Export Compliance · 2020-01-07 · items and technology, now some military– EAR/ 15 CFR; Bureau of Census controls trade-statistics and EEIs Office of Foreign Assets Control (OFAC)

© 2016 Torres International Law, PLLC Any copying or distribution is prohibited. © 2016 Torres Law, PLLC Any copying or distribution is prohibited.

Export 201:

Export Compliance

April 11, 2017

Derrick Kyle, Associate www.torrestradelaw.com

http://www.braumillerlaw.com/

© 2016 Torres Law, PLLC Any copying or distribution is prohibited.

Agenda Why Export Compliance Is Important Agency/Regulations Overview oDepartment of the Treasury: OFAC oDepartment of State: DDTC oDepartment of Commerce: BIS

Classification/Licensing Risks oIllegal Diversion

• Screening oDeemed Exports

Enforcement oVSDs oPenalties

Compliance Program

2


Why Trade Compliance Is Important

National Security oExport Controls

• Anti-terror, nuclear non-proliferation, missile technology, etc.

Foreign Policy oSanctions

• Russia, Cuba, Iran, etc.

3


4


Why Trade Compliance Is Important

Failure to adhere to export control laws and regulations may lead to severe consequences. Consequences of a violation include: o Fines o Penalties--up to >$1MM o Loss of export privileges o Jail terms oReputational harm

5


Agency Overview Directorate of Defense Trade Controls (DDTC) controls defense articles, defense services, and related technical data, including most space-related articles - ITAR. / 22 CFR

Bureau of Industry and Security (BIS) controls “dual-use” items and technology, now some military– EAR/ 15 CFR; Bureau of Census controls trade-statistics and EEIs

Office of Foreign Assets Control (OFAC) oversees embargo and sanction lists - OFAC regulations.

U.S. Customs and Border Protection enforces all exports & imports at U.S. borders. “Policemen” Customs Regulations / 19 CFR

6


Census Bureau The Foreign Trade program of the United States Census Bureau provides detailed statistics on goods and estimates of services shipped from the U.S. to foreign countries. Electronic Export Information (EEI) for most exports must be filed in the Automated Commercial Environment (ACE). Reporting is governed by the Federal Trade Regulations (FTR) issued by Census. https://www.census.gov/foreign-trade/aes/index.html

7

https://www.census.gov/foreign-trade/aes/index.html

https://www.census.gov/foreign-trade/aes/index.html


https://www.census.gov/foreign-trade/index.html

8


Office of Foreign Assets Controls Office of Foreign Assets Controls (OFAC), U.S. Department of Treasury. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and others. Two types of sanctions: o List-based: Sanctions targeting specific entities or persons. o Country-based: General Sanctions against a country and its nationals (Cuba, Iran, Syria).

https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCJ6cgKj0iMkCFYQzJgod_dMCyA&url=http://www.fcpablog.com/blog/2015/2/4/whats-new-in-ofac-compliance.html&psig=AFQjCNGjv3T5dFwWnY7BQBCsUD36vYE0Dg&ust=1447349695612285


Country Sanctions Programs

10


Sanctions Updates Iran (JCPOA) oU.S. persons

• Iran sanctions largely unchanged oNon-U.S. Companies

• Primary beneficiaries of relief

Cuba oEmbargo remains in place oEasing applies to: Health-related, Humanitarian-related, and Travel-related Transactions

Russia/Ukraine oBlocking sanctions (SDN list) oSectoral sanctions (SSI List)

• Limited restrictions oNew investment ban and embargo (Crimea region)

11


International Traffic in Arms Regulations

The International Traffic in Arms Regulations (ITAR) controls export and temporary import of defense articles and related technical data. The ITAR is administered by the Directorate of Defense Trade Controls (DDTC), Department of State. Items subject to the ITAR are listed on the US Munitions List (USML). The ITAR is interpreted broadly and enforced strictly.

