Export Controls and Service Contractors: Determining When and How to Obtain U.S. Government Authorization to Accomplish Your Objectives

Transcription

1 Exprt Cntrls and Service Cntractrs: Determining When and Hw t Obtain U.S. Gvernment Authrizatin t Accmplish Yur Objectives Teresa Amundsn, Airbus Defense and Space, Inc. Jhn Barker, Arnld & Prter Elizabeth T.M. Fitzpatrick, Arnld & Prter December 6, 2018 Arnld & Prter Kaye Schler LLP 2018 All Rights Reserved arnldprter.cm

2 Cntact Infrmatin Teresa Amundsn Jhn P. Barker Elizabeth T.M. Fitzpatrick arnldprter.cm

3 Discussin Radmap U.S. Exprt Cntrls and Trade Sanctins Overview Case Studies and Discussin Enfrcement Cmpliance Prgram Essentials 3 arnldprter.cm

4 Overview Reasns fr U.S. Exprt Cntrls and Trade Sanctins Advancement f Freign Plicy Gals Restrict Exprts f Gds and Technlgy that Culd Cntribute t the Military Ptential f Adversaries Prevent Prliferatin f Weapns f Mass Destructin Prevent Terrrism Fulfill Internatinal Obligatins Different Purpses Mean There is N Perfect Alignment between U.S. Regulatry Framewrks and There is Sme Overlap 4 arnldprter.cm

5 Overview U.S. Exprt Cntrls Cver Any Item in U.S. Trade U.S.-Origin Items Wherever Lcated (Jurisdictin Fllws the Item r Technlgy Wrldwide) Exclusins include: Patents and Patents Applicatins; Artistic r Nn- Technical Publicatins; and Technlgy in the Public Dmain Many High-Technlgy Items and Mst Military Items, as well as Assciated Technlgy Require U.S. Exprt Authrizatin Thrugh a License r an Applicable Exemptin Trade Sanctins Fcus n Financing, Cmmdities 5 arnldprter.cm

6 Overview: Regulatry Framewrks State Department, Directrate f Defense Trade Cntrls ( DDTC ): Munitins (the Internatinal Traffic in Arms Regulatins ( ITAR )); Certain Trade Sanctins Cmmerce Department, Bureau f Industry and Security ( BIS ): Dual-Use Items (the Exprt Administratin Regulatins r EAR ) Treasury Department, Office f Freign Assets Cntrl ( OFAC ): Trade Sanctins, Embarges, Restrictins n Transfers t Certain End-Users, Terrrism, and Narctics Other Agencies, including the Department f Energy 6 arnldprter.cm

7 Overview: ITAR The ITAR regulates the exprt and temprary imprt, as well as the manufacture and brkering, f defense articles and technical data It als regulates defense services prvided t freign persns in cnnectin with, amng ther things, the design, develpment, manufacture, use, maintenance, mdificatin, repair, r destructin f defense articles Any persn r cmpany wh intends t exprt, temprarily imprt, r re-exprt a defense article, defense service, r technical data must btain prir apprval frm DDTC by submitting a license request t DDTC, unless a license exemptin applies 7 arnldprter.cm

8 Overview: ITAR The ITAR applies t gds, services sftware, and technlgy designed t kill peple r prvide a defense in a military setting (e.g., firearms, armred vehicles, persnal bdy armr, etc.) Items and Technlgy n the U.S. Munitins List ( USML ) at 22 C.F.R Intended use nt relevant in determining whether an item is ITARcntrlled Pencils sld t a freign military d nt becme ITAR cntrlled Tank exprted t serve as a museum piece remains ITAR-cntrlled 8 arnldprter.cm

