Export Controls and Sanctions Compliance

Transcription

1 Export Controls and Sanctions Compliance (or how to sleep at night) A. Export Controls 1. Introduction 2. Definitions 3. Classifications and Licensing 4. DDTC 5. BIS 6. Anti Boycott B. OFAC 1. Definitions 2. Sanctioned Countries 3. Take Aways C. Violations and Penalties D. Elements of a Compliance Program & Recordkeeping 1

2 Do Export Controls Apply to You? Top 5 Reasons why a company would need to worry about export controls: 1. You export goods from the U.S. 2. You have foreign national employees or contractors 3. You have military customers 4. You manufacture or sell military products 5. Customers or end users are located in a sanctioned country Why Does the U.S. Have Export Laws? The United States controls the export of U.S. products, technology, and software to foreign countries and foreign persons. The U.S. also imposes economic and trade sanctions on specific countries, persons, and entities for the stated purpose of: Protecting national security Implementing foreign policy, e.g. maintaining regional stability Protecting U.S. business interests Preventing the proliferation of weapons of mass destruction (WMD) Preventing terrorist activities 2

3 Definitions Who is a Foreign Person? Any Person who is not: A U.S. Citizen A U.S. Lawful Permanent Resident A Person Granted Asylum A Refugee A Temporary Resident Granted Amnesty What is an Export? Transfer of goods, technology or software to a foreign location or to a foreign person in the U.S. or abroad including: actual shipment or transmission outside U.S. visual inspection in or outside U.S. written or oral disclosure training outside of the U.S. 3

4 What is a Re export? Re exports of U.S. products, technology, and software already abroad Re exports from locations outside the U.S. of non U.S. made products incorporating more than a de minimis amount of U.S. content Re exports from locations outside the U.S. of non U.S. made products which are derived from U.S. technology What is a Deemed Export? The release or transfer of technology or technical data to a foreign person IN the United States. It is NOT required for the data or technology to be exported outside of the U.S. The Rule Releasing controlled technology to a foreign person is DEEMED to be an export to the person s country or countries of nationality. 4

5 U.S. Agencies That Regulate Export U.S. Department of Commerce, Bureau of Industry and Security (BIS) governs commercial and dual use items and technology, including software and encryption items. U.S.Department of State, Directorate of Defense Trade Controls (DDTC) governs defense articles and services and technical Data, including space and satellite related articles. U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) implements the primary sanctions regime and imposes economic and trade sanctions on designated countries, entities, and persons. Classification and Licensing How do I find out if an item or technology is controlled? 5

6 The Four Questions 1. What is the item intended for export? 2. Where is it going? 3. Who will receive it? 4. What will they do with it? Publically Available Technology Technology or technical data otherwise within the scope of regulations that the EAR and the ITAR do not control. It is considered in the public domain and a license is not required to export it. This exception may cover educational information, published information, fundamental research, and information considered within the public domain depending on whether controlled by the EAR or the ITAR 6

7 Directorate of Defense Trade Controls (DDTC) ITAR International Traffic in Arms Regulations Defense Articles and Services Defense Article Any article that is specifically designed, developed, configured, adapted, or modified for a military application, no matter how minor, is sufficient for an article to be considered a defense article. Defense Service Furnishing of assistance (including training) to foreign persons, in the U.S. or abroad, in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles Military training and advice Technical Data transfer not necessary for services to be provided 7

8 Consequences of ITAR Control If your hardware, technical data, or services are ITAR controlled: Registration with DDTC is required Licenses are required for all destinations with few exceptions Licenses are required to transmit or communicate technical data to foreign nationals United States Munitions List Structure I Firearms, Close Assault Weapons, and Combat Shotguns II Guns and Armament III Ammunition/Ordinance IV Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines V Explosives and Energetic Materials, Propellants, Incendiary Agents and their Constituents VI Vessels of War and Special Naval Equipment VII Tanks and Military Vehicles VIII Aircraft and Associated Equipment IX Military Training Equipment X Protective Personnel Equipment 16 8

9 United States Munitions List Structure Cont. XI Military Electronics XII Fire Control, Range Finder, Optical and Guidance and Control Equipment XIII Auxiliary Military Equipment XIV Toxicological Agents, Including Chemical Agents, Biological Agents and Associated Equipment XV Spacecraft Systems and Associated Equipment XVI Nuclear Weapons, Design and Testing Related Items XVII Classified Articles, Technical Data and Defense Services not Otherwise Enumerated XVIII Directed Energy Weapons XIX Reserved XX Submersible Vessels, Oceanographic and Associated Equipment XXI Miscellaneous Articles 17 Category VIII - Aircraft, [Spacecraft] and Associated Equipment a) Aircraft, including but not limited to helicopters, non-expansive balloons, drones, and lighter-than-air aircraft, which are specifically designed, modified, or equipped for military purposes... b) Military aircraft engines e) Inertial navigation systems h) Components, parts, accessories, attachments, and associated equipment...specifically designed or modified for the articles in paragraphs (a) through (d) of this category. i) Technical Data (as defined in ) and defense services...directly related to the defense articles enumerated in paragraphs (a) through (h) of this category... 9

