International Trade and Technology Transfer Practice · international trade laws and regulations with corporate structuring, finance, M&A, human resources, intellectual property and

GCDGardner Carton & Douglas

www.gcd.com

International Tradeand TechnologyTransfer (IT3)Practice

Core Expertise

The International Trade and Technology Transfer (IT3) Practice special-izes in the myriad of U.S. laws and regulations that govern bilateraland multilateral technology transfers and ventures, as well as foreigninvestment in the U.S. space and defense industries—including, forexample, export controls, customs, economic sanctions and foreigncorrupt practices. We are intimately familiar with the interagencyreview process and decision-makers involved in Federal Governmentapprovals and enforcement.

Integrated Legal Solution

While we serve as special counsel in our core area, we also often actas outside general counsel to technology ventures or as transactioncounsel. The IT3 Team Members are drawn from the Firm’s DCCorporate Department many with a specialization relevant to domes-tic and foreign technology transactions and ventures. The IT3 Teamhas the experience and breadth to address corporate law and gover-nance, transaction negotiating and drafting, venture structure andfinance, intellectual property, human resources and international taxmatters.

Global Capability

The IT3 Team works closely with the Firm’s Global Law Practice, agroup of attorneys with linguistic, cultural and legal experience invarious countries and regions of the world, including Europe, thePacific Rim, India, the Middle East and South Africa. We are alsosupported by the World Law Group, an organization of law firms,including Gardner Carton & Douglas, located in all major worldcommercial centers. This affiliation allows us access to reliable andpractical counsel for our clients doing business outside the UnitedStates.

The IT3 Team4

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Since 1910, Gardner Carton & Douglas LLC has advisedcompanies in virtually every phase of their businessneeds. Our IT3 practice couples expertise in U.S.international trade laws and regulations with corporatestructuring, finance, M&A, human resources, intellectualproperty and tax savvy for solutions-focused counseling.

Technology transfer opportunities present new challengesfor your business, and you need to be able to respondquickly. Our experience and database of fundamentaldocumentation ensure that IT3 attorneys will answer yourneeds efficiently on your timetable.

Familiarity with evolving business and legaldevelopments is crucial to success. We position ourclients for success. Because of our regulatory andemerging technologies experience, we have alreadyaddressed many of the same issues that you now face.We can leverage that knowledge for your benefit.

Why Choose IT3?

EXPERTISE

RESPONSIVENESS

LEVERAGE

191 N. Wacker DriveSuite 3700

Chicago, Illinois 60606-1698312/569-1000

1301 K Street, N.W.Suite 900, East Tower

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www.gcd.com

IT3 Team Members

George N. Grammas, Chair Principal (202) [email protected]

Thomas J. Dougherty, Jr., Principal (202) [email protected]

Francis E. Fletcher, Jr., Principal (202) [email protected]

Joseph S. Carlin (202) [email protected]

Sarah D. Gee (202) [email protected]

Geoffrey M. Goodale (202) [email protected]

Jennifer A. Lewis (202) [email protected]

Corey A. Stewart (202) [email protected]

Collateral Materials

1. International Trade and Technology Transfer Practice Description

2. Global Law Practice Description

3. Sample Recent IT3 Update Newsletter

IT3

Gardner Carton & Douglas LLC

IT3www.gcd.com

International Trade andTechnology Transfer (IT3)Practice


IT3www.gcd.com 2

Practice Overview The International Trade and Technology Transfer (“IT3”) Practice at GardnerCarton & Douglas LLC (“GCD”) specializes in U.S. laws and regulations thatgovern transactions among U.S. companies and foreign companies, dealings abroadin U.S. origin goods and technologies, defense article manufacture and sale, andforeign investment in the United States. The IT3 Practice applies its expertise todetermine the application of the relevant laws and regulations in the context ofbusiness transactions and activities and, often more importantly, to lawfully struc-ture transactions and activities to effectively navigate through this complex myriadof laws and regulations in order to achieve legitimate business objectives.

In other words, our objective is to find solutions, not to merely tell you the law. Torealize this objective, the attorneys in the IT3 Practice must be, and are, intimatelyfamiliar with the relevant laws and regulations but, as members of a corporatefirm, also are experienced in corporate and transactional matters. Through thisinterdisciplinary approach, we bring the greatest value-added benefit to ourclients.

The legal and transactional issues that we resolve are most prominent in thecontext of space and military programs involving multiple contractors in multiplecountries. The IT3 Practice at GCD is recognized by industry and Governmentas one of the premier choices to assist on such projects.

The IT3 Practice assists clients in the following areas:

n International Trade and Investment Regulation - We advise companiesconcerning all U.S. laws and regulations that govern transactions amongU.S. companies and foreign companies, dealings abroad in U.S. origin goodsand technologies, and foreign investment in the United States, including:

• Export Controls: International Traffic in Arms Regulations (“ITAR”)and Export Administration Regulations (“EAR”);

• Sanctions: Office of Foreign Assets Control (“OFAC”) Regulationsand Antiboycott Regulations;

• Imports: Customs Regulations as well as Antidumping and other traderemedies;

• Ethical Business Practices: Foreign Corrupt Practices Act (“FCPA”)and Organization for Economic Cooperation and Development (“OECD”)Convention to Combat Bribery; and

• Foreign Investment: Exon-Florio notice submission to the Committeeon Foreign Investment in the United States (“CFIUS”) and preservingfacility security clearances under the National Industrial SecurityProgram Operating Manual (“NISPOM”).


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n Technology Transfer in Space and Defense Industries - The IT3 Prac-tice is considered a premier choice to handle international technology trans-fer issues in space and defense industries, because of its experience in:

• Stratification of system elements into military and dual-use items in theCommodity Jurisdiction process;

• Applying regulatory definitions to differentiate among conceptualmarketing and systems descriptions, controlled technical data, anddefense services in the context of marketing, system development andforeign procurement;

• Designing phased and multi-party programs to accommodate bothnational security and business objectives in Manufacturing License andTechnical Assistance Agreements;

• Facilitating multinational teaming and cooperation through facility visits,Technical Interchange Meetings (“TIMs”) and formation of IntegratedProduct Teams (“IPTs”);

• Engagement of foreign nationals in various aspects of space and defenseprograms; and

• Structuring transactions in relation to the brokering requirements of theITAR.

n Developing Organizational and Contractual Structures - The IT3 Prac-tice develops the appropriate organizational and contractual structures tofacilitate the activities described above and to assist companies to form stra-tegic alliances, including:

• Intra-company organization as it relates to internal responsibilities andaccountability for corporate governance and formation of foreign subsid-iaries to insulate assets from liability;

• Inter-company contractual relationships such as prime/subcontractor,vendor/supplier, OEM or VAR, in-country representative, consulting,cooperative development, teaming, technology and software licenses andothers; and

• Equity and debt participation in ventures and shareholder/participationrights and responsibilities.


