U.S. Export Controls Reforms Update and PNDC Member Questions

Transcription

1 U.S. Export Controls Reforms Update and PNDC Member Questions Presentation for the Pacific Northwest Defense Coalition Export Controls Webinar By Akana K.J. Ma Partner, Ater Wynne LLP 29 October 2013 (503) Akana K.J. Ma 2013 All Rights Reserved.

2 Today s Program Highlights of the EAR for commercial products/technical data and ITAR for defense articles/technology Jurisdictional Issues Who is covered What transactions are covered Technical Data and Deemed Exports Compliance Best Practices Penalties and Enforcement Trends 2

3 Today s Agenda (continued) Additional update of US Export Controls Reform and its importance for companies of all sizes October 16, 2013 implementation of reforms began ITAR Exemptions, Canada Exemption Not a product classification exercise, nor licenses or filings Goal to is cover enough topics so that companies know when and where they need to dive deeper into issues 3

4 Speaker Export Controls Experience Akana K.J. Ma 29 years of business law legal practice Corporate, IP, Tech Transfer, International Trade US FERC, In-house Corporate Counsel, Private Practice, USDOC Advisor (DEC member/ EC Trainer) 25 years advising on US export controls Compliance Product Development Foreign sales and tech licensing Investigations Audits Enforcement Actions Voluntary Disclosures 4

5 The Regulations Commercial Exports - Export Administration Regulations (the EAR) [Export Administration Act 1969] BIS Commercial products, services, and technology Dual-use items - Commercial products that may have a military application Military Exports - International Traffic in Arms Regulations (the ITAR) [Arms Export Control Act 1976] DDTC Defense Articles, Services, and Technical Data Products that have been specifically designed or modified.for a military application 5

6 The Export Definition Isn t Simple Shipment out of the U.S. Electronic transmission out of the U.S. Release of technology (technical data) to a foreign national within the U.S. ( Deemed Export under the EAR; same concept under the ITAR) 6

7 Why Reexports Matter A shipment of a U.S. origin item from one foreign country to another Shipment from one foreign country to another of an item manufactured abroad based on U.S. origin technology or parts. Both EAR and ITAR require Destination Control Statements and Letters of Assurance 7

8 Who is an Exporter Versus Who Must Comply With Export Controls Exporter - A person in the United States who has the authority of a principal party in interest to determine and control the sending of items out of the United States. Direct Owner/Shipper Business Entity or Individual MRO contractor What of other Supply Chain Entities? Build to print contract manufacturer? Engineering Consultant? Data Center? Duty to Inquire Duty to Notify 8

9 Who Controls Exports? Licensing Agencies Commercial Goods and Dualuse items U.S. Department of Commerce, Bureau of Industry and Security What are Dual-use items? Military Goods and Services (called Defense Articles and Services) U.S. Department of State, Directorate of Defense Trade Controls U.S. Persons and Money U.S. Department of the Treasury Export Clearance Agencies U.S. Customs and Border Protection U.S. Census Bureau Department of Defense 9

10 Documenting the Critical Facts Critical Export Information What is the product, service or technology? Where is it going? Who will receive it? (Denied Parties Clearance June 20, $35,000 fine to NY scrap metal exporter to Pakistani co. on Entity List ) Intermediate consignees Ultimate consignee/recipient Where is the ultimate destination? What will be the end use? 10

11 How is the EAR Structured? Over 1000 pages of detailed control parameters by country policy, product functional parameters, and technology specifications EAR Analysis: A positive control list Very specific about product technical functionality Reasons for control Countries where licenses required Specific exceptions to license requirement Under the EAR some de minimis levels, but not under the ITAR 11

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14 How is the ITAR Structured? Brief summary of controlled defense articles - USML, with short statements of policy and procedure covering Defense Articles, Services, Technology 21 categories of the USML covering major weapons systems, significant military equipment, and important accessories 14

