2008 Wisconsin

International Trade Conference

May 13, 2008

U.S. Export Compliance

Disclaimer: This presentation does not represent legal advice, simply a collection of U.S. Export Compliance experiences. For legal advice regarding each organization’s specific situation, expert legal advice should be sought.

Moderator Steve Rubinson, MWTA Compliance Committee Co-Chair

Presenters – in order:The Global Company… Why is Export Compliance Important? – Linda Bourdo-Zuehlke, GE Sensing

Business Case - Steve Rubinson, JohnsonDiversey, Inc.

What are ITAR & Export Licensing? - Candace Knuteson, Derco Aerospace

Fact or Fiction: Breaking Down the Substantive Export Risk Areas - Joan Koenig, Drinker Biddle & Reath LLP

Q&A - all

The Global Company…

Why is Export Compliance Important?

Exporting Good for Wisconsin Good for the country

Post 911 CBP more organized, sophisticated Also-Export Enforcement

Weapons of mass destruction, Terrorists, Terrorist Sympathies-Not just a US import concern, global-just like everything else

Products with the capabilities of being used for something other than what they were intended are crossing borders every day.

Denied Parties and entities are creative in obtaining the products that they

are looking for.

Exporting…a little history

Product

Sales People

Finances

Technology

CustomersGlobal

Company

Sell Product Globally

Encourage Sales Teams

Establish Distributors

Build a Customer Base/End User

Training

Technology Upgrades

Proprietary Enhancements

Research & Development

Communications/Emails

Internet

Financial Transactions

Denied Party Lists

The regulations do not say how to screen against the Denied Party Lists, or how often to screen against the lists. The regulations basically say…..

You may not do business with anyone on the Denied Party Lists.

DistributorsEnd UsersBanksNew CustomersField EngineersOther???

DPL(dynamic lists)

1) Know your ProductECCN/Country

2) Know your CustomerDistributorsEnd-Users

3) Screen Against Denied Party ListsScreen to mitigate your company risk

-only affiliates-global-countries of concern

4) Export Management SystemWritten Internal Controls

-ownership-established processes-training-record keeping-audit and validation

Do you know your products?• Export Control Classification Number (ECCN)• Harmonized Code• Country of Origin

Do you know your customers?• End User

– Watchlist Screening• End Use• Country of Ultimate Destination

– Embargoed Country Screening

Export Control Classification Number (ECCN)

Export Administration Regulations

DPL Lists/Screening Tools

Purposes of export control laws and regulations• Prevent the proliferation of sensitive

technologies (not an exhaustive list)– Advanced computer technology– Military and dual-use items (military and

civilian)– Weapons of mass destruction (nuclear,

chemical, biological)• Implement sanctions as part of US foreign

policy• Implement multi-country sanctions (UN) to

which the US is a party

Legal Implications

Fines and penalties ($)• Corporate liability risk – up to $500K per

incident• Personal liability risk – up to $250K per

incident• Criminal penalties, including officers of

corporations

Sanctions such as loss of export privileges

Disruption of business

Potential Consequences of Non-Compliance

Business Case: JohnsonDiversey Inc.

JohnsonDiversey Inc.

Headquarters: Sturtevant, WI

Businesses: • Cleaning Chemicals• Dispensing and Application Equipment

Geographic Scope: Global

Global Reach: Presence in 55 Countries

Complex Environment

Process UnderstandingJohnsonDiversey Global Value Chain Export Order Process – Micro – Version 3 – Dated 24 October 2007

Reg

ulat

ory

Exp

ort D

ept.

(Loc

al o

r R

egio

nal)

War

ehou

se(O

nsite

or

Offs

ite)

Fre

ight

F

orw

arde

rC

usto

mer

(or

JD P

lant

)

Start

Work withI/E to

Resolve

Process Order in ERPSystem

Receive OrderConfirmation

Release Order to Warehouse

Pick/Pack/Label and advise details

to Export Staff

Book with Freight

Forwarder

Book with Carrier and send details to customer and JD Export staff.

