ITAR Deal With It Before It Deals With You

Transcription

1 ITAR Deal With It Before It Deals With You August 22, 2012 Thomas B. McVey Williams Mullen Washington, DC

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. 2

3 Export Control Reform Initiative 3

4 U.S. Export Control Laws ITAR - International Traffic In Arms Regulations Export Administration Regulations U.S. Sanctions Laws 4

5 International Traffic In Arms Regulations (ITAR) Enabling statute: Arms Export Control Act Regulations - International Traffic In Arms Regulations ( ITAR ) Department of State Directorate of Defense Trade Controls List of Controlled Products - U.S. Munitions List Controls Military Items (And Some Dual-Use Items) Broad scope encompassing most items originally developed for military use 5

6 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: Reserved Category 20: Oceanographic equipment Category 21: Other items designed or adapted for military use 6

7 ITAR Military Items Military Vehicles Armaments Naval Vessels Missiles 7

8 Other USML Items Military? 8

9 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. ( ) 9

10 Technical Data and Software (Continued) Blueprints Models Training Manuals Data 10

11 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 Foreign national comes to U.S. and has access to it 11

12 Defense Services Performing services related to USML items for foreign persons Consulting Engineering Training Technical Services Other Requires Technical Assistance Agreement (TAA) 12

13 USML Category 21: Catch-All Category XXI Miscellaneous Articles: (a) Any article not specifically enumerated in the other categories of the U.S. Munitions List which has substantial military applicability and which has been specifically designed, developed, configured, adapted, or modified for military purposes. The decision on whether any article may be included in this category shall be made by the Director, Office of Defense Trade Controls Policy. 13

14 Examples of USML Items Electronic equipment which is specifically designed, modified or configured for military application Drone aircraft Navigation systems Command, control and communications systems including radios (transceivers) and identification equipment Military training services and equipment Underwater sound equipment Flight control products, software and technologies Satellites, launch vehicles and ground control equipment, including parts, technologies and software Classified products, technical data and software Anti-gravity and pressure suits, atmosphere diving suits Body armor Naval vessels and related equipment, parts, technologies and software Protective personnel equipment and shelters Auxiliary military equipment 14

15 Electronic Equipment Category XI(b) Electronic systems or equipment specifically designed, modified, or configured for intelligence, security, or military purposes for use in search, reconnaissance, collection, monitoring, direction-finding, display, analysis and production of information from the electromagnetic spectrum and electronic systems or equipment designed or modified to counteract electronic surveillance or monitoring. A system meeting this definition is controlled under this subchapter even in instances where any individual pieces of equipment constituting the system may be subject to the controls of another U.S. Government agency. 15

16 USML Category 17: Classified Information Classified Information is on the USML Category 17: Classified Technical Data and Services Major issue for government contracts firms Another Catch-All category 16

17 Items on USML Computers and Software Computers or software designed for military use, or for use with any USML item (Category XI(a)(6)) Experimental or developmental electronic equipment designed or modified for military use (Category XI(a)(7) Manufacturing and test equipment for USML items 17

18 Items on USML Parts and Components Parts, components, accessories designed for a USML item are also on USML See-Through Rule End Product that contains a part/component on USML is also on USML 18

19 Services on the USML Intelligence and security services often covered under ITAR Military advice to foreign persons is covered under ITAR ( 120.9) 19

20 Services on the USML (Continued) Military and law enforcement training for foreign persons Training in use of USML items 20

21 Legal Standard For Inclusion on USML: 22 CFR Was product originally designed or developed for military use? Was product developed to military specifications? Was product developed with special military characteristics (e.g. radiation hardening, ballistic protection, hard points, thermal or infrared signature reduction capability, surveillance or intelligence gathering capabilities)? Was product modified for military purpose? Relevant question: Was government funding used to develop product for military application? 21

22 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 22

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24 Commodity Jurisdiction Requests Procedure for DDTC to determine if item is on U.S. Munitions List Binding, written response Can also be used for removal of item from USML if predominant civil application Proceed with caution 24

25 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 nationals in U.S. without export license 25

26 Requirements If Item Is On USML (cont.) Services: Cannot perform defense services for foreign nationals overseas or in the United States without license (TAA) Imports: Items on USML and U.S. Munitions Import List subject to import restrictions 26

