4 column emplate - worldecr.com
TRANSCRIPT
WorldECREU dual-use list update comes into force 2
ING pays a record $619 million to settle 5alleged U.S. sanctions violations
EU moving towards DIY export control 12
New rules for intra-EU transfers of 14defence products
The Missile Technology Control Regime 1725 years on
OFAC and the reinsurance industry 21
Trade controls in Southeast Asia: taking 25a regional approach
Export controls initiatives in the Philippines 30
ISSUE 13. JUNE 2012
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2 WorldECR www.worldecr.com
The regulation which
changes the EU dual-use list
came into force on 15 June.
Commentators say the
changes are designed both
to make the list more ‘user-
friendly’ and also to stay
abreast of developments in
technology, market trends,
and the international
security situation.
In total, 271 changes are
made to the list: these
include amendments of
definitions, the inclusion of
some new categories and the
deletion of others.
They are contained in
Regulation (EU) No
388/2012 of 19 April 2012
amending Council
Regulation 428/2009. The
amendments reflect the very
many comparable changes
made to lists set within, in
particular, the Wassenaar
Arrangement, the Nuclear
Suppliers Group, the Missile
Technology Control Regime,
and the Australia Group.
These include de-controls
on certain specified items
and amendments to certain
goods descriptions and
definitions.
In a briefing, law firm
Fried, Frank, Harris, Shriver
& Jacobson LLP noted that
most of the amendments to
the EU dual-use list were
driven by updates of the
Dual-Use Goods &
Technologies and Munitions
EU dual-use list update comes into force
The update will make the dual-use list more ‘user-friendly’ and
relevant to developing technology and security concerns.
List of the Wassenaar
Arrangement, and that
‘given that all 27 EU
Member States (but Cyprus)
are signatories to that non-
proliferation agreement, the
EU Dual Use List had to be
harmonized accordingly’.
It is particularly
noteworthy that the list
reflects the 2009 and 2010
expert reviews around the
Wassenaar Arrangement:
the former introduced
amendments to item lists
concerning encryption and
reception equipment for
global navigation satellite
systems, while changes
brought in by the latter
addressed commercial
developments related to
counter-terrorism. Member
States must now update
their corresponding lists for
the new regulation to be
given effect.
The regime in briefFried Frank gives a concise
summing up of the EU Dual-
Use Regulation as:
‘…an EU-wide system which
governs the control of
exports of dual-use items
outside the EU, transfers of
dual-use items within the
EU, and the brokering and
transit of dual-use items.
The underlying EU Dual-
Use List provides a list of
dual-use goods, software
and technologies that can be
used for both civil and
military applications, and
those which are subject to
export controls.
‘Broadly speaking, dual-
use items listed in the EU
Dual-Use List require prior
government authorization
when they are to be exported
from the EU to a non-EU
country. Conversely, intra-
EU transfers of dual-use
items typically only require
licenses for transfers of
certain items of high
sensitivity.’
At the time of
writing, the nations
of the Permanent
Members of the UN
Security Council +
Germany (the ‘P5’),
are meeting with
Iranian negotiators
in Moscow to
discuss Iran’s
uranium
enrichment
programme.
Early signs of an
agreement,
according to reports, are not positive: Iran wants
the P5 to begin rolling back sanctions; the P5
wants a commitment from Iran not to enrich
beyond 20% – neither side looks like budging.
One of the many groups watching the
negotiations closely is the world’s oil traders. On
1 July, the EU is due to schedule a full embargo
on Iranian oil exports to EU Member States -
even though it is bound to put considerable
pressure on the already stressed economies of
countries such as Greece and Italy.
Charles de Jager, a partner at the Brussels
office of law firm Salans, said that the prospect
of the full embargo has generated many new
enquiries, and added ‘[The embargo] is certainly
a way to maintain pressure on Iranian officials to
engage constructively in the negotiations in
Moscow. Absent
firm EU resolve on
the 1 July entry into
force of the
embargo, Iranian
officials may have
little incentive to
allow for any
progress to be
made.’
Client interest,
said de Jager
‘comes partly from
European business
circles seeking
confirmation of the impact of the latest
measures on any remaining operations they may
still have involving Iran’, and from ‘business
circles in the region that are still much more
sanguine about opportunities to develop
projects involving Iran. The advice in the latter
cases focuses on the manner in which these
projects may affect their ability to maintain trade
with the EU.’
According to de Jager, there is also a fair
degree of frustration on the part of certain
specific EU business interests regarding the
expanding scope of the sanctions against Iran:
‘This is especially true when they seek advice
relating to projects involving Iran’s neighbouring
countries and, often only tangentially, Iran itself,’
he said.
EU maintains stance on Iran oil embargo
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A bitter spat is playing out
between two rival telecoms
companies – South Africa’s
MTN and Turkey’s Turkcell
– over allegations that MTN
bribed its way, and used
high-level political contacts,
to acquire contracts in Iran.
Among the alleged
‘services’ provided by MTN
was, alleges Turkcell, the
assurance that South Africa
would vote in favour of Iran
at key meetings of the
International Atomic Energy
Agency (‘IAEA’), and also
that it could provide Iran
with defence equipment
‘other wise prohibited by nat -
ion al and international laws’.
Damages claimOn 28 March 2012, Turkcell
filed an initial complaint to
that effect in the District
Court of Columbia,
Washington DC in which it is
claiming damages in excess
of US$4 billion. However,
the dispute is also being
played out in the more public
forum of the press.
Meanwhile, MTN says it
has appointed a leading QC,
Brick Court Chambers’ Lord
Leonard Hoffmann, to
under take an internal
investigation into corruption
allegations – according to
Lord Hoffmann’s chambers
the judge is ‘wholly
independent [and] is
chairman of a committee of
which the other three
members are independent
directors of MTN’.
Turkcell’s allegations
have at their heart a number
of claims made by MTN’s
former senior executive in
Iran, Chris Kilowan. On 4
June, Turkcell (which is
being advised by Read
McCaffrey of Washington
DC law firm Patton Boggs)
released a statement setting
out how it believes that ‘MTN
Group Ltd and its subsidiary
MTN International Limited
(together MTN) through
corruption and bribery in
2004 and 2005 stole the
Iranian second GSM license
opportunity from Turkcell’.
Patton Boggs has sent an
open letter to Lord
Hoffmann which, it says,
includes ‘sworn testimony
from a former MTN
employee [one Christian
Kilowan]…defin ite ly proving
that MTN paid bribes,
promised assistance on
nuclear issues at the IAEA
and with the sale of arms to
Iran from South Africa, and
entered into sham agree -
ments for payments to its
Iranian partners.’
Within the testimony is
the allegation that MTN
‘promised the Iranian
Foreign and Defense
Ministries that it would work
to ensure that South Africa
vote in favor (either by
positive vote or abstention)
of Iran at the International
Atomic Energy Agency
(IAEA).’ In the past few days,
an anti-corruption unit of
the South African police
known as ‘The Hawks’ has
announced that it is to
pursue an investigation into
bribery allegations.
‘Unfounded andsensationalist attacks’In response to Turkcell’s
charges, MTN CEO Sifiso
Dabengwa has described the
allegations as ‘unfounded
and sensationalist attacks by
opponents in relation to our
non-controlling 49% stake in
Irancell’. He said: ‘MTN has
been threatened and
attacked by a disappointed
competitor and a disgrunt led
former employee. The claims
made by Turkcell in U.S.
proceedings have no legal
merit and no place in a U.S.
court. We are fighting those
claims, and we fully expect
them to be dismissed. In any
event, the former employee
who is the source of the
claims has been shown
through the evidence in his
deposition not to be a
credible witness.’ He added
that MTN had launched its
investigation into Turkcell’s
claims long before they were
filed by Turkcell, and that
MTN had appointed Lord
Hoffmann ‘to ensure the
independence and integrity
of the investigation’.
News agency Reuters has
reported that in an interview,
Kilowan revealed that MTN
Group agreed to allow its
Iranian partners and Irancell
to set up a local Iranian
company with the purpose of
evading sanctions on Iran –
which Kilowan denies.
Commenting on the case,
one lawyer told WorldECRthat it was still unclear as to
whether the DC court would
accept jurisdiction, given that
the main body of events
occurred a long way from the
United States. He pointed
out that while the Alien Tort
Claims Act, under which it
had been brought, was slowly
gathering speed as a means
of bringing foreign-focused
claims before U.S. juries, its
record in this regard was
patchy. However, he noted,
the case pointed to the
potential for sanctions-
related allegations to be used
by business rivals to try to
obtain leverage and/or settle
scores.
Telecoms companies slug out corruptionand sanctions-busting claims in public
Turkcell has taken its dispute with MTN to the U.S. courts.
The text of the complaint filed against MTN can be found at:
http://www.politicsweb.co.za/politicsweb/view/politicsweb/en/p
age71619?oid=290033&sn=Detail&pid=71619
Further EU/Guinea-Bissau sanctionsAgainst a backdrop of continuing unrest in Guinea-Bissau, the EU
has announced the imposition of restrictive measures on a
number of members of the military whom, it says, are responsible
for the 12 April coup d’etat.
The full list can be found at:
http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:142:0011:0015:EN:PDF
News and alerts News and alerts
4 WorldECR www.worldecr.com
On 6 June, the EU-US Joint
Customs Cooperation
Committee (‘JCCC’)
announ ced the mutual
recognition of the trade
partnership programmes of
the EU and U.S.: the
Authorized Economic
Operator Scheme and
Customs Trade Partnership
Against Terrorism Program,
respectively.
The agreement is in line
with earlier ones between
the U.S. and EU to intensify
and broaden the Agreement
between the European
Community and the United
States of America on
Customs Cooperation and
Mutual Assistance in
Customs Matters (known as
the ‘CMAA’) to include
container security, and to
strengthen transatlantic
cooperation in accordance
with the World Customs
Organization 2011
Framework of Standards to
Secure and Facilitate Global
Trade (‘SAFE Framework’).
Under the agreement,
members of each
programme are to be treated
by customs authorities in a
manner comparable to the
way they treat members of
their own trade partnership
programme. This treatment
is to include taking
favourably into account in
its risk assessment, for the
purpose of the conduct of
inspections or controls, the
respective membership
status of an operator
authorized by the other
customs authority in order
to facilitate EU-U.S. trade
and encourage the adoption
of effective security-related
measures.
About each scheme
C-TPATC-TPAT is implemented by
the Customs and Border
Protection (‘CBP’) agency of
the U.S. government, and is
a voluntary government-
business initiative that aims
to build builds cooperative
relationships to strengthen
and improve overall
international supply chain
and U.S. border security.
Currently over 7,400
companies in the global
supply chain are enrolled in
the programme, including
importers, customs brokers,
terminal operators, carriers
and foreign manufacturers.
Authorized EconomicOperatorsAuthorized Economic
Operator (‘AEO’) status can
be granted by Member
States to any economic
operator established in the
European Union that meets
Mutual recognition for C-TPAT and AEOs
EU imposes ban on luxury goods anddual-use items for export to SyriaOn 15 June, the Council of
the European Union
approved the implement -
ation of a ban on exports to
Syria of luxury goods and
new categories of dual-use
goods. Council Regulation
(EU) No 509/2012 amends
Regulation (EU) No
36/2012. Among goods
subject to the ban are:
Luxury goodsl Caviar, truffles, and
cigars with a sales price
exceeding EUR 10 per
item
l Wines and spirits with a
sales price exceeding
EUR 50 per litre
l Leather goods (sales price
above EUR 200) and
garments and shoes
(items above EUR 600)
l Jewellery, gems and
pearls
l Tableware, clocks and
watches (above EUR
500)
l Lead crystal glassware
(above EUR 200)
l Luxury vehicles, planes
and boats and new
vehicles from EUR 25,000
Dual-use goods Dual-use goods which may
not be exported to Syria
include:
l Protection and detection
equipment, for example
gas masks and protective
suits
l Chemical manufacturing
facilities, such as
reaction vessels and
storage tanks
l Chemicals that may be
used as precursors for
toxic chemical agents
l Human, animal and plant
pathogens, i.e. certain
viruses, bacteria and
toxins
Dual-use goods subject to
authorization for export to
Syria include:
l Further chemicals and
toxins
l Additional laboratory
equipment and chemical-
manufacturing facilities,
such as certain valves or
vacuum pumps
l Technology and software
required for the
development, production
or use of goods requiring
authorization for export
to Syria
the following common
criteria stipulated in
customs law.
l An appropriate record of
compliance with customs
requirements
l A satisfactory system of
managing commercial
and, where appropriate,
transport records, which
allows appropriate
customs controls
l Proven financial solvency
l Where applicable,
appropriate security and
safety standards
AEOs benefit both from
simplifications provided for
by the customs rules and/or
facilitation with regard to
customs controls related to
security and safety,
according to the type of
certificate they obtain.
The regulation is available at:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:156:0010:0037:EN:PDF
Full details are available at:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:144:0044:0047:EN:PDF
News and alerts News and alerts
5 WorldECR www.worldecr.com
On 12 June 2012, the U.S.
government announced that
ING Bank N.V.,
headquartered in
Amsterdam, agreed to forfeit
U.S.$619 million for violating
U.S. sanctions and New York
state laws by knowingly and
wilfully moving billions of
dollars through the U.S.
financial system on behalf of
Cuban and Iranian entities.
The bank also issued its own
press release admitting its
failings: see ‘ING’s press
release in full: ING Bank
reaches agreement with US
Authorities’.
The agreement also
resolves outstanding charges
against ING for civil
violations of the Burmese
Sanction Regulations,
Sudanese Sanction
Regulations, and the now-
repealed Libyan Sanctions
Regulations, according to an
announcement by the U.S.
Department of Treasury,
Office of Foreign Assets
Control (‘OFAC’). Numerous
U.S. government agencies
were involved in the
investigation, including
OFAC, the Internal Revenue
Service, various divisions of
the U.S. Department of
Justice, and the New York
Country District Attorney’s
Office. The forfeiture
amount represents the
largest fine ever for U.S.
sanction violations.
According to court
documents, ING processed
over U.S.$2 billion from
Cuba, Iran, and other
sanctioned countries through
the U.S. financial system
since the early 1990s, causing
other U.S. financial
institutions to process
transactions that should have
been rejected or blocked.
The bank allegedly did so
through a number of means,
including the provision of
payment services to
sanctioned entities, removal
of information about the
ING pays a record $619 million to settle alleged U.S. sanctions violations
ING’s press release in full: ING Bank reaches agreement with US Authorities
Amsterdam, 12 June 2012
ING Bank announced today that it has entered into a Settlement Agreement with U.S. Department ofthe Treasury’s Office of Foreign Assets Control (OFAC) and Deferred Prosecution Agreements with theDepartment of Justice, the United States Attorney’s Office for the District of Columbia and the DistrictAttorney of the County of New York (together the “U.S. Authorities”) in relation to the investigation bythose agencies into compliance with U.S. economic sanctions and U.S. dollar payment practices until2007.
Under the terms of the Deferred Prosecution Agreements, no further action will be taken against INGBank if it meets the conditions set forth in the agreements. As part of the settlement, ING Bank hasagreed to pay a total penalty of USD 619 million. As announced on 9 May 2012, ING Bank took aprovision in the first quarter of 2012 to cover this issue.
ING Bank previously disclosed in its annual reports and other public filings that it was in discussionswith authorities concerning compliance with OFAC requirements in relation to transactions executedby Commercial Banking. Since 2006, prior to receiving inquiries from the U.S. Authorities, INGinitiated two extensive internal investigations. Much of the findings, which were voluntarily disclosedto OFAC, focused on conduct relating to transactions associated with ING Bank’s Cuban operations,as well as business with counterparties in other OFAC sanctioned countries. The discussions withauthorities on these issues did not involve ING’s Insurance and Investment Management operations,nor Retail Banking or ING Direct.
ING Bank has cooperated closely and constructively with regulators and other authorities throughoutthis process. The U.S. Authorities have recognized ING’s substantial cooperation in the resolution andING’s efforts and commitment to continuously enhance compliance within the organisation.
“The violations that took place until 2007 are serious and unacceptable. The facts as compiled in thestatement of the Department of Justice describe a very different ING than the company we’re allworking so hard for today,” said Jan Hommen, CEO of ING Group. “Since starting the investigations in2006, ING Bank has taken decisive actions to strengthen compliance throughout the organisationand heighten employee awareness of compliance risks. This continues to be a key priority in theinterests of our customers, employees and other stakeholders, and serves to ensure we remainabreast of compliance risks in an increasingly complex financial services industry.”
ING Bank is fully committed to conducting its business with the highest levels of integrity, whichincludes strict compliance with all applicable laws, regulations and standards in each of the marketsand jurisdictions in which it operates. ING Bank has taken various steps to strengthen globalcompliance risk management. The Bank:•Voluntarily terminated relationships with sanctioned banks and entities, including closing itsrepresentative office in Cuba in 2007 and liquidating the Netherlands Caribbean Bank, which wasconcluded in 2009.•Created a central team focused on preventing and detecting money laundering and terroristfinancing and related policies and procedures.•Implemented enhanced compliance and risk management procedures on a global basis to improvethe Compliance function and increased the number of compliance staff, which now has in excess of400 full time ING employees dedicated to Compliance across our worldwide operations.•Enhanced its global compliance training programme as part of ING’s continuing focus on building acompliance-based culture.•Amended key policies and guidelines and the international rollout of several programmes foreducation, awareness and monitoring of sanctions and compliance issues.
All enhancements that have been implemented in the past years are designed to meet or exceedcurrent rules and regulations of law enforcement agencies and are aimed at preventing practices ofthis type from occurring in the future.
