THE WORLD ISN T FLAT MANAGING TRADE RISK

Transcription

1 June 2010 THE WORLD ISN T FLAT MANAGING TRADE RISK Global Reach of U.S. Export Controls Bruce Jackson, Export Practice Leader, Trade Management Consulting J.P. M O R G A N P R O P R I E T A R Y

2 Contents Jurisdiction of U.S. Government Export Regulations Why are U.S. export control rules important to you Determining whether your item or transaction is subject to U.S. export controls Challenge of U.S. Person Employee U.S. Reexport/Retransfer Controls Structure & Key Definitions Intangible Exports & Reexports Jurisdiction Determination International Traffic in Arms Regulations (ITAR) Export Administration Regulations (EAR) 2

3 Use of the Term Foreign in this Presentation U.S. export control regulations use terms such as Foreign Country Foreign Destination Foreign National Foreign Person Foreign Product Foreign Subsidiary Foreign in this context = Non-U.S. To the extent possible the presentation has been modified to reflect this but there are instances where the original regulatory terminology remains 3

4 Why are U.S. Export Control Rules Important to You? U.S. export control laws are far reaching! You must observe U.S. export controls requirements if you U S A Export U.S.-origin items or technology Buy U.S.-origin items or technology Use U.S.-origin items or technology Receive U.S.-origin technology/technical information from anyone Trade with U.S. firms or their foreign subsidiaries and branches Employ or contract with U.S. persons within your business, or within your corporate reporting structure Are owned or controlled by U.S. persons or firms 4

5 Determining whether item is subject to U.S. Export Controls Your item (i.e. product, technology, software, etc.) must be reviewed for U.S. Government jurisdiction if it is Wholly U.S.-origin; Incorporates any U.S.-origin parts, components, materials, software or technology; or Is designed or developed based upon U.S.-origin technology / technical data Non-U.S. end item U.S. origin part 5

6 Determining whether your transaction is subject to U.S. Export Controls Your transaction (i.e. sale, contract, order, service, etc.) must be reviewed for U.S. Government jurisdiction if it involves countries or parties that are subject to U.S. trade sanctions or embargoes and Enters/transits U.S. territory; Involves any U.S. persons or firms; or U.S. persons or firms are in positions of management authority, control or ownership with respect to your firm 6

7 Challenge of the U.S. Person Employee: Segmenting their Databank of Knowledge Risk of tainting non- U.S. products, technology and projects! Potential Databank of knowledge EAR DATA ITAR DATA Publicly Available Data Classified Data The Data is nicely SEGMENTED in this illustration, but REALITY is likely quite different! = No de minimis rule (and Public Domain Data) 7

8 Challenge of U.S. Person Employee: Extending Jurisdiction of U.S. Export Controls over the Business of a Non-U.S. Firm Non-U.S. Company Org Chart Management Board U.S. Persons cannot participate in or approve / facilitate business with U.S. embargoed/sanctioned countries, entities or persons 8

9 U.S. Export Control System Agencies Involved P resident P resident N ational Security C ouncil N ational S ecurity C ouncil Licensin g Ag encies C entral Intelligence A gency C entral Intelligence A gency N ational S ecurity A gency N ational S ecurity A gency D epartm ent D epartm ent of of C om m erce C om m erce B ureau of E B xport ureau of A dm inistration E xport A dm inistration E xport A dm inistration E xport R A egulations dm inistration R egulations D ual-use goods and Technology D epartm ent D epartm ent of of S tate S tate O ffice of D efense O ffice T rade of D C efense ontrols T rade C ontrols International T raffic International in A rm s R T egulations raffic in A rm s R egulations D efense products and S ervices E xport C learance Ag encies U S C ustom s U S C ustom s U S C ensus B ureau U S C ensus B ureau D epartm ent D epartm ent of the of the Treasury Treasury O ffice of Foreign O ffice A ssets of Foreign C ontrol A ssets C ontrol V arious S anctions V arious R egulations S anctions R egulations P eople and M oney D epartm ent of S tate D epartm B ureau ent of of S tate P olitical - B M ureau ilitary of A ffairs P olitical - M ilitary A ffairs A rm s C ontrol & D isarm A rm am s ent C ontrol A gency & D isarm am ent A gency D epartm ent of D efense / D epartm D efense ent T of hreat D efense / R eduction D efense A T gency hreat R eduction A gency D efense Intelligence D efense A gency Intelligence A gency D epartm ent of E nergy D epartm ent of E nergy S ub-group on N uclear E S xport ub-group C oordination on N uclear E xport C oordination N uclear R egulatory N uclear C om m ission R egulatory C om m ission 9

