ITAR FOR DEFENSE EXECUTIVES

Transcription

1 ITAR FOR DEFENSE EXECUTIVES WHAT YOU NEED TO KNOW TO RUN YOUR BUSINESS February 9, 2016 Thomas McVey Williams Mullen Washington, DC (202) tmcvey@williamsmullen.com

2 Thomas B. McVey Williams Mullen Thomas McVey practices in the area of the federal regulation of international business transactions. He advises clients on the Export Administration Regulations, the International Traffic In Arms Regulations, Sanctions Programs administered by the Office of Foreign Assets Control, the Foreign Corrupt Practices Act, anti-boycott laws and CFIUS. This Webinar contains general, condensed summaries of legal matters, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Participants with particular needs on specific issues should consult with their counsel. 2

3 ITAR Compliance Is Important Avoid liability for the company and employees Avoid debarment from government programs Your company is more desirable to prime contractors Your company is more desirable to purchasers if you are selling your company Builds strong reputation in defense community 3

4 DFARS and Government contractors required to comply with ITAR/EAR Must flow down this requirement to subcontractors Covers ITAR registration, licensing of defense articles, defense services, technical data and other requirements Important for second and third-tier suppliers 4

5 U.S. Export Control Laws ITAR - International Traffic In Arms Regulations Export Administration Regulations 5 U.S. Sanctions Laws

6 International Traffic In Arms Regulations (ITAR) Enabling statute: Arms Export Control Act Regulations - International Traffic In Arms Regulations ( ITAR ) (22 C.F.R. Chapter 1, Subchapter M, parts ) Department of State Directorate of Defense Trade Controls List of Controlled Products - U.S. Munitions List Controls Military Items Broad scope encompassing many items originally developed for military use 6

7 Defense Articles - U.S. Munitions List (USML) Category 1: Firearms, weapons Category 2: Guns and armaments Category 3: Ammunition, ordinance Category 4: Launch vehicles, missiles, rockets Category 5: Explosives, incendiary agents Category 6: Naval vessels Category 7: Military vehicles Category 8: Aircraft and equipment Category 9: Military training services, equipment Category 10: Protective personnel equipment and shelters Category 11: Military electronics Category 12: Optical and guidance control equipment Category 13: Auxiliary equipment (cameras, encryption, camouflage) Category 14: Toxicological, chemical, biological agents, protective equipment Category 15: Space systems and equipment Category 16: Nuclear weapons, technology Category 17: Classified technical data and services Category 18: Directed energy weapons Category 19: Gas turbine engines/ equipment Category 20: Oceanographic equipment Category 21: Other items designed or adapted for military use 7

8 ITAR Also Controls Technical Data and Software Technical Data: Information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles, and other items. ( see 22 CFR ) 8

9 Technical Data and Software (Cont d) Blueprints Models Training Manuals Data 9

10 Methods For Exporting Technical Data and Software Send or take it abroad (e.g., send disk in the mail) Go abroad and talk about it Electronic transmissions, , phone call, fax to foreign party Take it in your laptop or iphone in an overseas trip Foreign national comes to U.S. and has access to it 10

11 Defense Services Furnishing of assistance to foreign persons related to Defense Articles; examples: Consulting Engineering Technical Services Military training Other services Furnishing technical data Requires Technical Assistance Agreement (TAA) 11

12 Examples of USML Items Command, control and communications systems Certain drone aircraft Navigation systems for military vessels Certain electronic equipment used in military applications Military training services and equipment Underwater sound equipment Flight control products, software and technologies Developmental equipment funded by DOD Certain satellites and ground control equipment, including parts, technologies and software Anti-gravity and pressure suits, atmosphere diving suits Body armor (certain types) Naval vessels and related equipment, parts and software Protective personnel equipment Certain ground sensor systems Antennas for military systems Military radar systems and equipment Certain optical equipment 12

13 Category XI - Electronics Many types of electronic equipment used in military applications are listed in Category XI Electronic systems, equipment and software specially designed for intelligence purposes that collect, survey, monitor, exploit, analyze electromagnetic spectrum Specified command, control, communications, computers, intelligence, surveillance and reconnaissance (C4IS4) equipment Electronic sensor systems and equipment specified in XI(a)(9) Radar equipment specified in XI(a)(3) Printed circuit boards and multichip modules specially designed for articles in Category XI Developmental electronic equipment or systems funded by the DOD Many parts, components, accessories, attachments and equipment specially designed to be used in items in Category XI 13

