Understanding ITAR and the Future of Export Controls on Advanced Textiles

Transcription

1 Understanding ITAR and the Future of Export Controls on Advanced Textiles Presented by Nate Bolin Agenda 1. Understanding the ITAR (and EAR) A. What are the ITAR and EAR? B. Reasons to Care about Export Controls C. Classification and Product Jurisdiction EAR vs. ITAR D. The order of review E. Tips and Resources 2. Export Controls on Advanced Textiles A. Export Control Reform B. Product notes and end use controls 3. The Future of U.S. Export Controls 1. Understanding the ITAR (and EAR) 1

2 What are the U.S. export control laws? International Traffic in Arms Regulations (ITAR) Export Administration Regulations (EAR) Other U.S. laws and regulations controlling the export/re export of U.S. goods, technology, and services Multiple agencies including the Office of Foreign Assets Control (OFAC), Nuclear Regulatory Commission (NRC), Department of Defense (DOD), National Nuclear Security Administration (NNSA), Census Bureau, Customs and Border Protection (CBP) International Traffic in Arms Regulations (ITAR) Issued under authority of the Arms Control Export Act (22 U.S.C. 2778) Enforced by the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) Apply to 21 categories of defense articles & defense services + brokering activities Registration and licensing requirements Congressional notifications Reporting of political contributions, fees, commissions Record keeping / Foreign Trade Regulations interface ITAR The U.S. Munitions List (USML) I. Firearms II. Guns & Armament III. Ammunition IV. Launch Vehicles, Missiles V. Explosives, Propellants VI. Surface Vessels VII. Ground Vehicles VIII. Aircraft & Related Articles IX. Military Training Equipment & Training X. Personal Protective Equipment XI. Military Electronics XII. Fire Control, Optical Guidance XIII. Materials & Misc. XIV. Toxicological Agents XV. Spacecraft XVI. Nuclear Weapons Related Articles (e.g., software) XVII. Classified Articles & Technical Data N.E.S. XVIII. Directed Energy Weapons XIX. Gas Turbine Engines & Control Equipment/Software XX. Submersible Vessels XXI. Defense Articles, Defense Tech Data & Defense Services N.E.S. 2

3 ITAR U.S. Munitions List Example: Additional ITAR U.S. Munitions List Examples: USML Category XIII(e)(5): Composite armor with E m greater than 1.4 and meeting or exceeding NIJ Level III. Composite armor is defined as having more than one layer of different materials or matrix.... Materials used in composite armor could include... fibers... [or] Ceramic glass reinforced plastic laminates... USML Category X(a)(1): Personal protective equipment, as follows: Body armor providing a protection level equal to or greater than NIJ Type IV USML Category X(a)(2): Personal protective clothing, equipment, or face paints specially designed to protect against or reduce detection by radar, IR, or other sensors at wavelengths greater than 900 nanometers Export Administration Regulations (EAR) Issued under authority of the Export Administration Act of 1979, as amended, and kept in force under the International Emergency Economic Powers Act (IEEPA) Enforced by the U.S. Department of Commerce, Bureau of Industry and Security (BIS) Apply to most non ITAR and dual use goods, software, and technology License requirements Reports (certain license exceptions, exports of encryption items) Normally no registration Record keeping / Foreign Trade Regulations interface 3

4 Subject to the EAR + + Three digit = ECCN number Anything not specifically listed on the Commerce Control List is EAR99 (most consumer goods, food, some basic commodities). EAR99 items are also subject to the EAR! You may need a license for EAR99 items! EAR Example 1 ECCN 1A613: Armored and protective equipment and related commodities, as follows:.... d. Body armor and protective garments, as follows: d.1. Soft body armor and protective garments manufactured to military standards or specifications, or to their equivalents, that provide ballistic protection equal to or less than NIJ level III.... EAR Example 2 ECCN 1B613: Test, inspection, and production equipment and related commodities specially designed for the development, production, repair, overhaul, or refurbishing of commodities controlled by ECCN 1A613 or USML Category X 4

