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Understanding the Latest Export and Reexport Regulatory Requirements

Presented By:

Erin Clark, STTAS Senior Manager,

Export Compliance

© 2015 Sandler, Travis & Rosenberg, P.A., Sandler & Travis Trade Advisory Services, Inc. All rights reserved. 2

• Current Regulatory Environment and Notable U.S. Changes

– Export Control Reform

– Sanctions

• Keeping Up With and Implementing Regulatory Changes

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Content

© 2015 Sandler, Travis & Rosenberg, P.A., Sandler & Travis Trade Advisory Services, Inc. All rights reserved.

Current Regulatory Environment

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• Continually Changing Global Environment

– Jurisdiction, Classification and Licensing Requirements

– Sanctions and Embargoes

• Change Combined with Existing Challenges

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Current Regulatory Environment

Multilateral Export Control

Regimes

National Export

Control Laws & Regulations

Corporate Policies &

Procedures


Regulatory Changes Application

Export Control Reform • Revisions to control lists -

Reclassification of parts due to

items shifting from the ITAR’s

USML to the EAR’s CCL (or within

control lists)

• New jurisdiction and authorizations

• New definitions

Sanctions - Cuba • Some restrictions eased

• New license exceptions and

General License

Sanctions - Russia/Ukraine

• New entities/persons sanctioned

with onerous screening implications

• New activities/items restricted

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Examples of Notable U.S. Changes


• April 2010 - Obama Administration determined reform was warranted

– Outlined proposal for a three-phased U.S. Export Control Reform (ECR) initiative

• ECR is geared towards –

– “Building higher walls around fewer, more critical items”

– Focus enforcement on most significant threats

– Ease burdens on trade with allies/strategic partners

– Prevent “designing out” of US-origin items by foreign companies

• Means for achieving goals –

– ‘Four Singularities’

• Single Control List

• Single Enforcement Coordination Agency

• Single IT System

• Single Licensing Agency

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Export Control Reform


• In the near-term, instead of a Single Control List, objective has been to:

– Transform USML into a positive control list;

– Move less sensitive items, such as parts and components, from the USML to the CCL; and

– Revise both lists

• Items stay on the USML if they:

– Have an inherent military utility or capability; or

– Possess technical parameters or characteristics that provide a unique military or intelligence advantage to the U.S. and are almost exclusively sourced from the U.S.

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Reform of Control Lists


• Went into Effect on October 15, 2013

– 600 series ECCNs

– “Specially Designed”

– Transition plan for existing DDTC licenses/authorizations

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First ECR Final Rule


• Within the EAR, each applicable CCL Category will have a 600 Series ECCN for:

– Transferred USML items;

– Wassenaar Arrangement Munitions List (WAML) items (former XX018 items); and

– Specially desgined parts, components, accessories, and attachments (P/C/A/A) not listed on the revised USML (i.e., do not provide a unique and significant military function)

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Revisions to Commerce Control List


Sample 600 Series ECCN

XA6XX CCL

Category 0-9

Product Group

A-E

Gives “600 series” its name

Last two characters track the

WAML


ECCN Subparagraph

License Requirements

License Exceptions

Item classified in .a - .x (Specifically enumerated and specially designed (.x))

License required to all

destinations, except Canada

LVS TMP RPL TSU GOV STA

Items classified in .y (Specifically enumerated – less restricted)

Licensed required only to Country Group E:1 or T5 countries (Cuba, Iran, N. Korea, Sudan and Syria)

and China

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600-Series License Requirements


• ITAR-Controlled?

– Specifically enumerated on the USML?

– Catch-all controls apply (specially designed)?

– If ‘No’, go to EAR . . .

• EAR-Controlled?

– Identify Commerce Control List (CCL) Category and Product Group

– Do 600-Series ECCNs apply (specifically enumerated or specially designed)?

– Do non-600 series ECCNs apply?

– If ‘No’, EAR99 (but still subject to EAR)

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Order of Review – Supp. 4 to Part 774


• Definition included in both the ITAR (Part 120) and EAR (Part 772)

• ITAR and EAR definitions are similar, but differ slightly

• Catch & release structure

• Used to determine both jurisdiction and classification

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Specially Designed


• Paragraph (a) of definition is the ‘Catch’

(1) Item developed with properties peculiarly responsible for achieving for exceeding the performance levels, functions or characteristics described in the applicable CCL or USML entry

(2) Is a part, component, accessory, attachment, associated equipment or software (P/C/A/A/E/S) for use in or with a defense article

• Paragraph (b) of definition is the ‘Release’ – Only one exclusion condition needs to apply to an item to release it from the “specially designed” control

– Some release exclusions –

• Regardless of form or fit, is a fastener, screw, bolt, etc. ((b)(2) exclusion)

• In production and has a commercial equivalent ((b)(3) exclusion)