10 U.S. Trade Regulations as they apply to Embargoed/Sanctioned/Restricted Countries OFAC Trade Sanctions and/or Embargoes ITAR Arms Embargoes Balkans* Zimbabwe ITAR License Denial Policy China Haiti Somalia *Exceptions apply. Always consult regulations first. Ivory Coast* Liberia Burma Sudan Iraq* Cuba Iran N. Korea Syria Libya* EAR Embargoes or Special Controls Afghanistan* Belarus Congo* Fiji* Lebanon* Rwanda* Vietnam Certain other countries subject to case-by-case review Due to the dynamic nature of U.S. Export controls this chart is representative only! 10

11 What is a Reexport/Retransfer under the EAR? An actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country Includes the release of technology or software subject to the EAR to a foreign national outside the United States (known as a Deemed Reexport ) May also apply to the shipment or transmission of items to a new end-user within a foreign country 11

12 What is a Reexport/Retransfer under the ITAR? Transfer of defense articles or defense services to an enduse, end-user or destination not previously authorized Includes transfer to a new end-use, end-user or destination within the same country Authorization required per ITAR Sec ! Paris Marseille 12

13 Who is subject to U.S. Export Controls? U.S. companies that are engaged in international trade U.S. persons and any person in the U.S. Foreign persons who: Reexport/Retransfer U.S.-origin items Conduct activities that are subject to U.S. export regulations Your Organization is subject to these reexport/retransfer control laws and regulations 13

14 Who s Who for U.S. Export Control Purposes? U.S. government agencies with jurisdiction over exports and reexports have differing terms for types of persons, and not all are defined! There are terms for Person U.S. Person Foreign National Foreign Person Helpful resources: ITAR 22 CFR Part EAR 15 CFR Part 734.2(b)(2)(ii) Foreign Assets Control 31CFR Part 500 NISPOM Chapter 2 Term used in the EAR and the ITAR but NOT DEFINED! Term defined and used in the ITAR! Foreign Person as used in this training module includes a Foreign National 14

15 Who is a Foreign Person per the U.S.? Either a: Person who is not a U.S. Citizen / U.S. National Person who is not a lawful permanent resident of the U.S. - does not have a green card Person not qualifying as U.S. protected individual Person with Dual Citizenship (neither being U.S. citizenship) Foreign corporation, entity, organization, etc., or U.S. Citizen who works for (represents) a foreign corporation, entity, organization, etc. The above are subject to all U.S. reexport/retransfer control restrictions, including reexport licensing requirements 15

16 Intangible Exports & Reexports U.S. government is concerned with the release or disclosure of U.S.-controlled technology to non-u.s. persons regardless of where the release may occur Companies must have adequate controls in place prior to the release of U.S.-controlled technology Lack of adequate controls can result in: Fines, Penalties Debarment Poor customer relations 16

17 What is the Deemed Export Rule under the EAR? Scope - EAR Part 734.2(b)(ii) Any release of technology or software subject to the EAR in a foreign country or any release of technology or source code subject to the EAR to a foreign national, regardless of location, is deemed to be an export to the home country of the foreign national 17

18 How does the Deemed Export Rule apply? Applies to Release, Disclosure, Transmission in any manner of controlled U.S. technology - information, technical data, or software to a Foreign National no matter where located To be an export of such technology to the country of origin of the Foreign National Proper U.S. government authorization is required prior to the release of U.S.- controlled technology to the foreign national no matter where the release occurs 18

19 Technology Controls under the ITAR Scope - ITAR Part (a)(3) (5) Disclosing (including oral or visual) or transferring in the U.S. any defense article to an embassy, any agency or subdivision of a foreign government Disclosing (including oral or visual) or transferring technical data to a foreign person, whether in the U.S. or abroad Performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad 19

20 What is a Defense Service? ITAR The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad - Includes: Design Development Engineering Manufacture Production Assembly Testing Repair Maintenance Modification Operation Demilitarization Destruction Processing Use of defense articles 20

21 Information Categories (through the prism of the ITAR) Financial Proprietary Public Domain Technical Data under jurisdiction of other government agencies Technical Data (Export Controlled) CLASSIFIED Sales & Marketing Information General Engineering Principles 21

22 U.S. Government Agency Policy on Origin Under the EAR individuals who are Citizens of more than one foreign country, or Have citizenship in one foreign country and permanent residence in another as a general policy the Commerce Department considers the last permanent resident status or citizenship obtained to be the one that governs Under the ITAR The origin of the foreign person is taken into account in determining what authorizations and documentation is required 22