‘The violations that took placeuntil 2007 are serious andunacceptable.’ Jan Hommen,CEO of ING Group
Continues on page 6
News and alerts News and alerts
payments’ origin, furnishing
misleading payment
information, using shell
companies, advising
sanctioned customers on
how to conceal their
involvement, fabricating
endorsement stamps for two
Cuban banks for purposes of
processing U.S. travellers’
checks, ignoring employee
concerns about sanction
violations, and threatening
employees if they failed to
remove references to
sanctioned entities in
payment messages.
ING locations around the
world were said to have
contributed to the scheme.
According to a government
official, ‘[f]or more than a
decade, ING Bank helped
provide state sponsors of
terror and other sanctioned
entities with access to the
U.S. financial system,
allowing them to move
billions of dollars through
U.S. banks for illicit
purchases and other
activities.’
Commenting on the
development, Washington
DC lawyer Jason Poblete of
Poblete & Margo said it was
an ‘interesting case for
several reasons, not least of
which the precedent-setting
fine. But there also seems to
be a potential thread with
regards to Cuba and prior
enforcement actions that
have resulted in large fines in
recently including: UBS,
Ericsson, and now, ING. If
you’re a European entity that
has holdings in Cuba as well
as the U.S., take note.
Enforcement of Cuba
sanctions has increased and
will likely continue to do so
long as the Castro
government remains in
power.’
WorldECR is grateful forthe help of David Hardin ofMiller & Chevalier in thewriting of this article.
Movers and shakers
Washington DC law firm Miller & Chevalier Chartered
announced in June the arrival of former Blank Rome partner
Barbara D. Linney, who joins the firm’s export controls and
economic sanctions practice.
According to the firm, Linney has advised both U.S. and
foreign clients on international trade and regulatory issues for
over 20 years, focusing on export controls and international
sanctions, defence trade and security regulations and issues
including foreign investment reviews, mergers, acquisitions, and
financings, and anti-corruption and anti-boycott compliance.
Also joining the firm is Kuang Chiang, previously a licensing
examining officer at OFAC, where her practice focused on the
review of licence applications and advisory requests under the
Iranian Transactions Regulations.
Peter Quinter, formerly of law firm Becker & Poliakoff, has joined
Florida’s GrayRobinson P.A. to chair the firm’s newly formed
customs and international trade law group. Quinter will besupported by fellow new arrival associate Melissa Groisman.
Quinter’s practice involves advising in all matters involving the
administration and enforcement of international trade and U.S.
Customs law. He is admitted to practice in Federal court in the
State of Florida as well as the United States Court ofInternational Trade.
Groisman will support the Customs and International Trade
Law Group. Her experience includes representing both domestic
and multinational corporations in matters arising before most of
the key federal agencies.
6 WorldECR www.worldecr.com
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BULLETINS BULLETINS
7 WorldECR www.worldecr.com
On 25 May 2012, the U.S. Department of Commerce, Bureau
of Industry and Security (‘BIS’) announced a $1.753 million
settlement with Ericsson de Panama S.A. of Panama City,
Panama for 262 alleged violations of the Export
Administration Regulations (‘EAR’). According to the
announcement, the company knowingly implemented a
scheme to route items subject to the EAR from Cuba to the
United States via Panama between 2004 and 2007. As part
of the alleged scheme, Ericsson de Panama repackaged the
items to conceal their Cuban markings, forwarded the items
to the United States for repair and
replacement, and then returned the items to
Cuba. As part of the settlement, the company
must undergo an independent export control
compliance audit of all Cuba transactions.
According to a BIS official, although the alleged
violations were egregious, the company
avoided criminal prosecution by voluntarily
disclosing them and cooperating in the agency’s
investigation.
http://www.bis.doc.gov/news/2012/bis_press05252012.htm
U.S. Department of Treasury settles with GenesisAsset Managers, LLP for alleged Iran violations On 21 May 2012, OFAC announced a $112,500 settlement
with U.S. asset manager Genesis Asset Managers, LLP
(‘GAM’) relating to the company’s alleged violations of the
Iranian Transaction Regulations (‘ITR’). According to the
announcement, GAM served as the investment manager for
Genesis Emerging Markets Fund (‘GEMF’), a Guernsey-
organized investment fund. GAM’s London-based subsidiary,
Genesis Investment Management LLP (‘GIM’), furnished
advice and transaction services to GAM relating to GEMF in
return for a fee. In 2007, on behalf of GEMF, GIM allegedly
purchased approximately $3 million worth of shares in the
First Persian Equity Fund, a Cayman Island company that
invests exclusively in Iranian securities. OFAC considered a
number of aggravating and mitigating factors in resolving the
case, the latter of which included GAM’s apparent failure to
fully understand its obligations under the ITR.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/05212012_genesis_notice.pdf
OFAC designates Syria International Islamic BankOn 30 May 2012, OFAC designated Syria International
Islamic Bank (‘SIIB’) pursuant to executive order 13,382,
which allows the blocking of property of weapons of mass
destruction proliferators. According to a press release
announcing the designation, SIIB has been acting as a front
for the Commercial Bank of Syria and providing services for
the Syrian Lebanese Commercial Bank, allowing the two
financial institutions to circumvent applicable sanctions.
According to a government official, the designation ‘will add
to the economic pressure on the Assad regime by closing off
a key evasion route’. Designation adds SIIB to OFAC’s
Specially Designated Nationals (‘SDN’) list, thereby
prohibiting any person subject to U.S. jurisdiction from
engaging in dealings with that financial institution.
http://www.treasury.gov/press-center/press-
releases/Pages/tg1596.aspx
OFAC changes to the SDN listOFAC has made numerous changes to its SDN list pursuant
to the Global Terrorism Sanctions Regulations, Narcotics
Trafficking Sanctions Regulations, Foreign Narcotics
Kingpin Sanctions Regulations, and Foreign Terrorist
Organizations Sanctions Regulations. Persons subject to
U.S. jurisdiction are prohibited from engaging in dealings
with anyone identified on the SDN list.
http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Pages/20120612_33.aspx
http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Pages/20120524.aspx
http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Pages/20120517.aspx
http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Pages/20120515.aspx
http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Pages/20120508.aspx
U.S. President signs executive order on YemenOn 16 May 2012, the U.S. President signed an executive
order titled ‘Blocking Property of Persons Threatening the
Peace, Security, or Stability of Yemen.’ The EO blocks the
property and interests in property of any person determined
by the U.S. Secretary of Treasury to ‘have engaged in acts
that directly or indirectly threaten the peace, security, or
stability of Yemen,’ including ‘acts that obstruct the
implementation of the agreement of November 23, 2011’
between the Yemeni government and opposition forces for
the peaceful transition of power. The order also blocks the
property and interests in property of: 1) political or military
leaders of entities engaged in the above-described activities,
and 2) persons who ‘have materially assisted, sponsored, or
provided financial, material, or technological support for, or
goods or services to or in support of,’ the above-described
activities or for any person blocked under the order.
http://www.treasury.gov/resource-
center/sanctions/Programs/Documents/yemen_eo.pdf
U.S. President announces easing of restrictions against BurmaCiting recent economic and political reforms, the U.S.
President announced on 17 May 2012 the easing of U.S.
sanctions against Burma (Myanmar) by allowing the export
of financial services and new investment in Burma. The
President also emphasized the United States’ commitment
to ‘help ensure further reform’ and its ‘ability to reinstate
selected sanctions if there is backsliding’. Delays in
implementing the President’s announcement have
BIS agrees $1.75m settlement with Ericssonde Panama S.A. for alleged Cuba violations
By David Hardin of the Washington DC office of
Miller & Chevalier LLP.
www.milchev.com
8 WorldECR www.worldecr.com
reportedly been caused by inter-agency vetting, the
complexity of the Burma sanctions, and the future treatment
of certain SDNs in Burma.
http://www.whitehouse.gov/the-press-
office/2012/05/17/statement-president-burma
BIS settles with Akrion Systems, LLC for unlawful pump exportsOn 4 June 2012, BIS entered an agreement with Akrion
Systems, LLC to settle charges that the company exported
valves, pumps, and components valued at $853,230 and
classified under ECCN 2B350 to Taiwan, Singapore,
Malaysia, and China without the required licences.
According to the agreement, Akrion Systems engaged in
such prohibited conduct on 144 occasions, leading to a civil
penalty of $900,000. The company voluntarily disclosed the
violations. Under the agreement, $800,000 of the penalty is
waived provided that Akrion Systems pays $100,000 in a
timely manner and does not commit any export violations
during a two-year probationary period.
http://efoia.bis.doc.gov/exportcontrolviolations/e2269.pdf
BIS and other agencies foil illegal firearms export ringOn 24 May 2012, BIS and the U.S. Department of Justice
announced the arrest of three individuals for their role in
smuggling firearms from the United States to China.
According to the announcement, BIS and other agencies
arrested Joseph Debose, a U.S. national and a member of
the U.S. military, and Zhifu Lin and Lilan Li, both Chinese
nationals, for multiple exports of firearms
controlled under the U.S. Munitions List, in
violation of the Arms Export Control Act and
the International Traffic in Arms Regulations
(‘ITAR’). As part of the scheme, the serial
numbers of the firearms were allegedly altered
and the firearms were then hidden in packages
exported to China. The scheme, which took
place between December 2010 and April 2012, was
discovered after the firearms were found by Chinese
authorities. The individuals remain in custody and each
faces up to 20 years in prison if convicted.
http://www.bis.doc.gov/news/2012/doj05242012.htm
Chinese national arrested for unlawful exports to China On 23 May 2012, BIS announced the arrest of Qiang Hu, a
Chinese national, for alleged violations of the EAR.
According to the announcement, Hu caused the illegal
export of thousands of pressure transducers manufactured
by MKS Instruments, Inc., a U.S. company, in his role as
sales manager for the company’s Shanghai, China office. To
do so, he allegedly relied upon real licences to export the
transducers to China and, once in China, diverted them to
unlicensed end-users. In other cases, Hu allegedly obtained
export licences for the transducers in the name of a front
company. If convicted, he faces 20 years’ imprisonment and
a $1 million fine.
http://www.bis.doc.gov/news/2012/doj05232012.htm
President of U.S.-based company arrested forunlawful exports to Iran On 22 May 2012, BIS announced the arrest of Markos
Baghdasarian, the president of a U.S.-based and Russian-
owned manufacturer of synthetic oils. According to the
announcement, Baghdasarian exported aviation engine oils
and a polymer, together valued at $850,000, between 2010
and 2011 to customers in Iran without the necessary
authorizations. In doing so, he falsely claimed a United Arab
Emirates (‘UAE’) company as the ultimate consignee of the
goods. Charged with unlawful exports and false statements,
Baghdasarian faces 20 years in prison if convicted. Both he
and his company, Delfin Group USA LLC also now face a
BIS-imposed temporary denial order (‘TDO’) against
exporting.
http://www.bis.doc.gov/news/2012/doj05222012.htm
http://efoia.bis.doc.gov/exportcontrolviolations/e2252.pdf
U.S.-based company and officers sentenced forunlawful export conspiracy involving IranOn 16 May 2012, BIS announced the sentencing of Online
Micro LLC and two of the company’s officers, Massoud
Habibion and Mohsen Motamedian, for illegally exporting
computer goods valued over $5 milion to Iran via the UAE
between 2007 and 2010. According to the announcement,
Online Micro and Habibion conspired with a company in the
UAE and Iran to procure U.S.-origin computers and export
them to Iran through Dubai without necessary
authorizations from OFAC. In doing so, Online Micro also
allegedly caused the filing of false information and told a
government cooperator to lie to U.S. government
investigators. The court sentenced Habibion to 13 months’
imprisonment and Motamedian to three years’ supervised
release. Habibion and Online Micro also agreed to forfeit
$1.9 million. The two parties are also denied export
privileges for ten years, although that denial is suspended
provided, among other things, neither commits an export
control violation during the ten-year period.
http://www.bis.doc.gov/news/2012/doj05162012.htm
Former manager of Netherlands-based freightforwarder sentenced On 15 May 2012, BIS announced the sentencing of a former
manager of a Netherlands-based freight forwarder and
Dutch national, Ulrich Davis, for his role in a conspiracy to
export U.S.-origin aircraft-related commodities to Iran
without the required authorizations. The sentence follows
Davis’ guilty plea for violating the ITR, EAR, and a then-
existing TDO against him by arranging the shipment of
goods to Iran, making false statements in furtherance of the
scheme, and instructing others to make false statements.
The court sentenced Davis to six months in prison.
http://www.bis.doc.gov/news/2012/doj02062012.htm
http://www.bis.doc.gov/news/2011/doj08092011.htm
BIS denies export privileges for Zhen Zhou Wu,Yufeng Wei, and Chitron Electronics, Inc.On 4 June 2012, BIS denied export privileges for Zhen Zhou
Wu, Yufeng Wei, and Chitron Electronics, Inc. The denial
BULLETINS BULLETINS
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follows criminal convictions for those companies in January
2011 for unlawful exports of electronic components and
other items to China that were subject to the EAR and ITAR.
http://efoia.bis.doc.gov/exportcontrolviolations/e2268.pdf
http://efoia.bis.doc.gov/exportcontrolviolations/e2267.pdf
http://efoia.bis.doc.gov/exportcontrolviolations/e2266.pdf
BIS denies export privileges for Mohammad Reza VaghariOn 6 June 2012, BIS denied export privileges for
Mohammad Reza Vaghari following a previous criminal
conviction of Vaghari on two counts of aiding and abetting
the illegal export of ultrasonic liquid processors, stimulus
isolators, and laboratory equipment to Iran via the UAE
without the required authorizations from OFAC.
http://efoia.bis.doc.gov/exportcontrolviolations/e2270.pdf
Proposed removal of items from the ITARBIS and the U.S. Department of State, Directorate of Defense
Trade Controls (‘DDTC’) recently published proposed rules
for the removal of certain items from U.S. Munitions List of
the ITAR. The rules relate to items and related technology
currently controlled under the following categories of the
Munitions List: Category XIII (auxiliary and miscellaneous
items), Category X (personal protective
equipment, shelters, and related items), and
Category IX (military training equipment). The
proposed removal is part of the U.S.
government’s effort to reform the U.S. export
control regime and follows similar proposed
rules for other categories. Under the proposed
rules, items removed from the Munitions List
would be shifted to the Commerce Control List (‘CCL’),
including proposed ‘600 series’ classifications within that
list. Comments to the proposed rules are due in July.
http://www.bis.doc.gov/federal_register/rules/2012/77fr29564.pdf
http://www.pmddtc.state.gov/FR/2012/77FR29575.pdf
http://www.bis.doc.gov/federal_register/rules/2012/77fr33688.pdf
http://www.pmddtc.state.gov/FR/2012/77FR33698.pdf
http://www.bis.doc.gov/federal_register/rules/2012/77fr35310.pdf
http://www.pmddtc.state.gov/FR/2012/77FR35317.pdf
DDTC releases ‘Blue Lantern’ reportOn 24 May 2012, DDTC released its fiscal year 2011 report
for its ‘Blue Lantern’ end-use monitoring programme. The
report, which is issued annually and summarizes the
agency’s findings for end-use checks, shows a slight decrease
in the overall number of inquiries undertaken from previous
years. It also shows that 27% of the checks led to findings of
inconsistency with information in a transaction’s application
or authorization, and the highest rate of inconsistency
occurring for exports to the Middle East. The agency also
found 34 instances of potential diversion. A finding of
inconsistency may result in the rejection, denial, or
revocation of a licence application, removal of a party from
an application or authorization, addition of a party to
DDTC’s Watch List, and/or referral to the agency’s
enforcement division.http://www.pmddtc.state.gov/reports/documents/End_Use_FY2011.pdf
DDTC posts guidelines for material change notificationsOn 2 May 2012, DDTC posted new guidelines for submitting
notifications of a material change in information for parties
registered with the agency, as required by the ITAR. Material
changes include: 1) ineligibility changes; 2) changes to name,
address, or senior officers; 3) establishment, acquisition or
divestment of a U.S. or foreign parent, subsidiary, or
affiliate, or merger; or 4) addition or deletion of USML
categories applicable to the party. http://www.pmddtc.state.gov/registration/notification_chreg.html
DDTC amends ITAR to exempt temporary exportsof chemical agent protective gearOn 2 May 2012, DDTC published a final rule that, among
other things, amends the ITAR to exempt the licence
requirement for temporary exports of chemical agent
protective gear for personal use and classified under
Category XIV(f)(4). The rule amends 22 C.F.R. § 123.17(f) to
allow use of that exemption where the protective gear: 1) is
for the U.S. person’s exclusive use, and 2) is eventually
returned to the United States. In addition, under the rule,
the U.S. person may not: 1) re-export the protective gear to
a foreign person or otherwise transfer ownership, or 2)
export the gear to any country where the importation would
be in violation of that country’s laws. The rule also clarifies
existing exemptions for exports of body armour, firearms,
and ammunition.
http://www.gpo.gov/fdsys/pkg/FR-2012-05-02/html/2012-
10599.htm
House passes satellite export amendmentOn 17 May 2012, the U.S. House of Representatives passed
an amendment to the National Defense Authorization Act
for Fiscal Year 2013 (HR 4310) that would allow the U.S.
President to move certain satellites and related items from
the U.S. Munitions List to the CCL, thereby shifting those
items from DDTC jurisdiction to BIS jurisdiction. The
amendment simultaneously imposes numerous
requirements for any transfer, such as retaining the broad
prohibition on the export of satellites and related items to
arms-embargoed countries, quarterly reports on
BULLETINS BULLETINS
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Appeared in issue 5, WorldECR
Back issues of WorldECR are available.
For details, email [email protected] or visit
http://www.worldecr.com/back_issues.html
10 WorldECR www.worldecr.com
authorizations for exports of such items, and an
enumeration of each item, ‘to the extent practicable,’ that the
President intends to shift to the CCL.
