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A Primer on U.S. Export Controls
Presentation for the Pacific Northwest Defense CoalitionBy Akana K.J. Ma
Partner, Ater Wynne LLP
16 July 2013
(503) 226-8489/[email protected]© Akana K.J. Ma 2013 – All Rights Reserved.
Today’s Program
This is an Overview of US Export Controls and its importance for companies of all sizes
Summary of EAR for commercial products/technical data and ITAR for military products/technology
Jurisdictional issuesWho is coveredWhat transactions are covered
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Today’s Agenda (continued)
Technical Data and “Deemed Exports” Compliance Best Practices Penalties and Enforcement Trends
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
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Speaker Export Controls Experience
Akana K.J. Ma 29 years of business law legal practice
Corporate, IP, Tech Transfer, International Trade US Dept. of Energy, 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 Disclosures4
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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”
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What is an Export?
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)
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What is a Reexport?
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
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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 What of other Supply Chain Entities?
Build to print contract manufacturer? Engineering Consultant? Data Center?
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Duty to Inquire and Notify
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Who Controls Exports?
Licensing Agencies Commercial Goods and Dual-use 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
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Determining and Documenting the Critical Facts
Critical Export InformationWhat is the product, service or technology?Where is it going?Who will receive it? (Denied Parties Clearance June 20,
2013 - $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?
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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
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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 large weapons systems
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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 sub-systems
Analysis: Is it on the USML OR is it specifically designed or modified for a military application….
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How The EAR and ITAR are Changing
Many Changes occurring 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
Wholesale migration of thousands of commodities from the ITAR to the EAR Or whether “specifically designed …. or modified
for a military application, and …. “Specially designed” standard April 16, 2013 to be
implemented October 16, 2013 for ITAR finalized revisions
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How the EAR and ITAR are Changing
Specially Designed Analysis: Has properties peculiarly responsible for
achieving or exceeding the performance levels, characteristics, or functions in the relevant EAR or USML item
Is a part, component, accessory, attachment or software of an EAR or ITAR specific item
Exporter and manufacturer registration Broker registration – Fall 2013 revision by DDTC
(wider not smaller net)
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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 120.17(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.”
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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
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The Hiring Process – I-129
CIS Form I-129, Part 6 certification, Effective February 20, 2011
Applies to U.S. Employers filing H-1B, L-1, O-1 visa applications
Part 6 is Certification Regarding the Release of Controlled Technology or Technical Data to Foreign Persons in the U.S.
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Internal Company Controls
Companies should implement effective Export Compliance ProgramsEmployee 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
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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 Vendors who believe it’s the
OEM’s problem No Records of Ongoing
Compliance Procedures, and that they were followed
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Export Controls Recordkeeping
ITAR recordkeeping requirements in §122.5: Electronic records must be
reproducible on paper and track all changes, author and date
§127.2 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”
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Export Controls Recordkeeping
In combination with §123.22 regarding TAAs, companies are advised to retain records of all ITAR-related transactions of technical data, hardware, software, and services
How long? – At least 5 years from the end of the export-related transaction or the expiration of an applicable license etc.
EAR – Mirrors the ITAR and requires retention of a long list of possible transaction documents - See Part 762
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Export Control Best Practices
Export Controls Compliance ProgramNot 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
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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
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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
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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
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ITAR Enforcement – Large contractors always a target
April 30, 2013 Raytheon – US$8 Million fine to settle 125 alleged violations110 charges for failing to abide by license
terms and restrictions15 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
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
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Enforcement Trends –Closer to Home
December 18, 2012 – 12 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
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Further Export Controls Assistance
This concludes the overview – if a topic hasn’t been covered or you’d like more information, contact the speaker
Other Export Controls topics that we could not cover today: Product classification License procedures ECCP Empowered Official duties Internal Investigations Audits of your existing compliance program Voluntary Disclosures34
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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….
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Thank You –Ask for a Certificate of Attendance
Akana K.J. MaPartner, Chair of Global Trade GroupAter Wynne LLP1331 NW Lovejoy Street, Suite 900Portland, Oregon 97209