27 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 27

28 Recordkeeping Requirements Mandatory requirement to maintain records of all export transactions for 5 year period Covers paper, electronic and other media 28

29 Brokering Registration and Licensing Parties that facilitate export or import of ITAR items are subject to ITAR Brokering Regulations (22 CFR Part 129). 22 CFR 129.2(a): Broker means any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration. Registration, licensing, reporting and other requirements 29

30 Penalties For Violations Criminal Sanctions up to 20 years imprisonment Fines: $1,000,000 per violation Press release Debarment For criminal cases Justice Department can prosecute Company Officers and Directors Employees in their individual capacities 30

31 Major Export Compliance Cases BAE Systems plc - $400,000,000 criminal penalties; $79,000,000 civil penalties ITT Corporation - $128,000,000 combined civil and criminal penalties for ITAR violations related to night-vision products and technology Analytical Methods, Inc. - $500,000 Interturbine Aviation Logistics GmbH - $1,000,000 Qioptiq S.a.r.l. - $25,000,000 The Boeing Company - $3,000,000 Orbit/FR Incorporated - $300,000 31

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33 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 probatio 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. 33

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35 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 35

36 Elements of 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 36

37 Are We Subject To ITAR If We Do Not Export Anything? Companies may be subject to ITAR in purely domestic activities: Registration Disclosure of ITAR-controlled technical data to foreign nationals in the U.S. Performing defense services for foreign parties in the U.S. Imports Brokering Transactions with debarred parties Recordkeeping requirements Transferring USML items to foreign governments in the U.S. Transferring title to vessels, aircraft and satellites to foreign parties in the U.S. 37

38 Are We Subject To ITAR If Our Company Only Performs Services For The U.S. Government? Companies may be subject to ITAR even if its only customer is the U.S. Government: Registration Export of physical USML products to U.S. Government customers abroad Export of equipment for use in performing government contracts (TA-50 equipment) Disclosure of ITAR-Controlled items to foreign nationals Subcontracts to foreign suppliers Services (such as training) for foreign parties under U.S. Government contracts 38

39 Are We Subject To ITAR If We Perform Services For NATO, Coalition Forces, UN? Yes NATO, Coalition Forces, United Nations are foreign persons (22 CFR ) 39

40 Exports to Affiliates U.S. export laws also apply in exports to: Foreign subsidiaries Joint venture partners Distributors Suppliers and subcontractors Inter-company transferees in foreign offices Supply chain partners 40

41 Electronic Communications Intra-company communications with foreign offices Communications with foreign national employees in the U.S. Communications with foreign customers, distributors, subcontractors, suppliers, joint venture partners 41

42 Collaborative Design and Manufacturing Parties in the Collaborative Manufacturing Process: Prime contractor Design/Engineering partners Major first-tier subs Second and third tier subs IT vendors, hardware, software Parts suppliers Raw materials Logistics/freight forwarders Transportation carriers Customer 42

43 Electronic Transactions Sending electronic drawings to foreign suppliers Posting ITAR-controlled technical data on company website Selling software and other items via electronic commerce transactions Foreign patent applications 43

44 Outsourcing Are you sending controlled technologies to foreign parties: specifications for components to be manufactured abroad? object code for software to be developed abroad? Are foreign firms performing IT integration services for systems subject to export restrictions? Do foreign nationals have electronic access to your IT system? 44

45 Computer Networks Certain foreign national employees not permitted to have access to controlled software and technologies Access to electronic engineering drawings, CAD/CAM Proprietary technologies stored in Word files Software, source code Training materials, instruction manuals 45

46 Mergers and Acquisitions In the Matter of: Sigma-Aldrich Business Holdings, Inc. (Case No. 01-BXA-06) If U.S. company acquires target company through purchase of assets, acquirer can still be liable for target company s export control violations. 46

47 Export Control Reform Iniative Revise USML to be more consistent with Commerce Control List (Export Administration Regulations) Transfer certain items from USML to CCL New 600 Series on CCL for military items transferred from USML still extensive export licensing requirements Special provisions for items specially designed to be used with USML or CCL Series 600 articles 47

48 ITAR Newsletter: Contact Tom McVey: Thomas B. McVey 1666 K Street, NW Suite 1200 Washington, DC tmcvey@williamsmullen.com