• Was or is being developed with knowledge that it would be for a dual-use item ((b)(4) exclusion)

• Was or is being developed as a general purpose commodity or software ((b)(5) exclusion)

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Specially Designed


Sanctions Target

• Entire country of Cuba

• All Cuban nationals

• SDNs

Prohibitions

• Most imports, exports and reexports, and other transactions prohibited

• Property blocked

• Travel restrictions

• 2015 Amendments

Cuba


• SDNs

• SDN ownership issues

• September 2014 Update to OFAC and BIS Sanctions

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Russia


The following are prohibited (by US Persons) without prior OFAC authorization— 1. Dealing with individuals and firms in Ukraine and Russia on the Specially Designated

Nationals Lists;

2. Financing or dealing in new debt or equity with certain Russian financial lenders, defense and energy firms;

3. Providing, exporting, or reexporting to firms on the Sectoral Sanctions Identification List goods, services, or technology for exploration/production of oil and gas (i.e., deepwater, Arctic offshore, or shale projects) in Russia;

4. Engaging in the above with firms that are 50% or more owned/controlled by one or more SDN/SSIL firms in the aggregate.

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Current OFAC Sanctions on Russia


BIS licenses are required for exports, reexports or transfers of:

1. All items subject to the EAR (including EAR99 items) to individuals and firms in Russia on the Entity List, and to certain energy sector firms in Russia designated on the Entity List if the shipper knows that the items will be used directly or indirectly in exploration for/production of oil or gas in Russian deepwater (greater than 500 feet), Arctic offshore locations, or shale formations in Russia that have the potential to produce oil;

2. Items identified in Supplement No. 2 to Part 744 of the EAR to/for Russian military end‐users/end‐uses;

3. Items classified in ECCN 9X515 (satellites) or items classified in the 600‐Series ECCNs on the Commerce Control List;

4. Items classified in certain Harmonized System subheadings and ECCNs where the shipper knows that they will be used in the proscribed oil and gas exploration/production activities in Russia described above.

5. Items subject to the EAR triggering license requirements based on their classification.

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Current BIS Sanctions on Russia


Keeping Up With &

Implementing Regulatory Changes

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Minimizes risk, exposure and liability -

• Preventative measure

– Creates a proactive vs. reactive environment

– Controlled export/reexport/transfer of goods, services and technologies and diminishes risk of delay

• Potential mitigation of civil and criminal penalties

Effective Trade Compliance Program

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Effective program will focus on –

• People –

– Knowledgeable and provided resources necessary to support trade compliance roles.

– Environment of compliance from top-down.

– Awareness throughout the company of issues to raise and how to raise them.

• Processes –

– Comprehensive, well-documented, step-by-step and focused on all key functional areas and locations involved in export transactions.

– Ever-changing, not stagnant.

• Information Technology (IT) Resources –

– Efficiently control and facilitate export compliance

– Dynamically linked to business resources and processes.

– Minimize human error.

Robust Trade Compliance Program

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• Management Commitment to Compliance

• Effective Organization and Knowledgeable Personnel

• Well-documented and Followed Policies and Procedures Covering Key Areas of Compliance

• Regular Self-Assessments

• Well-established Issue Escalation Path

& Corrective Actions

• Regular Training

• Thorough Due Diligence

• Comprehensive Supporting Documentation/Recordkeeping

Core Elements of Trade Compliance Programs

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• Effective Organization and Knowledgeable Personnel (People)

• Documented & Followed Policies and Procedures Covering Key Areas of Compliance


• Well-established Issue Escalation Path & Corrective Actions





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– Structure complements focus

– ‘Two heads are better than one’

• Redundancy for critical responsibilities

• Lapses in judgment

• Intentional misconduct

– Diverse backgrounds

– Well-trained and appropriate resources allocated

– Aware of and able to utilize tools/resources necessary


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(Processes and IT Resources)







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– Key areas of compliance covered

– Thorough yet ‘user-friendly’

– One size does not fit all – cater to the business unit/model

– Global focus, country-specific

– Dynamic and malleable

– Rely on effective technology when possible . . . automation is key, but not when used exclusively


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(People and IT Resources)




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– New-hire orientation and semi-annual/annual internal training

– Reaches all levels of organization

– Catered

– Live and web-based/eLearning

– Attendance logs

– Desktop procedures

– External training


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Regulatory Change

Jurisdiction and

Classification

Licensing

Screening Training

Operations/

Logistics

Post-Transaction/

Internal Review

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Keeping Up with & Implementing Change


Erin Clark

Export Compliance Sr. Manager Sandler & Travis Trade Advisory Services, Inc.

San Diego, California Tel: 619.881.7273 [email protected]

mailto:[email protected]

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Understanding the Latest Export and Reexport Regulatory ...sccompliance-us.com/wp-content/uploads/sites/28/... · Understanding the Latest Export and Reexport Regulatory Requirements