Receive booking details and release

shipment

Print BOL and Confirm shipment

against BOL

Finalize and send export documents to Forwarder and

Customer

Receive documents and

prepare for importation

Receive Shipping

Documents

No

Record-keeping(End)

OK?Record-keeping(End)

Import Process(Start)

Receive Booking

Request from Customer

CustomerRouted?

Yes

Note 1: Export orders can be communicated in a number of different ways. Plant to plant orders between JD companies are not always placed via an ERP system. Best practice for plant-to-plant orders on the same ERP system (SAP or JD Edwards) is to perform a “stock transfer” between JD entities. The receiving company sells the goods to the local customer, who may be a distributor or an end user.Note 2: Sub-process to check regulatory requirements is primarily a manual process for many exporting locations, and is often incomplete, not covering all areas of regulatory concern. This is a process gap that must be addressed to meet Legal requirements.Note 3: ERP systems cover a great majority of Import/Export transactions, divided between SAP in EMA and JD Edwards (2 instances) for the rest of the world. Some JD subsidiaries still use legacy systems or non-standard versions of SAP, and will eventually switch over to one of the main ERP systems, depending on region.Note 4: International Terms of Sale (Incoterms) vary from region to region. EMA sells primarily on an EXW basis, while NA has recently standardized on a CIF basis. Should further standardization of Incoterms occur, this process flow chart would be updated to reflect any process changes that might occur.

CheckRegulatory

Requirements

No

Yes

Order ProductVia e-mail, fax or ERP system

Development of the Export Compliance Function at JohnsonDiversey

2002 – Johnson Wax Professional (US) acquires DiverseyLever from Unilever (Anglo-Dutch). Export compliance processes in infancy

2005 – Decentralized Regional Environment – North American region implements automated restricted party screening

2006 – Licensed US Customs broker hired as Global Import/Export department head within Value Chain function

2007 – Business case made to expand the use of automated restricted party screening beyond North America

2008 – Expanding restricted party screening, moving towards centralized oversight of export compliance processes, involving global staff

Senior Management Support was strong from the beginning, and remains strong today

Interim Actions Taken While Automating Restricted Party

Screening• Use existing resources to screen trade party lists of regions outside North America

• Communicate US export compliance requirements to foreign subsidiaries

• Communicate compliance vision as well as risk reduction activities to senior management

• Develop training materials to expand general awareness of global trade compliance

• Process exceptions

What is Export Licensing?

What is ITAR?

ITAR Export Licensing Issues

Registration Requirements

Commodity Jurisdiction• See thru Rule or Tainting

Defense Articles • Hardware • Technical Data

Defense Services

Foreign Nationals

Brokers

Exemptions

Recordkeeping

ITAR Implications on the Business

Foreign Sales

Foreign Joint Ventures/Strategic Alliances (Teaming)

Foreign Procurement

Domestic Transfers• Employees• Visitors• Suppliers/Customers

ITAR Authorizations

DSP-5 (Permanent export)

DSP-61 (Temporary import)

DSP-73 (Temporary export)

DSP-119 (Amendments)

Agreements • Technical Assistance Agreements• Manufacturing License Agreements• Distribution Agreements

Exemptions

Other ITAR Correspondence

Commodity Jurisdiction (CJ)

Prior Notification

Prior Approval

General Correspondence• Advisory opinion• Retransfer

ITAR Licensing-Plan Ahead

ITAR licensing takes time so try to plan ahead, build in flexibility, and have patience.

TAA/MLA approvals and DSP-5 for Foreign Nationals can take over three months.

Licensing approvals involve inter-agency review• DTSA• DOD service branches• Intelligence agencies

ITAR Violations

Failure to Register (Manufacturer/Exporter/Broker)

Exporting or attempting to export without required licensing approval/authorization

Exceeding scope of license/approval/exemption

Failure to comply with license terms, conditions, provisos

Failure to comply with recordkeeping requirements

Failure to comply with notification requirements

ITAR Best Practices

“Flow Down”• Functional areas• Post authorization checklists/license reviews

Networking• Councils or Trade Associations

Education/Training• External

– IIEI and SIA• Internal

– Brown Bag sessions and Survey Monkey

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