ENFORCEMENT AND DISCLOSURES MARCH 7, 2018

Transcription

1 ENFORCEMENT AND DISCLOSURES MARCH 7, 2018 CHANDLER S. LEONARD DIRECTORATE OF DEFENSE TRADE CONTROLS BRYCE BEWLEY BUREAU OF INDUSTRY AND SECURITY JEREMY K. HUFFMAN HUFFMAN RILEY PLLC Society for International Affairs AGENDA 1) Discover Violation 2) Disclose Violation 3) DDTC Assess & Review 4) Enforcement 1

2 1) Discover Violation Violations are often discovered when: Updating Registration Initiating export/import activity During training Preparing or amending a license submission Auditing Merging with or acquiring another company Working with other businesses/parties Common Violations U.S. Party Unauthorized export of defense articles and technical data Activities based on incorrect export control jurisdiction Proviso violation Misuse of ITAR exemptions Failure to: Properly implement and manage licenses and agreements Administrative Violations Register Submit 5-day or 60-day notice Foreign Party Unauthorized electronic access to technical data: s, firewalls, server locations Unauthorized access to defense articles: foreign ports, freight handling facilities, warehouses Inadequate physical security Activities based on incorrect or unknown export control jurisdiction Retransfers and re-exports without authorization U.S. person employee of foreign company providing defense services without authorization 2

3 Two Types of Disclosures Voluntary Disclosure (VD) Persons voluntarily disclose circumstances to DTCC which they believe may have violated any export control provision of the AECA, or any regulation, order, license, or other authorization issued Directed Disclosure (DD) In the form of a letter, DTCC requests information regarding a potential or actual violation, based on other information received from other sources Information sources: calls, s, interagency, intra-agency, other disclosures ITAR Based on ITAR 122.5(b) 784 voluntary disclosures in FY directed disclosures in FY 2017 Failure to report may be considered as an aggravating factor when assessing penalties Disclosure Trends by FY Directed

4 2) Disclose Violation VOLUNTARY: Provide initial notification immediately after a violation is discovered, then submit a full disclosure after thorough review 60-day period to submit full disclosure If you need an extension, ask for one but have a good reason MANDATORY: Immediately disclose certain activities involving countries. (ITAR 126.1(e)(2)) Complete Final Disclosure ITAR (c) identifies information to include in disclosure Who, what, when, where, how, why provide specifics Identify any past related disclosures Conduct Root Cause analysis Review related transactions and expand scope appropriately Provide a matrix and/or timeline for multiple or complex violations Describe corrective actions taken; explain how corrective actions resolve the violation and prevent future violations 4

5 3) DDTC Assess & Review After a disclosure is received, DTCC issues a case number Provided in response to initial notification (60-day letter) Wait for the case number before submitting related licenses DO NOT cite anything other than a correct case number on a license application DTCC reviews the submission; factors considered include: Harm to U.S. foreign policy or national security Destination (126.1 countries) and parties involved Whether transaction would have been authorized Adherence to law, regulations, and DDTC s licensing and compliance policies Severity of violations Procedural or judgmental Possible outcomes: Closed Closed with action Audit request Penalty Repeated violations or an isolated incident Number of locations, programs, and business units affected Review periods vary greatly, depending on complexity of the case, company history, interagency staffing, and workload Review and Adjudication of Violations Review of Violations Enforcement Actions Administrative Proceedings Watch List Blue Lantern DTSA coordination Interrogatories/ imposed requirements Notice/warning letter Company visit Referral to law enforcement Audit Commodity Jurisdiction determination Export authorization denial/revocation Charging letter Consent Agreement Penalty Agreement Oversight Agreement Debarment 5

6 Recent Agreements Active DTCC Consent Agreements (CA) Name Term Proposed Charges Penalty Total (Mil) Suspended Amount (Mil) Debarment BAE * 2,591 $79 $10 Statutory (rescinded) & policy of denial Sikorsky/ Lockheed Martin ** N/A N/A N/A N/A Esterline ** 282 $20 $10 None Turi/TDG * 2 $.2 $.2 Non-debarment preclusion from ITAR activities Raytheon * 125 $8 $4 None Aeroflex ** 158 $8 $4 None Bright Lights 2017** 11 $.4 N/A None * CA has not yet concluded **CA concluded in FY ) Enforcement From Voluntary Disclosure to Consent Agreement: How does that happen? Degree of willfulness Destinations involved Systemic nature of violations Related and unrelated violations Related criminal or other civil violations Similarity to other civil administrative cases Mitigating and aggravating factors Harm to U.S. national security or foreign policy Nature of disclosure Nature of violations Remedial compliance measures 6

7 Consent, Oversight, & Penalty Agreements Consent Agreements Agreement that may include a monetary penalty and/or oversight Agreement without oversight may be considered when additional remediation and ongoing monitoring are not necessary Oversight generally lasts multiple years and includes enforceable conditions: Review, audit, and reporting requirements Compliance program improvements Appointment of a Special Compliance Official Oversight Agreements Oversight but no monetary penalty Appointment of a Responsible Official Penalty Agreements Case Study #1 Background Company submitted numerous disclosures related to the management of authorizations. Company failed to identify that there was a systemic company-wide problem DDTC directed the company to perform multiple large scale reviews of authorizations Solution Company entered into a consent agreement with DDTC SCO directed a company-wide audit of all Agreements Company has invested significantly in IT automation to ensure all requirements are met prior to export under any authorization 1 4 7