Senate passes new Iran sanctionsOn the eve of negotiations between world powers and Iran,
the U.S. Senate on 21 May 2012 passed a new bill intended
to expand existing sanctions against that
country (S 2101). Inserted as an amendment
into a related bill previously approved by the
U.S. House of Representatives (HR 1905), the
combined bill expands the Iran Sanctions Act
of 1996 by adding penalties for individuals and
entities doing business with Iran, including
penalties for entities engaged in joint ventures
with Iran and for U.S. companies whose
foreign subsidiaries engage in a prohibited
activity. The bill also requires public companies to disclose
their Iran dealings to the U.S. Securities and Exchange
Commission. The Senate amendment includes language
stating that all options, including military action, are on the
table to prevent Iran from obtaining nuclear weapons and
that the bill does not authorize military action. The language
of the final bill is subject to negotiation in a conference
committee composed of House and Senate members.
BIS settles charges of anti-boycott violationsBIS recently announced settlements with SteelSummit
International Inc. and Samuel Shapiro & Company, Inc. for
their alleged violations of U.S. antiboycott regulations.
SteelSummit agreed to pay $14,400 to settle four charges
associated with furnishing information to persons in Saudi
Arabia about the company’s business relationships with
boycotted countries or blacklisted persons. Samuel Shapiro &
Company agreed to pay $10,000 to settle five charges
associated with failing to report the receipt of a request from
persons in the UAE to engage in a restrictive trade practice or
foreign boycott against a country friendly to the United States.
http://efoia.bis.doc.gov/antiboycott/violations/a725.pdf
http://efoia.bis.doc.gov/antiboycott/violations/a724.pdf
BULLETINS BULLETINS
On 1 April 2012, the Ministry of Economy, Trade and
Industry of Japan (‘METI’) issued a notification introducing
changes in application procedures for individual and general
bulk export licences for dual-use goods. The notification
includes changes to:
l Single-use licence
The notification introduces a new format for the end-user
certificate (‘EUC’). The EUC is a document
signed by the foreign importer or ultimate
end-user which is required for single-use
export licence applications. The notification
requires applicants to submit the revised EUC
as supporting documents when applying for a
single-use licence. The new EUC format takes
effect on 1 April 2012; the previous EUC
format will be valid until 1 July 2012. An
English version of the new EUC format is
available on the METI web site.
l General bulk licence
The notification splits the existing general bulk licence
(locally called ‘Ippan Houkatsu’ export licence) into two
categories:
White country bulk licence Traders looking to export certain non-sensitive dual-use
items to white countries can apply for white country bulk
licences. Requirements for this licence are less stringent
– only registration of responsible executives and staff
involved in classification are required; an internal
compliance programme (‘ICP’) is not required.
Application for the licence can only be done through the
NACCS online system.
Special general bulk licence (locally called ‘TokuichiHoukatsu’)This licence allows export of certain non-sensitive dual-
use items to various countries except high-risk countries
such as Iran, North Korea, Iraq, and United Nations-
embargoed countries. The details of eligible items and
destinations is contained in a matrix chart included in the
notification. Existing holders of general bulk licences will
have their licences converted to special general bulk
licences automatically. New applicants for the special
general bulk licence are required to undergo an on-site
pre-audit by METI in addition to the existing requirement
to implement ICP and registration with METI.
The new bulk licence scheme takes effect on 1 July 2012.
Japan’s METI streamlines procedures for export licences
By George Tan and Dylan Heng of the Singapore office
of Bryan Cave International Consulting.
www.bryancaveconsulting.com
Links and notesWhite Countries: Argentina, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Republic of Korea, Luxemburg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, United
Kingdom, and the United States of America.
Editorial Editorial
11 WorldECR www.worldecr.com
WorldECR goes to press just as
the latest in the suite of
negotiations between Iran
and the P5 comes to an unsatisfactory
close. They are to be continued with
lower-level ‘technical talks’. Quite
possibly all that has been achieved is the
postponement of another conflagration
in the Middle East. We are all losers if
the negotiations ultimately fail.
It is likely that what will not now be
postponed is the introduction of the EU
embargo on the purchase of Iranian oil
within the EU, putting strain on an
already stressed Eurozone.
In the United States, the President
will probably face pressure to impose
sanctions in the run-up to the Autumn
presidential elections: the fear being
that he might act less because he
believes that it will achieve the desired
result of persuading Iran to give up its
enrichment programme, than on
account of the need of to play to his
domestic constituents.
‘It isn’t clear that the sanctions are
working,’ one lawyer told WorldECR: ‘It
is very difficult to know where to go
next.’ And so it also seems to be in Syria,
where, despite the ratcheting up of
measures, fighting between government
and rebel forces continues unabated,
with civilians caught in the middle –
and the international community is
coming to terms with the prospect of a
full-scale civil war.
But there has been a recent triumph
for the export control regime. On 20
June, UK authorities intercepted a
Russian ship carrying $60 million-
worth of helicopter gunships which
were ultimately bound for Syria, once
the vessel, the MV Alaed, had docked
and re-fuelled at a UK port.
UK officials have told the ship’s
insurers, the Standard Club, that they
believed that continuing to insure the
shipment would be a breach of the EU
arms embargo. The Standard Club has
now withdrawn insurance from all
vessels owned by Femco, which owns
the MV Alaed.
The most recent EU embargo against
Syria bans the export of luxury goods
including caviar, cigars, champagne and
luxury yachts – suggesting that the EU
is running out of sanctions options –
creating a new target client sector for
law firms advising on Syria embargo.
Indeed, in our next issue, we’ll be
revealing the results of an investigation
into the workflow of practitioners in the
last six months. Interesting data is
already emerging. One lawyer, who’s
seen less sanctions-related work
because companies doing business with
sanctioned countries have closed down
their activities, says that when it comes
to M&A, businesses are paying extra
attention to exports due diligence.
Because, no doubt, you never know
what a little probing will turn up.
Tom Blass, June 2012
Let them not eat caviar
The most recent EU
embargo against Syria
bans the export of
luxury goods,
suggesting that the EU
is running out of
sanctions options.
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Opinion Opinion
12 WorldECR www.worldecr.com
EU moving towards DIY export control
Dr Bärbel Sachs welcomes a developing trend for greater self-responsibility for export controls in Europe.
European companies are
increasingly realising the
possibilities of self-regulation in
export control compliance. While this
development may be welcomed by
many, there are certain pitfalls and risks
that need to be taken into account.
This trend can be compared with the
increase in self-checkout systems in
supermarkets where customers swipe
and pay – a lesser number of
supervisors replaces a higher number of
check-out staff. So the same seems to be
happening within trade control in
Europe – undertakings may take more
responsibility for trade controls which
allows the authorities to be less involved
in individual transactions.
The reasons for this seem to be
manifold. The (fairly) new procedures
reduce paperwork and administrative
burden. Many seem also to address
industry’s needs: fewer and faster
administrative procedures remove the
disadvantage possessed by competitors
based in jurisdictions with less strict
trade controls, while new procedures
allow the authorities to adopt security-
oriented control measures based on risk
management. Put simply, risk
management implies that the most
reliable undertakings carry out their
own controls in individual transactions
with occasional ex-post control by the
authorities. Individual transactions
identified as posing a high risk are
subject to stricter controls.
Clients have drawn our attention to
this trend. One, responsible for trade
control within the legal department of a
multinational, has identified more and
more responsibilities for itself. It uses
the embargo rules as an example.
Following the tightening of the EU Iran
embargo in October 2010, the EU
regulations contain prohibitions
regarding the export of an increasing
number of listed goods, e.g. in the oil
and gas sector. In contrast to military
and dual-use goods, initially there were
no procedures to have it confirmed by
the authorities that a good is, indeed,
listed under the embargo regulations
and so subject to an export prohibition.
The same continues to apply, for
example, to contractual exemption
clauses contained in both the Syria and
Iran embargo regulations (cf. e.g.
WorldECR, issue 12, page 12). In most
EU Member States there are no
procedures available by which to obtain
confirmation from the relevant
authority that an existing contract
justifies the export of goods subject to a
general export prohibition. This gives
undertakings the opportunity to assess
these legal questions themselves
without having to follow long
administrative procedures. But it also
represents a significant responsibility –
for while a violation of an embargo
provision constitutes a criminal offence,
a violation of a contractual obligation
may lead to a damages claim. A forcemajeure defence may only be available
if the export is, indeed, prohibited.
Businesses doin’ it for themselvesEmbargoes are only one example where
undertakings increasingly carry out
legal assessments and control of
individual transactions. In all areas of
trade law, industry has the chance to
assume more responsibility.
In export controls, traditionally the
export of listed goods is subject to an
authorization requirement. However,
are an increasing number of exceptions
to this rule. In Germany, a growing
number of global so-called ‘collective’
authorizations have been granted and
an increasing number of general
authorizations have been passed (both
on EU and national level, cf. WorldECR,
issue 7, page 27 et seq.). The latest
general authorization to be adopted by
EU Member States at a national level
will be one allowing transfers within the
EU to undertakings licensed pursuant
to the military goods directive. Likewise,
in customs law – and increasingly
following the US security-oriented risk-
management approach – there are
simplified procedures available.
However, in order to benefit from these,
undertakings must undergo a licensing
process proving their financial
reliability as well as the implement ation
of compliance procedures and general
safety measures. The most prominent
example of this is the introduction of the
Authorized Economic Operator (‘AEO’).
In the EU this status (i) allows better
access to authorizations, (ii) allows for
entry and exit summary declarations
comprising reduced data requirements
and (iii) reduces the amount of physical
and document-based controls. As this
status is also seen as a certification of
the financial health and good
administrative organization of the
undertaking, we may observe a de-factopressure for undertakings to obtain it.
There are some risks connected with
the use of these procedures. An export
that does not fulfil all the procedural
and material requirements of the global
and general licences constitutes an
unauthorized export and, thus, a
criminal offence. Likewise, in customs
matters, irregularities in individual
transactions may easily be treated as tax
evasion. The authorities may still
discover mistakes as they continue to
carry out ex-post controls during on-site
visits and audits.
In cases where undertakings make
use of these procedures, they need to
ensure that they have a functioning
compliance system in place so as to
rapidly discover violations and to
protect staff and managers.
Nevertheless, the use of these
procedures significantly reduces
correspondence with the authorities
and, as a result, cost. It is, in our view, a
positive development.
Dr Bärbel Sachs is a partner inthe Berlin office of Noerr LLPwhere she advises oninternational trade and exportcontrols.
In all areas of trade
law, industry has the
chance to assume more
responsibility.
“This event draws the most senior government representatives and corporate exportcontrol managers from the major aerospace and defense companies in the world”Defence Exports 2011 speaker
DEFENCE EXPORTS 2012Advance your export potential1st and 2nd October, 2012, Mövenpick HotelAmsterdam City Centre, Amsterdam, The Netherlands
SMi’s 7th Annual Conference...
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EXPERT SPEAKERS INCLUDE:Key Benefits of Attending:
• SECURE a unique opportunity to hearfrom the new U.S. ExportEnforcement Coordination Center(E2C2) and regulation updates bysenior representatives from U.S.Departments of Defense, Commerceand State
• DISCUSS the latest updates on EUCommon Position 2008/944/CFSP onthe control of export of defenceequipment and technology
• ANALYSE key international exportcontrols regulations from Turkey,Irael and Asia-Pacific
• ASSESS the impact of recent treatyupdates and ratifications
Robert S. Kovac, Managing Director,Directorate of Defense Trade Controls,U.S. Department of State
Kevin Wolf, Assistant Secretary ofCommerce for Export Administration,Bureau of Industry and Security,U.S. Department of Commerce
Timothy Hoffman, Deputy Director ofthe Defense Technology SecurityAdministration, U.S. Department ofDefense
Craig C. Healy, Director, ExportEnforcement Coordination Center(E2C2), Homeland SecurityInvestigations, U.S.
Iciar Rodriguez-Miranda, DirectorGeneral Enterprise, EuropeanCommission
Tom Smith, Head of Export ControlOrganisation, Department for BusinessInnovation & Skills, UK
Jan-Erik Lövgren, Deputy DirectorGeneral, Swedish Inspectorate ofStrategic Products (ISP)
Ramón Muro, Deputy Director forForeign Trade of Defence Materials andDual Use Goods and Technology,Secretariat of State for Trade, Ministryof Economy and Competitiveness,Spain
Dr Walter Werner, Head of Unit, V B 3- Export Control: Defence Goods;Control of Acquisitions, Ministry ofEconomics and Technology, Germany
Meir Shalit, Director of DefenceExport Control, Ministry of Defence,Israel
Fabio Della Piazza, Chair of the EUCouncil Working Party onConventional Arms Exports (COARM),European External Action Service
Lütfi Varoğlu, Head of InternationalCooperation, Under-Secretariat forthe Defence Industry (SSM), Turkey
Theo Peters, Head of Non-Proliferation, Disarmament, ArmsControl and Export Control PolicyDivision, Security Policy Department,Ministry of Foreign Affairs, TheNetherlands
Pietro Maria Paolucci, Legal Adviser,Director General for InternationalTrade Policy (D.G.P.C.), EconomicDevelopment Ministry, Italy
Gary Stanley, President, GlobalLegal Services
Susan Griffiths, Export ControlManager, MBDA
Spencer Chilvers, Head of ExportControl Policy and Civil Nuclear,Rolls-Royce plc
Henrik Petersson, Vice President,Head of Exports Compliance, GroupLegal Affairs, Saab
Ambassador Philip Griffiths, Head ofSecretariat,Wassenaar Arrangement
Matthew Ferguson, Section Head,State Factors Analysis, InternationalAtomic Energy Agency (IAEA)
PLUS TWO ASSOCIATED POST-CONFERENCE WORKSHOPS:WEDNESDAY 3RD OCTOBER 2012
A: Automated Global Complianceand Export Systems
Led by: Thomas Matthew, Director IT & TradeCompliance Services, OCR Services
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B: Asia-Pacific Export Controlsand Trade Strategies
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EU defence sector EU defence sector
14 WorldECR www.worldecr.com
30 June 2012 marks a new stage
for European defence markets.
As of this date, EU Member
States are obliged to apply the new
rules on intra-EU transfers of defence
technology. Three years ago, Directive
2009/43/EC simplifying terms and
conditions of transfers of defence-
related products within the Community
(‘Intra-Community Transfer Directive’
– OJ L 146/1 of 10 June 2009) entered
into force. Now, the new provisions
gain practical importance.
BackgroundTogether with Directive 2009/81/EC
on defence and security procurement
(‘Defence Procurement Directive’ – OJ
L 216/76 of 20 August 2009), the
Intra-Community Transfer Directive
forms the so-called ‘Defence Package’.
Both directives underline the
increasingly important role the EU
intends to play in the regulation of the
defence sector. The Defence Package is
designed to put an end to the
fragmentation of the European defence
market and apply the internal market
rules to this domaine reservé of
Member States, while taking on board
the particularities of the sector.
Although there is still significant
military spending by EU Member
States, there is not yet an EU-wide
strategy for a common procurement
policy and Member States spend most
of their equipment budget
domestically. Moreover, complicated
legal provisions and administrative
proceedings regarding the intra-
Community transfer of defence items
have proven an obstacle for awards to
contractors from other Member States.
The directives aim to facilitate the
transfer of defence goods within the
EU in order to allow more bidders from
other Member States to participate in
procurement procedures abroad. In
principle, the same criteria for the
licensing of intra-Community transfers
of defence items will apply in all 27 EU
Member States as of 30 June 2012. At
the same time, the first public
procurement procedures under the
new rules will take place – public
authorities have been obliged to apply
the Defence Procurement Directive
since last August.
Almost all Member States have by
now fully implemented the respective
national provisions, although the
Commission has initiated proceedings
against some, including Italy and
Romania, for failure to take sufficient
national measures regarding the Intra-
Community Transfer Directive.
Intra-Community TransferDirectiveThe Intra-Community Transfer
Directive simplifies the current
diversity of 27 different national
licensing schemes in the EU for cross-
border transfers of military equipment.
The directive deals neither with
exports out of the EU to third countries
nor does it withdraw the requirement
of a prior authorization in principle.
However, if an exporter established in
one EU Member State obtained such
an authorization he is authorized to
supply to all the other Member States
without restrictions (article 4 (1)).
In order to simplify the
authorization process and to burden
applicants (and authorities) less with
licensing procedures, the Intra-
Community Transfer Directive
provides for a system of ‘general’ and
‘global licences in place of individual
transfer licences. Both types of licence
have already been used by several
Member States. Now the directive
extends these instruments to the
defence sector throughout the EU.
General licencesGeneral transfer licences (article 5) are
published by Member States and allow
domestic companies complying with
the conditions set out in the licence to
transfer the defence item without
individual prior authorization. For
cases specified in the directive,
Member States are even obliged to
publish such general licences. This is
the case for intra-Community transfers
where the recipient is part of the armed
forces; where the transfer is made for
the purposes of demonstration,
evaluation or exhibition; or where the
good is transferred to the originating
supplier for the purpose of
maintenance and repair.
Importantly, there are also general
licences in place if the recipient is an
undertaking holding a certificate
granted to those able to demonstrate
their reliability (article 9 (2)). Such
reliability shall be assessed according
to the ability of an undertaking to
comply with export control law, in
particular by ensuring that senior
management is committed to
implementing an effective internal
compliance programme and to
providing authorities with all required
information on the end use of the
transferred product. These criteria are
set out in more detail in a Commission
recommendation of 11 January 2011
(OJ L 11/62 of 15 January 2011) which
also contains a template for the
certification process.
The European Commission will also
set up a central register of certified
defence undertakings which can be
accessed on the EU’s website. This will
allow potential exporters to quickly
check whether an intended transfer
falls into the scope of a general licence.