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Partnership with Industry and Government

The IT3 Practice guides clients through transactions and activities that integrallyrelate to U.S. national security concerns and often require prior governmentapproval or structural changes. Government policy and practices - as well as thestrategies to reconcile business and government interests - cannot be understoodthrough a mere reading of the relevant laws and regulations, as they do not sayhow to do what must be done. For this reason, industry groups in Washington,D.C. have created forums for communication of practices and policies and torecommend solutions to conflicts that arise from time-to-time in law or practice.

We actively participate and often lead these endeavors. Diagram 1 illustratesthe inter-relationship between government and industry in developing andcommunicating U.S. export and sanctions policy, regulations and practice, the

most dynamic aspect of international trade regulations. The U.S. Department ofState, Directorate of Defense Trade Controls (“DDTC”), administers the Inter-national Traffic in Arms Regulations (“ITAR”), which governs the export ofdefense articles, defense services and technical data (including satellites andsatellite components and technology). DDTC communicates government inter-pretation of the ITAR and U.S. export policy and practice through the Society forInternational Affairs (“SIA”). SIA is a non-profit organization comprised ofindustry and government licensing personnel. Gardner, Carton & Douglas isgeneral counsel to SIA, and our attorneys have directed and served as featuredspeakers at numerous SIA conferences. The U.S. Department of Commerce,Bureau of Industry and Security (“BIS”) directly sponsors educational confer-ences on the Export Administration Regulations (“EAR”).

A Closer Look

Diagram 1.Relationship Between Government and Industry

DDTC

AIA/EIA SIA30+ Active Companies

account for over50% by value of all licensed transactions

BIS

IndustryEducation


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To shape and influence U.S. export and sanctions policy, regulations and prac-tice, industry primarily relies on three industry associations—the AerospaceIndustries Association (“AIA”), the Electronic Industries Alliance (“EIA”), andthe National Defense Industrial Association (“NDIA”)—who collectively spon-sor a defense trade and export controls industry committee. A member of the IT3

Practice serves as the co-chair of this committee.

About 30 companies actively support SIA and the AIA/EIA/NDIA committeeand represent the majority of all government licensed export transactions. Throughthis regular participation with industry and government, the IT3 Practice is inte-grally involved in changes in export and sanctions policy, regulations and practiceand those issues that are most important to industry.

Representative Experience

n Development of Innovative Technologies through Multinational Teams

Whether a company is a system integrator or vendor, multinational projects raisemany export and technology transfer issues. These issues are typically compli-cated by the participation of multiple contractors from multiple countries. Inaddition, these projects raise export license jurisdiction problems as commercial-off-the-shelf (“COTS”) items are used to reduce non-recurring costs and toreduce development and delivery lead times.

Diagram 2 shows the process for development of a new system and relates theState Department license requirements associated with the process. Typicalissues in multinational programs include: determining jurisdictions of parts,

components, and subsystems, particularly as they relate to COTS items modifiedfor use in the system; preliminary discussions among contractors in the selection

Diagram 2.Innovative Technology Development

System Concept - Subsystem Concept - Detailed Design - Integration & Test - Delivery/Operation

Deliver end-item,Commenceoperation

Integrated Product TeamConcept Development

Meeting withProspectiveContractors Engagement

of ComponentContractors

SubsystemIntegration,

Test,Delivery

SystemIntegration

Test

Final SystemDemonstration

System-levelConcept

RequirementsDocument

Engagementof SubsystemContractors

ComponentDelivery &Acceptance

Tests

PDRs & CDRs

LICENSING:

Technical Data Hardware/Software

DSP-5, TAA, MLA DSP-5 OPDSP - 5 HardwareTAA, MLA

Proposals

CONTRACT

AWARD


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and qualification process; multi-party manufacturing license and technical assis-tance agreements and sublicensing arrangements; and the participation offoreign persons and foreign company representation in IPTs or in TIMs through-out contract performance.

The following are representative transactions that involve the development ofinnovative technologies through multinational teams:

• For a commercial communications satellite company, we obtained thefirst ever authorization to engage in final assembly and testing operationsin Russia of communication satellites as well as authorization to launch inRussia.

• For this same company, we recently obtained the first ever and, to date,the only authorization of its kind to have representatives of a Russianengineering concern work at a U.S. facility during satellite development,integration, and test.

• We obtained U.S. Government authorization for a U.S. company tocooperate with a former Soviet missile/launch vehicle maker to design anew launch vehicle qualified to launch U.S. commercial and government satellites.

• We obtained U.S. Government approval for a multi-national effort todevelop a spacecraft capable of docking with and extending the life ofwayward satellites.

• For a consortium of U.S. universities, we obtained authorization fordevelopment, integration, and test of weather prediction satellites in theUnited States and Taiwan with representatives of a Taiwanese govern-ment-funded concern.

• We helped a science laboratory of a prominent university establish aprogram for foreign students and scientists to participate in DoD andNASA funded programs.

• We handled the government authorization for members of the Airbusconsortium to participate in the design and construction of unmanned airvehicles to provide telecommunication services from geo-stationarypositions.

• We obtained the authorization for a well-known satellite company toexport defense services on a wide range of programs with a then-newlyacquired foreign company that is expert in satellite imaging and otherspace and ground station software applications.


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• For over a decade, we have assisted a U.S. automatic testing equipmentcompany to participate in NATO programs, develop test program setsfor AWACS aircraft systems, and establish depot capabilities in NATOmember countries.

• For another client that we have represented for over a decade, we have

obtained authorizations for a foreign manufacturer of propeller systemsfor foreign navy war vessels.

n Formation of Relationships by Technology Ventures

The IT3 Practice has extensive experience in developing the appropriate organi-zational and contractual structures to address the U.S. legal and national securityissues associated with international transactions and to protect technology rightsin domestic and international transactions. Diagram 3 shows some of thepossible relationships that the IT3 Practice facilitates.

The IT3 Practice can structure the complete range of business activities andcontracts for a technology company, including the following (diagrammed above):

• Acquiring rights in technology or software;

• Acquiring hardware and equipment;

• Engaging consultants and subcontractors/vendors;

STOCKHOLDERS/INVESTORS

SUBCONTRACTORS/VENDORS

CONSULTANTS

MARKETING & SALESREPS/OFFICES

CUSTOMERS

DISTRIBUTORS/VARS

JV CO.

PARTNER CO.GOVERNMENT

AGENCY

TECHNOLOGYENTITY

EMPLOYEES

Diagram 3.Technology Venture Relationships


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• Managing the flow of information to stockholders/investors;

• Employment arrangements for management and technical personnel,including foreign nationals;

• Entering into joint-development and teaming arrangements by contractor formation of a new entity;

• Preserving rights in technology when contracting with the U.S. Govern-ment by restricting government rights in technical data and software;

• Licensing production rights, including offshore production and overseasmanufacturing and distribution;

• Establishing distribution, VAR, OEM, sales and marketing representa-tives, and support and maintenance arrangements; and

• Licensing rights to use and sublicense technical data and software.

The following are representative transactions that we have handled for technol-ogy ventures:

• For one client, we negotiated and drafted over $100 million in vendorcontracts for the development and deployment of a global wirelesscommunication system.