8 Case Study #2 Background Multinational conglomerate with decentralized oversight of export control compliance Multiple disclosures from various business units covering repeat or similar violations Uncoordinated and incomplete corrective actions evidenced a systemic company-wide problem Solution Company instituted policy to disclose all suspected violations and entered into a consent agreement Company centralized compliance oversight and began largescale reviews of problem areas Company developed IT solution to report, analyze, and track suspected violations through corrective action completion 1 5 DDTC Contact Information To check on correspondence from our office or to find out which Compliance Specialist is assigned to your disclosure, DTCC-CaseStatus@state.gov For all other matters, including substantive questions and inquiries regarding registration submittal or status and referrals, contact the DDTC Response Team Phone number: (202) DDTCResponseTeam@state.gov For general information, please visit DDTC s website 8

9 Internal and External Reporting Employee Discovery Cease Concerned Activities Company Investigation Corrective Actions Seek Outside Counsel, if needed Submit VSD 17 Corrective Actions 1. Find the root cause 2. Develop practices to prevent future noncompliance 3. Contact the appropriate government agencies: BIS (US Commerce Department) DDTC (US State Department) OFAC (US Treasury Department) ITMD (US Commerce Department/Census) 4. Roll Lessons Learned into internal training 9

10 Voluntary Self-Disclosures (VSDs) Section Submitted by: A company when there is knowledge of a possible export violation of the EAR, license, license condition, or order. Fully disclose: Write a complete description including Who, What, When, Where, How, and Why Mail to: U.S. Department of Commerce Bureau of Industry and Security Director, Office of Export Enforcement 1401 Constitution Ave., N.W. Room H4514 Washington, D.C OEE Actions On Closed VSDs VSD Statistics for FY FY 2017 FY 2016 Total 475 Total 420 # % # % Warning Letter % % No action or violation 74 18% 63 13% Closed for Other Reasons 7 2% 23 5% Issued Administrative Sanctions 2 <1% 6 1% Point of Contact for VSD Questions Office of Export Enforcement (202)

11 BIS Compliance Outreach Visits Purpose of Visits For FY Completed Factors for selecting companies What to Expect from a Visit Arrange Meeting Time and Date Review Export Procedures and Program Discuss list of specific exports sent prior to visit 11

12 Lack of Training Findings from Visits Classification was outdated, incorrect, or no documentation EAR99 items included under a valid license No written procedures Inaccurate EEIs Recommendations Audit EEIs filed by your company and forwarding agents for inconsistencies Develop flow charts or written procedures Increase awareness of export compliance Classify items correct and document 12

13 STA Compliance for Non-600 Series 86 % Compliant FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 Total Correct Incorrect Reasons for Noncompliance No Prior Consignee Statement and Notification to the 16 Consignee The ECCN is not eligible for STA 6 Company failed to Respond to BIS Requests 8 No Prior Consignee Statement 3 Shipment Controlled for Regional Stability to India 1 Company Misclassified ECCN & Not Eligible or Should Have Gone NLR Counts 3 Compliance Letters Sent over 100 compliance letters Issues include ECCN mismatches between license and AES filing Country mismatch between license and AES filing Potential tolerance exceeded NLR potential misuse Wrong agency code used for licensed export 13

14 TRIAGE Making a potential violation report Provide all available information Identify all employees knowledgeable about the incident Be as complete as possible Attach any relevant documents, including the with the initial report Ensure that all related records are preserved Timeliness is very important Do not conduct an investigation, gather basic facts Do not unnecessarily delay forwarding the report Consider attorney-client privilege TRIAGE Why is timeliness critical? Certain violations must be disclosed immediately If violations are ongoing, immediate corrective action may be necessary to prevent additional violations Avoid aggravating factors: willfulness, reckless disregard, prior notice, awareness of conduct at issue Potentially take advantage of mitigating factors: remedial response, cooperation See EAR 766, Supplement 1 and ITAR

15 TRIAGE Corrective Actions Immediate corrective actions may be a judgement call some will be obvious, i.e., program is utilizing an expired TAA or citing a license exception that is not available for the recipient country Others may require coordination with Trade Compliance and others to confirm appropriate actions, i.e., a product classification may have changed on an existing license If a violation is identified Identify any ongoing activities Implement and document interim steps to prevent additional violations Consider whether EAR 764.5(f) (treatment of unlawfully exported items) request is necessary INVESTIGATING Note that investigation may need to expand beyond immediate transaction What was the root cause? Is the issue systemic? Has it occurred in the past or on other programs? Are other U.S. or foreign entities involved? Five year look back? 15

16 INVESTIGATING Corrective Actions Investigating will include identifying the necessary corrective actions What steps are required to immediately halt any ongoing violations? What steps will be required to ensure that violations are not repeated? Training of personnel Implementation or revision of policies and procedures Audit or assessment Who is responsible for implementing corrective actions? How will completion of corrective actions be tracked and confirmed? FOLLOW-UP Corrective actions must be completed and documented Failure to implement corrective actions and repeat violations are significant aggravating factors to our friends in the USG No one wants to have to disclose a violation again 16

17 TAKE-AWAYS Do not self-blind Provide complete information in a timely manner Identify the root cause Implement effective corrective actions Confirm corrective actions are working CONTACT INFORMATION U.S. Department of Commerce, Bureau of Industry and Security, Export Management and Compliance Division Phone: (202) Thomas.Andrukonis@bis.doc.gov U.S. Department of State, Office of Defense Trade Controls Compliance DDTC Response Team Phone: (202) DDTCResponseTeam@state.gov Huffman Riley PLLC Phone: (202) jhuffman@huffmanriley.com 17