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MANAGEMENT

GLOBAL LEGAL SERVICES

ITAR – Best Practices Workshop

Compliance in an Outsourcing Environment

Presented by Gary StanleyGlobal Legal Services, PC, Washington, DC

GLOBAL LEGAL SERVICESGLOBAL LEGAL SERVICES


Four U.S. Agencies Control ExportsState Dept’s Directorate of Defense Trade Controls (DDTC) controls defense articles, defense services, and related technical data, including most space-related articles

Commerce Dept’s Bureau of Industry and Security (BIS) controls “dual-use” items

CubaTreasury Dept’s Office of Foreign Assets Control (OFAC) oversees embargo and sanction lists

Homeland Security Dept’s Bureau of Customs and Border Protection enforces all exports at U.S. borders.

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Law and RegulationsCommerce Department State Department Treasury Department

Export Administration Act Arms Export Control Act Trading with the EnemyExport Administration Act Arms Export Control Act Trading with the Enemy Act, Int’l Emergency

Economic Powers Act, & Others

Export Administration Regulations (“EAR”)

15 C.F.R. Parts 730-774

International Traffic in Arms Regulations (“ITAR”)

22 C.F.R. Parts 120-130

Iraq Sanctions Regulations, Terrorism Sanctions

Regulations, & Others31 C.F.R. Parts 500-598

Commerce Control List U.S. Munitions List List of Specially Designated Nationals & Blocked Persons

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Key Elements of U.S. Export ControlsU.S. controls both goods and technologyg gy

Until Export Control Act of 2002 (effective 1 May 2004), United Kingdom did not control electronic transfers of military technology and software

U S asserts extraterritorial jurisdiction over its exports of goodsU.S. asserts extraterritorial jurisdiction over its exports of goods and technology

Legal principle under which U.S. controls re-exports and retransfers of U.S. goods and technology – “Chain of custody”goods a d tec o ogy C a o custody

Extends to foreign goods incorporating U.S. components and foreign goods manufactured from U.S. technology

No “de minimis” rule under ITARNo de minimis rule under ITAR

U.S. applies “deemed” export and “deemed” re-export rule

Deemed re-export rule is basis for controls on foreign companies’ dual national d h d l l

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and third country national employees


What Triggers U.S. Export Controls for Your Company?Engaging in the United States in the manufacture of ITAR-controlled PCB i “b k i ti iti ”PCBs or in “brokering activities”

Manufacturing of defense articles or furnishing of defense services requires registration with State Dept. under ITAR Part 122 – applies even if your company doesn’t export

Brokering sale of defense articles or services requires separately registering with State o e g sa e o de e se a t c es o se ces equ es sepa ate y eg ste g t StateDept. under ITAR Part 129

Selling U.S. products and services abroad

Offshore procurement of partsOffshore procurement of partsOutsourcing usually entails exporting specifications and drawings (possibly to multiple foreign suppliers)

Foreign nationals working in U.S. facilitiesg gIs a technology transfer occurring?

Collaboration/joint development with foreign partnersAlmost always involves technical discussions

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Almost always involves technical discussions


Key Elements to Consider in Selling or Procuring PCBS Overseas

ITAR or EAR? – Are the PCBs specifically designed or modifiedITAR or EAR? Are the PCBs specifically designed or modified for a military or space application?What is entire “chain of custody” through which the PCBs or technical data will pass?p

If selling, includes initial customer and any further customers up supply chain, as well as all subcontractors who may have access to PCBs or technical data and any foreign customs brokers/freight forwarders and other intermediate consignees (brokers)

If procuring, includes foreign supplier and any subcontractors (including your source inspectors) who may have access to specs or related technical data, as well as any foreign customs brokers/freight forwarders and other intermediate consignees (brokers)

Do any foreign parties have any third country national (including dual national)Do any foreign parties have any third country national (including dual national) employees to whom they will allow access to the PCBs or technical data (“deemed re-export”)?

What ITAR license or other authorization do I need?

