U.S. Export Controls

© W. Brad Lewis, TCA, LLC 1

U.S. Export Controls:

An ITAR Primer.

SAFE Europe 2012

© W. Brad Lewis, TCA, LLC

Disclaimer

“Information provided should not be construed as legal analysis or advice. Please direct specific legal issues to

your attorney/counsel for further consideration.”

2


“Attitude is a little thing that makes a big difference.”

-- Winston S. Churchill

3


Export Controls

All countries have some form of Export Control.

They can be quite different:

What is controlled?

How it is controlled?

How are the regulations enforced?

U.S. Export controls are dynamic and complex but can be managed – Knowledge is Power.

4


Why Are We Here? The United States Government regulates the

export and reexport of U.S. commodities, software & technology.

DFARS 204.73 requires DoD contractors and subcontractors have an effective export compliance programs & conduct audits.

Which U.S. rules apply? Dept. of State (ITAR), Commerce (EAR) or Treasury (OFAC)? Or…all of them?

5


How do U.S. Export Controls work?

6


What is an Export? Sending or taking products or data out of U.S.;

Disclosing “Technical Data” (including orally or visually) to a non-U.S. person, in the US or abroad;

Providing a “Defense Service” to a non-U.S. person whether in the U.S. or abroad – ITAR only

Re-exporting U.S. products or data from one country to another;

Re-transferring U.S. products or data to a third party in a non-U.S. country.

7


USG Export Control Authorities

8


President President

National Security Council National Security Council

Department of

Commerce

Bureau of Export

Administration

Export Administration Regulations

Department of

Commerce

Bureau of Industry &

Security (BIS)

Export Administration Regulations

Department of

State

Office of Defense Trade

Controls

International Traffic in Arms

Regulations

Department of

State

Directorate of

Defense Trade

Controls (DDTC)

International Traffic in Arms

Regulations

Department of the

Treasury

Office of Foreign Assets

Control

Foreign Assets Control

Regulations

Department of

Treasury

Office of Foreign Assets Control (OFAC)

Foreign Assets Control

Regulations

Central Intelligence Agency

National Security Agency

Central Intelligence Agency

National Security Agency

Department of State Bureau of

Political - Military Affairs

Arms Control & Disarmament Agency

Department of State Bureau of

Political - Military Affairs

Arms Control & Disarmament Agency

Department of Defense / Defense Threat

Reduction Technology

Defense Intelligence Agency

Department of Defense / Defense Technology

Security Administration

Defense Intelligence Agency

Department of Energy

Sub-group on Nuclear Export Coordination

Nuclear Regulatory Commission

Department of Energy

Sub-group on Nuclear Export Coordination

Nuclear Regulatory Commission

Dual-Use Goods and Technology (CCL)

Defense Articles and Services (USML)

People and Money

Licensing Agencies

DHS - CBP US Census Bureau / OEE

Export Enforcement/Clearance Agencies

U.S. Export Control System

Nat’l Export Enforcement Center

Dept. of Justice - NSD


U.S. and EU Export Regulations Comparison

EU Regulations

Civil & commercial products Wassenaar Dual Use List – Dual

use list agreed upon by members of Wassenaar.

Licenses not required for most exports.

Military Items Munitions/National/Military List

Various notes exempting items.

General Agreements available.

Licenses required for some exports (BAFA, BIS, DGA).

U.S. Regulations

Civil and commercial products Export Administration Regulations

(EAR) – Commerce Control List (CCL).

Dual use items, however, various levels of controls.

Many Exceptions available.

Military Items International Traffic in Arms

Regulations (ITAR) – U.S. Munitions List (USML).

Also, may cover many “Dual-Use” items.

Licenses required for most every export.

10


DDTC’s Mission: “The U.S. Government views the sale, export

and re-transfer of defense articles and defense services as an integral part of safeguarding U.S. national security and furthering U.S. foreign policy objectives. The Directorate of Defense Trade Controls (“DDTC”), in accordance with 22 U.S.C. 2778-2780 of the Arms Export Control Act (“AECA”) and the International Traffic in Arms Regulations (“ITAR”) (22 CFR Parts 120-130), is charged with controlling the export and temporary import of defense articles and defense services covered by the United States Munitions List (“USML”).”