9 Overview: ITAR It can be challenging t determine whether an article, technical data, r service is designated n the USML and thus ITAR-cntrlled The plicy n designating r determining USML applicability is prvided in 22 C.F.R Meets the criteria f a defense article r defense service n the USML; r Prvides the equivalent perfrmance capabilities f a defense article n the USML A specific article r service shall be determined in the future as a defense article r service if it prvides a critical military r intelligence advantage such that it warrants cntrl under the ITAR subchapter Meets ne f the criteria f 22 C.F.R (b) ( Specially designed fr the ITAR) when the article is used in r with a defense article and specially designed is used as a cntrl criteria 9 arnldprter.cm

10 Overview: ITAR Prvisin f Defense Services (22 C.F.R ) include: The furnishing f assistance (including training) t freign persns, whether in the United States r abrad in the design, develpment, engineering, manufacture, prductin, assembly, testing, repair, maintenance, mdificatin, peratin, demilitarizatin, destructin, prcessing r use f defense articles; The furnishing t freign persns f any technical data cntrlled under the ITAR, whether in the United States r abrad; r Military training f freign units and frces, regular and irregular, including frmal r infrmal instructin f freign persns in the United States r abrad r by crrespndence curses, technical, educatinal, r infrmatin publicatins and media f all kinds, training aid, rientatin, training exercise, and military advice 10 arnldprter.cm

11 Overview: ITAR Defense Services Prviding guidance r training t smene fr a defense article Prviding nn-public design r develpment infrmatin r ther technical data regarding a defense article t a third party Can be based slely n public dmain infrmatin where a U.S. persn prvides nn-public value-added cmments t public infrmatin Des nt require U.S. defense articles prviding guidance related t a freign-made defense article wuld be enugh Mst training f freign militaries and military training (limited t training n defense articles under revised definitin) This area is subjective and pen t interpretatin 11 arnldprter.cm

12 Overview: ITAR What is Technical Data? (22 C.F.R ) Infrmatin, ther than sftware which is required fr the design, develpment, prductin, manufacture, assembly, peratin, repair, testing, maintenance r mdificatin f defense articles. This includes infrmatin in the frm f blueprints, drawings, phtgraphs, plans, instructins r dcumentatin Classified infrmatin relating t defense articles and defense services n the U.S. Munitins List and 600-series items (frmerly cntrlled by the ITAR but nw cntrlled by the Cmmerce Department n the Cmmerce Cntrl List) Infrmatin cvered by an inventin secrecy rder Sftware directly related t defense articles Excludes: Infrmatin cncerning general scientific, mathematical, r engineering principles cmmnly taught in schls, clleges, and universities r infrmatin in the public dmain as defined in f the ITAR; certain telemetry data excluded under USML Categry XV(f), nte 3 Basic marketing infrmatin n functin r purpse r general system descriptins f defense articles 12 arnldprter.cm

13 Overview: EAR The Exprt Administratin Regulatins (EAR) regulates exprts, reexprts, and activities invlving cmmercial prducts, including dualuse cmmercial items with military and nn-military applicatins Regulates items designed with cmmercial purpse but which can have military applicatins (e.g., cmputers, pathgens, civilian aircraft) Cvers bth the gds and the technlgy (including services and data) The EAR als gverns anti-byctt prhibitins, which require all US firms t refuse t participate in freign byctts nt supprted by the United States (primary applicatin t the Arab League byctt f Israel) 13 arnldprter.cm

14 Overview: EAR The EAR licensing regime encurages a balancing f cmpeting interests (including freign availability, cmmercial and research bjectives, and natinal security cncerns) If an item/data/service is subject t the EAR, it des nt necessarily mean that a license will be required t cnduct an exprt. The need fr an exprt license depends n hw the item/data/service is cntrlled n BIS s Cmmerce Cntrl List (CCL), where the prduct is t be exprted, and whether there is a restrictin n the end-use r end-user The EAR enumerates 18 different types f license exceptins with varying requirements 14 arnldprter.cm