14 Category VIII Aircraft and Related Articles 14 Category VIII lists many types of military aircraft, subsystems and related parts and components Armed UAV s and unarmed military UAV s Military intelligence, surveillance and reconnaissance aircraft Aircraft that contain any ITAR-controlled mission systems Mission computers, vehicle management computers and integrated core processors specially designed for items in Category VIII Inertial navigation systems and related equipment specially designed for articles in Category VIII or ECCN 9A610 UAV flight control systems Thermal batteries, thermonic generators specially designed for articles in Category VIII or ECC 9A610 Specified radar altimeters Many parts, components, accessories, attachments and equipment specially designed for articles in this Category Gas turbine engines and many parts and components are covered in USML Category XIX

15 Intelligence and Security Many contracts involving intelligence and security activities are ITAR-controlled Covers equipment and services 15

16 Items on USML Parts and Components Many parts, components, accessories, attachments, equipment and software specially designed for a USML item are also on USML Certain parts and components have been transferred to the Commerce Control List under the Export Administration Regulations pursuant to Export Control Reform Major issue for second- and third-tier suppliers and subcontractors 16

17 Services on the USML Intelligence and security services often covered under ITAR Military advice to foreign persons is covered under ITAR ( 120.9) Military training for foreign persons ( 120.9) Training in use of USML items (subject to certain exemptions) 17

18 Government Sponsored Research Funding SBIR, DOD university research funding and other defense research funding Resulting products, technical data, software and services are often on U.S. Munitions List Many developmental products funded by Department of Defense are on the USML 18

19 USML Category XVII: Classified Information Classified Information is on the USML Category XVII: Classified Technical Data and Services Major issue for government contracts firms Another Catch-All category 19

20 Commodity Jurisdiction Requests Procedure for DDTC to determine if item is on U.S. Munitions List Binding, written response Can also be used to request removal of item from USML Form DS

21 Requirements If Item Is On USML Physical articles: Cannot export unless obtain export license (e.g. DSP-5) Technical Data and Software: Cannot send or take out of U.S. without export license Cannot transfer to foreign party in U.S. without export license 21

22 Requirements If Item Is On USML (cont.) Services: Cannot perform defense services for foreign persons overseas or in the United States without license (TAA) Imports: Items on USML and U.S. Munitions Import List subject to import restrictions 22

23 Other Requirements - Registration Parties that manufacture or export items on the USML or perform defense services are required to register with DDTC This is even if the company does not export any products DDTC Registrations Exporters Manufacturers Total 23

24 Recordkeeping Requirements Mandatory requirement to maintain records of ITAR - related activities for 5 year period Covers paper, electronic and other media Retention period can be extended in certain instances 24

25 Brokering Registration and Licensing Parties that facilitate export or import of ITAR items are subject to ITAR Brokering Regulations (22 CFR Part 129). Registration, licensing, reporting and other requirements If U.S. company appoints a marketing agent to market USML products/services overseas broker registration requirement. Requirement to file annual reports 25

26 Reports for Sales Commissions and Political Contributions Parties required to file reports with DDTC related to sales commissions, fees and political contributions paid in connection with sale of USML items and services See 22 C.F.R. Part

27 Denied Party Screening Prohibited Party Lists: DDTC Debarred Party List (DDTC) Nonproliferation Sanctions List (DDTC) Specially Designated Nationals List (OFAC) Denied Persons List (BIS) Unverified List (BIS) Entity List (BIS) 27

28 Companies Most Likely Subject To ITAR Regulation Defense industry firms Government contractors Aerospace, avionics Electronics Maritime Navigation Unmanned aerial vehicles (UAV) Satellite Communications High performance materials Government sponsored research Manufacturers of parts, components, software for above 28

29 Penalties for Violations Criminal Sanctions up to 20 years imprisonment Fines: Up to $1,000,000 per violation Press release Debarment For criminal cases Justice Department can prosecute: Company Officers and Directors Employees in their individual capacities 29

30 Recent Export Compliance Cases Timothy Gormley; 42 months imprisonment; export of microwave amplifiers without license LeAnne Lemeister (empowered official and export compliance officer), DDTC Administrative Debarment; 21 violations regarding improper use of export control documents Meggitt-USA, Inc; $25,000,000 civil penalties; various ITAR violations Aeroflex Inc; $8,000,000 civil penalties; various ITAR violations Raytheon Company; $8,000,000 civil penalties; various ITAR violations Peter Gromacki; 3 months imprisonment; export of high-grade carbon fiber to China 30 Ming Suan Zhang, 57 months imprisonment; high-grade carbon fiber to China