15 How is the ITAR Structured? Control language of each category is broad USML lacks the detailed control parameters of the CCL under the EAR There is no common structure applied across each category, though generally, paragraph (a) tends to name principal defense articles and subsequent paragraphs typically address parts, components and subsystems Analysis: Is it on the USML OR is it specifically designed or modified for a military application. 15

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17 How The EAR and ITAR are Changing Many Changes occurred October 16, 2013 Higher fences around fewer items Culmination of 3 years of revision of the ITAR and EAR by DDTC and BIS to change the methods by which jurisdiction is determined and the controls on exports Proposals published for converting 13 USML categories to the CCL = 13,000 licenses from DDTC to BIS (total BIS licenses in fiscal 2012 = 23,000) USXport License Data System semioperational 17

18 How the EAR and ITAR are Changing Future goal to turn the ITAR into a Positive List Current wholesale migration of thousands of commodities from the ITAR to the EAR USML items to new 600 series of the CCL (e.g. ECCN 9X600) Changed standard or review - specifically designed. or modified for a military application, and. Not intended as only a change in semantics Specially designed standard April 16, 2013 now implemented as of October 16,

19 How the EAR and ITAR are Changing Specially Designed Analysis now used in the EAR: The Catch Does the item have properties peculiarly responsible for achieving or exceeding the performance levels, characteristics, or functions in the relevant EAR or USML item Is it a part, component, accessory, attachment or software for use in or with an item on the ML or CCL? The Release Despite the above, is the item excepted by later provisions in an ECCN? 19

20 Reform Changes It is not Specially Designed if If described as not Specially Designed Decontrolled: e.g.: bolts, screws, fasteners (even if specially designed for a military application) Same form, fit, function as item not on ML or in CCL only for AT reasons (not to be confused with other ECCNs) Dual-use exception still applies 20

21 Reform Changes What do 600 series ECCNs mean? 600 series are former ITAR items Just as ITAR trumps the EAR, so do the 600 series items over other ECCNs If not covered by a 600 series ECCN, then proceed with other EAR review, as usual 21

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24 Deemed Exports Will Remain an Issue EAR 734.b(2)(ii) Any release of technology or source code subject to the EAR to a foreign national.is deemed to be an export to the home country of the foreign national. ITAR (4) and 125.2(c) Deemed Export is a term not used under the ITAR, but the concept is the same:.the oral, visual or documentary disclosure of technical data by U.S. persons to foreign persons. 24

25 Examples of Potential Deemed Exports Product demonstrations Technical trainings Sharing drawings, visual inspections, verbal conversations Working with business partners - foreign interns, consultants, employees, JV partners (e.g., the plant floor visit or technical meeting) Collaborations in the educational setting teachers/students, foreign lecturers, foreign visitors Access to database containing controlled technology 25

26 Internal Company Controls Companies should implement effective Export Compliance Programs Employee training Applicable regulations Knowledge of company products/tech Red flag transaction details Employee empowerment without retribution Empowered Official and company commitment from all levels of management Internal Recordkeeping and audit procedure 26

27 Common Export Breakdowns Failure to determine jurisdiction of new products Failure to obtain a license Technology released to foreign persons within the U.S. deemed exports No control over server access Modification of military products for commercial uses Once ITAR, Always ITAR Commercial controls are transaction specific Vendors who believe it s the OEM s problem No Records of Ongoing Compliance Procedures, and that they were followed 27

28 Canada Export Case Study E.g., Exporting an ITAR defense article to a Canadian customer ITAR Exemptions Express language in ITAR that avoids an export license Over 50 exemptions Narrow fact situations Defense articles, technical data or defense services Most restricted to unclassified items For registered exporters only No use for proscribed countries (126.1) 28 Procedural requirements

29 Canada Export Case Study Canadian Exemptions (126.5) Temporary Imports of Defense Articles from Canada Permanent & Temporary Exports to Canada of Unclassified Defense Articles & Related Technical Data Export of Defense Services to Canada 29

