Office of Defense Trade Controls Compliance ITAR Compliance Overview National SBIR/STTR Conference June 17 18, 2014

Transcription

1 Office of Defense Trade Controls Compliance ITAR Compliance Overview 2014 National SBIR/STTR Conference June 17 18, 2014 Organization DTCC Responsibilities & Trends Compliance Program Voluntary Disclosures 1

2 DTCC Organization Sue Gainor, Director Daniel Buzby, Deputy Director ICE Liaison FBI Liaison Compliance & Registration Division Dan Cook, Chief Registration of manufacturers, exporters & brokers Company Mergers & Acquisitions Company Visit Program Input on CFIUS Personnel: 14 total (5 FTE, 9 contractor) Enforcement Division Glenn Smith, Chief Voluntary/directed disclosures Denials, policy exceptions and reinstatements Civil enforcement actions (charging letters, consent agreements, debarments) Support to law enforcement for criminal matters Personnel: 14 total (7 FTE, 7 contractor) Research & Analysis Division Judd Stitziel, Chief Blue Lantern end-use monitoring program Watch List screening & maintenance Intelligence liaison & research AECA Section 3 reports to Congress PM lead on CFIUS Personnel: 7 total (6 FTE, 1 contractor) Compliance and Registration 2

3 Compliance and Registration Division Responsibilities Registration of manufacturers, exporters, & brokers Company mergers & acquisitions and divestitures Company Visit Program Input on CFIUS (Committee on Foreign Investment in the U.S.) Registration Trends (FY13) Total registrants: Approximately 13,000 manufacturers/exporters and brokers Approximately 250 mergers & acquisition cases Approximately 50 advisories regarding registration requirements and brokering activity 3

4 Who Must Register And Why Manufacturer / Exporter Broker Any person who engages in the U.S. in the business of manufacturing or exporting defense articles or furnishing defense services USG agencies acting in an official capacity are exempt Required by AECA Section 38 & ITAR Part 122 Any person described below who engages in brokering activities: 1. Any U.S. person wherever located; 2. Any foreign person located in the U.S. or; 3. Any foreign person located outside the U.S., if owned or controlled by U.S. person USG agencies, foreign governments and international organizations acting in official capacity are exempt Required by AECA Section 38 & ITAR Part 129 Consolidated Registration and Fee Consolidation of U.S. person manufacturer/exporter/broker registration and elimination of separate broker fee Consolidation to be triggered by expiration of manufacturer/exporter registration not broker registration expiration Consolidations will require an updated broker report

5 Registration Requirements (ITAR Parts 122 & 129) U.S. manufacturers/exporters and service providers receive M code U.S. and foreign brokers receive K code Step 1 submit electronic payment - exact payment instructions available at Step 2 complete Statement of Registration (DS-2032) form, include authorization to do business in the U.S. and submit electronically via the Electronic Form Submission (EFS) Maintain registration and notify of changes Most material changes provided within 5 days of effective date Material changes of intended sale, or transfer to a foreign person of ownership or control of the registrant or any entity thereof 60 day advanced notice Annual Broker Report, including no activity, due with registration renewal, if not renewing, within 30 days after expiration of registration Guidance and forms available at: Registration Validity Term & Fees Registration valid for 1 year Three-Tier Fee Structure Excluded from calculation: CJs, reports, GCs or licenses denied, revoked, or returned without action (RWA) Registrants informed annually of renewal fee and calculation details Tier I = $2,250 No final action on any license First year of registrants Tier II = $2, or fewer licenses with final action Tier III = the lessor of: $2,750 + $250 for each license >10 with final action Or 3% of total dollar value of applications but not <$2,750) 5

6 Registration Renewal Helpful Hints Send to DTCC 60 days in advance of expiration Cite existing registration number on Statement of Registration (DS-2032) Include copy of renewal fee letter with submission Same basic requirements as new registrants Keep registration information current Lapsed registration: unable to obtain authorizations or invoke exemptions Material Changes 5 Day Material Changes: Eligibility status Change in information contained in the Statement of Registration (DS- 2032) such as: registrant name, address, legal organizational structure, ownership or control, the establishment, acquisition, or divestment of a U.S. or foreign subsidiary engaged in the manufacture or export of defense articles or services Change in board of directors, senior officers, partners, or owners 60 Day Notifications: Any intended sale or transfer to a foreign person of ownership or control of the registrant or any entity thereof 6

7 How to Obtain Registration Guidance DDTC website: General Questions and DDTCResponseTeam@state.gov eteam@state.gov Advisory opinion may be requested from DDTC regarding export or registration Research and Analysis Division 7

