Global Trade Compliance: What Your Business Should Know - From HR, to Customer Support, to Anyone Sending Email Abroad Wednesday, November 18, 2015 Presented By: Ron S. Zollman EMC Corporation
Why Talk? Trade Compliance Area is More Interesting Every Year Iran, Cuba, Russia Fines are billions a year OFAC: fines of $1.2 billion in 2014 http://www.treasury.gov/resource-center/sanctions/civpen/pages/2014.aspx Export laws affect: HR; logistics; IT; legal (what s in your contracts?); customer service; finance; everyone who doesn t look good in orange. Export is a privilege, not a right.
Fines and Penalties for Violations On the US side: Violations of the U.S. Export Regulations are subject to both criminal and administrative penalties. Violators may be subject to both criminal fines and administrative penalties for a willful violation Civil penalties are which ever is greater, either $250,000 or twice the value of the transaction for each violation Criminal penalties up to $1,000,000 and/or face up to 20 years of imprisonment Possible loss of export privileges We have actually had product frozen in Japan, and have had investigations or fines in Israel and South Korea and China, as examples. Bad press Loss of US Government or other sales
Overview 1. WHERE; and WHO; and WHAT; and WHY. Any of those can do it. 2. Where: Five embargoed countries and their nationals, who cannot get export-controlled data or products without a license; also, Crimea region. Cuba, Iran, Syria, (N) Sudan, N. Korea. 1. Deemed Export 3. Export of encryption can also trigger extra duties abroad 4. Anti-boycott law re Israel. 5. Military, nuclear, weapons are key words that should give you pause. Modifying product for military usage potentially triggers ITAR 6. Examples
Export Control Requirements The Four Questions. Where are we exporting? No exports, direct or indirect, to the T5 ; Nothing to Cuba, Iran, North Korea, Sudan & Syria, or Crimea without a specific license. Strong presumption of denial for license applications What are you exporting? Products, or blueprints, or design, or code, shared with a non-us person or going over a border, is an export. They are classified for export, classification determines restrictions & license requirements. Crypto is strongly controlled Who is the recipient? restricted entities and some individuals are prohibited from receiving controlled technology or products and others require a license or other documentation (military and nuclear end users). What is the item used for? Use may be prohibited or licensed. The same item sold to the same company might NOT need a license, but then WOULD if a controlled use is intended: military, nuclear, missile, biological and chemical industries, etc.
Some words about Where Is Cuba still embargoed?
YES Cuba is still embargoed. There are limited exceptions including, as of September 2015, it is okay to provide legal services
Is Iran still embargoed? Yes You can travel there but do not export anything controlled there without a license. The action implementation day for the lifting of nuclear sanctions has not arrived. The sanctions are not just nuclear and will continue past implementation day.
If your destination is not one of those five, are you safe? No. First, Crimea. Second, other locations still may have controls. Controls vary with how sensitive is the technology. Example, high speed computing cannot go to the government of India or China without a license.
More on WHERE is it going. DEEMED EXPORT. Release of technology to someone is an export to his/her home country; also, export from a foreign person to another foreign person is a deemed re-export. Export easily occurs by hiring a national of those countries unless they later obtained citizenship, permanent legal status (green card) or asylum in another country. What happens in Vegas does not stay in Vegas.
Deemed Export, where is it going part 2 What is required of HR Screen job applicant s name against a public listing of individuals sanctioned by OFAC to ensure you can legally employ them Determine if job applicant is a national of one of the counties the U.S. maintains a trade embargo against (Cuba, Iran, Sudan, Syria, North Korea)
Example Maxim Integrated Products in Sunnyvale, CA, shared integrated circuits and technology for development of components, with Iranian national employee and Chinese national employee without required export licenses. Maxim applied for license to share with employee, but failed to restrict access while application was pending. ~ $200,000 USD penalty. (Nov. 4, 2008.)
Last comment on where Email counts. You cannot stay in the US and email the embargoed countries controlled technology. Some people could be upfront and give an Iran address. Others could have a.ir email. If you sell worldwide, consider how you monitor this.
What Second issue is what is going abroad?
Public Domain Information - not the issue PUBLIC Through published patents and patent applications; Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the US; Through fundamental research in science and engineering where the resulting information is published and shared broadly in the scientific community or is at public libraries Internet downloads where there is no question re name or limit on who can download
Ten Categories of Deeper Regulation, otherwise still Who, Where, Why
So your non-public technology and products have a classification Some companies do list their export classification control number (ECCN) on a web page
Question 3: Who They make a list, and you better check it twice. http://export.gov/ecr/eg_main_023148.asp
Orders can be automatically screened
Elevate Red Flags and concerns Red Flags examples (http://www.bis.doc.gov/index.php/enforcement/oee/compliance/23-compliance-a-training/51-red-flag-indicators) The partner is reluctant to provide clear answers to commercial or technical questions which are routine to normal negotiations The performance or design characteristics of the items ordered are incompatible with the customer's line of business or stated end-use. The partner is reluctant to offer information about the use. The partner declines commonly available training, installation and maintenance services. Unusual delivery routing, packaging or labeling arrangements are requested. The partner uses only a P.O. Box address or has facilities that appear to be inappropriate for items ordered. Asking for information they would not logically need. The partner is known to have, or is suspected of having, unauthorized dealings with specially designated regions and countries for which non-proliferation controls apply.