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32 SENTENCING OF COMPANY FOR EFFORTS TO TRADE WITH IRAN For Immediate Release: July 31, 2008 Contact - BIS Public Affairs U.S. Department of Justice United States Attorney's Office District of Columbia (202) Raleigh, North Carolina - United States Attorney George E.B. Holding announced today that on Monday July 28, 2008, Allied Telesis Labs, Inc. (ATL), was sentenced in United States District Court in Elizabeth City to a $500,000 criminal fine and was placed on probation for two years for violating United States law regarding conducting business with Iran. ATL was successfully engaged in the design of telecommunication equipment and systems including high capacity Multiservice Access Platforms (imaps) and related items capable of routing a large volume of messages/information/data. ATL s guilty plea acknowledged that the corporation conspired with another to trade with the Islamic Republic of Iran in violation of the law. Specifically, ATL and its related corporate entities conspired to land and execute a $95,000,000 contract with the Iranian Information Technology Company (IRITCO) to rebuild and upgrade the telecommunications systems of approximately 20 Iranian cities, including Tehran. The imaps developed here in the Triangle were to be a central component of this system. Preparation for the execution of the contract went as far as the manufacture of approximately $2 million worth of imaps at ATKK facilities in Singapore. The contract negotiations eventually collapsed, the telecommunications system was not installed and the imaps were sold elsewhere at a loss. Mr. Holding noted the importance of the case: Every American is aware of the sensitive nature of the United States relationship with Iran. That relationship is a central focus of our foreign policy and the work of our Government. The International Emergency Economic Powers Act allows the President to regulate the conduct of business internationally under certain circumstances, a step which was taken with regard to Iran. When the President imposes these types of authorized restrictions, it is incumbent on all citizens, including our corporate citizens, to adhere to those regulations and to follow the strict letter of the law. Only then can we be confident that our country speaks with one voice in our relationships with our international friends and foes. The plea of guilty and the sentence in this case should act as a reminder to our business community of the seriousness with which the Department of Justice takes this issue. The case was investigated by the United States Department of Commerce. Assistant United States Attorney John Bowler represented the United States in federal court. 32

33 Compliance Strategy Classification review all of your company s products to see if they are listed on: U.S. Munitions List Commerce Control List End Use Based Controls (15 CFR Part 744) Application Apply as required for: DDTC export licenses (DSP-5, etc.) BIS export licenses TAA s, MLA s Warehouse Distribution Agreements Re-export authority Compliance Program internal company compliance procedures 33

34 Export Compliance Program Designated company official in charge of compliance Classification of company s products, software, technical data and services Written policies and procedures for dealing with ITAR and EAR issues Procedure for foreign nationals Training Recordkeeping Prohibited list checking and OFAC sanctions review Procedure for dealing with suspected violations Auditing Updating program 34

35 Export Compliance Audits Annual internal review of your company s compliance activities Compliance Processes License filings TAA administration Screening of transactions for prohibited parties Recordkeeping requirements Other Can be conducted by outside party or company employee Report results to senior management You discover compliance problems before government does Should be organized so that results are subject to attorneyclient privilege 35

36 Export Administration Regulations Enabling Statute: Export Administration Act (expired), International Emergency Economic Powers Act Regulations: Export Administration Regulations (EAR) Department of Commerce Bureau of Industry and Security List of Controlled Products Commerce Control List Controls Dual-Use Items and 600 Series Military Items 36

37 Commerce Control List Examples of Products Covered - encryption - computers, networking - aerospace devices - lasers - high performance - chemicals materials - power generation - telecom equipment - police equipment - high strength fibers - electronics - nuclear industry products - sensors - high performance pumps, - electronics generators, processing - machine tools equipment - fingerprint/biometrics - others 37

38 Commerce Control List Computers Telecom Lasers Machine Tools 38

39 Requirements for all exports (even if product is not on CCL): Know Your Customer Requirements 15 CFR Part 732, Supplement No. 3 Denied persons list 15 CFR Part 764 Recordkeeping requirements 15 CFR Part 762 Shipment documentation 15 CFR Part 758 Prohibited End-Use Controls 15 CFR Part