11

Source: DDTC website


What do U.S. Regulations Control? All U.S. made products;

All U.S. technology;

Any product, item, hardware, software & technical data, etc.. in the U.S. (including foreign origin products and technology);

All products made from U.S. technology;

All products containing U.S. manufactured parts and components;

The controls require an authorization to export – License or exemption/exception to a license

12


Who is it Controlled to? U.S. Export Licenses are End-Use and End-User

Specific:

Intended only for the parties listed on the license.

Only for the parties in the countries listed on the license.

Intended only for an identified end-use on the license.

Some form of authorization is required for export of a controlled items to ANY non-US person - in the U.S. or abroad.

13


How do Exports occur under ITAR? Tangible shipments

Hand-carrying products / Foreign Travel

Electronic transmission (fax, modem, E-mail)

Presentations open to public / Oral conversations

Publishing articles

Placing Technical Data on the Internet

Foreign visitors (meetings, reviews, plant tours)

Trade Shows (U.S. and Non-U.S.)

Offshore procurement/sourcing

Reexports of U.S. commodities or data.

ITAR applies to both tangible and intangible exports. 14


Who is subject to ITAR Controls? United States companies that engage in international trade.

U.S. Persons and any person in the U.S.

Non-U.S. Persons (e.g. companies & individuals) Reexports of U.S.-origin items.

Conduct of activities that are subject to ITAR regulations (e.g. Defense services, Reexports, Brokering)

Your Company is subject to export laws and regulations, as well as the corresponding laws of the foreign countries in which your company does business.

15


What the ITAR (State) Controls? U.S. Department of State

Military/Space/Defense Items

Items listed on the U.S. Munitions List – “USML”

Some Dual Use Items

Commodity Jurisdiction determinations (CJ)

Licenses Required for almost ALL exports

Over 50 Exemptions which could/may apply

5 year record-keeping

“Deemed Export” rule applies (non-U.S. persons exposed to U.S. technology).

Current “catch-all” categories of USML

“ITAR”

16


The ITAR (Parts 120-130) Part 120 – Key Definitions: Export, Defense Service, etc.

Part 121 – The U.S. Munitions List & MTCR

Part 122 – Reg. of Manufacturers & Exporters (+10K)

Part 123/124 – Export Authorizations (Lic. & AGs)

Part 126 – Proscribed or Prohibited Countries

Part 127 – Violations, Penalties & Voluntary Self Disclosures (VSDs)

Part 129 – Reg. & Licensing of Brokers

17

--Selected Highlights


The ITAR’s USML (Control List) Part 121 – 21+> Categories make up the USML.

“Catch-all” parts, components, accessories, attachments, etc. - subparagraph at the end of each category.

“…specifically designed, modified or adapted for...”

Category VIII - Aircraft & Associated Equipment.

Category IX – Military Training Equipment.

Category X - Protective Personnel Equipment & Shelters.

*Category X(a)(1) – Body Armor.

Category X(a)(4) – Pressure suits capable of…

Category X(a)(5) – Helmets specially designed…w/milcom hrdw.

Category X(c) – Tooling & equipment specially designed…

Category X(e) – T.D. and defense services directly related…

* SME = Significant Military Equipment

18


A Sampling…ITAR controlled? Hydraulic test stand for a/c

actuators/valves (ITAR)

Hydrogen Generator (ITAR)

Parachute Fabric (EAR)

Air Cargo Pallet (ITAR)

Helo LCD Cockpit Display (EAR)

Cable Connector (ITAR)

*From DDTC CJ website…

Communication Headset – Active Noise Cancelling (ITAR)

Hydration system for protective breathing apparatus (EAR)

Alloy steel bars & tubes (EAR)

TWT Amplifier (ITAR)

19


Jurisdiction How does a U.S. company determine Jurisdiction?

Self Determination

Designed, developed, configured, adapted or modified for a military application in form fit or function, then ITAR controlled

Not designed for or used in military applications, then EAR controlled

Official USG Determination Commodity Jurisdiction request (CJ) Recommended for any question mark or “if in doubt” items Administered by Department of State, Directorate for Defense Trade

Control - DDTC

20


Commodity Jurisdictions (CJ) First week of September 2010, electronic submission

of CJs started and the utilization of a new form. (New Form: DS-4076).