• We assisted another telecommunications company that is developing awireless internet system with a manufacturing concern in South Koreaby establishing a suitable organizational structure with a subsidiary inIreland and a branch office of the subsidiary in South Korea.

• We negotiated and drafted agreements for the acquisition and/or licenseof software and technology for numerous clients.

• We have helped many clients structure their early stage financing throughstrategic private placement investments.

• For a major retail chain, we structured the consolidation and shipmentarrangements to receive merchandise from suppliers in China andTaiwan.

n Strategies to Accommodate the Extraterritorial Application of U.S. Law

Many of our U.S. company clients are concerned that U.S. export controls andother U.S. laws and regulations will apply to the activities of foreign subsidiariesand representatives, and that a foreign entity’s activities could result in liability toour client in the United States. The IT3 Practice advises clients of the extraterri-torial application of export controls including brokering regulations, the EnhancedProliferation Control Initiative, and de minimus content regulations, U.S.economic sanctions and the FCPA.

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Activities of foreign subsidiaries, affiliates, partners, sales agents and others canexpose a U.S. company to fines for the foreign company’s violations and canjeopardize a U.S. company’s trade privileges. We can structure transactions tomake foreign entities accountable and to insulate U.S. companies from the viola-tions of others.

In addition, the expansion of business activities into emerging markets has raisednew concerns and prompted new enforcement of laws on ethical business prac-tices, with renewed emphasis on the FCPA and the OECD agreement on corruptbusiness practices. The IT3 Practice has assisted businesses in handling FCPAissues since the passage of the Act in 1977, including: developing company poli-cies and compliance programs; conducting FCPA training programs for U.S.companies and their foreign affiliates, counseling accounting firms and compa-nies on compliance with the FCPA accounting rules; preparing requests for opin-ions from the Department of Justice; and representing companies involved incriminal, civil and administrative enforcement proceedings and voluntary disclo-sures. The OECD agreement also presents new challenges for businesses. Somemembers of the IT3 Practice provided comments on the OECD agreementduring its negotiation, and the IT3 Practice has assisted U.S. and foreign compa-nies in the implementation of national legislation in signatory countries.

FCPA issues, along with requirements to report political contributions, fees andcommissions under the ITAR, can be handled simultaneously with export controlissues. The IT3 Practice routinely incorporates FCPA compliance in complianceprograms, export compliance assessments, transactions and business planningevaluations.

The following are representative transactions that we have handled involvingU.S. sanctions and the extraterritorial application of U.S. law:

• We assisted a foreign subsidiary of a world-leading manufacturer oftelecommunications equipment to export sophisticated equipment to itsoperations in China.

• We obtained U.S. Government approval for a leading U.S. grocer toexport products, software and services to Cuba.

• We obtained U.S. Government approval for a leading medical devicemanufacturer to export products to Libya and Iran.

• We assisted a major foreign software maker in qualifying to export manu-facturing control systems incorporating U.S.-origin software to Sudan.

• We assisted a Fortune 100 company in setting up accounting systems forits subsidiaries in India and Russia to comply with the FCPA.

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IT3www.gcd.com

n Practical, Modular Approach to Corporate Governance

Most companies conclude that they have an obligation to implement an ExportCompliance Program (“ECP”) or that they should implement an ECP to mitigateexposure. Having participated in numerous “best practices” compliancesessions, the IT3 Practice has pioneered the concept of a modular ECP, whichfocuses on raising compliance issues to the compliance administrator level througha series of short, easy-to-read compliance modules that are tailored to eachspecific business function. In addition, the IT3 Practice has developed a varietyof compliance assessment programs, including policy and procedure assessments,company self-assessments, detailed investigations, and statistical transactionsamplings. We also represent companies involved in criminal, civil and enforce-ment proceedings and voluntary disclosures.

Notwithstanding the best compliance systems, every active exporter will encoun-ter situations when it is in it’s best interest to submit a voluntary disclosure orwhen BIS or ODTC require a disclosure. It is imperative that companiesengage export legal counsel in such circumstances in order to minimize exposureand gain greater control over the entire process. The IT3 Practice is experiencedin investigating suspected violations under the attorney-client privilege and inmaking disclosures that tend to resolve government concerns rather than openingnew issues.

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Global Lawwww.gcd.com

Global Law Practice


Global Lawwww.gcd.com 2

Gardner Carton & Douglas LLC’s Global Law Practice originated with the Firm’sfounding in Chicago in 1910, when we became legal counsel to an internationalfood company in its South American interests. Starting in the mid-1950’s, wegreatly expanded our global presence and began to advise American businesseswith investments and operations in Europe, Latin America, India, the PacificRim, Africa and the Middle East. We now service clients around the world.

Our clients range from local businesses to multinational Fortune 500 companies,operating in a variety of regulated and unregulated industries.

As a large and established law firm, we are able to provide our corporate clientswith comprehensive legal services both within and outside the United States.Gardner Carton & Douglas LLC (“GCD”) is a member of The World Law Group,an association of independent law firms located throughout the world in all of themajor commercial centers. Our World Law Group affiliation allows us to securereliable and practical counsel in foreign law for our clients doing business outsidethe United States.

Being based in the United States, however, we provide all of our overseas anddomestic clients with the full spectrum of corporate and commercial legalservices and counsel within the United States. However, unlike most legal prac-tices, our Global Law Practice attorneys are uniquely qualified to serve as thefocal point of legal matters for our clients’ overseas transactions and operations,be it for our U.S. clients abroad or our overseas clients with legal matters in theU.S.

We have worked with a broad range of foreign lawyers in every commercialcapital of the world and are familiar with each foreign lawyer’s areas of expertise.We are a long-standing member of The World Law Group, an organization ofindependent firms worldwide upon whom we can call at any time. Yet becausewe do not have exclusive arrangements anywhere nor do we have our ownforeign offices, we can exercise our best judgment in our clients’ best interestwhen selecting foreign legal counsel, whether the matter involves corporate orsecurities law, employment law, litigation, environmental law, intellectual property,tax law or other specialties. Our relationships with our correspondent global lawfirms are deeply rooted and our clients share in those relationships in terms ofattention, priority, costs and understanding.

Our international lawyers have extensive experience acting as lead counsel onmajor international transactions as well as liaising between businesses and foreignattorneys. We act as translators and interpreters who bridge the understandingbetween foreign cultures and legal systems, and in many cases literally speak the

Practice Overview

Our International Practice



local language. Many of our international lawyers have been educated in lawschools abroad, and some are licensed to practice in foreign countries in additionto being practicing lawyers in the U.S. This network of relationships andin-house capabilities is quite different and much more effective than merely beingable to refer matters to foreign counsel or offices.

We have assisted our clients in, among other things:

• establishing overseas operations

• coordinating complex foreign employment matters

• successfully accomplishing foreign mergers, acquisitions and public

offerings

• protecting intellectual property on a worldwide basis

• advising on international antitrust matters

• coordinating and strategizing on foreign litigation matters and

international arbitrations

• advising on export controls, customs, sanction and the FCPA

The countries in which we have assisted our clients include:

AustraliaAustriaBelgiumBermudaBrazilCanadaChileCroatiaCyprusCzech RepublicDenmarkDubaiEgyptEnglandFrance

Although we have worked in the major commercial centers of the world, presentedbelow are brief descriptions of particular regional practice areas that we haveestablished that reflect the world regions in which we have historicallyconcentrated our work.