12


ITAR (Cont’d) Requires annual registration for a fee (minimum $2,250) Any person in the U.S. that manufactures or exports defense articles or defense services, or engages in related brokering activity, must register with DDTC. Registered companies must appoint an Empowered Official (EO). oEOs have personal liability.

Almost every export subject to the ITAR requires a license. https://www.pmddtc.state.gov/

13


U.S. Munitions List

14

The USML is divided into 21 categories

I=Firearms, Close Assault Weapons and Combat Shotguns II=Guns and Armament III=Ammunition/Ordnance IV=Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs, and Mines V=Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents VI=Surface Vessels of War and Special Naval Equipment VII=Ground Vehicles VIII=Aircraft and Related Articles IX=Military Training Equipment and Training X=Personal Protective Equipment XI=Military Electronics

XII=Fire Control, Range Finder, Optical and Guidance Control Equipment XIII=Materials and Miscellaneous Articles XIV=Toxicological Agents and Associated Equipment XV=Spacecraft and Related Articles XVI=Nuclear Weapons Related Articles XVII=Classified Articles, Technical Data, and Defense Services Not Otherwise Enumerated XVIII=Directed Energy Weapons XIX=Gas Turbine Engines and Associated Equipment XX=Submersible Vessels and Related Articles XXI=Articles, Technical Data, and Defense Services Not Otherwise Enumerated


www.pmddtc.state.gov

15


Export Administration Regulations (EAR)

The EAR is administered by the Bureau of Industry & Security (BIS), U.S. Department of Commerce. No registration requirement. The EAR regulates exports and reexports of dual-use articles, technology, and software. Scope: oAll items in the U.S. oU.S. origin items, wherever located oForeign-made commodities incorporating controlled U.S. origin commodities in quantities exceeding de minimis levels

Items subject to the EAR are listed on the Commerce Control List (“CCL”), organized by Export Control Classification Number (“ECCN”).

16


Commerce Control List

17

The Commerce Control List is divided into 10 categories

Each of the 10 categories is divided

into five product groups 0=Nuclear materials, facilities and equipment 1=Materials, chemicals, microorganisms and toxins 2=Materials processing 3=Electronics 4=Computers 5=Telecommunications and Information security 6=Sensors and lasers 7=Navigation and Avionics 8=Marine 9=Aerospace and Propulsion

A=Systems, components and equipment B=Test, Inspection and production equipment C=Material D=Software E=Technology


www.bis.doc.gov

18


Export Control Reform (ECR) Initiated in August 2009 by Obama Administration USML and CCL had not been updated since early 1990s Purpose is to put “higher fences around fewer items.” Ultimate goal is to create a single control list, single licensing agency, unified IT system, and enforcement coordination center oFinal step requires Congressional action

19


600 Series and 9x515 Items “600 series” items • During the process of ECR, many

military items previously controlled under the USML were moved to control under the CCL

• These items have been given ECCNs in the 600s (e.g., 9A610 for certain military aircraft and parts thereof)

9x515 items • Similar to 600 series items, certain

spacecraft and their parts that were previously controlled in the USML have moved to the CCL under new ECCNs 9x515

20


ECR-Looking Ahead Export Control Reform was an initiative of the Obama Administration. oECR’s ultimate goal was to create a single licensing list and agency.

It is unclear what will happen with ECR under the Trump Administration. oCampaign focused heavily on trade and national security, issues central to ECR. oHowever, the campaign also promised to scale back on regulation of business, and ECR has accounted for over 100 Federal Register notices for the industry to keep up with.

Stay informed and up-to-date! There could be several, or zero, changes to the ECR initiative.