30 Canada Export Case Study Permanent export to Canada Unclassified Defense Articles Excluding Supp 1 to Part 126 (which need a license) For end use in Canada (so license needed if returned to US or reexported) By Fed/Provincial Government or Canadian registered person (Canadian national or Crown Corporation registered in Canada Controlled Goods Directorate) 30

31 Canada Export Case Study Required Documentation and Recordkeeping Include proper exemption in AES filing (e.g.: 126.5(b)) AES filing to CBP port of exit as required by Use Destination Control Statement on Bill of Lading and Invoice ((123.9(b)) Maintain records for at least 5 years 31

32 Export Controls Recordkeeping ITAR recordkeeping requirements in 122.5: Electronic records must be reproducible on paper and track all changes, author and date describes retention of Any other document used in the regulation or control of a defense article, defense service, or technical data for which a license or approval is required by the ITAR EAR Part 762 recordkeeping 32

33 Export Control Best Practices Export Controls Compliance Program Not a static process Employee Training Periodic internal audits Internal Investigations - Use neutral outside counsel not implicated in suspected export controls violations Corrective actions Legal counsel as opposed to in-house counsel, consultant or accountant 33

34 Houston, We ve Got a Problem The EAR and ITAR both encourage Voluntary Disclosures of violations Voluntary Disclosure is a Judgment Call! Disclosure of violation must be made prior to U.S. Government independently learning of the same or substantially similar information and commencing an investigation Goals of Disclosures Mitigate liability Narrow the investigation Favorably interpret facts and regulations Inform and guide U.S. agency investigators Never lie, be trustworthy, seek a fair result 34

35 Penalties Under The EAR Penalties For EAR Violations: Criminal (Entities): Up to US$1Million Criminal (Individuals): Up to US$250,000/20 years prison Civil Fines: US$50,000 Denial of export privileges 35

36 Penalties Under The ITAR Penalties for ITAR Violations: Criminal (Entities): Up to US$1Million Criminal (Individuals): Up to US$1Million/10 years prison Civil Fines: Up to US$500,000 and Forfeitures Debarment from government contracts 36

37 ITAR Enforcement Large contractors always a target April 30, 2013 Raytheon US$8 Million fine to settle 125 alleged violations 110 charges for failing to abide by license terms and restrictions 15 charges for inaccurate tracking, valuation and documentation for temporary imports and exports of hardware Outside monitor for 2 years paid by Raytheon Consistent disregard of administrative controls 37

38 Enforcement Trends - Individuals Jason Liang, owner of Sanwave Int l sentenced April 23, 2012 to 4 years in prison and 3 years supervised release for exporting thermal imaging cameras to China without an export license. Liang argued no damage to US national security, but violations are more like strict liability, not affected by resulting effect on national security 38

39 Enforcement Trends Closer to Home Oregon December 18, count indictment against 2 Chinese nationals for scheme to obtain dual use (extreme temperature) programmable logic chips from Lattice Semiconductor, Hillsboro, OR Attempt to deceive company into selling to a shell company in NY. Efforts of FBI, OEE and US Attorney in Oregon Seattle Ongoing efforts of FBI, OEE and ICE to monitor efforts of foreign agents to purchase aerospace parts 39

40 Further Export Controls Assistance Other Export Controls topics that we could not cover today: Product classification License procedures MRO - Temporary Imports and Export procedures HR - Export Controls and Visas ECCP Empowered Official duties Internal Investigations Audits of your existing compliance program Voluntary Disclosures 40

41 Why Comply? Protection of National Security Goals (as defined by the U.S. Government) Competitive business advantage Compliance is less costly than Remediation It s the law. In this case, asking for forgiveness is NOT better than asking for permission. 41

42 Thank You Akana K.J. Ma Partner, Chair of Global Trade Group Ater Wynne LLP 1331 NW Lovejoy Street, Suite 900 Portland, Oregon