National agencies, such as the German
Federal Office of Economics and
Export Control (‘BAFA’), also publish
New rules for intra-EU transfers of defence products
The EU is stepping up its involvement in theregulation of the defence sector with a ‘DefencePackage’ that includes new rules governing theintra-Community transfer of defence technology.Falk Schöning examines the development.
The Defence Package
is designed to put
an end to the
fragmentation of
the European defence
market.
EU defence sector EU defence sector
15 WorldECR www.worldecr.com
Member States and in their ability to
deliver the product and services to
other Member States. Since the Intra-
Community Transfer Directive
provides for a mutual recognition of
transfer licences, tenderers from the
EU should generally be able to
demonstrate such a certification.
The ability of bidders to export the
product to the destination required by
the contracting authority is also
reflected in the award criteria. If the
award of the contract is not based solely
on the lowest price, the authority will
award the contract to the most
economically advantageous tender
(article 47). Amongst the various criteria
which may apply in order to identify the
lists of certified recipients with a
registered seat of business in that
Member State.
Global licencesGlobal transfer licences (article 6) are
not published and applicable to all
exporters. They are granted
individually to undertakings and
require an application. Global licences
authorize the intra-Community
transfer of a large number of products
to one recipient or a certain category of
recipients in one single administrative
act. Thus, applications for global
licences may more often replace
individual authorization procedures
which were the common standard.
A global licence shall be granted for
a period of three years by the authority
of the Member State in which the
supplier is located or from where the
supplier intends to ship the goods.
They may be renewed after that period.
Defence Procurement DirectiveIn the Defence Package, the Intra-
Community Transfer Directive is
accompanied by another directive on
defence procurement. This directive
has applied since August 2011. As a
general concept, the Defence
Procurement Directive adapts the
existing civil public procurement law of
the EU to the specific needs of defence
procurement. However, it enables
greater flexibility for the award process
where there are also several links
between both directives, e.g. in the field
of security of supply where the Europe-
wide recognition of export licences is
relevant. As a result of the new
directive, Member States are expected
to conduct more public procurement
procedures instead of directly
awarding contracts to a bidder.
Scope and procedureThe Defence Procurement Directive
covers all public works and service
contracts for the supply of arms,
munitions and war materials as well as
those for the non-military security
sector. The threshold for such contracts
is EUR 400,000 for works and service
contracts and EUR 5 million for
construction contracts (according to a
recent change by Commission
Regulation (EU) No 1251/2011 of 30
November 2011).
Member States generally need to
publicly tender contracts (including
framework contracts) above this
threshold in non-discriminatory
proceedings which are open at least to
EU/EEA nationals. Although the new
provisions do not contain a European
preference clause, Member States may
nevertheless decide on an individual
basis to exclude bidders from third-
countries except where an
inter-ministerial agreement between
the EU Member State and the third-
country exists; this is the case for
agreements between many EU
Member States and the United States.
The Defence Procurement Directive
provides for three procedures for
contracting authorities to choose from
(article 25): the restricted procedure;
the negotiated procedure with
publicat ion of a contract notice; and
the competitive dialogue for very
complex projects.
In practice, the negotiated
procedure allows a sufficient amount of
flexibility for the contracting authority.
It includes a pre-qualification period
which results in the short-listing of a
minimum of three bidders. These
bidders are invited to negotiate the
contract over several bidding rounds.
The winning bid is identified after the
application of award criteria which are
specified in detail and for which
weightings must be given. The contract
can only be signed after the lapse of a
‘standstill period’ allowing competing
bidders to challenge the award decision.
Interaction with the TransferDirectiveThe new licensing framework under
the the Intra-Community Transfer
Directive is also of relevance for the
procurement procedure. The
contracting authorities may lay down
special conditions relating to the
performance of the contract, amongst
others, regarding its requirements of
security of supply. The authorities may
require that the bid contains a
sufficient certification that the tenderer
will be able to fulfil its obligations
regarding the export, transfer and
transit of goods to be procured (article
23). This provision is deemed to
enhance the trust of contracting
authorities in tenderers from other
In practice, the U.S.
ITAR regulations will
continue to play an
important role for EU
undertakings.
Scope and exceptions
Article 1 (2) of the Intra-Community
Transfer Directive underlines the
fact that the new provisions do not
affect the discretion of Member
States as regards policy on the
export of defence-related products
to countries outside the EU.
Restrictions of exports to non-EU
countries continue to apply.
Therefore, exporters need to
consider both the national laws of
EU Member States when it comes
to exports to third countries as well
as the export control legislation of
such recipient countries. In
practice, the U.S. ITAR regulations
will continue to play an important
role for EU undertakings.
Additionally, Member States
reserve the right to protect the
essential interests of their security
which are connected with the
production of, or trade in, arms
according to article 346 of the
Treaty on the Functioning of the
European Union (‘TFEU’), leaving a
loophole for Member States to
ignore any European legislation
which they consider to interfere too
strongly with their national security
interests.
However, despite these
exceptions, the Intra-Community
Transfer Directive will facilitate the
licensing application process for
undertakings. Although the new
rules do not entirely cut through the
red tape, they make it easier for
exporters to apply for licences as
Member States have to mutually
recognise such licences.
EU defence sector EU defence sector
16 WorldECR www.worldecr.com
most advantageous tender is also
security of supply. Thus, a proven ability
of a bidder as regards export and intra-
Community transfer licences may even
help to win a contract.
Practical impact Both the Intra-Community Transfer
Directive and the Defence Procurement
Directive have ambitious goals, but
opening up closed European defence
markets will not occur overnight.
Although the new provisions on intra-
Community transfers will apply in all
Member States it remains to be seen
whether the suppliers will in fact have
the opportunity to make use of them.
This would require a higher spending
of Member States abroad – in times of
the European currency crisis and of a
decreasing military budget in most EU
countries a rather unlikely scenario.
Moreover, the Defence Procurement
Directive contains several exemptions
from the general obligation to publicly
tender contracts. Among others,
government-to-government (‘G2G’)
contracts, awards according to
international organization rules, e.g.
the OCCAR, or research & development
projects remain outside the scope of the
new Directive. Member States may also
continue to invoke article 346 of the
Treaty on the Functioning of the
European Union (‘TFEU’), in order to
evade any European obligations.
Moving forwardAs contracting authorities are used to
awarding contracts directly to preferred
suppliers it may take some time – and
probably legal action under the review
procedure (article 55 et seq.) – before
the new provisions are applied as a
matter of course. However, the Court of
Justice of the European Union only
recently narrowed the scope of
application of article 346 TFEU in a
reference for a preliminary ruling under
article 267 TFEU (judgment of 7 June
2012, case C-615/10 – InsTiimi).
Nevertheless, the ease of the EU
licensing requirements according to the
Intra-Community Transfer Directive
will be welcomed by many businesses
throughout Europe. Once the same can
be said for the effective implementation
of the Defence Procurement Directive
in practice, the interaction between
both directives will be even more
important since successful contractors
may rely on an efficient Europe-wide
recognition of transfer licences.
Falk Schöning is a seniorassociate at Hogan Lovells’Berlin office where his practiceinvolves export control, antitrustand public procurement mattersbefore various German and EUagencies and courts, with a focuson the defence industry.
The ease of the EU
licensing requirements
according to the
Intra-Community
Transfer Directive will
be welcomed by
many businesses
throughout Europe.
Visit www.LearnExportCompliance.com/schedule or call +1 540 433 3977 (USA) for details or registration.
“US Export Controls on Non-US Transactions” seminars in two locations Fall 2012:
Persons and Items Subject to US Jurisdiction (ITAR & EAR) US De Minimis Content Calculation US Defense Trade Controls Technical Data Considerations Enforcment Issues , Practical Advice...and MUCH MORE
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DUBAI UAE 17-20 SEPTEMBER, 2012
AMSTERDAM THE NETHERLANDS 29 OCTOBER - 1 NOVEMBER, 2012
Missile Technology Control Regime Missile Technology Control Regime
17 WorldECR www.worldecr.com
Of the the handful of
international export control
regimes related to the trade of
materials, equipment and technology
with potential weapons of mass
destruction (‘WMD’) uses, the Missile
Technology Control Regime (‘MTCR’)
is growing in importance vis-a-vis
current proliferation threats. In the
context of recent events coinciding
with the regime’s 25th year of
operation – including, notably, ballistic
missile tests by India, North Korea and
Pakistan – it is useful to look back at
what the MTCR has accomplished,
what obstacles it still needs to
overcome, and what future role it will
play in the broader scope of WMD non-
proliferation. This article presents the
major developments and issues facing
the MTCR, with a particular emphasis
on the role and responsibility of
exporters in maintaining the efficacy of
the regime.
What is the Missile TechnologyControl Regime?The MTCR was formed in 1987 by
seven countries – Canada, France,
Germany, Italy, Japan, the United
Kingdom and the United States – in
response to mounting concern about
the spread of missiles capable of
carrying out chemical, biological or
nuclear attacks. At the time, these
nations were primarily disquieted by
the potential proliferation of long-
range delivery systems and sought to
use the regime to control mainly
ballistic missile technologies. Since
then, the regime’s principal objective
has been to ‘restrict the proliferation of
missiles, complete rocket systems,
unmanned air vehicles, and related
technology for those systems capable of
carrying a 500-kilogram payload at
least 300 kilometres, as well as systems
intended for the delivery of weapons of
mass destruction.’1 Put simply, MTCR
members – of which there were 34 as
of early 2012 – agree to abide by
regime guidelines, which are then
implemented nationally regarding the
export of items on a control list. This
activity is critical to worldwide non-
proliferation efforts because it stems
the spread of unmanned delivery
vehicles of WMD: that is, the ‘weapon’
aspect of a nuclear, chemical, or
biological weapon.
The regime rests upon adherence to
the MTCR Equipment, Software and
Technology Annex (‘the Annex’), which
functions as a control list for exporters.
Like the guidelines of other export
control regimes, those of the MTCR are
not legally binding; rather, member
states have a responsibility to legislate
and enforce the guidelines in their
respective domestic systems. In
addition, many MTCR non-member
countries aim to abide by the
guidelines in order to contribute to a
norm of international behaviour
regarding the trade of military and
dual-use items related to delivery
systems. The Annex defines two
categories of items to which different
export rules apply: Category I goods, to
which the strictest restrictions apply,
include complete rocket systems;
unmanned air vehicle systems capable
of delivering a payload of at least
500kg to a range of at least 300km;
production facilities for such systems;
and major sub-systems. Category II
goods, to which less stringent
restrictions apply (the regime uses the
phrase ‘greater flexibility’), include
complete rocket systems and
unmanned air vehicles not covered by
Category I items capable of a
maximum range greater than or equal
to 300km. The second category also
includes additional goods for uses
other than those directly related to
WMD-capable missiles. A catch-all
clause added to the Annex in 2003
provides the legal foundation for the
control of items not specifically listed
in the Annex but which nevertheless
appear destined to contribute to the
proliferation of unmanned delivery
systems.
Apart from publishing and updating
the Annex, the MTCR holds annual
plenaries, inter-sessional consult -
ations, and technical experts meetings
in order to promote the exchange of
information, address the concerns of
member states, make decisions, and
review and update the control list. The
regime also coordinates outreach and
dialogue activities in various regions of
the world in order to promote the
mission of the organization and
facilitate the implementation of export
controls related to missile technology.
Accomplishments in 25 yearsThe rapid pace of technological
development and globalization has
presented the MTCR with significant
challenges in implementing its
objectives since its inception.
Nevertheless, the organization can
claim several significant accomplish -
ments, namely in stemming the
proliferation of intercontinental
ballistic missiles (‘ICBMs’) and
promoting global export control
norms.
On the issue of proliferation, the
The Missile Technology ControlRegime 25 years on
The Missile Technology Control Regime is 25years old. Dr. Andrea Viski reviews itsaccomplishments and setbacks to date andexamines the role exporters can play inworldwide WMD non-proliferation efforts.
The MTCR was formed in 1987
by seven countries in response to
mounting concern about the
spread of missiles capable of
carrying out chemical, biological
or nuclear attacks.
Missile Technology Control Regime Missile Technology Control Regime
18 WorldECR www.worldecr.com
can be used to deliver nuclear
weapons.’6 However, China has sold
missile components and technology to
countries such as Iran, Iraq, Libya,
North Korea, Pakistan and Saudi
Arabia.7 In 2008 the United States, as
part of the U.S.-India Civil Nuclear
Cooperation Agreement, permitted
India to purchase missile interceptor
systems restricted by the MTCR’s
Annex I in exchange for placing its
civilian nuclear facilities under
international monitoring, setting a
troubling precedent for future
worldwide trends for the sale of Annex
I goods.8 While the examples presented
here reflect just some of the issues with
state practice in dispute with MTCR
rules, they exemplify the problems
associated with informal rules when
their implementation is overshadowed
by strategic and economic factors. The
regime guidelines do not contain
enforcement procedures for use in such
cases; countries therefore face political
rather than legal sanctions.
A second recurring dilemma facing
the MTCR is the fast pace of technology
and the associated new options for the
potential delivery of WMD. The regime,
while successfully precluding the spread
of ICBMs in several cases, has not been
able to effectively hinder the
proliferation of short-range and
intermediate-range ballistic missiles
(‘SRBMs’ and ‘IRBMs’). More
importantly, the Annex focuses
predominantly on ballistic missile
technology and supplies, creating a
situation whereby countries seeking
unmanned delivery systems have opted
for alternatives that are easier to acquire
and finance, such as cruise missiles and
other types of unmanned aerial vehicle
(‘UAV’). The regime initially focused on
ballistic missiles because such missiles
were linked to nuclear weapons
delivery, which was the main concern
over biological or chemical weapons,
and which require shorter-range
delivery systems. Addition ally, regime
members erron eou sly believed that
cruise missiles and UAV technology
would be too sophisticated for non-
members to acquire.
When an increasing number of
countries successfully developed such
technologies, the MTCR found itself in
a context to which its control list no
longer really applied – namely, one in
which cruise missiles and UAVs could
serve similar strategic ends as ballistic
missiles, and yet be much easier to
obtain. While some changes have been
MTCR has played an important role in
precluding states from acquiring or
moving forward with ballistic missile
programmes. States that have
abandoned their programmes due to
MTCR engagement include Argentina,
Brazil, Egypt, South Africa, South
Korea and Taiwan, to name a few.2 In
each of these countries, MTCR
restrictions delayed their ability to
build or expand their programmes,
allowing political factors to influence
non-proliferation objectives. These
success stories exemplify the broader
role of supply-side export controls in
complementing other non-
proliferation tools by making it more
difficult, costly and time-consuming for
countries to pursue WMD-related
activities. In addition, the MTCR
played a part in the decision of former
Eastern bloc countries to destroy
Soviet-era Scud missile inventories
following the breakup of the former
Soviet Union.3 These examples must be
qualified, however, by recent events,
particularly the unveiling of Indian,
North Korean and Pakistani ICBMs in
early 2012.
While the MTCR performs an
instrumental export control function in
terms of delineating controlled items in
its Annex, it has also taken active steps
to create norms in order to enhance
global compliance with regime
standards. In November 2002, a total
of 93 countries signed the International
Code of Conduct against Ballistic
Missile Proliferation (also known as the
Hague Code of Conduct), a document
ostensibly linked to the MTCR. The
code provides for increased
transparency and confidence-building
measures related to the ballistic missile
and space launch policies of signatory
states, including declarations regarding
test sites; quantities; and advance
notice of launches. The code also calls
on states to exercise ‘maximum
possible restraint in the development,
testing, and deployment of ballistic
missiles.’4 Because the regime aims to
render the code ‘universally accepted’,
this initiative is an accomplishment in
terms of building international custom
related to the trade of WMD means of
delivery.
In sum, the MTCR has succeeded in
meeting its non-proliferation
objectives in two principal areas. First,
export controls on annexed items have
contributed to controlling the spread of
ballistic missiles. Second, the MTCR
has achieved the adoption of a global
code of conduct regarding ballistic
missile non-proliferation, particularly
in terms of creating a forum for
promoting communication and
cooperation among countries
regarding norms of practice.
Recurring issuesWhile the MTCR has played an
important non-proliferation role, it
also faces several recurring issues that
hamper its effectiveness. The first is
germane to all international export
control regimes and concerns their
informal, voluntary nature and lack of
status in international treaty law. More
specifically, MTCR guidelines are not
binding on regime members and
therefore transgressions are only
punishable by political or economic
means – rather than formal, legal
penalties – usually in the form of trade
or aid sanctions. This informal quality
also means that the regime is only as
effective as the consistency and
commitment with which its members
implement their obligations in their
national jurisprudence, enforcement
procedures and state practice.
Since the MTCR’s inception, many
of its members have indeed engaged in
practices in contravention of their
commitments under the regime. For
example, Russia has been implicated in
supplying missile technology and
supplies to Iran, North Korea and
others.5 China, which has sought
MTCR membership since the early
2000s, has pledged that it will
generally abide by MTCR standards,
and not assist any country ‘in the
development of ballistic missiles that
The MTCR played a part in the
decision of former Eastern bloc
countries to destroy Soviet-era
Scud missile inventories following
the breakup of the former
Soviet Union.
Missile Technology Control Regime Missile Technology Control Regime
19 WorldECR www.worldecr.com
In the U.S., the Department of
Commerce is responsible for
administering controls on
manufacturing equipment for Category
I items, and all dual-use items in
Category II. Licensing requirements
and policies regarding controls for
missile technology are delineated in
sections 742.5 and 744.3 of the Export
Administration Regulations. While the
baseline for exporters is to be aware of
the necessary requirements, they must
also keep in mind the U.S. secretary of
commerce’s specific policy
considerations regarding industry
behaviour. These considerations are
not necessarily specific to the U.S. and
therefore constitute a helpful model for
other countries that seek to comply
with MTCR guidelines.12 The U.S.