40 40 Export Control Reform Initiative

41 Commerce Control List 600 Series Items will still require export licenses for all destinations except Canada May be eligible for Strategic Trade Authorization exception (to government end-users only) Will be subject to de minimis rules for incorporating U.S. parts and components into foreign made items Reduced controls on services Specially designed effort to remove routine components (bolts, washers, screws, etc.) from controls 41

42 Example of Broad Provisions of 600 Series Military Electronics: ECCN 3A611.a: Electronic equipment, end items, and systems specially designed for a military application that are not */ enumerated in a USML category or another 600 Series ECCN. ECCN 3A611.x. Parts, components, accessories and attachments that are specially designed for a commodity controlled by this entry or for an article controlled by USML Category XI, and not enumerated or described in any USML category or another 600 */ Series ECCN or in paragraph.y of this entry. Note to 3A611.a: ECCN 3A611.a includes any radar, telecommunications, acoustic or computer equipment, end items, or systems specially designed for a military application that are not enumerated or otherwise described in any USML category or controlled by a */ 600 series ECCN. */ Summary only see 15 C.F.R. Part 774 for exact language 42

43 Examples of Broad Provisions of 600 Series Computers ECCN 4A611/3A611: Computers and parts, components, accessories and attachments specially designed for a military application that */ are not listed on the USML Telecom Equipment ECCN 5A611/3A611: Telecommunications equipment and parts, components, accessories and attachments specially designed for */ military application that are not listed on the USML Navigation/Avionics Equipment ECCN 7A611/3A611: Navigation and avionics equipment and parts, components, accessories and attachments specially designed for a military application that are not listed on the USML */ Acoustic Systems and Radar ECCN 6A611/3A611: Acoustic systems and radar, and parts, components, accessories and attachments specially */ designed for a military application that are not listed on the USML */ Summary only see 15 C.F.R. Part 774 for exact language 43

44 Specially Designed : Summary I. Catch: (a) (1) As a result of development, has properties peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions described in the relevant USML paragraph; or (a) (2) Is a part, component, accessory, attachment, or software for use in or with a defense article. II. Release: (b) (1) Is subject to the EAR pursuant to a commodity jurisdiction determination; (b) (2) (b) (3) (b) (4) Is a fastener (e.g., screws, bolts, nuts, nut plates, studs, inserts, clips, rivets, pins), washer, spacer, insulator, grommet, bushing, spring, wire, or solder; Dual use in production - Has the same function, performance capabilities, equivalent form and fit as a commodity used in a commodity that is or was in production and is not on the USML; Dual use design intent - Developed with knowledge that it would be for use in both articles on the USML and also commodities not on the USML; or 44 (a) (5) General purpose - Was or is being developed as a general purpose commodity or software, i.e., with no knowledge for use in a particular commodity or type of commodity.

45 U.S. Sanctions Programs Office of Foreign Assets Control (Department of the Treasury) Prohibition against dealing with targeted list of countries Prohibition against dealing with targeted list of entities and parties 45

46 46 Sanctions Programs - Summary OFAC Country Programs Balkans Belarus Burma Burundi Central African Republic Cote D Ivoire (Ivory Coast) Cuba Dem. Republic of the Congo Iran Iraq Lebanon Liberia (Taylor Regime) Libya Magnitsky Sanctions North Korea Somalia Sudan and South Sudan Syria Ukraine/Russia/Crimea Sanctions Venezuela Yemen Zimbabwe OFAC Non-Country-Specific Programs Counter-terrorism Sanctions Program Cyber-related Sanctions Program Non-Proliferation Sanctions Program Narcotics Trafficking Sanctions Program Diamond Trading Sanctions Program Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions Transitional Criminal Organizations

47 U.S. Sanctions Programs SDN s Prohibition against dealing with Specially Designated Nationals anywhere in the world 3,000 Parties 15 CFR Chapter 5, App. A-C 47

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49 49 Consolidated Screening List

50 Summary Key Steps Classification and Jurisdiction Determine if products/technologies are subject to ITAR and EAR Commodity Jurisdiction Request for confirmation Application If items are controlled, apply for licenses and other authorizations Compliance Program Internal company policies and procedures to comply with legal requirements. 50

51 Pre-Recorded Webinar: ITAR For Defense Executives Export Control Newsletter: Contact Tom McVey: Thomas B. McVey 1666 K Street, NW Suite 1200 Washington, DC tmcvey@williamsmullen.com