Germany PortugalGreece RussiaHong Kong Saudi ArabiaHungary SingaporeIndia South AfricaIreland South KoreaIsrael SpainItaly SwedenJapan SwitzerlandKuwait TaiwanMalaysia ThailandMexico The NetherlandsNew Zealand United Arab EmiratesNigeria VenezuelaNorway



Mexico and Latin AmericaWe have represented a variety of U.S. clients operating in Mexico and otherparts of Latin America and Mexican and Latin American clients with legal mattersin the U.S. We have advised on the establishment of client operations in thesecountries. Our lawyers have coordinated litigation and arbitration matters for ourclients in this part of the world and have advised on acquisitions, joint ventures,distribution agreements, technology and employment matters. We also haveextensive experience in corporate, banking and finance and investment law mattersand have advised our clients with respect to NAFTA. Our Firm is a member ofthe U.S.-Mexico Chamber of Commerce.

CanadaGCD has longstanding business and legal relationships with our Northern neighbor.Several of our clients have operations in Canada which, in many cases, we helpedestablish. Our Firm has handled mergers and acquisitions, divestitures, and tendedto employment matters, litigation and dispute resolution and other corporate andcommercial affairs from Vancouver to Montreal. We have also assisted ourclients in bank loan transactions and secured creditor issues.

United KingdomWe have extensive experience working with U.K. companies and managing legalmatters for our clients in England. Our U.K. practice is headed by a partner whois resident in our Chicago office and who is qualified in both England and theUnited States. We have helped our clients establish operations in the U.K. andhave advised them on an extensive array of commercial activities. Our lawyershave handled acquisitions and divestitures as well as commercial litigation andemployment issues.

We have also worked on City financings which have included consortia ofmultinational banks and lenders. Our representation of U.K. companies runsfrom large public companies to private companies to banks and investment houses.

Our Firm is a Charter member of the British American Chamber of Commercefor the Midwest.

Germany, Switzerland and AustriaThe Firm actively represents the U.S. operations of over 60 companies fromGerman-speaking Europe. Several of our lawyers have studied in Germany,Switzerland and Austria. We also have handled numerous transactions for ourU.S. clients in German-speaking countries. Our work on behalf of our clients hasranged from acquisitions and dispositions, litigation, distribution and sales agencyagreements to the establishment of tax-efficient Swiss holding companies, handlingunique German employment issues and dealing with European Union traderegulation.



GCD is a Founding Member of the German American Chamber of Commerce.

FranceGCD has handled acquisition, mergers and joint ventures together with tax andintellectual property issues in France. We also coordinate commercial litigationand employment and benefits issues which are unique to this environment. OurFrench practice includes a French-born and educated lawyer who is licensed inthe United States.

ItalyWe represent many different sectors of the Italian economy including publiclytraded companies, leading banks, some of the best known names in manufacturingin the automotive, entertainment, and pharmaceutical industries, among others.In addition, our Firm represents a number of U.S. companies doing business inItaly in similarly diverse sectors of commerce. Our Italian practice is activelyinvolved in assisting U.S. companies in establishing themselves in Italy and inparticipating in the wide investment program underway in Italy. Our Italian practiceis headed by a resident partner who is admitted to practice in Italy and the UnitedStates.

We are members of the Italian-American Chamber of Commerce and are counselto the Italian Trade Commission.

European UnionIn addition to European national laws, the Firm provides counsel to companies ona wide range of European Union business law issues. This ranges from EU lawapplicable to setting up operations (subsidiaries, distribution network, branch office,sales representative) in Europe, to European competition law and pre-mergerclearance. One of our partners who works in our EU practice has co-authored aleading work on European Competition Law. As part of its international cyberlawpractice, the Firm provides advice in EU intellectual property and e-commerce.This includes assisting clients in compliance with existing EU legislation such asthe EU Data Privacy Directive and monitoring new developments in this rapidlychanging field.

South AfricaWe have advised and counseled both American companies investing in SouthAfrica, and South African companies exporting products to the U.S. We haveestablished South African subsidiaries for our clients and dealt with monetaryrestrictions. We have also handled client contract work and disputes as well assome major employee-related litigation and have advised clients on U.S. technologyexport restrictions.

We are key members of the South African-American Economic Council in



Chicago. The Council serves to broaden and facilitate profitable two-way businessdevelopment, trade, investment and commercial goodwill with South Africa. OurSouth African practice is headed by a South African-born American who was afounder of the South African-American Economic Council.

Middle EastWe are uniquely situated to advise our clients on legal matters in the Middle East.Our Middle East practice is headed by a partner who is resident in our Chicagooffice who has lived and practiced law in the United Arab Emirates and SaudiArabia. In addition to assisting Middle-East based companies in their U.S.operations, we also advise our U.S. clients on establishing their operations in theMiddle East along with attendant issues relating to employment laws, intellectualproperty, licensing and general commercial matters.

Australia and New ZealandWe represent some of the largest Australian multinationals in connection withtheir U.S. business and certain of their overseas operations. We have beeninvolved in major acquisitions for these clients and have also handled employ-ment-related legal matters and have been involved in extensive commercial liti-gation involving Australian and U.S. parties.

KoreaGCD represents various entities in Korea, regarding U.S. corporate, intellectualproperty and licensing issues litigation. We also advise several major U.S. clientson transactions in Korea. The head of our Korea practice worked for over threeyears in Korea as Patent Counsel for two of the Samsung group of companies.

IndiaGCD has been actively advising clients on the legal aspects of doing business inIndia since 1991 when the Indian Government liberalized the economy and beganto encourage foreign investment. We have represented a variety of non-Indiabased companies in connection with their business activities in India, includingjoint ventures, establishing wholly-owned subsidiaries, mergers and acquisitions,distributorships, licensing and commercial arrangements, infrastructure projects,and government contracts.

World Law GroupThe Firm is a member of The World Law Group, a network of 43 independentfirms located in major commercial cities in 33 countries around the world. Thisnetwork obviates the need for establishing our own offices abroad, thus avoidingadditional overhead costs and permitting us to provide more cost-effectiveservice to our clients. It also has the advantage of allowing us to freely selectfrom this network those lawyers or firms which possess the highest degree ofspecialization and competence to effectively address the particular need of aclient in a foreign location.

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Buyer Beware:Recent Enforcement Actions Show ThatParties Must Consider Export ControlCompliance When Doing M&A Deals

Recently, the U.S. Government has brought enforcement actions against majorcorporations for export control compliance violations that were committed bycompanies that they acquired years before the acquisitions occurred, and theseenforcement actions have resulted in significant penalty settlements. As discussedbelow, such enforcement actions demonstrate that the U.S. Government intends tohold corporations accountable for violations of U.S. export laws and regulationscommitted by companies that they acquire, and for this reason, corporations shouldscrutinize the export control compliance practices of the companies that theyintend to acquire.