5 EAR Example 3 ECCN 1D613: Software specially designed for the development, production, operation, or maintenance of commodities controlled by 1A613 or 1B613 EAR Example 4 ECCN 1E613: Technology required for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of commodities controlled by 1A613 or 1B613 or software controlled by 1D613 All this sounds really complicated, time consuming, and expensive. Why should I care about it? 5

6 Heightened Civil Penalties ITAR: Effective August 1, 2016, civil penalties increased from $500,000 per violation to $1,094,010 per violation The new amount is retroactive, and applies to the full five year statute of limitations period, regardless of when the violation occurred Civil penalties are now adjusted annually for inflation Effective January 15, 2017, the new amount is $1,111,908 per violation EAR: Effective July 7, 2016, civil penalties increased from $250,000 to $284,582 or twice the amount of the value of the underlying transaction (whichever is higher) BIS will soon announce an inflation adjustment, raising the amount to $289,238 The increased penalties apply to violations occurring after November 2, 2015 Other Penalties Criminal ITAR: Up to $1 million per violation for corporations; up to $1 million per violation and up to 10 years in jail for individuals EAR: Up to $1 million per violation for corporations; up to $1 million and up to 20 years in jail for individuals Denial of export privileges Listing on the Entity List Debarment from government contracting Other Reasons to Care Do your part to help protect our nation s security A well planned compliance program also makes good business sense: Minimize liability and business risk Protect Intellectual Property and know how from the competition Gain easier access to important customers and markets, such as U.S. government contractors, agencies, and U.S. allies Increase the value of your company and its products 6

7 So do I only need to worry about the ITAR and EAR if I am exporting something? Answer: No. ITAR / EAR Jurisdiction is VERY BROAD In personam In rem Territorial Certain non export actions: Deemed exports Release of controlled items Furnishing defense services Engaging in brokering activities Attempts / evasion Servicing Importing... To determine jurisdiction you need to know: What is it? Where was it made? How was it made? What will it be used for? Where is it going? Who will use/access it? Are U.S. persons involved? 7

8 The following examples show just how broad jurisdiction can be under the ITAR and EAR Jurisdiction U.S. persons, wherever located Jurisdiction Goods, software, technology, technical data of U.S. origin 8

9 Jurisdiction Goods, software, technology, technical data of U.S. origin even when reexported Jurisdiction Goods, software, technology, technical data in the United States Jurisdiction Goods, software, technology, technical data in the United States even when reexported 9

10 Jurisdiction deemed exports Jurisdiction deemed reexports Jurisdiction products of (or containing) U.S. origin technology / technical data 10

11 ITAR Engaging in Brokering Activities Who is covered? Any U.S. person Any foreign person in the USA Any foreign person owned/controlled by a U.S. person What are brokering activities? Financing Transporting Soliciting Negotiating Arranging Insuring Freight forwarding Promoting Contracting for Otherwise assisting in... the purchase, sale, transfer, loan, or lease of a defense article or defense service. Wait a minute is my product/technology/software subject to the ITAR? Or the EAR? Or both? Or neither?... Product Jurisdiction Product Classification Follow the Order of Review 1. U.S. Munitions List (USML) Order of Review 2. Is it subject to other non EAR regulations (e.g., NRC Part 110 regulations) 3. Commerce Control List (CCL) Order of Review Supplement 4 to Part 774 of the EAR 4. If it s not on the USML, CCL, or another agency s list, it is EAR99 5. Don t forget OFAC, CBP, and FTR requirements even for EAR99 items 11