15 Overview: EAR There is n separate definitin f defense service r technical data in the EAR Instead, the EAR defines technlgy as: Infrmatin necessary fr the develpment, prductin, use, peratin, installatin, maintenance, repair, verhaul, r refurbishing (r ther terms specified in ECCNs n the CCL that cntrl technlgy ) f an item (15 C.F.R. Part 772) Cntrlled technlgy relates t technlgy that is required fr the develpment, prductin, r use f items n the Cmmerce Cntrl List is cntrlled accrding t the prvisins in each Categry Technlgy that is required fr the develpment, prductin, r use f a cntrlled prduct remains cntrlled even when applicable t a prduct cntrlled at a lwer level. (EAR General Technlgy Nte) 15 arnldprter.cm

16 Overview: EAR Risks fr Transfers f Dual-Use Gds and Related Technlgies: Must identify the exprt classificatin prir t exprt r access by freign natinals Determine if a license is required by a particular destinatin Determine if a license exemptin is available Sme examples include: Shipments f Limited Value (LVS), Shipments t Grup B Cuntries (GBS); Civil End-Users (CIV); Technlgy and Sftware Under Restrictin (TSR) and Technlgy and Sftware Unrestricted (TSU); Temprary Imprts, Exprts, Re-exprt, and Transfers In-Cuntry (TMP); and Strategic Trade Authrizatin (STA) 16 arnldprter.cm

17 Overview: OFAC OFAC Sanctins Map 17 arnldprter.cm

18 Overview: OFAC OFAC implements a series f federal laws and regulatry regimes designed t impse ecnmic sanctins/embarges n: Certain freign cuntries r regins (e.g. Iran, Syria, Cuba, and Crimea); The list f prhibited/embarged/sanctined cuntries changes cnstantly Prhibited entities and persns ( Specially Designated Natinals r SDNs ); and Prgrams fr engaging in activities cntrary t U.S. freign plicy r natinal security (e.g. narctics traffickers) Currently, there are thirty different active sanctins prgrams administered by OFAC 18 arnldprter.cm

19 Overview: OFAC Sanctins typically fcus n the end-user r cuntry rather than the technlgy invlved While there is great variatin in prhibitins under OFAC s varius sanctins regimes, each generally includes a bar n U.S. persns engaging in any dealings with these cuntries r SDNs This prhibitin includes financial transactins and the exchange f services, amng ther things Persns subject t U.S. jurisdictin cannt d business with SDNs and cannt d business with any party wned 50% r mre by an SDN Under sme sanctins regimes, U.S. persns cannt d business with a party cntrlled by an SDN, even if the wnership percentage is belw 50% 19 arnldprter.cm

20 Overview: OFAC The basis fr U.S. jurisdictin is generally brad and includes: U.S. citizens r U.S. permanent residents wherever lcated Entities rganized in the U.S. Subsidiaries f entities rganized in the U.S. Freign subsidiaries fr sme sanctins regimes (e.g., Iran, Cuba) Mst U.S. dllar denminated transactins (because they generally settle thrugh the U.S. regardless f the intentin f the parties) U.S.-rigin gds, technlgy, and sftware in mre than de minimis amunts Any ruting f activities thrugh the U.S. including IT and data prcessing Incidental internet traffic is nt sufficient fr jurisdictin Dedicated IT services in U.S. likely sufficient fr jurisdictin Use f U.S. server might be sufficient Any persn wh is physically present in the U.S. 20 arnldprter.cm

21 Overview: OFAC Trade Sanctins Risks t Keep in Mind Dealings with prhibited cuntries Dealings with prhibited persns (r entities wned r cntrlled by prhibited persns) Unauthrized financial transfers 21 arnldprter.cm

22 Case Studies: Overview Hw Exprt Cntrl and Trade Sanctins Issues Might Arise: Sending gds abrad (even n a temprary basis) Prvisin f research r defense services t freign persns, even at the request f the U.S. Gvernment Transfers f technical data (including sftware) Dealings with subcntractrs, payments f fees, and cmmissins Brkering 22 arnldprter.cm