Key Ruling Leads to Large Penalty Settlement andEmboldens the BIS

The aggressive stance that the U.S. Government has been taking with respect toimposing liability on acquiring corporations can be attributed in large part to aruling that was issued by an administrative law judge (ALJ) last summer in a caseinvolving successor liability in the context of the International EmergencyEconomic Powers Act (IEEPA) and the Export Administration Regulations (EAR).Since this ruling led to one of the largest penalty settlements for export controlviolations in the history of the U.S. Department of Commerce (DOC) and hasbeen interpreted by DOC’s Bureau of Industry and Security (BIS) to mean thatcorporations may be held accountable for U.S. export control violations commit-ted by companies that they acquire, it is useful to examine the facts involved in thecase and the ALJ’s determination.

Facts of the Case. On April 9, 1997, Sigma-Aldrich Corporation (SAC) and Sigma-Aldrich Business Holdings (SABH) purchased the partnership interests ofResearch Biochemicals Limited Partnership (RBLP), and pursuant to the terms ofthe sale, RBLP transferred all rights, title, and interest in its assets to Sigma-AldrichResearch Biochemicals (SARB). Subsequently, in the Spring of 2001, the Bureauof Industry and Security (BIS), which was known as the Bureau Export Adminis-tration (BXA) at the time, issued complaints against SAC, SABH, and SARB

The IT3 Update is acomplimentary service of the

DC Corporate Business Unit ofGardner Carton & Douglas.

International Trade andTechnology Transfer (IT3)

UpdateGardner Carton & DouglasGCD

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Spring 2003 Issue

To receive future editions,please complete and returnthe form on the back page. continues on page 3

Inside This Issue

Overview: M&A Issues in theDefense and Space Industries

Page 2

Contractual Insights IntoMergers and Acquisitions

Involving Defense andSpace Companies

Page 4

Negating FOCI inMergers and Acquisitions

Page 5

Keeping Up With theReorganizations at the DOS and

the DHSPage 7

About GCDPage 8

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2 Gardner Carton & Douglas LLC

Merger and acquisition (M&A) deals in the defense andspace industries raise special legal concerns. This IT3

Update is the first of a two-part series that discusses theissues pertinent in the course of due diligence, draftingtransaction documents and pre- and post-closing of thesedeals.

Contingent Liabilities And Unasserted Claims. In thecourse of an M&A deal, the buyer must take care not tounknowingly assume contingent liabilities and unassertedclaims by cognizant U.S. Government agencies, includ-ing by the Department of State, Directorate of DefenseTrade Controls (DDTC), or the Department of Commerce,Bureau of Industry and Security (BIS). In this issue, weexplain how recent enforcement actions establish a prece-dent for successor liability. A buyer may be held respon-sible for violations of an acquired business where theviolation occurred prior to the buyer’s acquisition of thebusiness. This may be true regardless of the structure ofthe transaction—whether by stock or asset acquisition orby merger. While parties to a transaction may reach agree-ment as to those liabilities and claims that will be assumedby the buyer and those that will be excluded, recent prece-dent indicates that DDTC and BIS may hold the buyerdirectly responsible for even those liabilities and claimsthat the parties assigned to the seller, thereby leaving thebuyer to pursue indemnification from the seller.

Government Contracts. Further, the buyer will want totake the necessary steps, with the cooperation of the seller,to continue the business activities of the target companybeing acquired. Buyers will identify the important con-tracts that they wish to keep in place post-closing. In somecases, the buyer will enter into Assumption and Assign-ment Agreements to assume the rights and obligations ofthe target company with respect to important agreements.When the target is a prime contractor with the U.S. Government, a special procedure must be followed to“novate” the government contract with the consent of thecontracting officer. We plan to cover this topic in thesecond IT3 Update on M&A issues.

Facility Security Clearances. Some prime and subgovernment contracts require that the contractor receiveaccess to classified information. In this case, the contrac-tor will have a facility security clearance (FSC). Buyers

will want to obtain approval from the Department ofDefense, Defense Security Service (DSS), for the continu-ation of the FSC post-closing. When the target companywill be owned or controlled by a foreign person as a conse-quence of the transaction, the buyer must implementcorporate governance measures to negate the foreignownership, control or influence (FOCI). In this issue, wesurvey the mechanisms prescribed by DSS to negate FOCI.The mechanism that will be accepted by DSS depends onthe specifics of the transaction.

Export Authorizations. An export license, TechnicalAssistance Agreement, Manufacturing License Agreementor other export authorization is an authorization granted tothe applicant and is not transferable. In the case of an assetsale or other transaction where the buyer is transferring thebusiness of the target to a different corporate entity, theexport authorizations must be replaced. Further, withrespect to exports governed by the International Traffic inArms Regulations (ITAR), the buyer must register withDDTC or update its registration to cover the acquired busi-ness. We plan to over this topic in the second IT3 Update onM&A issues.

CFIUS and Other Notices. Each of the regulatory schemesdiscussed above has pre- and post- closing notice require-ments. In addition, M&A deals in the defense and spaceindustry are covered by the regulations administered by theCommittee on Foreign Investment in the United States(CFIUS). While notifying CFIUS is correctly character-ized as a voluntary filing, notice to CFIUS is advisable inmost circumstances. A “no action” letter from CFIUScreates a safe harbor for the transaction and assures theparties that the transaction will not become subject to aretrospective investigation. Further, CFIUS review givesU.S. Government agencies reviewing other matters, asdiscussed above, comfort that the transaction is vetted froma national security perspective. This too we will discuss inthe next IT3 Update.

Your Comments. We want to know what is important toyou. If you have suggestions for M&A topics that you wouldlike us to cover in our next IT3 Update, please send yoursuggestion to George Grammas at the email address on thelast page of this newsletter.

Overview:M&A Issues in the Defense and Space Industries

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Buyer Beware continued from page 1

involving hundreds of charges for alleged violations of U.S.export control regulations relating to, inter alia, the export ofgoods without a license (i.e., various biological toxins), mak-ing false or misleading statements, and failure to maintainrecords. Although SARB was charged for alleged violationsthat it actually committed for approximately one-year afterthe acquisition of RBLP, SAC and SABH were charged merelyas successors in interest to RBLP for violations that werecommitted by RBLP well prior to the transfer of interest onApril 9, 1997.

ALJ’s Ruling. In his ruling denying motions for summaryjudgment submitted by SAC, SABH, and SARB, the ALJmade several important determinations relating to successorliability. To begin with, the ALJ ruled that successor liabilitycan be applied under the IEEPA and under the EAR, and thatthe doctrine of successor liability may even be applied whenthe federal agency does not assert charges against the prede-cessor corporation. He also noted that, although assetpurchasers generally are not liable as successors under tradi-tional common law rules, there are numerous exceptions tothese rules, including when a transaction amounts to a defacto consolidation or merger or when the purchasing corpo-ration is merely a continuation of the selling corporation. Inaddition, he stated that a broadened form of the “merecontinuation” theory, which is commonly known as the“substantial continuity” exception, can be applied even whenthere is no continuity of shareholders, and that the “substan-tial continuity” exception does not require direct knowledgeof potential liability on the part of the successor corporation,but merely knowledge that can be inferred from the totalityof the circumstances involved.

