export controls on technology

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Jim Chester JD, LL.M, CHB, CCS Klemchuk Kubasta, LLP Export Controls on Technology

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Page 1: Export Controls on Technology

Jim ChesterJD, LL.M, CHB, CCS

Klemchuk Kubasta, LLP

Export Controls on Technology

Page 2: Export Controls on Technology

I. Introduction

US Trade Laws When importing, exporting or

dealing with foreign affiliates, numerous US trade regulations must be observed.

Certain goods have special rules.

Page 3: Export Controls on Technology

I. IntroductionTechnology exports are of special concern to US

regulators Often sensitive/ dangerous applications/uses

Easy to send / forward

Difficult to track

Page 4: Export Controls on Technology

I. Introduction The Bureau of Industry and Security (BIS) has primary

responsibility for enforcing export control laws Export Administration Act (EAA) Export Administration Regulations (EAR)

Other agencies have export-specific regulations that must also be observed. (e.g., Department of Defense Trade Controls (DDTC)

Most export documents are delivered to CBP

Page 5: Export Controls on Technology

I. Introduction

What is an Export? Physical shipment of EAR-subject goods, technology, or

technical data outside US Customs Territory Downloads and emails of technology and technical data

outside US “Sharing” technology with a foreign national, even on

US soil (“deemed” export)

Page 6: Export Controls on Technology

II. Standard Export Compliance

4 Key Questions for Exports:1. What is it?

description & classification2. Where is it going?

country3. Who will be receiving it?

person/entity4. How will it be used?

dual use

Page 7: Export Controls on Technology

II. Standard Export Compliance

Pre-Shipment Checks & License Requirements (i.e. “General Prohibitions”)

1. Determine whether a license is requiredStep 1: Obtain Export Commodity Classification Number (ECCN) for

product on Commerce Control List (CCL), Step 2: Compare to Country ChartStep 3: If license is required, see if exception applies.Step 4: If license is required and no exception applies, apply

for license from BIS.

Page 8: Export Controls on Technology

II. Standard Export Compliance2. Check the various “bad guy” lists

Denied Parties List - BIS Specially Designations Nationals and Narcotics

Traffickers - OFAC Entity List - BIS Debarred Parties List – State Unverified List – BIS

http://www.treas.gov/offices/enforcement/ofac/sdn

Page 9: Export Controls on Technology

II. Standard Export Compliance

3. Ensure export would not violate U.S. sanctions See current Office of Foreign Asset Controls (OFAC)

Sanctions http://www.treas.gov/offices/enforcement/ofac/

sanctions4. Don’t ignore “Red Flags”

Page 10: Export Controls on Technology

II. Standard Export Compliance

Penalties for Export Violations Up to $1 million Up to 5 years in prison Denial of export privileges

Page 11: Export Controls on Technology

II. Standard Export Compliance

Common Exporting Pitfalls Failure to check “bad guy” lists Failure to secure IP abroad Unlicensed exports Deemed exports Recordkeeping Incorrect SEDs/documents

Page 12: Export Controls on Technology

III. International Traffic in Arms Regulations (ITAR)

Prohibits shipments of certain defense articles and technology.

Controls trade in “Munitions” Including “Mil Spec/Std.”

Requirements Registration Licenses Recordkeeping

Page 13: Export Controls on Technology

III. International Traffic in Arms Regulations (ITAR)

Common ITAR Pitfalls No export/re-export license Recordkeeping/Reporting Shipments to affiliates Dual use items “Deemed” export

Page 14: Export Controls on Technology

III. International Traffic in Arms Regulations (ITAR)ITAR Penalties:

Criminal & Civil: Up to $1 million per violation for corporations Up to $1 million per violation and up to 10 years in jail for

individuals

Other Enforcement Measures: Seizure or forfeiture of goods Debarment from licensing for as long as three years Potential debarment from Government contracting for up to

three years

Page 15: Export Controls on Technology

IV. Foreign Corrupt Practices Act (FCPA)Bribery of foreign officials is illegal, even if local

custom Any payment made with the intent to secure an unfair advantage or with a conscious disregard of circumstances may violate FCPA

Exemptions: payments to expedite or to secure the performance of a

routine governmental action” payments explicitly allowed under the host country’s written

laws reasonable and bona fide expenditures directly related to

the promotion or demonstration of products or the performance of a government contract

Page 16: Export Controls on Technology

IV. Foreign Corrupt Practices Act (FCPA)

Foreign Corrupt Practices Act (FCPA)Common Pitfalls:

Facilitation payments – recordkeeping Mergers and Acquisitions of foreign subs Foreign agents

Page 17: Export Controls on Technology

IV. Foreign Corrupt Practices Act (FCPA)FCPA Penalties

Civil & Criminal Penalties Entities – fine up to $2 million or up to twice the benefit

sought/gained Officers, directors, stockholders, employees, and agents -

up to $250,000 per violation and imprisonment up to 5 years.

Fines imposed on individuals may NOT be paid by their employer.

SEC Penalties (accounting): Individuals - Up to $5 million, and imprisonment up to 20

years Entities - Fine up to $25 million or up to twice the benefit

sought/gained

Page 18: Export Controls on Technology

V. Keys to Compliance

Know & Follow the Rules Implement & update written compliance program Periodic compliance training “Hands on” management of vendors, agents,

brokers, forwarders, etc. Inter-Departmental Cooperation

E.g., R&D, Legal, HR, etc.

Page 19: Export Controls on Technology

V. Keys to ComplianceCheck your Work

Periodic compliance reviews Self-awareness cuts off “contingent” liabilities Prior Disclosures reduce/eliminate potential

penalties

Page 20: Export Controls on Technology

VI. Conclusion International trade involves numerous rules & agencies

Must be aware of rules and ensure compliance through training and internal reviews

Rules change frequently Self-policing reduces liabilities

Page 21: Export Controls on Technology

VI. Conclusion

Failure to be diligent with trade compliance Lost opportunities Substantial penalties Interruptions in global supply chain

Companies can budget and plan for compliance, but not for enforcement.