23 Case Study N. 1 U.S. cmpany exprted satellites t China fr launch n a Chinese launch vehicle at a time when U.S. regulatins permitted such launches Satellite launch failed and the Chinese launch service prvider initiated an investigatin U.S. manufacturer assisted in the investigatin State Department determined a defense service ccurred even when all the infrmatin relied n in furnishing the defense service t a freign pwer is in the public dmain U.S. cmpany fined fr transferring value-added engineering capabilities even thugh the infrmatin prvided was available publicly 23 arnldprter.cm

24 Implicatins fr Service Prviders When dealing with defense articles, freign r U.S., U.S. exprter shuld nt be lulled int cmplacency that the infrmatin abut the article is in the public dmain, is cmmnly taught in universities, etc. Fcus n the value added being prvided as a service prvider Any services in defense articles prvided abrad r t freign natinals lcated anywhere, including in the U.S., shuld fcus n whether assistance is prvided in the design, develpment, engineering, manufacture, prductin, assembly, testing, repair, maintenance, mdificatin, peratin demilitarizatin, destructin prcessing r use f defense articles 24 arnldprter.cm

25 Case Study N. 2 U.S. rganizatin seeks t send its persnnel abrad fr humanitarian wrk r military training wrk fr a U.S. gvernment cntract Persnnel prtected with persnal prtective gear (bdy armr), cmmunicatin devices (radis, phnes), GPS and cmputers First, need t determine the exprt jurisdictin fr exprt f prducts Mst high-grade bdy armr subject t the ITAR Cmmunicatins devices may be ITAR- r EAR-cntrlled GPS equipment fr grund-based use generally is subject t the EAR Almst all cmputers are subject t the EAR Secnd, determine jurisdictin fr the training prvided (e.g., defense services? Subject t the EAR?) Generally, fr ITAR exprts the exprter must be registered and btain a license r qualify fr an exemptin; EAR is mre flexible fr temprary exprts, but licenses may be required fr training 25 arnldprter.cm

26 Temprary Exprts f Persnal Prtective Gear, Equipment Exceptin under the ITAR t permit U.S. persns t exprt temprarily frm the United States withut a license ne set f bdy armr cvered by USML Categry X(a)(1), which may include ne helmet cvered by USML, r ne set f chemical agent prtective gear cvered by USML Categry XIV(f)(4). N registratin required Must declare the articles upn each departure frm the U.S. Must be exprted with the individual's baggage r effects, whether accmpanied r unaccmpanied (but nt mailed); and Is fr the persn's exclusive use and nt fr reexprt r ther transfer f wnership The persn must declare an intentin t return the article(s) t the United States at the end f tur, cntract, r assignment fr which the articles were temprarily exprted 26 arnldprter.cm

27 Temprary Exprts f Persnal Prtective Gear, Equipment Exceptin fr bdy armr nt available fr military grade radis Must be registered under the ITAR t btain a temprary exprt license r therwise qualify fr a license exceptin fr military radis Mst EAR-cntrlled phnes, GPS equipment and cmputer equipment may be exprted withut a license t mst destinatins wrldwide except fr embarged cuntries/lcatins (Cuba, Crimea, Iran, Nrth Krea, Syria, and fr sme equipment, Sudan) Fr sensitive equipment that therwise wuld require a license, license exceptin TMP permits the temprary exprt abrad t all cuntries except E:1 cuntries (Iran, Nrth Krea, Sudan and Syria) s lng as the equipment is kept under ne s effective cntrl at all times Special rules may permit exprts t Cuba under limited circumstances Determine license requirements fr training (ITAR versus EAR) N registratin requirement under the EAR 27 arnldprter.cm