DDTC CJ Process - Response times:

In 2006 = average was 196 days.

In 2010 = average about 72 days.

Last 3 years, caseload has gone from 412 to over 900.

As of April 2012 about 475 cases (See website).

Now on DDTC’s website –> “Processing Status” & “Final Determinations”

21


Jurisdiction How can a NON-U.S. Company determine Jurisdiction?

Ask Questions of the Manufacturer…

“What is the Export Jurisdiction of this product?” ITAR or EAR? If ITAR, what category in the ITAR?

Example: Category VIII(h) - military aircraft parts & components

If EAR, what ECCN (Export Commodity Classification Number) Example: 9A991d - civil aircraft components

Have they obtained a Commodity Jurisdiction (CJ)?

**Look for a couple of clues… Are there Markings on the Technical data? Destination Control Statements (DCS) on Shipping Documentation? Have you completed a DSP-83 End-Use Form?

22


U.S. Destination Control Statements or (DCS)

State Department:

“These commodities are authorized by the U.S. Government for export only to [country of ultimate destination] for use by [end-user]. They may not be transferred, transshipped on a non-continuous voyage, or otherwise be disposed of in any other country, either in their original form or after being incorporated into other end-items, without the prior written approval of the U.S. Department of State.”

Commerce Department:

“These commodities, technology or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law prohibited.”

23


Key Areas of Interest

24


Key Areas of Interest

President’s Export Control Reform Initiative

4 Pillars of Reform (www.export.gov/ecr)

Many Proposed Rules published in FR.

*U.S.-U.K. ITAR Exemption

ITAR 126.17

*U.S.-Australia ITAR Exemption

ITAR 126.16

*Will take effect when Treaty enters into force later in 2012.

25


ITAR Compliance Program Guidelines

Organizational Structure

Corp. Commitment & Policy

*ID, Receipt & Tracking of ITAR Controlled Items/Technical Data

*Re-exports / Retransfers

*Restricted / Prohibited Exports & Transfers

Recordkeeping

*Internal Monitoring

Training

Violations & Penalties

26

Source: DDTC website: www.pmddtc.state.gov


Conclusion & Takeaways

27


Takeaway #1 Don’t be afraid to use U.S. products.

Using 1 component/part is the same as 100.

The Key is to understand the regulations. Learn and use all the various tools and

methods available. Establish successful relationships with your

U.S. suppliers by: Engaging them early in process. Providing them with all the information they need

to cover all your needs.

28


Best Practices for Compliance with ITAR

Ensure the U.S. Exporter informs you of the jurisdiction of what they are sending you: (State (ITAR) vs Commerce (EAR)).

Engage the U.S. Exporter in the licensing process early and often.

Provide U.S. exporter with all needed information and documentation relative to the transaction.

Determine your re-export obligations, if any. Obtain re-export authorization, if needed. Provide follow up reports or documentation as needed.

29


Takeaway #2 How do I determine if my company has any ITAR risk?

- Conduct an annual ITAR “Internal Risk Assessment”.

30


Source: Society for International Affairs


DDTC / ITAR Enforcement Actions BAE Systems plc - $79,000,000 (2011) (2,591 violation).

Dr. Roth - University of Tennessee (2009) - 4 yrs prison from 17 ITAR violations.

IAL GmbH - $1,000,000 (2010) (7 violations).

Blackwater Worldwide - $42,000,000 (2010).

ITT - $100,000,000 & Debarred (2007) + 9 yrs. scrutiny

GM & General Dynamics - $20,000,000 (2004).

32


Resources DDTC (U.S. Department of State)

www.pmddtc.state.gov or Help Desk (202) 663-1282.

BIS (U.S. Department of Commerce)

www.bis.doc.gov or (202) 482-4811.

Trade Compliance Associates, LLC (TCA, LLC)

E-mail: [email protected]

Tel: 619-437-1080 or 213-706-0771(mbl)

See Brochure.

www.tradecomplianceconsulting.com (under construction)

Society for International Affairs (SIA)-www.siaed.org

4 conferences a year – 2 Basic & 2 Advanced.

33

http://www.pmddtc.state.gov/

http://www.bis.doc.gov/

http://www.tradecomplianceconsulting.com/


Questions / Comments

34

U.S. Export Controls

Documents

Transcript of U.S. Export Controls