Department of Commerce takes into
consideration the probability that
exports will achieve their intended
foreign policy purpose; the
compatibility of the exports with
foreign policy objectives; the potential
reaction of other countries to the
exports; the economic impact of the
exports on industry; and the
effectiveness of enforcement
procedures in the case of illegal
exports.
While public-private outreach is
critical for ensuring that exporters
remain aware and up to date on missile
technology export controls, industry
must be an active participant in
shaping the future of the MTCR
regime. This means being aware, being
informed, and being responsible when
weighing the effect of a potential
export. Due to the fact that state
practice rests on the decisions made by
each and every company that trades in
controlled goods and technologies,
exporters must take into consideration
the ways in which their individual
choices can affect the ability of the
international community to achieve a
WMD-free world.
them. The Hague Code of Conduct and
the outreach and dialogue activities
begun by the MTCR in 1996 have
helped to promote international rather
than member-only norms regarding
the trade in missile technology. The
MTCR has also updated its control list
to account for cruise missile goods and
technology to a greater degree,
although sales of these goods,
including sales by MTCR members to
non-members, continue.11 In order to
meet future challenges and keep pace
with changing trends, the MTCR must
work on strengthening state practice in
line with regime guidelines.
The future of the MissileTechnology Control Regime One important way in which to ensure
that the MTCR remains capable and
strong enough to address future
proliferation issues is through industry
awareness of the role of export control
rules in meeting the broader objective
of preventing the spread of WMD.
Because legal responsibility for
infraction ultimately lies with
exporting companies, it is crucial for
exporters to institute a comprehensive
internal procedure for the responsible
export of affected goods. This includes
thorough internal awareness of the
control list, effective end-user controls
and modern risk-management
systems. It further necessitates keeping
up to date with the changing ways in
which exports take place, such as the
increasing importance of controlling
intangible transfers of technology.
made to the control list to reflect the
spread of non-ballistic technology,
many countries oppose more
substantial restrictions because their
companies are already used to a rather
unregulated market.9 In the U.S.,
industry has lobbied for the relaxing of
restrictions on export controls on
drones – another example of a
technology that is becoming an ever
more substantial issue for the MTCR.
The dilemma, at least for the time
being, reflects the difficult intersection
between keeping up with changing
proliferation trends and protecting
trade and market competitiveness.
A third issue for the MTCR regime,
and one which also applies to related
export control regimes such as the
Nuclear Suppliers Group, is that it is
perceived by some countries as an
exclusive group that divides the world
into ‘haves’ and ‘have-nots’, with the
former acting as a cartel to maintain its
monopoly over lucrative and
strategically important technology. In
fact, some non-members’ pursuit of
missile programmes has been
motivated by the weakness of the
regime’s legitimacy and its monopoly
over sensitive technology. For example,
India has justified its own programme
by stating that it ‘reduces the
vulnerability of major programs
[missiles] … from various
embargoes/denial regimes, instituted
by advanced countries.’10
While these issues raise questions
regarding the MTCR’s effectiveness,
the regime has taken steps to address
Links and notes
1 For more information on the MTCR, see <http://www.mtcr.info/english/objectives.html>. 2 ‘The MTCR: Staying relevant 25 years on’, International Institute for Strategic Studies, IISS Strategic
Comments, Vol. 18, Comment 6, February 2012.3 Mistry, Dinshaw. ‘Beyond the MTCR’, International Security, Vol. 27, No. 4, Spring 2003.4 For the full text of the Hague Code Of Conduct Against Ballistic Missile Proliferation, see
<http://www.hcoc.at/#>. 5 Gormley, D. M., ‘Missile Contagion: Cruise Missile Proliferation and the Threat to International
Security’ (Praeger Security International: Westport, CT, 2008).6 People’s Republic of China Foreign Ministry spokesperson’s statement, Beijing, 21 November 2000. 7 Rasmussen, N., ‘China missile technology control: regime or no regime?’, Danish Institute for
Strategic Studies Brief, February 2007,
<http://www.diis.dk/graphics/publications/briefs2007/nra_chinese_missile_technology_control.pdf.8 Gormley, D. and Scheinman, L., ‘Implications of proposed India-US civil nuclear cooperation’, Nuclear
Threat Initiative Brief, 1 July 2005. It should be noted that the missile interceptor system purchased
by India would be supplied by Israel, which originally received the system from the U.S., also in
contravention of Annex I MTCR restrictions.9 International Institute for Strategic Studies (note 3).10 Sighu, W., ‘Looking back: the Missile Technology Control Regime’, Arms Control Association Brief, April
2007.11 Lewis, J., ‘Storm Shadow, Saudi and the MTCR’, Arms Control Wonk, 31 May 2011,
<http://lewis.armscontrolwonk.com/archive/4051/saudi-arabia-storm-shadow-the-mtcr>.12 US Department of Commerce, Bureau of Industry and Security, ‘Missile Technology Controls: Chapter
8’, <http://www.bis.doc.gov/news/2007/foreignpolicyreport/fprchap08_mctr.html>.
Dr. Andrea Viski is a researcherat the Stockholm InternationalPeace Research Institute (SIPRI),Dual-Use and Arms TradeControl/Non-proliferation,Disarmament and Arms ControlProgrammes.
20 WorldECR www.worldecr.com
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21 WorldECR www.worldecr.com
The U.S. Department of the
Treasury’s Office of Foreign
Assets Control (‘OFAC’) is a small
agency with a very broad mandate. Its
approximately 165 employees
administer between 20 and 30
sanctions programmes imposing the
duty of compliance on all U.S. persons
– including insurers, reinsurers and
brokers.1 Where U.S. businesses cross
borders, non-U.S. entities also
increasingly must be conscious of
OFAC compliance obligations – if only
to ensure business transactions are
processed without preventable
complications. Contained within this
article is: (1) a summary of some of the
more common OFAC touch-points for
non-U.S. reinsurers; (2) a summary of
recent OFAC enforcement actions for
the industry; (3) a discussion of general
compliance hurdles for the industry;
and (4) tips for developing a risk-based
compliance programme.
OFAC touch-points for non-U.S.reinsurersAlthough many U.S.-based reinsurers
understand that they are subject to
OFAC’s regulations, most non-U.S.
based reinsurers could benefit from a
focus on OFAC’s regulations where the
reinsurer is engaged in a transaction
with an OFAC touch-point. OFAC
touch-points can occur where a
transaction is denominated in U.S.
dollars, where the reinsurer avails itself
of U.S.-based services, or where the
transaction involves a U.S. person.
Addressed below are some of the more
common OFAC touch-points for the
non-U.S. reinsurer.
U.S.-dollar denominatedtransactionsPerhaps the most common instance in
which an otherwise ‘foreign-to-foreign’
transaction comes within OFAC’s
jurisdiction is when a claim or
premium payment is denominated in
U.S. dollars. Because almost all U.S.
dollar-denominated transactions
transiting the traditional financial
system still clear through a U.S.
financial institution, an otherwise non-
U.S. transaction comes within OFAC’s
jurisdiction when the payment is
processed through a U.S.
correspondent bank. As a U.S. person,
the U.S. correspondent bank will
screen the transaction for a sanctioned
party nexus (i.e., beneficiary, remitter,
and corresponding financial
institutions are screened against the
OFAC SDN (specially designated
national) list and other lists; locations
are screened against OFAC’s country-
based programmes). Where such a
nexus is identified, the correspondent
bank will, as appropriate, block or
reject the transaction and file a report
with OFAC. For example, if a non-U.S.
reinsurer is processing a U.S. dollar-
denominated premium payment for
facultative reinsurance which includes
liability for Sudanese-owned vessels,
when the reinsurer initiates a payment
to the cedent, the reinsurer’s financial
institution will remit the payment
through its U.S. correspondent bank
for the benefit of the cedent’s financial
institution. If the correspondent bank
can identify the Sudanese entity in the
underlying transaction, the U.S.
correspondent bank is responsible for
rejecting the transaction and filing a
report with OFAC. If the Sudanese
entity is a SDN or the government of
Sudan, the bank will block the payment
and file a blocking report with OFAC.
In these scenarios where a non-U.S.
reinsurer is processing a U.S. dollar-
denominated transaction involving an
OFAC-sanctioned party, the reinsurer
risks that the premium payment will
not be processed into the reinsurer’s
account. There is also some risk that
the reinsurer, although not a U.S.
person, may be subject to an OFAC
penalty of an amount not to exceed the
greater of $250,000 or twice the value
of the transaction that is the basis of
the violation. While OFAC typically
only pursues an enforcement action
targeting a non-U.S. person where the
non-U.S. person has engaged in
activity intentionally designed to mask
the sanctioned party’s identity so U.S.
parties will process the transaction, the
decision whether to pursue an
enforcement action remains with the
agency and/or the Department of
Justice.
The recent line of banking cases
exemplifies this aggressive approach to
enforcement.2 In each of those cases, a
non-U.S. office of the financial
institution developed procedures
through which to strip the identity of a
U.S.-sanctioned party so that the
transactions could be processed
through the U.S. correspondent banks
without the U.S. banks’ knowledge.
U.S.-based serviceThe non-U.S.-based reinsurer also may
inadvertently come within OFAC’s
jurisdiction if the entity is using a U.S.-
based service including, for example, a
call centre or help-desk, a compliance
office, or is storing its disaster recovery
materials in the United States.
Call centre: It is often the case that an
insurer offering employee medical
benefits will maintain call centre
capabilities with 24-hour coverage. To
meet the needs of a worldwide
OFAC and the reinsurance industry
‘Where U.S. businesses cross borders, non-U.S. entities also increasingly must beconscious of OFAC compliance obligations.’ So says Cari Stinebower in thisspecial focus on the global reinsurance industry, summarizing common OFACtouch-points, recent OFAC enforcement actions, and offering advice on how bestto develop a risk-based compliance programme.
Where a non-U.S.
reinsurer is processing
a U.S. dollar-
denominated
transaction involving
an OFAC-sanctioned
party, the reinsurer
risks that the premium
payment will not be
processed into the
reinsurer’s account.
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22 WorldECR www.worldecr.com
third-country, if one of the reinsurers
is a U.S. person, the U.S. reinsurer
cannot provide cover and the
remaining reinsurers may be,
depending on the terms of the contract,
responsible for picking up the risk.
Where the broker is the U.S. person, it
may be necessary for the broker to seek
specific authorization from OFAC
before proceeding with settling the
claim. No such authorization is
guaranteed. In some cases,
authorization from OFAC has been
granted only after litigation for breach
of contract has ensued. As discussed
later in this article, OFAC expects that
U.S. persons will have built in sufficient
protections at the onset of a
relationship so that the U.S. person can
extricate itself in the event that
exposure to a sanctioned party arises.
Original insured is a U.S. personWhere the original insured is a U.S.
employee base, this often means
staffing a call centre in the United
States. If a covered employee seeks
evacuation services from a sanctioned
country and the U.S. call centre is
contacted to arrange for such services,
the otherwise non-U.S. insurance
coverage comes within OFAC’s
jurisdiction. Reinsurance for the same
service conceivably also would be
within U.S. jurisdiction. While this type
of emergency service is of the type the
agency may license on an expedited
basis, it is not the type of service that
likely would receive advance
authorization from OFAC. It remains
within OFAC’s discretion whether to
pursue an enforcement action against
the reinsurer or insurer in these cases.
Compliance desk: As with the call
centre example, many reinsurers
maintain compliance offices in
multiple jurisdictions to service
underwriters wherever located. If a
compliance function is hosted in the
United States and is designed to
address questions posed from non-U.S.
offices, the compliance officers will
have to be trained to recognize and
recuse themselves from foreign-to-
foreign transactions containing a U.S.
sanctioned-party element. If the
compliance officer were to approve the
transaction, the compliance officer
could be engaged in prohibited
facilitation of a transaction.
Disaster recovery centre/back-upservers: If the reinsurer maintains
disaster-recovery capabilities in the
United States, the disaster recovery
centre in the United States also is
subject to OFAC’s jurisdiction. A strong
argument can be made that non-U.S.
originating and terminating
transactions that (1) involve no U.S.
persons, services or products and (2)
merely flow through or are stored on
the U.S. server are exempt from the
prohibitions in most of OFAC’s
sanctions programmes3 because they
are covered by the Berman
Amendment to the International
Emergency Economic Powers Act and
the Trading With the Enemy Act.4
Nonetheless, the data may be subject to
OFAC’s subpoena authorities.
Cedent, other reinsurer orbroker is a U.S. entityWhen covering risk outside the United
States, a non-U.S. reinsurer may find
OFAC jurisdiction to be present if
another party to the coverage is a U.S.
person. This can occur where the
cedent, other reinsurer or broker to the
coverage is a branch of a U.S. entity or,
in the Cuba context, where any of the
above is a foreign subsidiary of a U.S.
entity. Where a U.S. element is present
and where an OFAC-sanctioned party
is present, the non-U.S. reinsurer may
be asked to cover additional risk or
work with the U.S. parties in advance
of entering into a contract to remove
them from engaging in prohibited
transactions. OFAC has accepted the
recusal process, at least informally, as
a means through which to allow U.S.
persons employed by non-U.S. entities
to navigate often complex business
environments.
For example, if a non-U.S. broker
arranges for four reinsurers to provide
aviation cover and a claim is made
where a European craft damages a
Sudanese airline at an airport in a
In 2011, OFAC published five notices of
civil penalties relating to the (re)insurance
industry (see ‘The cases’ below). The fines
ranged from $22,500 to $122,408. In
each instance, the entity subject to the
fines cooperated with OFAC, instituted
remedial measures, and OFAC deemed the
activity non-egregious. Four of the five
penalties involved coverage relating to Iran
(the fifth involved Cuba); two of the five
entities were brokers; one of the penalty
cases involved the activities of a foreign
subsidiary; two of the cases involved
reinsurance and three involved insurance.
The lessons from these cases are
threefold: (1) Iran remains OFAC’s focus;
(2) OFAC generally will pursue first the U.S.
person for non-egregious sanctions
violations; and (3) OFAC’s focus on the
industry continues to grow.
The cases
According to OFAC’s Civil Penalty Notice
(29 June 2011), GenRe agreed to a
$59,130 penalty for the provision of
reinsurance claim payments to a cedent
relating to losses arising from vessel
operations of the National Iranian Tanker
Company.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/062
92011.pdf.
According to OFAC’s Civil Penalty Notice
(26 April 2011), HCC Insurance Holdings
agreed to a $38,448 penalty relating to its
foreign subsidiary’s participation in the
hull portion of a hull and aviation liability
insurance placement relating to coverage
for a non-U.S. owned commercial airline
that leased aircraft to an air charter
company with operations in Iran.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/042
62011.pdf.
According to OFAC’s Civil Penalty Notice (7
April 2011), McGriff, Seibels & Williams
agreed to a $122,408 penalty relating to
the placement of commercial multiple peril
policies to cover a submersible oil rig in
Iranian waters.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/040
72011.pdf.
According to OFAC’s Civil Penalty Notice
(31 January 2011), Aon International
Energy agreed to a $36,000 penalty for
the placement of coverage and payment of
premiums for facultative retrocession of
reinsurance associated with a petroleum
project on Kharg Island.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/020
12011.pdf.
According to OFAC’s Civil Penalty Notice (7
April 2011), MetLife agreed to a $22,500
penalty relating to the remittance of a
$30,162 check for death benefit payments
mailed directly to the beneficiary in Cuba.
http://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/040
72011.pdf.
Recent enforcement actions
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23 WorldECR www.worldecr.com
each of the original insureds. Second,
U.S. reinsurers operating in the
European Union, Canada and Mexico,
among other jurisdictions, are often
faced with an obligation to comply with
the Cuban Assets Control Regulations
(‘CACR’) and the local blocking or
‘antidote’ statute prohibiting
compliance with the same set of
regulations (see box ‘Blocking
statutes’). Third, even where a
reinsurer is willing and able to screen
data provided by a cedent for
compliance with OFAC’s sanctions
regulations, the data is often
unstructured or not sufficient to de-
conflict potential matches to OFAC’s
SDN list.
Complying with OFAC’ssanctions regulationsPerhaps a core problem for U.S.
reinsurers is OFAC’s prohibition on
engaging in a transaction in which a
sanctioned party maintains a property
interest. Property interest is defined
broadly to include any property, real,
personal, or mixed, tangible or
intangible, or interest or interests
therein, present, future or contingent.
(See e.g., 31 C.F.R. §594.309.)
It has been argued that, because the
reinsurer is in privity of contract only
with the cedent and will not always
have access to information relating to
the original insured, (1) the reinsurer’s
obligation is to ensure that the cedent
is not a sanctioned party and (2) it is
the cedent’s responsibility to ensure
the original insured is not a sanctioned
party. OFAC informally has disagreed
with this analysis, asserting that the
original insured maintains an interest,
present, future or contingent in the
contract between the reinsurer and the
cedent. As a result, the U.S. reinsurer is
equally responsible for ensuring the
reinsurance contract and the primary
insurance contract are consistent with
OFAC’s regulations.
OFAC has suggested that a reinsurer
can implement compliance procedures
by, for example, instituting global
sanctions exclusions clauses in
contracts with cedents. While this
option is increasingly possible for U.S.
reinsurers operating on the global
market when complying with the
sanctions targeting global terrorists,
those engaged in the proliferation of
weapons of mass destruction and the
government of Iran, it remains
problematic (as addressed in the next
section) for sanctions targeting the
WorldECR, May 2012) – all of which
provide enforcement authorities to
pursue activities of non-U.S. persons
assisting Iran (and Syria) in various
activities. In addition, CISADA’s
amendments to the ISA and recent
legislation working its way through the
Hill contain specific provisions
regarding insurance services to Iranian
sanction targets. For example, HR
1905, passed by voice vote in the
Senate on 21 May 2012, calls on the
President to block the property of any
person who knowingly provides
(re)insurance on goods that could
materially contribute to activities of the
government of Iran with regard to
weapons of mass destruction or
terrorism. Sanctions can extend to any
successor entity; any person who owns
or controls the (re)insurance company;
or is under ownership or control with
the (re)insurance company.