28 Case Study N. 3 U.S. rganizatin seeks t cllabrate with party abrad. What d yu need t check? Destinatin (cuntries): Is the cuntry subject t U.S. trade sanctins? Crimea regin f Ukraine, Cuba, Nrth Krea, Iran, Syria Special prhibitins under the ITAR (prhibited cuntries under 126.1) Special EAR prvisins fr certain technlgies (e.g., Russia, China, Venezuela) Parties/Persns: Is any party t the agreement n U.S. prhibited lists? OFAC list, Bureau f Industry & Security, etc. Is the signatry t the agreement r any individual in the transactin n a list? Any parties t the transactin n a list (banks, freight frwarders, etc.)? Cntractual Restrictins U.S. gvernment cntract restrictins n use f U.S. citizens, surcing requirements, etc., bank financing restrictins, etc. Check fr new designatins ccurring while the transactin is nging 28 arnldprter.cm

29 Case Study N. 3 Beware facilitating transactins frm the U.S. r by U.S. persns fr transactins legal in the lcal jurisdictin, but subject t U.S. cntrls Lng line f banking cases where OFAC impsed penalties fr activities in the U.S. fr facilitating transactins abrad that wuld be prhibited if entered int by a U.S. persn directly Make certain t have insight int the activities f a subsidiary r parent rganizatin abrad Ensure that an independent review is cnducted befre facilitating any transactin OFAC defines facilitatin bradly t include the prvisin f assistance fr certain effrts, activities, r transactins, including the prvisin f currency, financial instruments, securities, r any ther transmissin f value; purchasing, selling, transprting, swapping, brkering, financing, apprving, r guaranteeing; the prvisin f ther services f any kind; the prvisin f persnnel; r the prvisin f sftware, technlgy, r gds f any kind 29 arnldprter.cm

30 Enfrcement U.S. Exprt Cntrls and Trade Sanctins Penalties fr Nncmpliance State Department (ITAR) Criminal vilatins up t $1,000,000 per vilatin, up t 20 years imprisnment Civil penalties: seizure and frfeiture f articles and any vessel, aircraft, r vehicle invlved in attempted vilatin, revcatin f exprting privileges, fines f up t slightly ver $1.3 millin per vilatin (depending n inflatin rate) Cmmerce Department (EAR) Criminal vilatins: up t $1,000,000 r up t five times the value f the exprt, whichever is greater per vilatin (range depends n applicable law), up t 20 years imprisnment Civil penalties: lss f exprt privileges, fines up t slightly ver $295,000 per vilatin (depending n inflatin rate) Treasury Department (OFAC) Criminal vilatins: up t $1,000,000 per vilatin, up t 20 years imprisnment Civil penalties: fines up t slightly ver $1.4 millin (depending n applicable law and inflatin rate) per vilatin Additinal penalties may be warranted fr vilatins under specific sanctins laws 30 arnldprter.cm

31 Enfrcement: Implicatins Practical Implicatins in Dealing with Ptential Enfrcement Measures Significant Time and Csts Assciated with Defense Disruptin f Wrk Flws Hld rders and suspensin f activities Time devted t investigatin and dcument reviews as ppsed t handling business needs Engagement f Outside Cunsel Dcument cllectins and review Interviews f Emplyees (by utside cunsel and ptentially gvernment) Required Reprting and Advcacy Meetings with gvernment Drafting disclsures/written reprts Crrective Actins Risk that Teaming Agreement Partner r Cmpetitr Will Reprt Transactin t the U.S. Gvernment and Thus Shut-dwn Transactin During Investigatin 31 arnldprter.cm

32 Cmpliance Hw t Prevent Cmpliance Prblems Identify defense services and technical data, brkering activities, training, etc. Apply fr licenses in a timely manner (license apprvals can take 1-6 mnths) Implement an exprt cntrl and trade sanctins plicies and prcedures cmpliance plan Training fr all persnnel with internatinal expsure Prvide cmpliance resurces 32 arnldprter.cm

33 Cmpliance Hw t Prevent Cmpliance Prblems Cntinued Review License Prviss and Limitatins Carefully Prviss place limits n what can be dne under licenses Limitatins can include limitatins n what disassembly, repair, and maintenance can be perfrmed and wh can perfrm it Prviss als impse requirements n exprters, such as: Requirements t reprt when exprts are cmpleted r if exprted items d nt reach their intended destinatins fr sme reasn Any activity taken under a license must be specifically authrized within the fur crners f the license dcument 33 arnldprter.cm

