Webinar Presentation. Association of Corporate Counsel NE

Transcription

1 Demystifying i U.S. Export Controls Webinar Presentation on behalf of Association of Corporate Counsel NE February 8, 2011 Kerry T. Scarlott, Esq. Goulston & Storrs, P.C. kscarlott@goulstonstorrs.comcom

2 THIS IS NOT LEGAL ADVICE Receipt of this outline and/or attendance at the accompanying Webinar does not in itself establish an attorney-client relationship between Goulston & Storrs, P.C. and the Webinar participant. Material presented and answers to questions given at the Webinar are general information only, not legal advice, and should not be applied to specific situations without consultation with a legal expert. The information provided herein reflects the laws and regulations in effect as of February Due to the changing nature of these laws and regulations, this material should not be used as a final authoritative guide.

3 Presentation Topics Overview of the Principal U.S. Export Controls Laws and Regulations What is an Export? Check your logic at the door Determining which Control Regime Applies Why you need to know Overview of EAR / ITAR Enforcement Lessons Learned Best Practices Select Other Trade Related Issues 3

4 Principal Export Control Laws and Regs Export Administration Regulations Governs export of commercial and dual use commodities, software, and technology on Commerce Control List ( CCL ) Administered by Bureau of Industry and Security, Dept. of Commerce ( BIS ) (BIS) Arms Export Control Act and ITAR Governs export of defense articles, services and technical data on United States Munitions List (USML) Administered by Directorate of Defense Trade Controls, Dept. of State ( DDTC ) Office of Foreign Asset Control (OFAC), Dept. of Treasury OFAC regs bar transactions (incl. exports) involving embargoed countries or designated individuals and entities ( SDN list ) Apply to exports under both ITAR and EAR 4

5 What is An Export? Any oral, written, electronic or visual disclosure, or any shipment, transfer or transmission outside the United States to anyone, including a U.S. citizen, of any commodity, technology or software Except mere travel by a person with knowledge of technical data Any oral, written, electronic or visual disclosure, transfer or transmission to any person or entity of a commodity, technology or software with an intent to transfer it to a non-u.s. entity or individual, wherever located (including within the U.S.) Any transfer of these items or information to a foreign embassy Additional specific acts are covered under the ITAR (e.g., performing a defense service for a foreign person, whether in the U.S. or abroad) 5

6 Don t Think You Are Exporting? Think Again... Deemed Exports (a.k.a. exports in the hallway ) Release of technology or source code to a foreign person / foreign national within the U.S. is considered an export to that person s home country Deemed export rule covers virtually any means of communication to a foreign person Face to face Telephone Fax Sharing of computer files Visual inspections Site tours Also includes re-exports (e.g., communications to a foreign national abroad of U.S. origin technology legally exported from the U.S. in the first place) Applies to foreign customers, employees, interns, contractors, visitors 6

7 Overview of the EAR Licensing is product and circumstance specific Self Determine / Obtain CCATS ECCN in categories 0 through 9 and EAR99 Common Misconception: HTC = ECCN A license is required if the product is classified under an ECCN on the CCL and an x is present in the relevant column in the Country Chart EAR99 License Not to Care 7

8 Overview e of the EAR (cont d) General Prohibitions Always Apply (even if EAR99) Embargo Shipping to or via a listed person or entity Shipping via a restricted country Prohibited end-use chemical / biological / nuclear / missile Export with knowledge that a violation will or may occur (beware red flags) 8

9 Denied Persons List Unverified List Entity List 9

10 Overview of the ITAR The ITAR governs exports of: Ati Articles listed on the USML(i (including parts, components, attachments, and accessories specifically designed, developed, configured, adapted or modified for military application or for use in or with listed article) Technical data related to listed articles Defense services Also governs temporary imports of defense articles (permanent imports governed by ATF regulations Unlike under the EAR, a license or DDTC approval is almost always required Registration requirements (including brokers) Beware embargoes / policy to deny laws/itar consolidated html 10

11 ITAR Controlled Technical Data Information required for the design, development, production, maintenance, repair or modification of defense articles Classified information related to defense articles and services Tangible articles (e.g., models, mock-ups) that convey controlled technical data Information subject to an invention secrecy order Software directly related to defense articles Note public domain exception 11

12 ITAR Controlled Defense Services Providing Foreign Persons, whether in the U.S. or abroad, with: Assistance (incl. training) in the design, development, repair, maintenance, modification or use of defense articles Technical data controlled under ITAR ITAR applies to service even if all technical data used to perform service is in public domain or otherwise exempt from ITAR requirements Line can be fuzzy (public domain best way to do something) 12