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Who Qualifies as a “Dual National”?Holding multiple citizenshipsState and Commerce differ on effect of being born in a different country from where individual now livesa different country from where individual now lives

State = different country of origin = dual national• Note: State does not usually recognize voluntary or involuntary

renunciations of citizenshiprenunciations of citizenship

Commerce = individual is national of country from which he or she most recently acquired citizenship

H i ti i bli ti t tHaving continuing obligations to two or more countriesReceiving benefits from two or more countries

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Receiving benefits from two or more countries


ITAR § 126.1 “Proscribed Countries”Af h iAfghanistanBelarusBurma (Myanmar)China, People’s Republic ofC D ti R bli f

LiberiaLibyaNorth KoreaRwanda

Congo, Democratic Republic ofCubaCyprusEritreaH iti

SomaliaSudanSyriaVenezuelaHaiti

IranIragIvory Coast (Côte d’Ivoire)L b

VenezuelaVietnamYemenZimbabwe

Lebanon

See http://www pmddtc state gov/country htm

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See http://www.pmddtc.state.gov/country.htm


Illustration of “Chain of Custody” in Selling PCBs to Foreign Buyer

A DA = U.S. PCB exporterB = Canadian satellite instrument

manufacturerC = Japanese satellite integrator

A

F D

FF SSS

DD

BC Japanese satellite integrator

manufacturerD = Japan Aerospace Exploration

Agency – “End User”

S S b

BF D

F

F SD

TS = SubcontractorF = Freight forwarderB = Broker

D D l ti l l

F

C

D

S FF

T

S

T

T

D = Dual-national employeeT = Third country national

employee F D DD

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D D


Ill t ti f “Ch i f C t d ” i P i PCB f F iIllustration of “Chain of Custody” in Procuring PCBs from Foreign Manufacturer

A = U.S. PCB companyB = Canadian PCB manufacturer A DD

S = SubcontractorF = Freight forwarderE = E-Mail B

E D

FF SSS

D

I

E = E MailI = Canadian Source Inspector

F D

F ST

D = Dual-national employeeT = Third country national

employee

A

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p y


Ill t ti f “Ch i f C t d ” i El t i M f t iIllustration of “Chain of Custody” in an Electronic Manufacturing Services Environment.

A = US Defense Contractorl f

AB = Electronic Manufacturing Services

(EMS) Contractor in USC = PCB Fabricator in Singapore

B

E

S = SubcontractorF = Freight forwarderE E Mail

BE D

FF SSS

DD

E = E-Mail

D = Dual national employee

CF

F SD

D = Dual-national employeeT = Third country national employee F

B

DS

T

AF

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BI

A


Ill t ti f “Ch i f C t d ” i El t i M f t iIllustration of “Chain of Custody” in an Electronic Manufacturing Services Environment.

A = Prime ContractorA B CE E

DSB = Sub Contractor in CanadaC = U.S. Electronic Manufacturing

Services (EMS) ContractorD = EMS Global Purchasing System

DS

DE

E

E = PCB Fabricator Domestic Sales and Prototype Company

F = PCB Company’s Production Center in Taiwan

EE D F SSS

DD

S = SubcontractorF = Freight forwarderE = E-Mail F

D

F

F

F SSS

D

D = Dual-national employeeT = Third country national employee

F

C

D

F ST

B ATechWeek

C BF AF


What ITAR Export Authorization Do I Need?Selling PCBs to a Foreign Buyer

Technical Assistance Agreement • Only required if you and foreign buyer need to have technical discussions

DSP-5 to cover export of boardsC id ITAR § 126 5 C di E ti if b i i C d• Consider ITAR § 126.5 Canadian Exemption if buyer is in Canada

Distribution Agreement or ITAR § 123.9 Re-Export /Retransfer Request if ultimate end-user is unknown at time of export

Procuring PCBs from Foreign ManufacturerProcuring PCBs from Foreign ManufacturerManufacturing License Agreement for Offshore Procurement