21


Classification

22

ITAR EAR


CJs v. CCATS

• Used to determine whether an item or service is covered by the USML (IF manufacturer is unable to self-classify)

• Submitted to DDTC • Registration with DDTC is not required

Commodity Jurisdiction (CJ)

• If you know your product is covered by the CCL, but not sure of which ECCN it falls under, you may submit a CCATS to BIS

• Pictures, sales brochures, catalogues and other descriptive information are useful in classifying a product

• Classification requests must be limited to six items

Commodity Classification Automated

Tracking System (CCATS)

23


eCFR USML: http://www.ecfr.gov/cgi-bin/text-idx?node=pt22.1.121 CCL: http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=15:2.1.3.4.45

24

http://www.ecfr.gov/cgi-bin/text-idx?node=pt22.1.121

http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=15:2.1.3.4.45

http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=15:2.1.3.4.45


9A604

25

Reasons for Control

Exceptions

ECCN & Description

List of Items Controlled:

-Related Controls -Related

Definitions -Items


Example: Reasons for Control The reasons for control are cross-referenced with the controls associated with specific countries on the Commerce Country Chart (https://www.ecfr.gov/cgi-bin/text-idx?rgn=div9&node=15:2.1.3.4.24.0.1.5.27):

26

https://www.ecfr.gov/cgi-bin/text-idx?rgn=div9&node=15:2.1.3.4.24.0.1.5.27

https://www.ecfr.gov/cgi-bin/text-idx?rgn=div9&node=15:2.1.3.4.24.0.1.5.27


27


ITAR Licenses

DSP-5

• Permanent Export License. Covers permanent export of a specific quantity and value of articles and/or technical data

DSP-73

• Temporary Export License. Covers the temporary export and re-import of controlled articles. Articles cannot be changed outside the US

DSP-61

• Temporary Import License. Covers the temporary import and re-export of controlled articles

DSP-85

• Permanent /Temporary Export or Temporary Import of Classified Defense Articles and Related Classified Technical Data

28


D-Trade D-Trade is the DDTC’s fully-electronic export licensing system ITAR licenses are only for items that are subject to ITAR and USML-controlled D-Trade is Free Must be registered with DDTC To prepare and file most license applications, you will need to create a D-Trade account For detailed info on how to apply through D-Trade, please visit: http://www.pmddtc.state.gov/DTRADE/index.html

29

http://www.pmddtc.state.gov/DTRADE/index.html


EAR Licensing Under the EAR, you may need a license based on: What your product/technology is Where it is going Who will be receiving it What it will be used for Apply for licenses (if necessary) via BIS’ Simplified Network Application Process Redesign (SNAP-R)

o SNAP-R is free

30


SNAP-R Registration

31


How to Use SNAP-R? Access SNAP-R at https://snapr.bis.doc.gov Create and submit an application oExport License oRe-Export License oAgriculture License Exception Notice oCommodity Classification (CCATS) oSpecial Comprehensive License (For approved companies only)

Manage applications within company Receive/Respond requests from BIS licensing officers Receiving final validations

32

https://snapr.bis.doc.gov/


EAR License Exceptions Located in the EAR, Part 740 (15 CFR § 740) oInclude, but are not limited to, exceptions for:

• Certain temporary imports, exports, reexports and transfers • Servicing and replacement of parts and equipment • Gift parcels and humanitarian donations • Baggage • Agricultural commodities • Exports to certain trusted governments (strategic trade

authorization)

Read exceptions very carefully to make sure they apply to your export, and you have met all prerequisites

33


Risks in Trade

34


Illegal Diversion Large risks for the diversion of U.S. items to unauthorized end-uses, end-users, and destinations. Certain factors increase the risk, such as product type and a known diversion point. Compliance programs should address diversion risks specific to a company’s operation: o Product in high demand in sanctioned nations? o Customer in a known diversion destination?


Example

36


Red Flags The customer or purchasing agent is reluctant to offer information about the end-use of the item. The product’s capabilities do not fit the buyer’s line of business. The customer is unfamiliar with the product’s performance characteristics but still wants the product. Routine installation, training, or maintenance are declined by the customer.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCLqS45X6iMkCFYFBJgodj_0Eaw&url=http://www.ocregister.com/articles/thursday-657948-weather-heat.html&psig=AFQjCNE4dfn14mrJ6ErUu0FZYQtbtr8MBA&ust=1447351336063193


Delivery dates are vague, or deliveries are planned for out of the way destinations. A freight forwarding firm is listed as the product’s final destination. When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for re-export. The customer or its address is similar to one of the parties found on a federal agencies’ denied party list (more on this on next slide).