13 Types of ITAR Export Licenses Permanent Export License (DSP-5) Used for most hardware exports subject to ITAR Temporary Export License (DSP-73) Item must be returned within 4 years / no transfer of title Technical Assistance Agreement ( TAA ) Used for ongoing exchange of technical information or provision of defense service / Deemed exports Assembly OK, but not production o rights or manufacturing ac u know-how o Manufacturing Licensing Agreement ( MLA ) Used to authorize manufacture of defense articles outside the U.S. or with foreign persons (machiladoras) Production rights and manufacturing know-how (compare TAA) Others (e.g. Distribution Agreements) DDTC license application response times are long Plan Ahead 13

14 ITAR Licensing Exemptions Limited in number and scope e.g., Canadian Exemption Beware technical requirements e.g., notations on shipping documents, understandings with foreign parties, recordkeeping 14

15 Arms Embargoes, Etc. Under the ITAR A variety of countries are subject to special restrictions: Embargoed countries: Burma, CHINA, Haiti, Liberia, Somalia, Sudan and Venezuela Policy to deny: Afghanistan, Belarus, Congo, Cuba, Iran, Iraq, Libya, North Korea, Rwanda, Syria and Vietnam (note exceptions and case-by-case review) Designated terrorist states: Cuba, Iran, Libya, North Korea, Sudan and Syria United Nations Security Council embargoes Exemptions do not apply Includes prohibitions on making proposals without prior approval Duty to report ( Whistleblower ) 15

16 Record-Keeping (EAR & ITAR) 5 year rule Records concerning: manufacture, acquisition and disposition of defense articles license applications and licenses tech development contracts sales contracts transfer and shipping documents (incl. SED / AES) material correspondence political contributions, fees or commissions Originals or certain electronic files 16

17 Application of U.S. Law Abroad Applicable to U.S. persons wherever located Applicable to U.S. origin products (de minimus rule only under EAR) Reexports Services Foreign subsidiaries 17

18 Consequences of Non-compliance Enforcement activity, including coordination of Federal agencies, has ramped up considerably since 9/11 Penalty authority has increased exponentially since 9/11 Individual criminal and civil liability for unauthorized exports and for misrepresentations Fines up to $500,000 per violation of ITAR/EAR (higher in certain circumstances) ($11k $50k $250k $500k) Fines up to $10,000 per violation of AES rules Seizure and forfeiture of attempted illegal exports Corporate death sentences Export license suspension and debarment Federal contract suspension and debarment 18 18

19 Ignorance Is No Excuse U.S. export controls are based upon strict liability -- violations do not require specific intent U.S. businesses, individuals, owners, managers, and employees may be penalized for violating laws they did not know they were violating or believed they were complying with fully Successors can be held liable whether or not they knew about predecessor s missteps and despite any deal arrangements 19

20 Successor Liability Liability for past activities of target are inherited by acquirer in both stock and asset deals (even when only selected assets are acquired) The deal documents / arrangements / structure often don t matter to the U.S. Government Seminal case -- Sigma-Aldrich Acquisition of selected assets by Sigma-Aldrich Biological materials sold by predecessor without license $1.76M administrative penalty imposed on acquirer 20

21 Enforcement Actions Learning the Hard Way Enforcement activity has ramped up considerably in recent years New focus on sub tier suppliers Establishment of Federal joint task forces Illustrative enforcement actions 21

22 How Does the Government Find Out About Non-compliance? Disgruntled current or former employees or contractors Competitors Distributors SED / AES review program Visa application review program Inspection of shipments Post-shipment verifications Voluntary disclosure 22

23 Best Practices Tips Know your customer / know yourself all involved parties Determine regulatory jurisdiction Determine CCL classification (if EAR) or USML category (if ITAR) Prepare written compliance plan / procedures Corporate Commitment and Policy (maximize export sales while ensuring compliance) Segregate EAR / ITAR Detailed procedures, with checks and safeguards Training / Awareness Internal Monitoring / Audits 23

24 Best Practices Tips (Cont d) Use TAAs / MLAs as appropriate (if ITAR) Review and update contract terms Cooperation between contractor and DoD, etc. in connection with contracts involving the U.S. Government Cooperation / communication between primes and sub-primes Use exemptions when appropriate Utilize voluntary disclosure mechanism Diligence in M&A 24

25 Select Other Trade Related Regulatory Issues Anti-Boycott Embodied in EAR Requires U.S. persons to refuse to participate in unsanctioned foreign boycotts Beware certain types of questions and requirements Countries of particular concern: Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, UAE, and Yemen CFIUS Foreign Investment and National Security Act of 2007 Dubai Ports deal Voluntary process, but beware post-acquisition rewind FCPA Prohibits U.S. companies and their shareholders, directors, agents, officers, and employees from paying or authorizing the payment of any money or anything else of value directly or indirectly to a foreign official for purposes of influence Requires adequate internal accounting 25

26 Don t curse the darkness light a candle. -- Attributed to Confucius, among others 26

27 Need Help? Kerry T. Scarlott, Esq. Goulston & Storrs, P.C. 400 Atlantic ti Avenue Boston, MA T C F kscarlott@goulstonstorrs.com