Particular compliance hurdlesfor reinsurersIt is clear that U.S. reinsurers (i.e.,
those located in the United States or
those reinsurers that are foreign
branches of U.S. reinsurers) must
comply with OFAC’s sanctions
regulations. Non-U.S. reinsurers with a
U.S. nexus also must take into account
OFAC’s jurisdiction to ensure that
business proceeds. Nonetheless, U.S.
reinsurers operating in the global
market and non-U.S. reinsurers
providing services with a U.S. nexus
often face significant compliance
hurdles. First, and perhaps most
importantly, it is often difficult, if not
impossible, for the reinsurer –
particularly where treaty reinsurance is
involved – to know the identities of
person, non-U.S. reinsurers find the
coverage for those U.S. persons (i.e., an
export of a service to a U.S. person)
within OFAC’s jurisdiction – issue
spotting is important to ensure that
potentially problematic transactions
are identified before they are
processed. Nonetheless, OFAC’s focus
for any enforcement action likely will
remain with the U.S. person unless the
non-U.S. parties have engaged in
attempts to evade or avoid U.S.
sanctions. OFAC remains keenly
focused on non-U.S. parties seeking to
evade U.S. (and United Nations)
sanctions targeting the governments of
Iran and Syria. One need only look at
the recent amendments to the Iran
Sanctions Act; section 1245 of the
National Defense Authorization Act of
2012 which sanctioned the Central
Bank of Iran (‘CBI’) and the Iranian
financial sector and authorized the
imposition of sanctions on foreign
financial institutions engaged in
certain transactions with the CBI; and
the most recent ‘GHRAVITY’ executive
orders designed to tackle human rights
abuses by the governments of Iran and
Syria via information technology (see
Links and notes1 OFAC’s sanctions programmes are at: http://www.treasury.gov/about/organizational-
structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx.
‘U.S. person’ is defined under most OFAC sanctions programmes as any United States citizen,
permanent resident alien, entity organized under the laws of the United States (including foreign
branches), or any person in the United States. 31 C.F.R. 560.314. In the Cuban Assets Control
Regulations, 31 C.F.R. Part 515, OFAC also asserts jurisdiction over foreign subsidiaries of U.S.
entities.
2 On 12 June OFAC announced a US$619m with ING Bank. See News this issue.,
See also ABN AMRO Order of Assessment of a Civil Monetary Penalty and Monetary Payment (19
December 2005) available at http://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Documents/amrocmp.pdf.
See also OFAC’s Notice of Civil Penalty, Credit Suisse, available at http://www.treasury.gov/resource-
center/sanctions/OFAC-Enforcement/Documents/12162009_a.pdf.
3 Programmes not promulgated pursuant to the International Emergency Economic Powers Act or the
Trading with the Enemy Act do not contain the same exemptions.
4 The Berman Amendment bars from regulation the exchange of communications or information. See
50 U.S.C. § 1702 and 50 U.S.C. App. § 5(b)(1). OFAC nonetheless has narrowed the scope of the
exemption by requiring that the information be pre-existing.
OFAC has suggested
that a reinsurer can
implement compliance
procedures by, for
example, instituting
global sanctions
exclusions clauses in
contracts with cedents.
Reinsurance Reinsurance
24 WorldECR www.worldecr.com
government of Cuba. For example, as a
result of U.S. and EU sanctions
targeting Iran, very few global
(re)insurers provide coverage where
there is a risk that an Iranian vessel or
a vessel carrying Iranian crude or
petrochemicals may be involved. To
illustrate, Lloyds Register, a leading
maritime risk-management firm, has
shut its operations in Iran in response
to U.S. and EU sanctions. Additionally,
as a result of the EU sanctions targeting
Iran’s petrochemical sector, there is a
shortage of (re)insurers capable or
willing to provide coverage for ships
operating in that market.
Sanctions screeningA U.S. reinsurer (or a reinsurer
processing a transaction within OFAC’s
jurisdiction) is expected to screen
against the SDN list premium and
claims payments to ensure that no funds
are flowing to or from a sanctioned
party. This step also is practical because
any financial institutions involved in
processing the payments will most
certainly be screening against the SDN
list if the payment is denominated in
U.S. dollars or otherwise involves a U.S.
person. U.S. reinsurers (and, where
appropriate, non-U.S. reinsurers) also
should screen cedents, brokers and
other identified parties against the SDN
list.
The difficulty in screening arises
with treaty reinsurance where a cedent
will often receive a bordereaux or other
data relating to the insured’s – but it
will either be in an unstructured and
difficult-to-screen format or will not
contain sufficient identifying
information (first and last name,
address, date of birth, nationality,
passport or tax identification number)
to de-conflict a potential match to
OFAC’s SDN list. For example, if a
reinsurer were to screen data in a
bordereaux containing ‘Jose Gonzalez’,
the reinsurer would find six matches on
the SDN list. Without other identifying
information, the reinsurer cannot rule
out that an SDN is a party to the
underlying coverage. If the reinsurer
has screened the data and identified a
potential match but has no other
identifying information, it is difficult to
say that screening appropriately
mitigates a risk. While OFAC and more
traditional financial institutions have
come to rely heavily on OFAC
screening, it is merely one available
compliance tool – and may not be best
suited for treaty reinsurance.
General compliance obligationsAs addressed above, while screening is
a compliance tool, other tools are
available, including sanctions
exclusions clauses and appropriate
training for underwriters, agents and
brokers. If there is potential for
exposure to blocking statutes, the U.S.
party should be prepared to instruct
the party in the blocking statute’s
jurisdiction to comply with the CACR
and should be prepared for the
appropriate response. In particularly
sensitive scenarios, it also may be
appropriate to engage relevant officials
from the blocking jurisdiction and from
within Treasury and State to address
potential solutions before the matter is
escalated to an enforcement action or
plays itself out in the press. Finally,
given the complexity of the reinsurance
industry and the numerous scenarios
for potential sanctions exposure that
often arise unexpectedly, it often helps
to engage in open discussions within
the industry and to include OFAC when
addressing potential compliance
solutions.
A non-U.S. reinsurer also should
conduct an OFAC risk assessment to
determine potential for exposure to an
(1) OFAC-touch point and (2) OFAC-
sanctioned party. It may be appropriate
to focus the risk analysis to identify
higher risk coverage. Given OFAC’s
focus on Iran and the issues addressed
above, the following coverage should
be identified as higher risk:
l Oil and gas, petrochemicals
l Aviation
l Maritime
l Political risk
l International group life policies
l Premiums and claims reported on a
bulk report.
Where a non-U.S. reinsurer
employs U.S. nationals, the U.S.
nationals should be subject to a formal
recusal policy. Where transactions are
denominated in U.S. dollars, the
transactions should be screened before
the payment is remitted or received.
Where a reinsurer uses U.S. services
(including a compliance desk), it may
be helpful to screen the transactions for
a potential OFAC-sanctioned party
nexus before using the service. Perhaps
most important, relevant employees
(underwriters, accounts payable/
receivable, agents) should be trained to
identify OFAC touch-points and OFAC-
sanctioned parties. Finally, as part of
the training, the reinsurer should
maintain a clear formal escalation
procedure outside of the United States
to address potential sanctions issues.
The U.S. and non-U.S. reinsurer
also should document the risk
assessment and steps taken to mitigate
identified risks. Documents relating to
OFAC compliance should be
maintained for at least five years. These
documents include training materials,
screening results, and transactions
with a U.S. nexus. Finally, written
procedures for compliance should be
approved by management and
available to relevant employees.
Cari N. Stinebower is counsel inCrowell & Moring’s internationaltrade practice group in the firm’sWashington, D.C. office.
In response to the extraterritorial
jurisdiction of OFAC’s Cuba sanctions
programme, the European Union and
Canada, among others, have instituted
blocking or antidote laws that prohibit
nationals as well as companies
established in these countries (including
subsidiaries of U.S. entities) from
complying with the extraterritorial
components of the CACR and its
underlying statutes. (See EU Regulation
271/96 (22 Nov 1996) and the Foreign
Extraterritorial Measures Act of 1992.)
As a result, a reinsurer operating in
multiple jurisdictions may find that it is
required to reject coverage under U.S.
law and prohibited from doing so under
local law. For example, a U.K. subsidiary
of a U.S.-based reinsurer should expect
instructions from its parent to comply
with applicable U.S. laws and
regulations. Under U.K. law, the U.K.
subsidiary may find that it is prohibited
from refusing Cuban-related business.
Options for proceeding are not entirely
satisfactory. For example, the U.S.
parent could request authorization from
OFAC to proceed with the coverage – but
success is not guaranteed. It is also
possible that the act of requesting
approval from OFAC to proceed also
could be viewed as a violation of the UK
blocking statute.
Blocking statutes
Southeast Asia Southeast Asia
25 WorldECR www.worldecr.com
Southeast Asia is an essential
part of the global trade system.
Through this region flows a
significant amount of the world’s
ocean-going cargo; seven Southeast
Asian ports are ranked in the top 50
worldwide, including second-placed
Singapore with a volume of 28 million
TEUs in 2010. In 2010, the economies
of the Association of Southeast Asian
Nations (‘ASEAN’) traded U.S.$1
trillion in commodities and
experienced a steady rise in both
imports and exports.As economic development and
integration in the global trade system
continues, Southeast Asian states will
play an ever-larger role in the trade of
sensitive, high-tech commodities –
both as customers and as
manufacturers. This increase in the
presence of dual-use items highlights
the need for strengthened trade
security systems within the region.
Southeast Asian countries have been
used in the past as transhipment and
manufacturing hubs for sensitive
materials related to the development of
weapons of mass destruction (‘WMD’).
Most notoriously, the nuclear
smuggling network of Pakistani
scientist AQ Khan employed a
Malaysian-based firm to manufacture
centrifuge parts for Libya’s nuclear
weapons programme and utilized ports
in the region to tranship sensitive
commodities. Apart from the Khan
network, illicit procurement efforts by
Iran and North Korea have made use of
lax enforcement in Southeast Asian
ports to obtain controlled dual-use
commodities, possibly for their nuclear
and missile programmes.
After the AQ Khan network was
publicly revealed in 2004, the United
Nation Security Council (‘UNSC’)
passed a resolution obligating all
member states to control the trade in
dual-use sensitive materials. UNSC
Resolution 1540 (‘UNSCR 1540’) has
been the basis of international
cooperation and engagement on
strategic trade controls since its
adoption in April 2004. In April 2011,
the resolution was renewed for another
decade, indicating the importance that
the international community places on
the control of WMD-related materials.
Many Southeast Asian countries
were initially sceptical about UNSCR
1540 and considered it to be an
unfunded mandate imposed by more
developed states – particularly
permanent members of the Security
Council like the United States and the
United Kingdom.1 This scepticism has
been somewhat mollified by countries
that supported UNSCR 1540 (like the
U.S., Japan and the EU) offering
assistance to countries in Southeast
Asia and elsewhere struggling with
meeting UNSCR 1540 mandates. This
suggestion of states assisting states in
meeting their obligations is alluded to
in the resolution, and the 1540
Committee, which is tasked to oversee
the implementation of the resolution,
has tried to be a clearing house for
offers of and requests for assistance.2
Many policy-makers in Southeast
Asia have argued that since their
countries do not have WMD
programmes of their own and have not
previously manufactured sensitive
dual-use materials that the imposition
of strict export controls would be
detrimental to the economic
development of their countries.
Southeast Asian countries (with the
clear exception of Singapore) have
consistently viewed with distrust the
multilateral export control regimes
(‘MECRs’) such as the Nuclear
Suppliers Group (‘NSG’), the Missile
Technology Control Regime (‘MTCR’),
the Australia Group (‘AG’) and the
Wassenaar Arrangement (‘WA’),
viewing them as cartels. However,
since UNSCR 1540 was enacted and
the notion of strategic trade controls
has gained more wide spread
acceptance, these organizations and
the control lists they support have
gradually been seen as tools that can
assist with facilitating safe trade, and
thus not necessarily hindrance to
trade.
This change in perception of trade
controls has been occurring, although
Trade controls in Southeast Asia:taking a regional approach
The effectiveness of strategic trade controls in Southeast Asia varies wildly fromcountry to country yet their governments are expected to play an increasinglyimportant part in non-proliferation efforts. Stephanie Lieggi examines controls asthe region against the backdrop of burgeoning trade and consumerism and callsfor internationational cooperation in the fight against terrorism.
Southeast Asia Southeast Asia
26 WorldECR www.worldecr.com
an effective training program for all
relevant employees.
In November 2011, Malaysia’s
president cited the STA as a tool that
Malaysia would use to stop its ports
being used as an illicit trafficking hub.
Mohamed Shahabar Abdul Kareem
was appointed strategic trade
controller in August 2011 and has been
an active spokesperson for Malaysia’s
efforts. He has readily admitted in
public statements that fully
implementing the controls in Malaysia
will be difficult, since many of the
concepts related to the control of
strategic trade are new to Malaysian
officials.
Officials from assisting states –
including the United States – have
commented that there appears to be
significant political will in Kuala
Lumpur to see the strengthening of its
strategic trade control system.
However, a number of obstacles
remain. The STA is very complex –
including issues related to intangible
technology transfers and ‘catch-all’
controls. These highly technical
features, mixed with the relative lack of
training for officials dealing with these
issues in Malaysia, has hindered full
implementation of the law. Although
the Malaysian government appears
supportive, other stakeholders remain
sceptical – including business interests
who still see the law as hindering trade.
Vietnam: keeping its record clean Unlike Malaysia, Vietnam4 has not had
a history of being used by illicit
trafficking networks related to WMD or
missile technology (although Vietnam
does have experience with dealing with
illicit drug networks.) As their economy
grows and their ports increase in size,
officials in Hanoi are concerned that
WMD-related traffickers will target the
country. Despite this concern,
bureaucratic inertia and lack of proper
training for those most involved in the
enforcement of trade controls has
meant that very little solid movement
has been made to strengthen related
legislation.
Since the passage of UNSCR 1540 in
2004, Hanoi has made some efforts to
increase its ability to control sensitive
exports through enacting stricter
regulations. For instance, Vietnam
passed its ‘Law on Technology
Transfer’ in 2006, which, in part,
restricts the transfer of certain
technologies for reason of national
security and in support of complying
at a relatively slow pace, in many of the
major economies of ASEAN. Buoyed by
outreach efforts of supplier countries
and the 1540 Committee, some policy-
makers are viewing the strengthening
of their ability to manage sensitive
trade as important for distinguishing
their country as a mature trading
partner. This article reviews and
assesses the current systems in three
significant growing economies within
the region – Malaysia, Vietnam and
Indonesia. These countries represent
the wide range of systems in the region
and the different policies aimed at
moving the issue forward at the
domestic level. Additionally, it will look
at how the main regional groups –
ASEAN, the ASEAN Regional Forum
(‘ARF’), and Asia-Pacific Economic
Cooperation (‘APEC’) – could
effectively play a role in strengthening
strategic trade controls across the
region.
Malaysia: moving forward The role Malaysian entities played in
the activities of the AQ Khan illicit
trafficking network was made public in
2004 after the interception of a
shipment of gas centrifuge parts en
route to Libya. Components for these
centrifuges had been manufactured by
the Malaysian firm SCOPE under the
guidance of Sri Lankan businessman
and close Khan confidant, B.S.A. Tahir.
SCOPE employees and managers did
not appear to be knowingly assisting
the Khan network and most reports
indicate that they believed they were
manufacturing components for the oil
and gas industry. Although no
Malaysian citizens appear to have been
directly implicated as having
contributed to the network’s activities
the weakness of the Malaysian export
control system was placed under
intense scrutiny.
Despite outside pressure, Malaysia
initially resisted calls to strengthen its
trade control system. In its 2004 report
related to implementation of UNSCR
1540, Kuala Lumpur stated that it had
sufficient controls in place and it did
not need assistance from outside
countries. Ignoring the problem
however did not make it go away, and
Malaysia was soon seen as the venue of
choice for illegal trafficking, especially
as the UAE (Dubai) bent to pressure
from the U.S. to improve its controls.
Middlemen working out of Malaysia,
particularly those with business ties to
Iran (and in some cases North Korea)
exploited the lack of transhipment and
brokering controls.3
As more attention was given to
incidences involving Malaysian ports
or brokers, and as the leadership in
Kuala Lumpur became concerned
about its reputation, Malaysian
authorities began to work more closely
with international partners on
improving their trade control system.
In April 2010, Kuala Lumpur
announced the passage of the Strategic
Trade Act (‘STA’), followed in
December 2010 by the publishing of
regulations for the new law (see
WorldECR, March 2011). The STA
provided a stronger legal basis for
Malaysia’s control of strategic dual-use
materials and curbing the use of
Malaysian ports for illicit trafficking.
The STA established controls over
brokers and on commodities transiting
or transhipping Malaysian ports. The
penalties, at least on paper, were severe
– including the death penalty ‘where
death is the result’ of the criminal act.
The main implementing body, the
Strategic Trade Control Secretariat
released guidelines in April 2011
requiring Malaysian entities who wish
to ship sensitive materials using bulk or
multi-use licences to establish an
internal compliance programme
(‘ICP’). The ICP should include, among
other items: the appointment of a
designated company manager
responsible for trade compliance; the
creation of a clear set of compliance
procedures and a transparent reporting
system; a system capable of timely
screening of customers; regular audits
of export compliance procedures; and
Despite outside pressure,
Malaysia initially resisted
calls to strengthen its trade
control system.