10 Bureau of Industry and Security (BIS) EAR Export Administration Regulations Commerce Control List Commerce Control List Categories 0 = Nuclear materials, facilities and equipment (and miscellaneous items) 1 = Materials, Chemicals, Microorganisms and Toxins 2 = Materials Processing 3 = Electronics 4 = Computers Five Product Groups A.Systems, Equipment and Components B. Test, Inspection and Production Equipment C. Material D. Software E. Technology 5 = Telecommunications and Information Security 6 = Sensors and Lasers 7 = Navigation and Avionics 8 = Marine 9 = Propulsion Systems, Space Vehicles, and Related Equipment 9 = Aerospace and Propulsion A = Systems, Equipment & Components 9A001 10

11 BIS/DDTC Commerce Department (BIS) Dual Use Commercial/Military Controlled items appear on Commerce Control List A number of exceptions available Examples of EAR controlled Items: semiconductors telecommunications high speed computers manufacturing equipment State Department (DDTC) Designed, modified, adapted, or configured for military/space Controlled items appear on the United States Munitions List Very few exceptions available; license typically required Examples of ITAR controlled items: high altitude GPS receivers cryptographic electronics satellite components guns over.50 caliber EAR99 EAR99 is the catch all classification If your item is not found on the USML or the CCL it is classified as EAR99 and can be shipped No License Required unless the destination is an embargoed country 11

12 End Use & End User Prohibitions 1. Don't export if the transaction is prohibited by a denial order 2. Don't export to a prohibited end user 3. Don t export to an embargoed destination 4. Don t export an item if it will assist with proliferation activities 5. Don t ship your export through the listed countries without a license or license exception if one would be needed to directly export the product there. 6. Don't export if you will violate a license or license exception 7. Don t do anything with knowledge that it may violate the law. Department of the Treasury OFAC Office of Foreign Assets Control 12

13 What is OFAC? Office of Foreign Assets Control (OFAC): Department of the Treasury Mission: To administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against selected targets Induce change by disfavored governments i.e. give Iran an incentive to stop developing nuclear weapons, Syria human rights abuses Cut off resources to terrorists, drug traffickers, nuclear proliferators, human rights violators and others 25 Global Reach of OFAC Applies to every person in the U.S. Applies to imports to or exports from the U.S. Applies to U.S. companies (and branches*) anywhere in the world (not subsidiaries) Applies to U.S. citizens or permanent residents anywhere in the world even if working for a non U.S. company Cuba sanctions apply to subsidiaries of U.S. companies anywhere in the world *Entities organized under US law 13

14 Who Must Comply with OFAC Entities organized under U.S. law Includes offices and branches abroad U.S. citizens, wherever located U.S. permanent resident aliens, wherever located Persons in the U.S. Cuba only: Foreign subsidiaries of U.S. person Blocking legislation seek advice of local counsel Types of OFAC Sanctions Programs Purely List Based Programs Narcotics trafficking Non proliferation WMD Terrorism Organized Crime Western Balkans (former Yugoslavia) Belarus Dem. Rep. of Congo Iraq Ivory Coast (Cote d Ivoire) Lebanon Liberia Libya Somalia Zimbabwe *OFAC sanction programs are in constant flux, countries may be added or removed at any time. 14

15 Sanctions Programs Specially Designated Nationals (SDN) Specifically Designated Nationals and Blocked Persons Over 3000 unique entities identified by OFAC Individuals or entities all over the globe Owned, controlled by or acting on behalf of targeted governments or groups May be front companies, parastatals, high ranking officials or specifically identified persons Designated narcotics traffickers, terrorists, terrorist groups, WMD proliferators and support networks, organized crime * Available at: Sanctions Programs Regime Based Balkans/Yugoslavia Block property of Milosevic supporters and persons who threaten international stabilization efforts in the Western Balkans 15

16 Sanctions Programs Regime Based Belarus Block property of persons undermining democratic processes or institutions Aimed at corrupt members of the Government of Belarus Executive order signed on June 19, 2006 Iraq Iraqi Sanctions Regulations terminated All new transactions are authorized Assets previously blocked remain blocked Licensing authority transferred BIS Sanctions Programs Regime Based Liberia Block property of Charles Taylor and his supporters and persons who have undermined Liberia s transition to democracy Import of Liberian origin timber is prohibited 16

17 Sanctions Programs Limited Programs Cote d Ivoire Block property of individuals found to: Threaten peace and national reconciliation efforts Supply armaments and military training to Cote d Ivoire, or Publicly incited violence and hatred in Cote d Ivoire Sanctions Programs Limited Programs Nonproliferation Import restrictions against foreign persons engaged in proliferation of WMD technology June 28, 2005, Executive Order identifying and blocking the property of WMD proliferators and their supporters Additional Iranian and Chinese entities identified as WMD proliferators in