Impact of Ruling. In light of the ALJ’s ruling, SAC, SABH,and SARB agreed to pay a fine of $1.76 million to settle thecharges that had been issued against them. In a press releasethat it issued relating to this settlement on November 4, 2002,the BIS noted that it was “one of the largest penalties everpaid to the Department [of Commerce] for export controlviolations.” The severity of the penalty settlement also canbe discerned from the fact that the fine was over eight timesgreater than the value of the shipments in question accordingto officials from SAC. Moreover, in order to convey themessage to the trade community at large that the BIS intendsto continue to use the concept of successor liability whennecessary, Under Secretary of Commerce for Industry andSecurity Kenneth Juster publicly announced that the settle-ment and the ALJ ruling upon which it is based make it “quiteclear . . . [that] corporations will be held accountable for

violations of U.S. export control laws committed by compa-nies that they acquire.”

$32 Million Fine Issued by DOS Shows thatSuccessor Liability Can Be Costly

Shortly after Under Secretary Juster issued his warning tothe trade community, the Department of State (DOS) issueda charging letter against Hughes Electronics Corporation(Hughes Electronics) and the Boeing Company (Boeing)relating to alleged violations of U.S. export laws and regula-tions that were committed by Hughes Space and Communi-cations (HSC) in the mid-1990s. As discussed below,notwithstanding the fact that Boeing did not acquire HSCfrom Hughes Electronics until October of 2000, Boeingnevertheless agreed to join with Hughes Electronics in enter-ing into a consent agreement with the DOS that entailed,among other things, $32 million civil penalty.

Facts of the Case. In 1995 and 1996, HSC, without obtainingauthorization from the DOS’ Directorate of Defense TradeControls (DDTC), then-known as the Office of Defense Trade,provided to certain individuals in the international insurancecommunity and to Chinese nationals detailed analyses andinformation relating to two failed launches of commercialcommunications satellites on Chinese rockets. Years later, inOctober of 2000, Boeing acquired HSC from HughesElectronics, and pursuant to the terms of the sale, HughesElectronics agreed to be responsible for resolution of anypre-acquisition export compliance matters involving HSC.Subsequently, in December of 2002, DDTC issued a charg-ing letter against both Hughes Electronics and Boeing for theabove-referenced compliance violations committed by HSCin 1995 and 1996.

Outcome of the Case. On March 4, 2003, Boeing and Hughesentered into a consent agreement with the DOS to settle thecharges that had been lodged against them. Pursuant to theterms of the agreement, a $32 million fine was imposed onBoeing and Hughes. Of this amount, Boeing and Hughesagreed to pay a $20 million cash penalty. The remaining $12million may be suspended if, over a five-year period, Boeingapplies $6 million and Hughes applies $2 million to offsetthe costs associated with remedial compliance measuresrequired by the consent agreement. In addition, both compa-nies are required to appoint special compliance officials whowill be responsible for oversight of the companies’ activitiesin China and the countries of the former Soviet Union, andfor ensuring that the companies comply with the consentagreement. The compliance officials cannot be employees ofBoeing or Hughes.

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Performing Due Diligence of a Target Company’sExport Control Compliance Programs Is Criticalin Any Merger and Acquisition Transaction

The cases discussed above demonstrate that the U.S.Government will readily seek to impose liability on corpora-tions for pre-acquisition violations of U.S. export control lawsand regulations committed by companies that they acquire inmerger and acquisition (M&A) transactions. Accordingly, itis imperative that acquiring corporations perform duediligence relating to the trade compliance systems of compa-nies that they seek to acquire. n

Contractual Insights Into Mergersand Acquisitions Involving

Defense and Space Companies

Most would agree that careful preparation of contracts forthe sale, acquisition or merger of businesses is important. Wellthought out and drafted agreements anticipate problemsbefore they arise and minimize the chances that disputesbetween the parties or other events will threaten the transac-tion or sour the deal for one or both parties. Where the sell-ing company is engaged in the manufacture or furnishing ofdefense articles, has access to classified technology, or is beingacquired by foreign interests, it is particularly essential thatspecial care be taken in the preparation and drafting of theacquisition documents.

Of course, defense business acquisitions may assume anumber of forms, including asset purchases, stock purchasesand mergers. Whatever the structure, a primary objectivemust be to ensure that the transactional documents clearlyrecognize and appropriately provide for the requirements andrestrictions imposed by U.S. laws and regulations governingdefense articles, classified technology and foreign ownership.Broadly speaking, the contract must include the parties’express acknowledgment and agreement to these requirementsthrough appropriate representations and covenants, and mustincorporate these requirements in termination, closing, post-closing and other provisions of the contract.

ITAR, NISPOM, and CFIUS Requirements

From the outset, any U.S. defense company considering thesale of its business should review potential buyers in light ofrequirements imposed by the International Traffic in ArmsRegulations (ITAR), the National Industrial Security PolicyOperating Manual (NISPOM), the Committee on Foreign

Investment in the United States (CFIUS) regulations, andpossibly other U.S. defense and security laws and regulations.All else being equal, a potential buyer that is not controlledby foreign interests would be preferable as it would elimi-nate concerns with negating foreign ownership, control orinfluence (FOCI) under the NISPOM and would not requirenotification to CFIUS. In addition, it is usually advisablethat even pre-contract documents, such as letters of intent orterm sheets, reference governmental notice and filing require-ments that may be applicable to the transaction. This notonly serves to make it clear that both buyer and seller areaware of these requirements, but can flush out potential prob-lems at an early stage.

The process should start early. Indeed, where cleared facili-ties are involved, the NISPOM requires notice to be given tothe Defense Department’s Defense Security Service (DSS)upon the cleared company’s entering into negotiations with apotential foreign buyer. It is advisable that any letter ofintent negotiated by the parties expressly provide that thisnotice has or will be given. Finally, the transaction docu-ments must recognize and take into account from the outsetthe various lead times required by notice and filing require-ments imposed by ITAR, NISPOM and CFIUS regulations.

Considerations Involved in the HypotheticalExample of SpaceTech

Consider as an example a hypothetical Asset Purchase Agree-ment (APA) for the sale to foreign interests of the assets ofSpaceTech, a manufacturer of defense articles holding oneor more facility security clearances. In this scenario, sinceSpaceTech is a manufacturer of defense articles, the StateDepartment’s Directorate of Defense Trade Controls (DDTC)must be notified of the transaction under Section 122.4 of theITAR at least sixty days before closing. A foreign entitycannot register with DDTC, so the buyer will need to formand register a U.S. subsidiary, also before closing. Further,DDTC approval will be required for replacement of anyexport licenses, technical assistance agreements or manufac-turing license agreements for the buyer. Since it holds facil-ity security clearances (FCLs), SpaceTech must notify DSSunder the NISPOM immediately upon commencement ofnegotiations with the buyer and, subsequently, upon closing.The buyer, if it intends to maintain the FCLs, must negotiateand enter into a Proxy Agreement, Special Security Agree-ment (SSA), or similar arrangement with DSS to negate theFOCI, and will be required to submit a Technology ControlPlan. Finally, notice of the proposed acquisition should begiven to CFIUS at least 30 days prior to closing.