• Only required if you and foreign mfr. need to have technical discussions

DSP-5 under ITAR § 124.13 to export build-to-printDSP 5 under ITAR § 124.13 to export build to print drawings/specs

• Must meet all requirements of ITAR § 124.13• Consider ITAR § 126.5 Canadian Exemption if mfr. is in Canada

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Key Elements to Consider in Using Foreign National Employeesp y

Does the person have a “green card”?If yes, then he or she is considered a “U.S. Person” for ypurposes of both the ITAR and EAR

Does the person come from an ITAR § 126.1 proscribed country? If yes, then you can’t use the person on ITAR-controlled projectscontrolled projectsWhat is the appropriate ITAR licensing authorization?

At a minimum, a DSP-5 “employment license”Al d T h i l A i t A t b tAlso may need Technical Assistance Agreement between company and employee and possibly with other companies as parties also if foreign national employee will be having contact and technical discussions with them

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contact and technical discussions with them


Personality Traits of a Good Export Control Manager

I t ll t ll iIntellectually curiousIf sales manager says he has to meet an Iranian delegation coming in at 2:00 p.m., you want someone whose ears will perk upp p

Attention to detailKey to successful export license applications

Pro-activePro activeShy, withdrawing types need not apply!

Good political skillsInevitably, export control managers must e ab y, e po co o a age s ussometimes say “No!” – Can the person do this and still retain support of senior management and cooperation of peers?

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Element of an Effective Export Control Compliance Program?

E l llExport controls permeate allaspects of company operations

Requires team approach with senior mgt lead

Sales

senior mgt. lead

Can’t depend on guidance from other U.S. companies

E l U S

Legal

Physical Supply

Shipping

ExportEven many large U.S. companies don’t get it right!

Aerospace companies should devote at least as much

PhysicalSecurity

IPHuman

SupplyChain

ExportControls

devote at least as much resources to export control compliance as chemical companies do to environmental compliance

IP

IT

Resources

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Elements of an Effective Export Control Compliance Program

Compliance Program Organization Controls on Foreign National p g g(Enterprise Level)

Management Support

P li D l

gEmployees & Visitors

Record Keeping

Policy Development

Classification of Products & Technology

Reporting

Auditing (including metrics)

Screening for Embargoes & Restricted Parties

License Application

Training (“Some for all, all for some”)

H dli S t d Vi l tiLicense Application

License Implementation & Monitoring

Handling Suspected Violations

Program Review

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Penalties for ExportITAR EAR

(Under New IIEPA Enhancement Act)(Under New IIEPA Enhancement Act)

Civil Up to $500K per violation. Possible “consent decrees” with a variety of possible conditions, including DDTC oversight of business operations

Up to $250K per violation (previously $50k) or twice the amount of the transaction that is the basis of the violation

Criminal Up to $1M per violation.Up to 10 years imprisonment

Up to $1M for corporations, $1M for individuals (previously $250K)Up to 20 years imprisonmentUp to 20 years imprisonment

Other Debarment (possibly permanent) from participating in activities subject to the ITARDenial of export privileges

Denial of export privileges

Denial of export privilegesCustoms seizure

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See http://pmddtc.state.gov/consent_agreements.htm for ITAR consent agreements and fines


Compliance is Good Business!

Increasingly, companies are choosing collaborative partners based on effectiveness of their export control pcompliance

Violations put project timelines in jeopardyjeopardy

Effective compliance programs = competitive advantage

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Questions?

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Sign up for free daily trade compliance e-mail newsletterp

at

gstanley@glstrade [email protected]

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Thank You!

Gary StanleyGlobal Legal Services, PC

T l (202) 686 4854

Hunter TechnologyTel. (408) 245-5400

E il i f @h bTel. (202) 686-4854E-mail: [email protected]

E-mail: [email protected]

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THANK YOU TO OUR TERRIFIC SPONSORS!

www.dcsiconsultants.com

MANAGEMENT

GLOBAL LEGAL SERVICES

thank you to our terrific sponsors!law and regulations ... ¾burma (myanmar) ¾china, people’s...

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