18 Sanctions Programs Limited Programs Diamond Trading Import and export of rough diamonds restricted Types of OFAC Sanctions Programs Country Based Programs Broad comprehensive sanction programs in the following countries & each is unique: Cuba, Iran, Sudan*, and Syria Lesser Restrictions in the following countries: Burma(Myanmar) North Korea (DPRK) *Not South Sudan *OFAC sanction programs are in constant flux, countries may be added or removed at any time. 18

19 Sanctions Programs Comprehensive In general the following are prohibited under comprehensive sanctions programs: Exports (direct or indirect) Imports (direct or indirect) Trade brokering, financing, or facilitation Any attempt to evade or avoid the sanctions Applies to most goods, technology, and services Limited exceptions may be licensable by OFAC, such as agricultural goods or humanitarian items Facilitation and Approval OFAC sanctions cover not only direct business with foreign country but also facilitation or approval of business by others. U.S. person cannot approve, finance, facilitate or guarantee transaction that would be prohibited to U.S. person U.S. person cannot facilitate transaction by foreign person that U.S. person can t do even if transaction is legal for foreign person 19

20 Sanctions Programs Changing Programs Burma/Myanmar OFAC Take Aways Risk based review > Documented procedures Effective Screening Customers, Vendors, etc Training! Training! Training! Remember the SDN and other screening requests EU Asia Canada Latin America IGNORANCE IS NO EXCUSE! 20

21 Other Export Compliance Considerations U.S. persons and companies may not: Agree to comply with the Arab League s boycott of Israel and certain companies Discriminate on the basis of race, religion, national origin, nationality, or sex or agree to provide trading partners with information on others with respect to those characteristics Agree to disclose information about dealings with Israel or to provide other information that might be used to verify compliance with a boycott of Israel 21

22 Keep documents for at least five years Documents include the commercial invoice, bill of lading or air waybill, and shipper's export declaration Have recordkeeping compliance procedures Violations & Penalties 22

23 How are Export Laws Violated? Exporting without a license Violating any terms or conditions of licenses or approvals Engaging in manufacturing, exporting, or brokering defense articles without complying with registration requirements Making false statements in documents Misrepresenting or omitting a material fact in order to export Exporting to prohibited end users Exporting for prohibited end uses Exporting to prohibited destinations Penalties EAR ITAR OFAC Civil A fine of up to $250,000 for each violation and denial of export privileges; or twice the value of the transaction with respect to which the penalty is imposed, whichever is greater Denial of export privileges of items controlled by the EAR Criminal For knowing offenses a fine of 50,000 or five times the value of the exports, whichever is greater; and/or imprisonment of five years. For the willful offenses imprisonment for not more than twenty years for an individual and possibly a fine not to exceed $1,000,000 Other Statutory sanctions, seizure and forfeiture, and denial of licenses from other agencies Criminal A fine of up to $1,000,000, up to ten years in prison, or both, for each violation Civil A fine of not more than $500,000 per violation Other Debarment from exporting defense articles and services Civil Depending upon the violation fines can be up to $250,000 or double the value of the transaction that is the basis of the violations, whichever is greater. Criminal Depending on the violation fines can be up to $1,000,000 or 20 years imprisonment or both 23

24 Red Flags Customer has no available financial information and company is unknown Customer rejects commonly available installation and maintenance services Customer is reluctant to provide end use/end user information Customer requests unusual payment terms or currencies Order amounts, packaging, or delivery routing do not correspond with normal industry practice Customer s line of business or end use does not conform to performance/design characteristics of product Customer uses only a P.O. Box address or has facilities that appear inappropriate for the commodity ordered Customer s order is for parts for which the customer appears to have no legitimate need Customer is connected to parties and/or destinations on the restricted parties or embargoed countries lists Product to be shipped to trading company or freight forwarder is not connected to customer Packing requirements are inconsistent with shipping mode and/or destination Circuitous or economically illogical routing Customer appears unfamiliar with the product or application 24

25 Mitigating Factors Whether the Company voluntarily disclosed its violation Whether transaction would have been authorized had proper application been made Why the violation occurred The degree of cooperation with the investigation Whether the organization has instituted or improved an internal compliance program to reduce the likelihood of future violations Whether the organization/person made the disclosure with the full knowledge and authorization of senior management The company s compliance history The company s export experience Elements of a Compliance Program 1. Document standards and procedures 2. Institute a top down approach 3. Establish effective training programs 4. Monitor, audit, and evaluate effectiveness of compliance program 5. Provide incentives for employees to perform in accordance with program, and impose disciplinary measures on those who engage in criminal conduct 6. Have a compliance officer and procedures to report possible violations 7. Record Keeping 25

26 Questions & Answers 26