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5IT3 Update

How does one ensure that considerations relating to the ITAR,NISPOM and CFIUS are properly provided for in the APA?Obviously, the APA will include commitments (covenants)by the parties to file required notices or requests withgovernment entities. Beyond that, much depends upon theintentions of the parties and the specific facts involved.Certain ITAR, NISPOM or CFIUS requirements may bereflected in conditions to closing. For example, it might be acondition of closing that SpaceTech has given notice to DDTCof the proposed sale at least 60 days prior to closing asrequired under Section 122.4(b) of the ITAR. Other require-ments may be framed either as conditions to closing or aspost-closing covenants, depending upon the circumstancesand the intent of the parties. Thus, it may not always bedesired or necessary that the foreign buyer have an SSA inplace before closing. In appropriate circumstances, DSS mayallow FCLs to continue in place for a reasonable time post-closing if the buyer is cooperatively working with DSS tofashion a satisfactory FOCI-negating vehicle. Where post-closing events may affect the value of the assets being sold,the contract may need to provide for an escrow or other mecha-nism to effect an adjustment of the purchase price. Consid-eration also must be given to appropriate indemnificationprovisions to cover certain potential post-closing circum-stances. The buyer, for example, may want the seller toindemnify it from liability for any violations of the ITAR orNISPOM occurring on seller’s watch.

Use of Representations and CovenantsRelating to ITAR or NISPOM in M&A Contracts

It is often desirable that requirements under the ITAR orNISPOM be covered by multiple contract clauses. Forexample, the seller may want a representation from the buyerthat it has not been indicted for or convicted under any of thecriminal statutes enumerated in Section 120.27 of the ITAR,as well as a covenant that the buyer will register with DDTCor will amend its registration.

While sometimes confused and used interchangeably, repre-sentations and covenants serve different purposes. Repre-sentations (or warranties) generally are statements as toexisting facts or circumstances. For example, a commonrepresentation is that a party is legally able to enter into andconsummate the contract. Covenants, on the other hand, arepromises to do or not do something in the future. Coveringthe filing of the buyer’s registration statement with a repre-sentation as well as a covenant not only gives the seller anadditional potential cause for breach, but may also serve toflush out problems with buyer’s qualifications before the saleagreement is finalized. Along the same lines, it is generally a

good idea to include as a condition to closing the delivery ofeach party’s certificate confirming that the reps and warran-ties set forth in the APA continue to be true and accurate as ofthe time of closing. Similarly, the APA may include as a cov-enant that Party A agrees to do X and also, as condition pre-cedent to Party B’s obligation to close, that Party A has pre-sented Party B with proof that it has done X.

* * * *

The lesson is that care needs to be taken in constructing trans-action documents for the sale of a defense or space companyand that no one size fits all. The intentions and perspectivesof the parties and the unique circumstances of each transac-tion will be key to determining which contract provisionsshould be employed and how, requiring close consultationbetween the parties and their attorneys in the contract nego-tiation and drafting process. n

Negating FOCIin Mergers and Acquisitions

Any company bidding or performing on a contract requiringaccess to classified information must obtain a facility secu-rity clearance (FSC) under the National Industrial SecurityProgram Operating Manual (NISPOM). The discussionbelow surveys the various mechanisms prescribed by theDefense Department’s Defense Security Service (DSS) tonegateelements of “foreign ownership, control or influence”(FOCI) that may arise where a foreign entity is involved inthe merger and acquisition transaction.

When a company performing classified work is to merge withor be acquired by a foreign interest, an industrial securityreview is performed. The purpose of the review is to identifyFOCI and determine whether existing industrial securitymeasures are adequate.

The NISPOM requires that foreign interests not have thepower, directly or indirectly, to decide matters affecting themanagement or operations of a company operating under anFSC if such power may result in the unauthorized disclosureof classified or controlled unclassified information, or mayadversely affect the award or performance of classifiedcontracts.

If a company is under FOCI, and risks associated with suchFOCI are considered too great, the company would bedisqualified from obtaining a facility clearance (or an exist-

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ing clearance would be suspended or revoked), unless thecompany takes steps to negate FOCI to the satisfaction ofDSS. First, the company must make a proposal to DSS tonegate FOCI. The NISPOM prescribes various FOCI nega-tion arrangements. As described below, the primary FOCInegation arrangements prescribed in the NISPOM are theVoting Trust (VT) and the Proxy Agreement (PA), theSpecial Security Agreement (SSA), the Security ControlAgreement (SCA), the Board Resolution (BR), and theLimited Facility Security Clearance. In the event that DSSaccepts the company’s arrangement to negate FOCI, thecompany must prepare the arrangement and associatedgovernance documents, including board resolutions and aTechnical Control Plan (TCP), and must identify personnelfor the requisite security positions.

Voting Trust/Proxy Agreement

The VT and PA are arrangements where the voting rights ofthe foreign owners or shareholders are vested with clearedU.S. citizen Voting Trustees or Proxy Holders (trustees) whohave the authority to operate nearly independently from theforeign owners. The trustees are required to becomemembers of the board of directors.

A special committee of the board of directors, known as theGovernment Security Committee (GSC), handles mattersinvolving classified and export-controlled unclassified infor-mation.

The foreign shareholder under the VT or PA may not berepresented on the board of directors of the U.S. company.The trustees may consult with the foreign shareholderconcerning key business affairs of the U.S. company, but theshareholder has no right to be involved in or make decisions.

The VT or PA is often used when the foreign shareholder, orgroup of foreign shareholders, are passive investors whodesire no active participation in the management of thecompany. The VT or PA may be the only option when thereare problematic political considerations with the parentcompany’s government. A VT or PA also is appropriateunder circumstances where a significant portion of thecompany’s business involves access to very sensitive classi-fied information.

Special Security Agreement (SSA)

The foreign shareholder under the SSA retains the rights andprivileges of ownership, except with regard to decisionsinvolving classified and unclassified export-controlled infor-

mation and related contracts. Like the VT and PA, the SSAmaintains classified and unclassified export-controlled infor-mation under U.S. control. U.S. citizens are nominated forplacement on the board of directors to serve as Outside Di-rectors. The Outside Directors oversee and monitor compli-ance with U.S. security and export control laws and regula-tions.

The foreign shareholder may be represented on the board ofdirectors of the cleared company through the placement ofInside Directors, who retain their normal rights as directors.Inside Directors are prohibited from matters dealing with clas-sified and unclassified export-controlled information.

The board of directors is comprised of the Outside Directors,the Inside Directors, and cleared U.S. citizen officer/direc-tors of the cleared company. The board must execute resolu-tions recognizing the SSA and its special obligations underthe SSA, and other security resolutions as DSS deems appro-priate.