Southeast Asia Southeast Asia
27 WorldECR www.worldecr.com
operational nuclear power plant. As
Vietnam’s need for sensitive dual-use
materials increase, so, too, will the
scrutiny placed on its trade control
system by international suppliers.
Another significant deficiency – and
one that is apparent throughout
Southeast Asia – is the lack of
awareness within government and
industry about how domestic assets
could be used for nefarious purposes.
Some Vietnamese officials recognize
that with the rapid growth in their
economy, which includes a significant
growth in small and medium-size
enterprise, their current lack of trained
enforcement staff and their deficiencies
in industry outreach will have a major
impact on their ability to control
strategic trade in the future.
In order for Vietnam to improve its
strategic trade controls, training of
relevant personnel, improved industry
outreach and a more effective
regulatory framework is clearly needed.
Although international assistance has
been helpful in these areas, more
concrete action still needs to come
from the Vietnam’s leadership in way
of legislation – particularly the
instalment of control lists and
guidelines that meet international
standards.
Indonesia: starting from(almost) zeroSimilar to Vietnam, Indonesia is
seriously lacking in regulations related
to the control of sensitive dual-use
materials. Indonesia has in the past
been critical and distrustful of export
control regimes. Many Indonesian
officials continue to view their
domestic industry as not advanced
enough to require strict controls and
therefore see strategic trade controls as
undue restriction that will hinder their
economic progress. In its reporting to
the 1540 Committee in 2004 and 2005,
Indonesia appears sceptical about the
need for extensive trade controls.
The legal structure that regulates
Indonesia’s trade is a patchwork of
with international obligations (like
UNSCR 1540.) Hanoi has also reached
out to international partners for
assistance in improving their strategic
trade control system. In its most recent
report to the 1540 Committee,
submitted in 2008, Hanoi directly
requests assistance with acquiring
equipment meant for improving its
customs agency’s ability to undertake
risk management, and relevant
training for its strategic trade control-
related personnel.
Vietnam has yet to enact an
overarching law (such as Malaysia’s
STA) that would help to clarify lines of
authority and what commodities are
controlled. As a result of the absence of
clear rules for administering its trade
control system, Vietnam lacks ‘catch-
all’ controls and still has weak controls
for transhipments and brokering.
Hanoi also does not have control lists
that closely match multilateral export
control regimes. According to experts
who have discussed the issue with
Vietnamese officials, concepts like
‘dual-use’ remain unclear to many
officials across the varied agencies that
implement parts of the existing trade
control system. The deficiencies in
Vietnam’s system may continue for
some time, as the current bureaucracy
appears unable to formulate an
effective system.
The effort by some in Vietnam to
implement international agreements
like UNSCR 1540 is in part due to a
desire to have wider access to high
technology, particularly technology
related to nuclear power development.
Vietnam is expected to be the first
Southeast Asian country to have an
Links and notes1 Tanya Ogilvie-White, ‘Facilitating Implementation of Resolution 1540 in South-East Asia and the South
Pacific,’ Implementing Resolution 1540: The Role of Regional Organizations (UNIDIR 2008),
http://www.unidir.org/pdf/articles/pdf-art2745.pdf.
2 See the Assistance page on the 1540 Committee website at
http://www.un.org/en/sc/1540/assistance/general-information.shtml.
3 Justin Blum, ‘Iran Gains U.S. Military Technology through Malaysia Middlemen’, Bloomberg News, 14
September 2009, www.bloomberg.com; see also Stephanie Lieggi and Richard Sabatini, “Malaysia’s
Export Control Law: A Step Forward, But How Big?” Issue Brief, Nuclear Threat Initiative website, May
10, 2010, http://www.nti.org/analysis/articles/malaysias-export-control-law/.
4 Many of the details from this section come from field research undertaken by my colleague Robert
Shaw in Vietnam and elsewhere in 2011 and 2012. Much of his research is available in the May 2012
report on the James Martin Center for Nonproliferation Studies (CNS) website entitled 'Prospects for
Nuclear Security Partnership in Southeast Asia.'
http://cns.miis.edu/opapers/pdfs/120515_seasia_nuclear_security_partnership.pdf
5 For more on Indonesia’s recent efforts in non-proliferation, see Stephanie Lieggi, ‘The Nonproliferation
Tiger: Indonesia’s Impact on Nonproliferation in Asia and Beyond,’ Issue Brief, Nuclear Threat Initiative
website, 5 March 2012, http://www.nti.org/analysis/articles/nonproliferation-tiger-indonesias-impact-
nonproliferation-asia-and-beyond/.
6 Togzhan Kassenova, ‘1540 in Practice: Challenges and Opportunities for Southeast Asia,’ Policy
Analysis Brief, Stanley Foundation, May 2011,
http://www.stanleyfoundation.org/publications/pab/KassenovaPAB611.pdf.
7 The text of the SEANWFZ treaty (the Bangkok Treaty) is available at
http://www.aseansec.org/5181.htm; also see ‘Southeast Asia Nuclear-Weapon-Free Zone Treaty
(Treaty Of Bangkok),’ Inventory of International Nonproliferation Organizations & Regimes, CNS
website, last updated 24 July 2011; and Peter Crail and Xiaodon Liang, ‘Southeast Asia Nuclear-
Weapon-Free Zone and the Nuclear-Weapon States,’ Asia Pacific Bulletin, No. 148,
http://www.eastwestcenter.org/print/33289.
8 See ‘Hanoi Plan of Action,’ ASEAN website, http://www.aseansec.org/8754.htm.
9 See the 2001 APEC’s Leaders Statement on Counter-Terrorism at http://www.apec.org/en/Meeting-
Papers/Leaders-Declarations/2001/2001_aelm/statement_on_counter-terrorism.aspx and 2002
Statement on Fighting Terrorism and Promoting Growth at http://www.apec.org/en/Meeting-
Papers/Leaders-Declarations/2002/2002_aelm/statement_on_fighting.aspx.
10 See the CTTF page on the APEC website, http://www.apec.org/Home/Groups/SOM-Steering-
Committee-on-Economic-and-Technical-Cooperation/Task-Groups/Counter-Terrorism-Task-Force.aspx.
11 See STAR programme webpage on APEC website, http://www.apec.org/Groups/SOM-Steering-
Committee-on-Economic-and-Technical-Cooperation/Task-Groups/~/link.aspx?_id=2C2CB779DA304
8879AEA788578166AF6&_z=z
Vietnam has yet to enact an
overarching law (such as
Malaysia’s STA) that would
help to clarify lines of authority
and what commodities are
controlled.
Southeast Asia Southeast Asia
28 WorldECR www.worldecr.com
and disarmament issue – has
expressed greater acceptance of the
need for international standards for
controlling dual-use materials. This is
coupled with Indonesia’s positive
momentum in the area of non-
proliferation over the last year,
including the country’s long-awaited
ratification of the Comprehensive Test
Ban Treaty (CTBT). 5 The new attitude
toward issues like strategic trade
controls should allow Jakarta to be
more accepting of cooperation with
international partners – like the 1540
Committee, the U.S. and Japan – on
efforts to establish a strategic trade
control system that can effectively deal
with Indonesia’s diverse domestic
needs.
Regional organizations: time toplay a partWhen the Security Council renewed
UNSCR 1540 in April 2011, one area
receiving special attention was the role
of regional organizations in the
strengthening of the resolution’s
implementation. In particular, the
Security Council urged the 1540
Committee to engage actively with
regional organizations ‘to promote the
sharing of experience, lessons learned
and effective practices’ in the
implementation of the 1540 mandate.
In Southeast Asia, regional
organizations like ASEAN, ARF and
APEC continue to be under-utilized in
the strengthening of strategic trade
controls or UNSCR 1540
implementation in the region.6
However, each of these organizations
has undertaken related activities that
could serve as models for regional
cooperation in the area of non-
proliferation trade controls.
Although most ASEAN member
states were not enthusiastic about the
passage of UNSCR 1540, over the last
few years, policy-makers (as was
evident in Indonesia) have been more
accepting of the need for increased
attention to 1540 implementation. The
ASEAN officials note that the
organization takes a ‘soft’ approach to
1540 implementation by supporting the
resolution in official statements, but
without backing any significant
practical steps. ASEAN in general is
hesitant to press for direct action that
might affect states’ domestic legislation,
which has been seen as a hurdle for the
organization’s ability to promote the
issue widely in the region. However,
ASEAN activities can also be positively
rules, most unrelated to concerns
about WMD proliferation. While
Indonesia’s current production of
sensitive dual-use materials is limited,
this is likely to change as the country’s
industrial base expands. Indonesia
already produces components for the
oil and gas industry that have dual-use
implications in the nuclear sector. The
country has a burgeoning nuclear
industry, which may soon include
sensitive nuclear materials and other
technologies dual-use in nature. As
with Vietnam, Indonesia has the
potential for becoming a key
transhipment point for illicit
trafficking, particularly as countries
like Malaysia increase their capacity to
detect and control the transfer of dual-
use materials and traffickers must look
elsewhere.
Indonesia’s enforcement capabil -
ities are weak and the system lacks
awareness, training, and equipment for
detecting illicit WMD-related goods.
Customs officials have not been trained
to identify proliferation-sensitive
materials, nor are they on any special
alert to pay attention to such materials
leaving the country. From my own
discussions with Indonesian customs,
it is clear that customs lacks any
mandate to undertake investigations
related to the smuggling of strategic
goods.
Although political and capacity
issues are major challenges to Jakarta’s
ability to control strategic trade,
Indonesia’s geography makes any
efforts being taken even more difficult.
The country is made up of over 17,000
islands and its borders are porous and
largely uncontrolled. There are
numerous incidents of piracy and
smuggling in nearby waters, and a
number of known terrorist
organizations operating in the country
(such as Jemaah Islamiyah) could have
the intent or the means to facilitate
WMD proliferation. The presence of
piracy, terrorist groups and an
increasingly sophisticated industrial
base means that the strengthening of
Indonesia’s trade control system is
becoming increasingly important to the
international non-proliferation regime.
Recent discussions with Indonesian
officials do indicate some weakening of
earlier scepticism, particularly in
regards to implementation of UNSCR
1540. Indonesia – traditionally a
regional leader on non-proliferation
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Southeast Asia Southeast Asia
29 WorldECR www.worldecr.com
these reports to monitor member
economies’ activities and assess their
progress in counter-terrorism.
Since the passage of UNSCR 1540, a
number of APEC countries have cited
the resolution in the CTAP; however,
the CTTF has not overtly connected its
work with that of 1540. APEC also
administers the Secure Trade in the
APEC Region (‘STAR’) programme
which aims to secure and facilitate the
flow of goods and people.11 The target
audience for this programme is actors,
including in the private sector, dealing
directly with supply chain security and
aims to help these actors identify
potential weak points in the system. In
this programme, and others related to
securing trade in the APEC region, the
member states show clear recognition
that the threat of terrorism is bad for
business. However, a number of APEC
participants – including ones that are
also members of ASEAN – remained
concerned about the regional
organization becoming too focused on
security, to the detriment of promoting
economic development.
ConclusionThe effectiveness of strategic trade
controls in Southeast Asia is an
increasingly essential part of the
overall international non-proliferation
regime and efforts to secure global
trade. As is evident from the three case
studies above, the state of trade
controls in the region are mixed and
have much room for growth and
improvement. Many states are
cooperating with international
partners to increase their capacity in
this area, but the efforts remain in a
formative stage. The international
community and regional actors would
do well to look to regional
organizations like ASEAN, ARF and
APEC to share relevant knowledge and
best practices. This type of regional
cooperation is critical for assisting
Southeast Asian states in creating
strategic trade control systems that will
fit their domestic needs in the years to
come.
influenced by a member state taking the
lead on an issue – in this instance a
country like Malaysia who could be a
model for other members to follow.
The ASEAN Secretariat,
headquartered in Jakarta, has been
active in promoting non-proliferation
initiatives in the region, most
significantly the creation of the
Southeast Asian Nuclear Weapons Free
Zone (‘SEANWFZ’), which all ASEAN
members have joined.7 SEANWFZ
includes a call for countries to
strengthen their nuclear-related
safeguards commitments with the
International Atomic Energy
Association, including ratification of
the Additional Protocol (‘AP’). The
ASEAN Convention on Counter -
terrorism (‘ACCT’), which came into
force in 2011, has relevance to the issue
of strategic trade controls, including
preventing terrorist financing and
increasing relevant border/customs
control.
The ARF – the larger outgrowth of
ASEAN – has taken a more active role
than its parent organization in
promoting trade controls and 1540
implementation. Staff from the ASEAN
secretariat – who also administer the
activities of ARF – generally point to
the forum as the best mechanism for
these sort of efforts due the presence of
‘major powers’. ARF has already shown
support of UNSCR 1540 through
establishment of inter-sessional
meetings (‘ISM’) on non-proliferation
and disarmament, which have
consistently discussed challenges to
domestic 1540 implementation and
proposals for promoting the resolution
in the region. As part of the 2009 ISM,
ARF participants were presented with
the ‘Memorandum on the Guidelines
for Managing Trade of Strategic
Goods’, prepared by the Council for
Security Cooperation in the Asia Pacific
(‘CSCAP’), a network of non-
governmental organization. Many ARF
participants reportedly used this
document as a basis for improving the
capacities of their systems.
At the July 2010 ARF meeting in
Hanoi, the forum participants adopted
the Hanoi Plan of Action (‘PoA’) which
includes policy guidance aimed at
increasing cooperation in certain
security-related areas. These areas
include counter-terrorism, trans -
national crime, maritime security,
non-proliferation and disarmament.
According to the PoA, by 2020 ARF
should have in place a network of law
enforcement and military agencies for
capacity-building, information sharing
to respond timely to relevant threats.8
ARF has the potential to play a
much more active role in strengthening
trade controls, particularly as existing
mechanisms could assist in the sharing
of regional expertise and promote
greater levels of cooperation. However,
ARF has many of the problems present
in its parent organization ASEAN, such
as the limitation of resources (as seen
through the reliance on ASEAN’s
secretariat for general support) and the
fact that ARF still must follow the
consensus-based tradition of ASEAN.
Unlike ASEAN and ARF, APEC has
an established linkage to the private
sector that would be beneficial for
efforts to reach industry and
strengthen awareness of strategic trade
controls. APEC has recently given
much focus to preventing terrorist
activities from harming trade and
security within the APEC region. Since
2001, APEC has increased its activities
related to counter-terrorism and secure
trade, and particularly taken aim at
preventing non-state actors from
harming the supply chains of member
economies.9
APEC’s counter-terrorism task force
(‘CTTF’) assists member to identify and
assess counter-terrorism needs
and to coordinate capacity-building
programmes. A major component of
CTTF’s work relates to the counter-
terrorism action plan (‘CTAP’), which
each member economy provides to the
task force detailing the counter-
terrorism measures undertaken
domestically.10 The task force uses
The international community
and regional actors would do
well to look to regional
organizations like ASEAN, ARF
and APEC to share relevant
knowledge and best practices.
Stephanie Lieggi is a seniorresearch associate at the EastAsia Nonproliferation Programat the James Martin Center forNonproliferation Studies (CNS).
Philippines Philippines
30 WorldECR www.worldecr.com
As a general rule, the Philippines
eschews export prohibitions
but respects its international
obligations.
This principle was enshrined in
executive order (‘E.O.’) no. 1016
‘Withdrawing the Inspection,
Commodity and Export Clearance
Requirements on Philippine Exports’,
signed by then president Ferdinand
Marcos on 25 March 1985. The E.O.
dispensed with ‘all inspection,
commodity and export clearance
requirements’ on Philippine
commodity exports except for:
l those required as a result of the
existence of import quotas in other
countries;
l those covering items which are
banned for export;
l those covering exports of logs,
copper and coffee; and
l those covered by international
agreements to which the
Philippines is a signatory.
E.O. 1016 established an inter-
agency committee (‘IAC’) – composed
of the representative of the Ministry of
Trade and Industry, as chairman, and
the representatives of the ministries of
finance and budget, the Central Bank,
and the National Economic and
Development Authority, as members –
to consider the reinstatement of such
clearance requirements. The IAC
periodically updates the list of
prohibited and regulated exports of the
Philippines, with the last update in
November 2011. The list was then
officially incorporated in relevant
national regulations, particularly in
relation to customs and banking
transactions.
Meanwhile, presidential decree
(‘P.D.’) no. 930 ‘Simplifying Export
Procedures and Documentation’,
originally signed on 13 May 1976 assigns
government offices and agencies to
process specific export clearances,
standardize export documents, and
provide for periodic clearances. Its
implementing rules and regulations are
adjusted periodically as new laws and
regulations come into effect.
Prohibited and regulated exportsThe Philippines prohibits the export of
certain products as shown in the table
‘Prohibited exports’ along with their
legal bases.
There are terrestrial, aquatic and
marine flora and fauna covered by the
Convention on International Trade in
Endangered Species (‘CITES’) and
Philippine resource conservation laws
the export of which are regulated.
These lists are frequently updated; for
example, the Bureau of Fisheries and
Aquatic Resources (‘BFAR’) recently
reissued the ban on the exportation of
elvers (young eel). Additional exports
regulated other than through these
conventions and regulations are shown
in the table ‘Regulated exports’, again
with their legal bases.
The updated list of prohibited and
regulated exports is available at the
Export Development Council website.1
It is also included as table AIII.6 in the
report of 20 and 22 March 2012 Trade
Policy Review of the Philippines by the
World Trade Organization.2
Export controls in the Philippines
are clearly characterized by control,
regulation, and licensing activities that
deal with prohibited or regulated items
and that are being implemented by
different government agencies. The
system is not comprehensive enough to
cover all the controlled items listed
under international export control
regimes such as the Nuclear Suppliers
Group, the Missile Technology Control
Regime, the Australia Group, and the
Wassenaar Arrangement, particularly
those for dual-use goods control.