34 Cmpliance Best Practice Guidance fr Cmpliance Prgrams Include: Tp-dwn messaging t all emplyees n the imprtance f and cmmitment t cmpliance with exprt cntrl regulatins (i.e., written plicy r missin statement by senir management that prvides cmpliance with exprt cntrl regulatins is a high pririty) A high-level fficer/emplyee with adequate backgrund, training, and authrity t be respnsible fr ensuring exprt cntrls cmpliance (i.e., Exprt Cntrl Cmpliance Officer ECCO ) Ptential supprt frm Exprt Cntrl Administratrs Appintment f Empwered Official/central persn respnsible fr exprt cmpliance Regular general awareness training sessins, including lessns n red flags, shuld be required fr all emplyees 34 arnldprter.cm

35 Cmpliance Cntinued Best Practice Guidance fr Cmpliance Prgrams Include: Written exprt cmpliance plicies and prcedures shuld be established and shared with all relevant emplyees These plicies and prcedures shuld be tailred t the relevant business as ppsed t ff the shelf Prcedures shuld include prcesses fr due diligence and btaining written representatins frm frwarding agents and custmers verifying the end-user and end-uses Prcedures shuld als include regularly scheduled self-assessments f cmpliance with exprt cntrl regulatins and trade sanctins, as well as benchmarking against industry best practices Engagement f utside cunsel r cnsultant frm time-t-time t assess exprt cmpliance prgram and prvide suggestins fr imprvement 35 arnldprter.cm

36 Questins & Discussin 36 arnldprter.cm

37 Speakers Teresa Amundsn, Head f Ethics & Cmpliance, Chief Cmpliance Officer, Herndn, VA Teresa.Amundsn@airbusna.cm, Ms. Amundsn is the Head f Ethics & Cmpliance fr Airbus One Rf Nrth America and the Chief Cmpliance Officer at Airbus Defense and Space, Inc. In this capacity, she establishes plicy and prcedural guidance t all Airbus U.S. entities cncerning ethics and business cmpliance matters and supervises the Airbus Ethics Cmpliance Prgram in the U.S. She manages ethics investigatins and versees develpment f remedial measures. She als versees the U.S. trade Cmpliance Prgram and manages a team f U.S. trade cmpliance prfessinals wh supprt U.S. peratins. She is the principal legal advisr and advcate t Airbus SAS and affiliates wrldwide n cmpliance with U.S. trade cntrls and ecnmic sanctins. Jhn P. Barker, Partner, Washingtn, DC Jhn.barker@arnldprter.cm, Mr. Barker s practice fcuses n natinal security matters including exprt cntrls and trade sanctins administered by the Office f Freign Assets Cntrl at the US Department f the Treasury (OFAC), and cmpliance with the Freign Crrupt Practices Act (FCPA). He helps cmpanies and institutins establish cmpliance plans, btain exprt authrizatins, and prvides representatin in enfrcement prceedings. Mr. Barker came t the firm frm the US Department f State, where he served as the Deputy Assistant Secretary fr Nnprliferatin Cntrls and, prir t that, as Deputy Assistant Secretary fr Exprt Cntrls. Elizabeth T.M. Fitzpatrick, Assciate, Washingtn, DC Elizabeth.fitzpatrick@arnldprter.cm, Ms. Fitzpatrick advises and represents clients in a wide variety f litigatin, natinal security and internatinal matters. She has particular experience cnducting internal investigatins and advising cmpanies n exprt enfrcement and ther internatinal law enfrcement issues. She als represents clients in civil antitrust matters and false claims/qui tam actins. Prir t law schl, Ms. Fitzpatrick wrked as a paralegal-specialist and treaty analyst in the Office f the Legal Adviser at the US Department f State and was member f the US Delegatin t the New START (Strategic Arms Reductin Treaty) negtiatins. 37 arnldprter.cm