Question 4: WHY do they want it/what will they do with it? The US has controls on what they will use our products for. Planned uses can lead to a license duty, or a confirmation of plans, from the customer. When you aren t SURE what a particular entity will do like a company with a mix of business divisions, some nuclear, some civilian you could seek a CERTIFICATION signed by the customer. The US Government wants you to KNOW YOUR CUSTOMER
Is it only the U.S.? No. EU controls exports too. EU has lighter controls on Iran, but still has Iran under embargo this will change. EU has similar sanctions for military or energy companies, in the wake of Ukraine events. France has encryption registration rules. Others do too. Russia, Israel, China, Ireland, etc.
Distinct Export Issue Illegal Boycott Supporting boycott of Israel is illegal. Example, a logistics provider (Rohde and Liesenfeld) had to pay $108,000 to settle US Bureau of Industry and Security claims for violation of the anti-boycott law. They provided 36 certifications that, We certify that the goods enumerated in this invoice are not of Israeli origin and do not contain any Israeli materials. This cert is illegal. You can say made in but cannot say not made in Israel AFFIRMATIVE DUTY TO REPORT REQUESTS: The EAR requires EMC to report any request to take any action which has the effect of furthering or supporting a restrictive trade practice or boycott fostered or imposed by a foreign country against a country friendly to the United States or against any United States person must report such request to the Department of Commerce in accordance with the requirements of this section. Such a request may be either written or oral and may include a request to furnish information or enter i nto or implement an agreement Such a request shall be reported regardless of whether the action requested is prohibited or permissible under this part, except as otherwise provided by this section. [It] is reportable if he knows or has reason to know that the purpose of the request is to enforce, implement, or otherwise further, support, or secure compliance with an unsanctioned foreign boycott or restrictive trade practice. A request received by a United States person located outside the United States ( that is, a foreign subsidiary, partnership, affiliate, branch, office, or other permanent foreign establishment which is controlled in fact by any domestic concern is reportable. Section 760.5.
One More Topic: ITAR Bigger Penalties Narrower Limits Example: United Technologies, 2012 - $75 mm.
Goods adapted for the military, or services to assist the military ITAR is for International Traffic In Arms Regulations. If your product or your service is specific to military usage then you cannot export without a license or a license exception. ITAR covers any products, software, or technical data that are specially designed, developed, configured, adapted, or modified for military use. Remember services (post-sale support) & development! Assistance to foreign persons (whether in the US or abroad) in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing, or use of defense articles
22 CFR 120.3 -- ITAR may apply if item/ software/data: (a) Is specifically designed, developed, configured, adapted, or modified for a military application, and (i) Does not have predominant civil applications, and (ii) Does not have performance equivalent (defined by form, fit and function) to those of an article or service used for civil applications; or (b) Is specifically designed, developed, configured, adapted, or modified for a military application, and has significant military or intelligence applicability such that control under this subchapter is necessary.
Factors that do not negate ITAR control: Incorporation into civilian end-item Size or percentage of value in end-item No de minimis rule in ITAR No aging out of ITAR BUT- Commercial off the Shelf products sold to the military in standard commercial configuration are OK.
Your duties don t end with signing the contract ITAR could be implicated by services or support: If you get defense technical data, review it and then return it If you are asked to train foreign soldiers If asked to customize product for military application If asked to troubleshoot system issues to help a defense article work So, SERVICES could trip ITAR. Meeting a Military Specification MILSPEC or a Military Purpose could put products under ITAR control Attorney-Client privileged
A Few More I.B.M. subsidiary pleaded guilty to illegally exporting 17 advanced computers to a Russian nuclear weapons laboratory and agreed to pay an $8.5 million fine. The sale of any computer to a Russian nuclear weapons plant required Federal approval. After an 18-month investigation, I.B.M.'s subsidiary in Moscow pleaded guilty to 17 felony violations of the export control laws. http://www.nytimes.com/1998/08/01/us/ibm-guilty-of-illegal-sales-to-russian-lab.html Intel's Wind River, US government fines over crypto exports, $750K. http:// www.theregister.co.uk/2014/10/17/intel_subsidiary_crypto_export_fine/ PayPal agreed to pay $8 mm (March 2015) to resolve issues with handling about $50K of payments with three embargoed countries (Cuba, Iran, Sudan) and one named, restricted person. Insufficient screening and controls. There are lots of reported cases where people are accused of falsifying a known destination, to make a buck. Federal Government publishes Don t Let This Happen to You. (BIS/Dept of Commerce)
Other thoughts Sales may come and say everyone is selling to them Credit card companies sometimes help you Size of company probably matters Individuals who lie can have individual liability This area is regulated by multiple governments and multiple parts of our own government The lists and rules are constantly moving