Red Flags (cont’d)


Denied Party Screening Denied party screening is the process of screening those parties involved in an export transaction for the purpose of complying with the regulatory standards of the U.S. Government.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCKf46qf7iMkCFUJMJgodE54JaA&url=http://www.exportsolutionsinc.com/blog/new-name-for-denied-parties-list/&psig=AFQjCNEFP3Ww3gIQFNF35V-oiKXr5FR88w&ust=1447351677696987


Each federal agency that regulates international trade has its own denied party list(s). oOFAC – Specially Designated Nationals List (SDN) oDDTC – Debarred Party List oBIS – Denied Persons List and Entity List

Denied Party Screening (cont’d)


Consolidated Screening List Consolidates multiple export screening lists of the Departments of Commerce, State and Treasury https://build.export.gov/main/ecr/eg_main_023148

Screen all parties to transaction: • Sold-to • Ship-to • End-user • Intermediate consignee • Distributor • Bank • Other

41

https://build.export.gov/main/ecr/eg_main_023148


Question:

Can you have an export within the United States?

42


Deemed Exports

Answer: YES! The release of technology or technical data to a foreign national in the United States is “deemed” to be an export to the foreign national’s home country.

This could occur when… •A foreign national employee of your company has access to certain technology.

•A foreign customer visits your facility.

43


Methods of Transfer

Technical exchanges

through telephone,

fax machine, or email

Technical exchanges through in-

person conversation

Thorough inspection of

defense article or

commodity

Inspection of models,

drawings, or blueprints

Actual access (that

leads to release) of

data in servers

44


Deemed Exports Example-ITAR

Microwave Engineering Corp. Consent Agreement oJune 20, 2016 oMEC designs and manufactures high-power, broadband passive components, antennas, and waveguides for radio frequency microwave and communication systems oProvided ITAR-controlled technical data to a foreign Research Scientist from China without obtaining license oCivil penalty: $100,000 oNo debarment

45

© 2016 Torres Law, PLLC Any copying or distribution is prohibited. 46


Enforcement Example ZTE Settlement (BIS/OFAC/DOJ) oMarch 7, 2017 oChinese telecom company sold equipment containing American technology/hardware to sanctioned countries (Iran & North Korea) oBIS Settlement: $661,000,000 ($300 million suspended during 7-year probation) oOFAC Settlement: $100,871,266 oDOJ Fines & Forfeiture: $460,488,798

47


Mitigating/Aggravating

Mitigating circumstances

Voluntary self-disclosure of violations

Full cooperation

Timely and appropriate remediation

Aggravating circumstances

Exports of items controlled for nuclear nonproliferation to a proliferator country

Exports of military items to a hostile foreign power

Repeated violations

Knowing involvement of upper management

Significant profits from illegal conduct

48


VSDs A narrative account with supporting documentation that describes the violations or suspected violations of the particular regulations. OFAC, BIS, DDTC emphasize that filings of a VSD is a mitigating factor.

49


What to include in VSDs? The kind of violation involved Description of what gave rise to violations An explanation of when and how the violations occurred The complete identities and addresses of all individuals and organizations, whether foreign or domestic, involved in the activities giving rise to the violations A description of any mitigating circumstances Corrective measures taken

50


Penalties for Export Violations

51

Census - Civil: Up to $10,000 per violation - Criminal: Up to $10,000 and 5 years imprisonment

ITAR - Civil: $1,094,010 per violation - Criminal: $1 million per violation, 10 years imprisonment per violation - Loss of goods, denial of export privileges