8 Research and Analysis Division Responsibilities Blue Lantern end-use monitoring program Watch List screening & maintenance Intelligence liaison & research projects AECA Section 3 reports to Congress Compliance Report PM lead on CFIUS Blue Lantern End-use Monitoring Program End-use monitoring program required by Section 40A of the Arms Export Control Act (AECA), formalized 1996 Verifies end-users, consignees, and end-uses of U.S. exports of defense articles and services Performed in cooperation with host governments worldwide by U.S. Embassy personnel Improved Monitor transfer of sensitive hardware International technology, and services Security Build confidence between USG and defense trade partners Educate foreign governments and companies about U.S. export controls Impede "gray arms" trade 8

9 Blue Lantern Trends Reasons for Unfavorable Blue Lantern Responses Derogatory info / unreliable recipient of USML Unable to confirm order / receipt of goods Unauthorized foreign party involved in transaction Refusal to cooperate Diversion / retransfer / re-export Unauthorized stockpiling Lack of secure storage facilities Inability to confirm existence of foreign party 9

10 Red Flags and Due Diligence Vague or unintelligible end-use statement Reluctance/evasiveness to provide end-use explanation and/or documentation Unfamiliar customer, lack of available information Unfamiliarity with hardware/technology and its use Hardware inconsistent with stated end-use Private/non-government end-user Chain-of-custody unclear Unusual routing End-user appears to be a reseller or integrator If something about the transaction doesn t make sense, ask questions. Due Diligence Continued Obtain Complete End-User/Use Certification End-User, End-Use (include platform, i.e., aircraft type) Intermediate Consignees: Customer, Customer s customer (when applicable), Freight Forwarder, Maintenance and Repair Providers, Any company that will take possession of the item Ask for Additional Supporting Documentation Non-Transfer and Use Certificate (DSP-83), Contract, Purchase Order, End-Use Statement on Government Letterhead Request Contact Information Specific name and all available contact information for end-user and intermediate consignees Conduct Basic Research on Foreign Parties Visit website and learn about their line of business 10

11 Summary Ensure all parties are identified, end-use is clear and logical, and that all available supporting documentation is provided Conduct basic due diligence on unfamiliar parties Information discovered during the course of a Blue Lantern may result in a Directed Disclosure Perform thorough due diligence up front and avoid violations Enforcement Division 11

12 Enforcement Division Responsibilities Voluntary/directed disclosures Denials, policy exceptions and reinstatements Administration of civil enforcement actions Charging letters & consent agreements and monitoring Debarments Support to the law enforcement community for criminal enforcement Disclosure Trends Directed

13 Factors for Disclosure Trends Increased number of license approvals Growth in defense exports & business activity Increased industry awareness and training Industry audits voluntary Mergers & acquisitions due diligence by companies More USG outreach and inter-agency cooperation Project Shield America (DHS/ICE) Domain Program (FBI) Quicker response by DDTC on less serious violations DDTC s analysis of registration & subsequent actions Compliance Program ITAR Compliance Manual 13

14 Compliance Program Why Bother? Affects foreign policy & national security Impacts your reputation & your bottom line Provides organizational structure and oversight Becomes expensive if you don t fines & penalties! Penalties for Violations of the AECA and ITAR Include: Civil Violations $500,000 for each violation Extra compliance measures Debarment Criminal Violations $1 million for each violation 20 years imprisonment Debarment Compliance Program Key Factors Senior Officer s Commitment to Compliance: Sets the company tone and overall message on export controls Has general knowledge of export controls and their importance Creates organizational structure and provides resources Designates empowered official Serves as final appeal authority for internal dispute resolution Signs registration documentation (ITAR and 129.3) May certify voluntary disclosures (ITAR (e)) 14

15 Compliance Program Key Factors Cont. Role of the Empowered Official (ITAR ) Designated by senior management for supervision of export control responsibility Directly employed by applicant or a subsidiary Legally empowered in writing to sign license applications Understands export control statutes and regulations Understands criminal and civil liability and administrative penalties for violation of AECA/ITAR Has independent authority to: Inquire into any aspect of proposed export/temporary import Verify legality of transaction and accuracy of information Refuse to sign any license application without prejudice or adverse recourse Compliance Program Elements 1. Organizational Structure 2. Compliance Resources 3. Product Classification 4. Contracts / Marketing Screening 5. License Preparation & Implementation 6. Exemption Implementation 7. Non-U.S. Person Employment 8. Physical Security of the ITAR Facility 9. Computer Network Security 10. Foreign Travel 11. Foreign Visitors 12. Record Keeping 13. Reporting 14. License / Agreement Maintenance 15. Shipping & Receiving Processes 16. ITAR Training 17. Internal Monitoring & Audits 18. Disclosures 19. Violations & Penalties 20. Brokering 15