12 Product Jurisdiction Pop Quiz If an item is EAR99 do you need to worry about U.S. export controls? YES! The topic is U.S. export controls. You always need to worry! Even for EAR99 items, end user and end use based controls in the EAR apply. Also, don t forget OFAC, CBP, and FTR requirements Product Classification Key Points & Tips In addition to the product specs, it s often important to know where, why, and how a product was developed involve engineering / design teams early Always start in the same place USML Order of Review Then move to the CCL Order of Review Document your classification process Develop and use a product classification matrix Product Classification Key Points & Tips Sometimes it is best not to self classify Commodity Jurisdiction (CJ) Request Commodity Classification Automated Tracking System (CCATS) Request Sometimes even BIS and DDTC don t know What about prior CJs and CCATS? CJs: html CCATS: controllist classification/publicly available classification information 12

13 We re from the Government and we re here to help. USML Order of Review Decision Tree Tool USML Specially Designed Decision Tool CCL Order of Review Decision Tree Tool control classificationinteractive tool CCL Specially Designed Decision Tree Tool designed tool CCL Order of Review FAQs /ecr faqs 2. Export Control Reform Export Control Reform Initiated in August 2009 Goals: Make it easier to trade in restricted items with NATO and other major non NATO allies Move certain items from the USML to CCL to reduce licensing and compliance burden Place higher walls around key defense articles Eventually transition to a single licensing and enforcement agency 13

14 Export Control Reform USML to CCL Transition DDTC and BIS have been systematically reviewing items on the USML and transitioning some to the CCL 3 of 21 categories remain: firearms (I), artillery (II), ammunition (III) The most significant changes have been to the USML categories for aircraft (VIII), military electronics (XI), spacecraft (XV), and gas turbine engines (XIX) ECR also calls for periodic retrospective reviews of transitioned items and new definitions Export Control Reform USML to CCL Transition Export Control Reform USML to CCL Transition 14

15 Export Control Reform Other Changes New definitions of export, public domain, and defense services Some were implemented in June 2016 Others, such as defense services definition, are pending Continued efforts to make the EAR and ITAR more user friendly are resulting in frequent rule changes and updates Beware of retrospective reviews that reverse course Make sure you are using the most recent versions of each! ITAR: bin/textidx?gp=&sid=20b3b04bcc20f08c5a23f245cf2f8820&mc=true&tpl=/ecfrbr owse/title22/22cisubchapm.tpl EAR: regulations ear Export Control Reform Other Changes Export Control Reform Other Changes 15

16 3. The Future of U.S. Export Controls More EAR, Less ITAR? The EAR now include many military items previously listed on the ITAR The 600 Series of the EAR For example: ECCN 1A613: Armored and protective equipment and related commodities, as follows:.... d. Body armor and protective garments, as follows: d.1. Soft body armor and protective garments manufactured to military standards or specifications, or to their equivalents, that provide ballistic protection equal to or less than NIJ level III.... EAR End Use / End User Controls The EAR impose military end use or military end user controls for China, Iraq, Russia, Venezuela, and certain other D:1 countries for certain products See also EAR Supplement 1 to Part 740 (Country Groups) and Sections (military end use controls on certain advanced microprocessors), (China, Russia, and Venezuela), and (Iraq) End use controls on the Russian oil and gas sector Restrictions on transactions with individuals and companies on the BIS Entity List 16

17 Specific Focus Areas for the Next Four Years Priority Areas Identified Through Export Control Reform Crown jewels nuclear/wmd, military sensors/radar, military satellites, communications intelligence systems, items almost exclusively available in the USA National Security priorities e.g., China, Crimea, Cuba, Iran, Russia, Syria, North Korea, Venezuela DDTC/ITAR company visits vs. subpoenas, systemic compliance analysis, larger settlements & more extensive consent agreements BIS/EAR industry wide cases, increasingly close cooperation with DDTC, OFAC, CBP ( E2C2 & ITU ), informants, sting operations Electronic Export Information (EEI) & CBP s Automated Commercial Environment (ACE) Activities to protect the U.S. defense industrial base Questions? Nathaniel ( Nate ) Bolin Counsel Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C Tel Fax nathaniel.bolin@skadden.com bolin Thank You 17