International prohibitions andregulationsIt is also clear from the lists of
regulated exports that Philippine
export controls involve the usual
international conventions. In relation
to international agreements on
weapons of mass destruction (‘WMD’),
the Philippines is a founding member
of the United Nations. In fact, the
Philippines, as vice-chairman of the
1540 Committee, helped in the passage
of UN Security Council Resolution
1540 on 28 April 2004 and called on all
members to join the Weapons of Mass
Destruction Convention. The country is
Export controls initiatives in the Philippines
The Philippines’ commitment to its international obligations and a belief that certain industry sectors will benefit from increased investment underpins current developing trade control efforts. Gerry Anigan examines the current controls regime and outlines the shape of controls to come.
The system is not
comprehensive enough
to cover all the
controlled items listed
under international
export control regimes,
particularly those for
dual-use goods control.
Links and notes1 http://edc.net.ph/downloads/Prohibited_Regulated_Prod_4exports.pdf2 http://www.wto.org/english/tratop_e/tpr_e/tp361_e.htm3 Source: Inventory of International Nonproliferation Organizations and Regimes, Center
for Nonproliferation Studies, Last Updated: 11/19/2010
http://cns.miis.edu/inventory/pdfs/philippines.pdf
Philippines Philippines
31 WorldECR www.worldecr.com
also a member of the International
Atomic Energy Agency (‘IAEA’) and the
Organization for the Prohibition of
Chemical Weapons (‘OPCW’). It sits in
the preparatory commission of the
Comprehensive Nuclear-Test-Ban
Treaty Organization.
The Philippines is also a state party
to the following WMD-related treaties
and agreements:
Nuclearl Nuclear Non-proliferation Treaty
l Comprehensive Nuclear Test Ban
Treaty
l Partial Test Ban Treaty
l IAEA Safeguards Agreement
l IAEA Additional Protocol
l Nuclear Safety Convention
l Joint Spent Fuel Management
Convention
l Convention on the Physical
Protection of Nuclear Material
l Southeast Asian Nuclear-Weapon-
Free-Zone Treaty (Bangkok)
Chemical and biologicall Chemical Weapons Convention
(‘CWC’)
l Biological and Toxin Weapons
Convention
l Geneva Protocol
WMD delivery systemsl International Code of Conduct
against Ballistic Missile. 3
In addition, the Philippines is a
member of:
l Organization for Prohibition of
Chemical Weapons
l International Atomic Energy
Agency
l Preparatory Commission for the
Comprehensive Nuclear-Test-Ban
Organization (‘CTBTO’)
l Hague Code of Conduct
The Philippine constitution places
high priority on disarmament and non-
proliferation. Specifically, section 2 of
article II – Declaration of Principles
and States Policies of the 1987
Philippine Constitution states that ‘the
Philippines renounces war as an
instrument of national policy and
pursues a policy of freedom from
nuclear weapons in its territory’. Other
supporting provisions can be found
under sections 5 and 8 of the same
article which states that ‘the
maintenance of peace and order, the
protection of life, liberty, and property,
1) Gold from small-scale mining or panned
gold
2) Selected aquatic fauna – e.g., live mud
crabs, shrimps, prawns -- and marine
wildlife – e.g., corals, seahorses, manta
ray, certain sea snakes and sharks,
cetaceans, milkfish fry, fingerlings and
mother fish, certain shells and clams
3) Saba banana (Musa paradisiaca)
planting materials
4) Abaca and ramie seeds, seedlings,
suckers and root stocks; buri seeds and
seedlings
5) Mangrove ‘Bakawan’; Monkey pod
‘Acacia’; Raw rattan including poles;
round logs, poles and piles including
log core and flitches/railroad ties
produced from naturally grown trees
both from the forestlands and private
lands
6) Stalactites and stalagmites
7) Selected terrestrial wildlife species
whether live, stuffed or by- products:
e.g., certain birds, butterflies, orchids,
mammals, reptiles
8) Matured coconuts and coconut
seedlings
Republic Act (‘R. A.’) No. 7076 ‘People’s
Small-Scale Mining Act of 1991’ (27 June
1991).
Convention on International Trade in
Endangered Species (‘CITES’)
R. A. No. 8550 ‘The Philippine Fisheries
Code of 1998’ (25 February 1998).
P.D. No. 704 ‘Fisheries Decree of 1975’
(16 May 1975)
Bureau of Plant Industry (B.P.I.) Quarantine
Administrative Order No. 4, Series of 2005
R.A. No. 4666 ‘An Act prohibiting the
exportation of Fibers (Buntal) or Filaments
of the Plant commonly known as ‘Buri’ or
seeds or seedlings thereof … ‘ (18 June
1966)
R.A. No. 925 ‘An Act amending Act
Numbered Thirty-Two Hundred Fifty-One,
entitled An Act to Prohibit the Exportation
to Foreign Countries of Seeds of Abaca and
its derivatives’ (20 June 1953);
E.O. No. 23 ‘Moratorium on the cutting and
harvesting of Timber in the natural and
residual forests’ (1 February 2011)
R. A. No. 7161 ’An Act incorporating certain
sections of the National Internal Revenue
Code of 1977, as amended, to P.D. No.
705, as amended, other-wise known as the
‘Re-vised Forestry Code of the Philippines’
…’ (10 October 1991).
Revised Rules and Regulations
Implementing P. D. No. 930
R. A. No. 9072 ‘National Caves and Cave
Resources Management and Protection
Act’ (8 April 2001)
Revised Rules and Regulations
Implementing P. D. No. 930
CITES
R. A. No. 9147 ‘Wildlife Resources
Conservation and Protection Act of 2001’
(30 July 2001)
Revised Rules and Regulations
Implementing P. D. No. 930
P.D. No. 1644 “Granting Additional Powers
to PCA” (October 4, 1979)
R. A. No.1145 “An Act Creating the
Philippine Coconut Administration” (17
June 1954)
Prohibited exports
and the promotion of the general
welfare are essential for the enjoyment
by all people of the blessings of
democracy’ and ‘the Philippines
consistent with the national interest,
adopts and purses a policy of freedom
from nuclear weapons in its territory’,
respectively.
The country also has strong nuclear
non-proliferation foreign policy
initiatives. Former president Gloria
Macapagal-Arroyo attended the 2010
Nuclear Security Summit held in
Washington D.C. on 12 and 13 April
2010. The Philippines, with the rest of
ASEAN agreed in November 2011 on
Philippines
32 WorldECR
the Southeast Asia Nuclear Weapon
Free Zone (‘SEANWFZ’) proposal with
nuclear weapon states – the United
States, the United Kingdom, France,
Russia and China. President Benigno
Aquino III designated vice-president
Jejomar Binay to represent him at the
2012 Nuclear Security Summit held in
South Korea on March 26-27, where
the Philippines pushed for stricter
monitoring and supervision in the
transport, safekeeping and use of even
small quantities of nuclear resources
such as high-grade uranium and
plutonium to prevent their being used
for terrorist activities.
The Philippines has regulations in
place for the export of nuclear
materials: R. A. No. 5207 ‘Atomic
Energy Regulatory and Liability Act of
1968’ (15 June 1968); R. A. No. 2067
‘Science Act of 1958’ (13 June 1958);
munitions, explosives, arms: R. A. No.
8294 ‘An Act amending the provisions
of P.D. No. 1866, as amended …’ (6
June 1997); P.D. No. 1866 ‘Codifying
the Laws on Illegal/Unlawful
Possession, Manufacture, Dealing in,
Acquisition or Disposition of Firearms,
Ammunition or Explosives…’ (29 June
1983); and certain hazardous and toxic
substances: Used Lead Acid Battery
(ULAB) – Basel Convention on the
Control of Trans-boundary Movements
of Hazardous Wastes and their
Disposal; R.A. No. 6969 ‘Toxic
Substances Hazardous and Nuclear
Wastes Control Act of 1990’ sections 2
and 3. (26 October 1990).
However, the Philippines still has to
fully implement its commitment in
relation to dual-use goods and
chemical weapons but efforts have
been initiated.
Philippine export controlinitiativesThe responsibility for ensuring that the
country develops its strategic trade
control system in full was lodged with
the Office of the Special Envoy on
Transnational Crime (‘OSETC’) in the
Office of the President, with a person
dedicated to the effort. Since 2005,
OSETC has been conducting inter-
agency meetings with such concerned
agencies as the Bureau of Customs, the
Philippine Ports Authority, the
Department of Trade and Industry, the
Philippine Nuclear Research Institute,
the Department of Health, the
Department of Environment and
Natural Resources, and the
Department of National Defense,
among others.
1) Legal tender Philippine notes and coins,
checks, money order and other bills of
exchange drawn in pesos against banks
operating in the Philippines in an
amount exceeding PHP10,000.00.
2) Copper concentrates
3) Live animals, its products and by-
products, veterinary feed premixes and
biologics, laboratory specimen of
animal origin, feeds and feed
ingredients that may be carriers of
communicable animal diseases
4) All plants, planting materials and plant
products; pest specimen; including
wood packaging materials capable of
harboring plant pests
5) Used Lead Acid Battery (‘ULAB’)
6) Firearms, ammunitions and explosives
7) Coffee
8) Crushed and/or sized sand gravel
and/or other unconsolidated materials
Iron, manganese and/or chromium
ore(s), whether unprocessed or
processed.
Mine wastes and/or mill tailings
Unprocessed, raw or run-of-mine
mineral(s) of ore(s)
9) Grains and grain by-products
10) Cultural properties such as
archaeological materials, traditional
ethnographic materials, antiques,
historical relics, Natural History
specimens (holotypes, endangered,
irreplaceable specimens, fossils)
11) Radioactive materials
12) All sugarcane-based sugar (such as
raw sugar, white sugar, muscovado)
and Molasses
Manual of Regulations on Foreign
Exchange Transactions (Bangko Sentral ng
Pilipinas or central bank)
Letter of Instruction no. 1387 (21 February
1984)
CODEX and World Organization for Animal
Health
R. A. no. 9296 ‘The Meat Inspection Code
of the Philippines’ (12 May 2004)
E.O. no. 338 series of 2001’Restructuring
the Department of Agriculture …’ (10
January 2001)
E.O. no. 292 ‘Administrative Code of 1987’
(25 July 1987)
International Standards for Phytosanitary
Measures (ISPM)
P.D. no. 1433 ‘Promulgating the Plant
Quarantine Law of 1978 ‘ (10 June 1978)
Basel Convention on the Control of Trans-
boundary Movements of Hazardous
Wastes and their Disposal
R.A. no. 6969 ‘Toxic Substances
Hazardous and Nuclear Wastes Control Act
of 1990’ Sections 2 & 3. (26 October
1990)
R. A. no. 8294 ‘An Act amending the
provisions of P.D. No. 1866, as amended …
’ (6 June 1997)
P.D. no. 1866 ‘Codifying the Laws on
Illegal/Unlawful Possession, Manufacture,
Dealing in, Acquisition or Disposition of
Firearms, Ammunition or Explosives…’ (29
June 1983)
International Coffee Agreement
R.A. no. 7942 ‘Philippine Mining Act of
1995’ (3 March 1995)
P. D. no. 4 ‘National Grains Authority Act"
(26 September 1972)
R. A. no. 10066 ‘National Cultural Heritage
Act of 2009’ (26 March 2010)
R. A. no. 8492 ‘National Museum Act of
1998’ (12 February 1998);
R. A. no. 4846 ‘Cultural Properties
Preservation and Protection Act’ as
amended (18 June 1966)
R. A. no. 5207 ‘Atomic Energy Regulatory
and Liability Act of 1968’ (15 June 1968)
R. A. No. 2067 ‘Science Act of 1958’ (13
June 1958)
E.O. no. 18 ‘Creating A Sugar Regulatory
Administration’ (28 May 1986)
Regulated exports
www.worldecr.com
Philippines Philippines
33 WorldECR www.worldecr.com
A technical working group (‘TWG’)
on export control was convened in
2006 and was able to come up with a
draft E.O. to govern existing export
control efforts of the government
pending the passage of a law on export
control, as well as a draft bill on export
control that had been submitted to
both houses of the legislature. Other
initiatives of the OSETC included:
l Publication of a compilation of laws
and rules relating to Philippine
export controls;
l Coordination of various export
control awareness and capacity
building seminars and workshops;
l Representation of the Philippine
government in regional and
international consultations and
cooperation.
House bill no. 6268: ‘An Act
Preventing The Proliferation Of
Weapons of Mass Destruction by
Regulating The Transfer of Strategic
Goods and Items Providing Penalties
For Their Violations Thereof and For
Other Purposes’ was filed in the 14th
Congress on 28 April 2009. Its
counterpart senate bill no. 3268: ‘An
Act to Prevent The Proliferation of
Weapons of Mass Destruction By
Regulating The Transfer of Strategic
Items/Goods Which Are Being Used To
Carry Out Acts of Terrorism, and For
Other Purposes’ was filed on 21 May
2009. They did not progress beyond
the committee level.
There are pending Philippine bills
on dual-use and strategic goods re-filed
in the current 15th Congress. House bill
4030 ‘Regulating the proliferation of
strategic and dual-use goods and
services, providing penalties for
violation thereof’ was approved by the
TWG of the Committee of Public Order
and Safety on 8 June 2011 though the
report still has to be formally adopted.
The proposed measure aims to
institute stringent strategic trade
controls over the import, export and
transhipment of strategic and dual-use
commodities that could have the
potential of being used in the illicit
development, production or
stockpiling of weapons of mass
destruction. Counterpart bills are also
pending in committee at the Senate.
Both the House and Senate versions
establish a control list, provide an
inter-agency council to prepare the list
and oversee the implementation of the
law, set the OSETC as secretariat for
the council, and designate the
incumbent special envoy for
transnational crime at the time of the
law’s passage as the first chair of the
Council.
While legislation is slow moving,
business and academia have been
pressing ahead. E.O. no. 39 (April
2011) designated the Anti-Terrorism
Council (‘ATC’) as the Philippine
national authority of the CWC; ATC is
finalizing its draft national legislation
to implement the CWC. In
consultations with the chemicals
industry, there was agreement to
incorporate the legislation in the
pending bills on dual-use goods. On
biosafety and biosecurity, the
University of the Philippines created an
Institutional Biosafety and Biosecurity
Committee (‘IBC’) which, among
others, evaluates research proposals
involving pathogens. IBC has prepared
its manual of guidelines for such
evaluation and that is currently
undergoing peer review. A Philippine
Biosafety and Biosecurity Association
has also been created to assist
government agencies in developing a
national policy and implementation
plan. Key agencies involved with
pathogen research have undergone
security upgrades.
Consultations on CWC were
conducted with the Philippine
chemicals industry association
(Samahan sa Pilipinas ng mga
Industriyang Kimika, ‘SPIK’). SPIK
groups the Association of
Petrochemical Manufacturers of the
Philippines, the Philippine Association
of Paint Manufacturers, the Philippine
Oleochemical Manufacturers of the
Philippines, and the Philippine Plastic
Industry Association, among others.
The Philippine Nuclear Research
Institute, as the nation’s competent
authority on nuclear (peaceful use),
radioactive materials and related
devices, has also adopted the
International Code of Conduct on the
Safety and Security of Radioactive
Sources, and the additional guidance
on import/export of radioactive
sources. It is also managing the
international monitoring system set up
following the Senate’s ratification of
the Comprehensive Nuclear Test Ban
Treaty in 2001.
The Philippines will most likely
adopt the same control list as the EU
and will ease rules, procedures and
documentation for exporters who trade
regularly in these products. Aside from
chemicals, the DTI is also interested in
the long-term competitiveness of the
automotive, aerospace, business
process outsourcing, electronic,
metalworking, shipbuilding, and
software businesses in the Philippines.
Current efforts in the private sector
include intensifying industry outreach
to raise awareness among companies
and commercial individuals of their
export control responsibilities as well
as the integration of commodity
identification training in the regular
training programmes of law
enforcement agencies.
Probably, the prevailing culture of
export facilitation in the Philippine
government and business associations
has worked against a faster passage of
legislation. Currently, however, the
department of trade and industry and
business associations have been
working on ‘industry roadmaps’ to
develop competitive Philippine sectors
in the short, medium and long term (up
to 2030). Stakeholders, particularly in
the chemicals industry, have realized
that a regime of strategic trade controls
needs to be in place to attract investors.
Their more active and visible support
should expedite passage of the bill,
probably by next year towards the end
of the current Congress or by the early
part of the following one.
Gerry Anigan managed policyanalysis and advocacy in thePhilippine ExportersConfederation (‘Philexport’) formore than 14 years. Prior toPhilexport, he worked at theDepartment of Trade andIndustry and the formerMinistry of Trade. He iscurrently a part-time tradepolicy advisor to Philexport andBryan Cave InternationalConsulting.
Stakeholders,
particularly in the
chemicals industry,
have realized that a
regime of strategic
trade controls needs to
be in place to attract
investors.
Contributors in this issueFalk Schöning, Hogan Lovells
www.hoganlovells.com
Cari N. Stinebower , Crowell & Moring LLP
www.crowell.com
Dr. Andrea Viski, Stockholm International Peace Re-
search Institute (SIPRI)
www.sipri.org
Stephanie Lieggi, James Martin Center for
Nonproliferation Studies (CNS)
www.miis.edu
Gerry Anigan, Philippine Exporters Confederation
WorldECR Editorial BoardLarry E. Christensen, Miller & Chevalier, Washington DC.
Iain Macvay, Bird & Bird LLP, London/Brussels.
Dr. Bärbel Sachs, Noerr, Berlin.
Iain Sandford, Minter Ellison, Canberra.
Edmund Sim, Appleton Luff, Singapore.
George Tan, Bryan Cave Consulting, Singapore.
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WorldECRThe journal of export controls and compliance
ISSUE 13. JUNE 2012
www.WorldECR.com