The SSA, like the VT and PA, is usually used in cases ofmajority foreign ownership. However, the SSA is used whenthe country of the foreign parent has industrial securitycontrols similar to U.S. controls.

Security Control Agreement (SCA)

The Security Control Agreement (SCA) is employed whereforeign shareholders retain significant, but less than control-ling, power within cleared U.S. companies.

Control of the company remains in U.S hands. A GSC iscreated, but normally only one Outside Director is appointed.In such case, the GSC would be comprised of the OutsideDirector, and cleared U.S. citizen officer/directors.

The SCA is usually used where the minority foreign share-holder holds sufficient voting stock to be represented on theboard of directors of the U.S. company. However, it may beconsidered for use in other situations of foreign influence,such as substantial foreign indebtedness. As a practicalmatter, the SCA is most used for cases falling just under thecontrol threshold.

Board Resolutions

When a foreign interest does not own sufficient voting stockor is not entitled to representation on the U.S. company’s boardof directors, appropriate resolutions by the board are usuallyall that is required to negate FOCI. The resolutions must

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7IT3 Update

state that the foreign shareholder is prohibited from holdingpositions that may influence performance on classifiedcontracts. Board resolutions are also executed as part of theSSA and SCA.

Limited Facility Clearances

There are two types of limited clearances. The first permits aforeign-owned U.S. subsidiary to be cleared to perform onclassified contracts awarded from the country in which theparent company is incorporated. To qualify for this type ofclearance, there must be an Industrial Security Agreementwith the foreign governments. Moreover, access to classi-fied information must be limited to performance on acontract, subcontract, or program involving the foreigngovernment, and classified information to be provided to thecompany must be determined to be releasable to theforeign government.

The second type of limited facility security clearance is usedwhen the criteria for the first type cannot be met, providedthere is a compelling need consistent with national securityinterests. The second type is subject to extra oversight by theDSS. It is only valid for the particular contract and the clear-ance ends upon completion of the work. n

Keeping Up With theReorganizations at the DOS and the DHS

In the past few months, significant reorganizations have takeplace at the Department of State (DOS) and the Departmentof Homeland Security (DHS). As discussed below, thesechanges have involved the realignment of defense trade con-trols responsibilities at the DOS and the transfer of certaintrade compliance functions from various federal agencies tothe DHS.

The Creation of the DDTC by the DOS

In January of this year, the DOS established the Directorateof Defense Trade Controls (DDTC). As the successor to theOffice of Defense Trade Controls (ODTC), the DDTC is re-sponsible for administering defense trade controls. Currently,the DDTC is headed by Robert W. Maggi, who serves as boththe Deputy Assistant Secretary for Defense Trade Controlsand the Managing Director of Defense Controls.

In these capacities, Mr. Maggi oversees the following fouroffices within the DDTC: (1) the Office of Defense Trade

Controls Compliance (ODTC-C); (2) the Office of DefenseTrade Controls Licensing (ODTC-L); (3) Office of DefenseTrade Controls Management (ODTC-M); and (4) the Officeof Defense Trade Controls Policy (ODTC-P). The Directorsof these four offices are David Trimble (ODTC-C), PeterBerry (ODTC-L), Michael T. Dixon (ODTC-M), and AnnGanzer (ODTC-P).

The Transfer of Certain Trade ComplianceFunctions to the DHS

Effective March 1, 2003, trade compliance functions that hadpreviously been performed by the U.S. Customs Service andseveral other federal agencies were transferred to the DHS.These trade compliance functions will be performed by twodifferent units under the DHS: the Bureau of Customs andBorder Patrol (BCBP) and the Bureau of Immigration andCustoms Enforcement (BICE). Both the BCBP and the BICEwill fall under the Directorate of Border and TransportationSecurity (BTS), the largest of the five directorates at the DHS.

The BCBP, which is headed by Commissioner Robert C.Bonner, is comprised of more than 40,000 employees whohave been drawn from the Department of Agriculture, theImmigration and Naturalization Service, the Border Patroland the U.S. Customs Service. One of the main objectives ofthe BCBP will be to prevent terrorists and terrorist weaponsfrom entering the United States. In addition, the BCBP alsowill be responsible for, among other things, enforcing U.S.trade laws and regulating and facilitating international trade.In order to achieve these objectives, the DHS plans to hire570 additional agents and 1,700 new inspectors for the BCBP.

The BICE, which is headed by (Acting) Assistant SecretaryMichael J. Garcia, includes more than 14,000 employees whohave been drawn from the Federal Protective Service, theImmigration and Naturalization Service, and the U.S. Cus-toms Service. A primary function of the BICE will be toperform investigations relating to a wide range of issues in-cluding terrorist financing, money laundering, smuggling,fraud (including Intellectual Property Rights violations andcybercrimes), and export enforcement. Regarding this sub-ject, the BICE has stated that one of its top investigative pri-orities will be Project Shield America, an initiative underwhich the BICE will proactively initiate and pursue high-quality cases leading to the arrest, seizure, and conviction ofoffenders of U.S. export control laws and regulations. n

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Core Expertise

The International Trade and Technology Transfer (IT3)Practice specializes in the myriad of U.S. laws and regula-tions that govern bilateral and multilateral technology trans-fers and ventures, as well as foreign investment in the U.S.space and defense industries—including, for example,export controls, customs, economic sanctions and foreigncorrupt practices. We are intimately familiar with the inter-agency review process and decision-makers involved inFederal Government approvals.

Integrated Legal Solution

While we serve as special counsel in our core area, we alsooften act as outside general counsel to technology venturesor as transaction counsel. The IT3 Team Members are aninter-disciplinary group of business lawyers, each with aspecialization relevant to domestic and foreign technologytransactions and ventures. The IT3 Team has the experienceand breadth to address corporate law and governance, trans-action negotiating and drafting, venture structure and finance,intellectual property, human resources and international taxmatters.

Global Capability

The IT3 Team works closely with the Firm’s Global LawPractice, a group of attorneys with linguistic, cultural andlegal experience in various countries and regions of the world,including Europe, the Pacific Rim, India, the Middle Eastand South Africa. We are also supported by the World LawGroup, an organization of law firms located in all major worldcommercial centers. This affiliation allows us to securereliable and practical counsel for our clients doing businessoutside the United States. the United States.

IT3 Team Members

George N. Grammas, Chair Principal (202) [email protected]

Francis E. Fletcher, Jr., Principal (202) [email protected]

Thomas J. Dougherty, Jr., Principal (202) [email protected]

Joseph S. Carlin (202) [email protected]

Sarah D. Gee (202) [email protected]

Geoffrey M. Goodale (202) [email protected]

Jennifer A. Lewis (202) [email protected]

Corey A. Stewart (202) [email protected]


Copyright Restriction - Readers are permitted to copy thisIT3 Update in total and circulate copies, but may not copy itin part or use the content for other purposes.

This newsletter is not intended as legal advice, which mayoften turn on specific facts. Readers should seek specificadvice before acting with regard to the subjects discussedherein.

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International Trade and Technology Transfer Practice · international trade laws and regulations with corporate structuring, finance, M&A, human resources, intellectual property and