16 Voluntary Disclosures Voluntary Disclosures (ITAR ): The Department strongly encourages the disclosure of information to the Directorate of Defense Trade Controls by persons that believe they may have violated any export control provision of the Arms Export Control Act, or any regulation, order, license or other authorization Voluntary self-disclosure may be considered a mitigating factor in determining penalties. Failure to report will be a factor in determining penalties. Violations are discovered when: Updating registration Voluntary Disclosures Discovery of Violations Initiating export/import activity During training Preparing a new license submission Internal or external auditing Merging with or acquiring another company 16

17 Voluntary Disclosures Preparation & Submission Information to provide detailed in ITAR (c) Summary who, what, when, where, how, why Corrective actions taken be thorough and explicit Provide all relevant documentation and attachments (on CD if voluminous) license history and copies of approvals descriptive literature on hardware technical data documents or details on defense service CV/resume on foreign persons Confirmation senior officer has been informed Voluntary Disclosures Specific Details What was the general nature of the violation unauthorized export/reexport, terms/conditions of license approval, loss/theft, recordkeeping, etc. What item was involved hardware, technical data, defense service, USML category & sub-category When did it occur beginning, duration, end, discovery and reporting Who was involved name, citizenship, title, function, employer, all parties to the export, person who authorized the transaction, person responsible for export compliance Where did it occur U.S. or overseas, city, state, country Why did it occur root cause, were prevailing policies/procedures adequate, any previous violation and previous mitigation measures 17

18 Voluntary Disclosures Measures to Prevent Recurrence Violation continues or has ended Severity of violation Number of locations, programs and business units Root causes identified and addressed Remedial training provided Policies & procedures reviewed and reconsidered Violator cautioned or disciplined System implemented to report repeat violation Voluntary Disclosures Suggestions Submit on company letterhead Outside counsel may submit the voluntary disclosure with a cover letter One original and one copy, more will be requested if required Provide a matrix or timeline for multiple or complex violations In-depth analysis of violation demonstrates your knowledge Provide point of contact name, title, phone/fax, and Do not send via fax or Consider a summary at beginning that identifies: violation & ITAR section(s), commodity, USML category & subcategory, date of violation, foreign party(ies) and any related license(s) 18

19 Voluntary Disclosures More Suggestions Initial notification immediately after a violation is discovered, then a thorough review Review thoroughly but swiftly ensure enough resources Acknowledge underlying error/violation enhance credibility Review all export-related transactions and policies discover and disclose any other violations Keep END apprised, ask for extensions in advance Implement remedial actions promised to END, verify effectiveness Enforcement Division Lifecycle of a Voluntary Disclosure Company Received Processed Submission Reviewed by END Chief Case Created/ Assigned Minor Violation Case Closed More info needed Case Closed! DOD Homework Requested Case worked by DTCC Streamline Full Staffing to DTSA 19

20 Voluntary Disclosures What USG is Reviewing Harm to U.S. foreign policy or national security Adherence to law, regulations, and DDTC s licensing and compliance policies Severity of violation minor or substantive, procedural or judgmental, once or repeated, unique or systemic Company s approach & commitment to compliance Nature of investigation Implementation of remedial measures Improvement of company s compliance program Most Common Violations Misclassification of hardware or technical data; ineffective or no procedures to properly classify commodities Failure to properly implement & manage licenses or agreements Failure to complying with provisos, exceeding value, etc. Relying on a Commodity Classification Automated Tracking System (CCATS) decisions from BIS as a jurisdiction determination in lieu of a CJ determination from DDTC Posting technical data on a computer server without proper protection from unauthorized foreign employee access Misunderstanding or misuse of ITAR exemptions 20

21 Voluntary Disclosures Disclosure Results Most common compliance action by DTCC: Request additional information and identify additional violations Review company compliance manual Recommend additional compliance measures Recommend audit of compliance program Recommend submission of CJ request Disclosure resolved under a consent agreement Voluntary Disclosures Beneficial Results Greater appreciation & understanding of defense trade controls Senior management attention & support for compliance Enhanced compliance program Designated, full-time export control official & other resources Improved ability to identify & prevent violations 21

22 Summary Company commitment Management s support toward ITAR compliance Sufficient human, financial and capital resources Compliance manual & implementation U.S. & foreign party screening data Education and training Leads, Tips, Questions Glenn E. Smith Chief, Enforcement Division

23 General Questions Response Team Telephone Number: Response Team 23