23 Challenges of Managing Compliance with Deemed Export / Technology Controls Increasing usage of virtual workplaces such as MS-SharePoint, web-based communications and cloud computing Technology control by its very nature is intangible and involves human beings and their behaviors Making compliance a significant challenge! Electronic paper trail makes it easier for regulators to track and investigate non-compliance 23

24 Typical Areas of Weakness in Technology Controls within Companies Communication between Compliance function and Human Resources functions Export classification and cataloging of all items and technology / technical data Physical security access Enforcement of internal procedures for technology control Trade Shows IT/Network security and access controls After-Sales Services Procurement Process 24

25 What is Jurisdiction Determination? The FIRST question to answer in export controls! The process of determining the controlling U.S. government agency for exports of commodities, technical data or software End result will identify that the item is under the jurisdiction of either the: U.S. International Traffic in Arms Regulations (ITAR) Or U.S. Export Administration Regulations (EAR) ITAR In certain limited instances, another U.S. government agency may ultimately have export jurisdiction over an item (e.g., Nuclear Regulatory Commission) EAR 25

26 Jurisdiction Determination - Key Concepts & Pitfalls You must start with determining if the item meets any criteria in ITAR Was the item designed or modified (tweaked) for military application? The U.S. Department of State is the ultimate authority in determining jurisdiction under the ITAR Commodity Jurisdiction requests should be directed to the State Department not the Commerce Department 26

27 Jurisdiction Determination - Key Concepts & Pitfalls (cont d) What do these two items have in common? This little $1,500 part QRS-11 Quartz Rate Sensor What is the consequence? Commercial items may be considered munitions items and subject to stringent export controls 27

28 Product Development Chronology Potential ITAR Tainting Issue Potentially ITAR-controlled products Commercial Product Development Product A Product C Product E Potential ITAR-controlled Technology flow Potential ITAR-controlled Technology flow Military / Defense Product Requirements Modifications may include: environmental, dimensional, technical, etc. Product B Modified to meet military application Product D 28

29 Derivative Technical Data, Services and Defense Articles: The ITAR Tainting Issue Activities covered by Agreement U.S. ITAR Controlled Technical Data Non-U.S. Manufactured ITAR controlled Product Non U.S. Technical Data Separate product development outside agreement Technical Data that is an output, or is generated, as a result of the manufacturing of an ITAR controlled item You may learn something NEW by obtaining the ITAR data and using it! New Product Potentially DERIVED from ITAR Controlled technology 29

30 ITAR: Applicability to Non-U.S. Persons and Firms ITAR Sec Violations (a) It is unlawful to reexport or retransfer or attempt to reexport or retransfer from one foreign destination to another foreign destination by a U.S. person of any defense article or technical data or by anyone of any U.S. origin defense article or technical data or to furnish defense services for which a license or written approval is required... Also includes conspiracy to reexport, violation of terms of licenses or approvals and engaging in brokering without pre-requisite registration and licenses / approvals 30

31 Enforcement Provisions of the EAR are not limited to U.S. Persons Causing, aiding, or abetting a violation ( 764.2(b)) No person may cause or aid, abet, counsel, command, induce, procure, or permit the doing of any act prohibited, or the omission of any act required, by the EAA, the EAR, or any order, license or authorization issued thereunder Acting with knowledge of a violation ( 764.2(e)) No person may order, buy, remove, conceal, store, use, sell, loan, dispose of, transfer, transport, finance, forward, or otherwise service, in whole or in part, any item exported or to be exported from the United States, or that is otherwise subject to the EAR, with knowledge that a violation of the EAA, the EAR, or any order, license or authorization issued thereunder, has occurred, is about to occur, or is intended to occur in connection with the item 31

32 Potential Global REACH of U.S. Export Controls within your Supply Chain! = Supplier Your Company = Purchaser / Consumer Your Company Your Company Your Company Your Company Potential U.S. Origin Flows to your Suppliers Technology HW/SW U.S. Persons Supply Flow to YOU! 32

33 What is an Effective Compliance Process? Key questions to ask yourself when evaluating each element of your export compliance program Is there a process? Is the process followed? Is the process documented? Is the process regulatory compliant? Is it a process that meets best practice? Is the process comprehensive and does it make sense? Is there a process for updating / is the process updated? Is the process audited, and is there a process for auditing? Are personnel aware of the process and trained on it? If you do not address ALL of the above issues you may just be creating the ILLUSION of an effective compliance program, which may ultimately expose you to criminal liability in an enforcement case 33

34 Thank You Bruce Jackson, Export Practice Leader, Trade Management Consulting, J.P. Morgan 34