EAR - Civil: $289,238 per violation (or twice the value of the transaction) - Criminal: $1 million per violation, 20 years imprisonment - Loss of goods, denial of export privileges

OFAC - For IEEPA programs, up to $289,238 per violation (or twice the value of transaction) in civil penalties, $1 million in criminal penalties and 20 years imprisonment

- For TWEA programs, up to $65,000 per violation in civil penalties, $1 million in criminal fines for corporations, and $250,000 in criminal fines for individuals


BIS Enforcement Trends

52

2013 2014 2015 2016

Criminal Convictions 52 39 31 32

Criminal Fines $2,694,500 $137,808,756 $156,416,030 $274,500

Assets Forfeited $18MM >$1.3MM >$84MM >$79MM

Administrative Actions 71 48 51 39

Civil Penalties $6,524,955 $60,567,150 $15,111,200 $23,323,000


53

Effective Export Compliance


8 Elements of a Successful EMCP

(1) Management Commitment (2) Continuous Risk Assessment (3) Export Authorization (4) Recordkeeping (5) Training (6) Audits (7) Handling Violations and Taking Corrective Action (8) Build and Maintain an Export Compliance Manual https://www.bis.doc.gov/index.php/forms-documents/pdfs/1641-ecp/file

54

https://www.bis.doc.gov/index.php/forms-documents/pdfs/1641-ecp/file






Management Commitment Top-down support is critical for compliance Informs employees at all levels of the importance of compliance Necessary for “buy in” and allocation of appropriate resources and personnel Government agencies want to see management involvement in compliance

55


Compliance Programs Companies should have written

and documented export compliance policies and procedures.

The lack of such a program is considered an aggravating factors

by most U.S. agencies.

Compliance programs and manuals should be tailored to a company’s

operations.

56


Training

Employees can’t comply unless they understand the rules. Training should be tiered and tailored to specific groups. Education should be ongoing and routinely updated. Training can be a mitigating factor in the event of a violation. Examples of employee training: oInformation sessions when relevant changes to the regulations are made. oCompliance manual that all employees read as part of their training.

57


Compliance Tips: Stay Current!

Watch for Updates: oExport Control Reform

oAutomated export/import filings

oECCN changes

oDenied party lists

oCountry sanctions

oLicensing requirements

58

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCOqjjrORickCFYpAJgodivwC4w&url=http%3A%2F%2Fwww.dreamstime.com%2Froyalty-free-stock-image-3d-status-update-dice-message-image12011606&bvm=bv.107406026,d.eWE&psig=AFQjCNFR1QfTwF08NXo2TnVVgSd1v_b5Dg&ust=1447357589971178


U.S. Export Resources

59

Dept. of Commerce Bureau of Industry and Security • http://www.bis.doc.gov/

Dept. of Treasury Census Bureau • http://www.census.gov/foreign-trade/regulations/index.html

Dept. of State Directorate of Defense Trade Controls • http://www.pmddtc.state.gov/

Dept. of Treasury Office of Foreign Assets Control • https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-

Foreign-Assets-Control.aspx

U.S. Commercial Service Philadelphia • 215-597-6101 • [email protected]

http://www.bis.doc.gov/

http://www.census.gov/foreign-trade/regulations/index.html



http://www.pmddtc.state.gov/

http://www.buyusa.gov/












Cheesesteak Debate

60


Questions?

61

Olga Torres, Managing Member [email protected]

Derrick Kyle, Associate [email protected]

1717 McKinney Avenue, Suite 700 Dallas, TX 75202

214.593.7120 www.torrestradelaw.com

1650 Market Street, Suite 3600 Philadelphia, PA 19103

267.675.7045 (By appointment only)

mailto:[email protected]

mailto:[email protected]

http://www.torrestradelaw.com/

Documents

Export Compliance · 2020-01-07 · items and technology, now some military– EAR/ 15 CFR; Bureau of Census controls trade-statistics and EEIs Office of Foreign Assets Control (OFAC)