physical items, but many compliance risks arise from the transfer of controlled technology, technical data, or technical assistance during routine project activities.
The earliest stages of a project, including feasibility studies, site assessments, regulatory reviews, licensing support, and bid preparation may involve the exchange of controlled technical information with foreign customers, consortium partners, consultants, or government officials. Similar risks arise during project execution, including engineering and design activities, construction support, localization efforts, commissioning (or decommissioning), operator training, and operational support. Export control obligations may continue even after project completion, such as when providing maintenance services, troubleshooting assistance, plant upgrades, or technical data or assistance support in connection with claims and international dispute resolution proceedings that arise during the life of the plant.
EPC contractors, inside and outside of the United States, should be mindful of several common compliance pitfalls, such as:
- the disclosure of controlled information and technical assistance during in-person meetings, videoconferences, and email exchanges;
- transfers and storage of technical data through cloud-based collaboration platforms;
- sharing of controlled information with foreign national employees within a company; and
- unauthorized reexports or retransfers by subcontractors and suppliers.
These risks can be particularly difficult to identify because no physical shipment may occur. They may also occur even within the United States (e.g., a deemed export of controlled technology to a non-US person working in the United States). Compliance risks are often heightened for EPC contractors and large multinational consortia as the involvement of multiple participants and subcontractors across different jurisdictions leads to complications with providing access to project information and technical support in compliance with export control rules. In such projects, EPC contractors must carefully manage who receives controlled technology or assistance, ensure any required authorizations are in place, and avoid unauthorized reexports or retransfers. Effective technology-control procedures, subcontractor oversight, and employee training can play a critical role in mitigating these risks throughout the project lifecycle.
IV. Enforcement Risk for Violations of Export Controls
Violations of US export control laws can result in significant civil and criminal penalties for both companies and individuals. Depending on the applicable regulatory regime and the nature of the violation, penalties may include substantial monetary fines, denial of export privileges, license or authorization restrictions, and, in serious cases, criminal prosecution resulting in imprisonment for responsible individuals.
Given the complexity of nuclear power projects and the regulatory frameworks governing them, inadvertent violations can occur through unauthorized transfers of controlled technology, technical assistance, software, or equipment. Violations can also occur for failure to comply with required reporting or record-keeping requirements. As a result, companies should maintain effective export compliance programs capable of preventing and identifying violations before they become enforcement matters.
Each of the principal US agencies involved in nuclear export controls maintains mechanisms for voluntary self-disclosure (VSD) of potential violations. A timely and complete disclosure, coupled with cooperation, corrective actions, and remediation, can be a significant mitigating factor in an enforcement agency's response and may reduce potential penalties. Accordingly, when a potential violation is identified, companies should promptly assess the facts, preserve relevant records, and conduct an internal investigation or review to determine the scope and cause of the issue, as well as corrective actions or remedial measures that can be undertaken promptly or in the future to prevent ongoing or recurring violations. The appropriate remediation steps will be fact-specific, but may include enhancement of technology-control procedures, additional employee training, and improved oversight of contractors or subcontractors.
V. Key Takeaways
Based on the US export controls discussed herein, companies participating in US or international nuclear projects involving items or technology subject to US jurisdiction should implement a risk-based export compliance program designed to identify and address potential issues before controlled items, technology, or assistance are transferred. An effective compliance program will be tailored to the specific operations and needs of the business, but typically includes processes to:
- Determine the applicable regulatory jurisdiction and classification of commodities, software, technology, technical data, and technical assistance;
- Identify export, reexport, retransfer, and deemed export and reexport activities that may require prior authorization;
- Obtain required licenses, authorizations, or rely on available general authorizations or license exceptions where appropriate;
- Maintain records demonstrating compliance with applicable regulatory requirements, including any reporting obligations;
- Provide training and implement technology-control measures to manage access to controlled information; and
- Conduct periodic monitoring, auditing, and oversight of project participants, including contractors and subcontractors.
Because violations can result in significant civil and criminal penalties, companies should maintain procedures to promptly investigate potential compliance concerns, determine whether a violation has occurred or may occur, identify root causes of any such infraction, escalate material issues to appropriate management, and evaluate whether a VSD to the relevant agency is warranted.
Given the complexity of the regulatory landscape and the fact-specific nature of export control determinations, companies involved in international nuclear projects should seek experienced counsel early in the project lifecycle and whenever potential compliance issues arise. Early assessment of export control obligations can help avoid costly delays, mitigate enforcement risks, and support the successful execution of nuclear projects.
