SPECIAL COMPLIANCE CONSIDERATIONS WHEN SUPPORTING THE U.S. GOVERNMENT ABROAD

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1 This material from BRIEFING PAPERS has bee reproduced with the permissio of the publisher, West, a Thomso busiess. Further use without the permissio of the publisher is prohibited. For additioal iformatio or to subscribe, call or visit west.thomso.com/fedpub. BRIEFING PAPERS is ow available o Westlaw. Visit westlaw.com BRIEFING PAPERS SECOND SERIES PRACTICAL TIGHT-KNIT BRIEFINGS INCLUDING ACTION GUIDELINES ON GOVERNMENT CONTRACT TOPICS SPECIAL COMPLIANCE CONSIDERATIONS WHEN SUPPORTING THE U.S. GOVERNMENT ABROAD I IN BRIEF By Adrew D. Irwi the past decade, startig with logistical support cotracts i the Balkas ad extedig to curret recostructio ad logistical support cotracts i Afghaista ad Iraq, cotractors are icreasigly becomig ivolved i the performace of U.S. Govermet cotracts overseas. Ideed, i the past few years aloe, thousads of compaies that have ever before bee ivolved i Govermet cotractig have sought opportuities to serve the U.S. Govermet abroad as either prime cotractors or subcotractors. While may compaies have jumped at the chace to serve the Govermet ad explore ew markets, for cotractors iexperieced workig abroad, supportig the U.S. Govermet overseas presets risks as well as opportuities. Ideed, whe performig cotracts i the Uited States, cotractors operate i a highly regulated eviromet. May of these thousads of compaies that are ow seekig work iteratioally face umerous challeges uderstadig the basic is ad outs of Govermet cotractig i the first place. However, i additio to the traditioal rules that apply to Govermet cotractig geerally (may of which apply to work performed abroad), there are umerous other special cosideratios that must be take ito accout to work successfully overseas, especially whe supportig U.S. Govermet programs. For istace, workig i places like the Middle East i particular raises a plethora of sactios ad export cotrol issues, as well as issues related to U.S. ati-boycott rules ad the Foreig Corrupt Practices Act. Sactios Backgroud Afghaista Iraq Ira Libya Syria SDNs FAR Clause Diligece Issues Other Purchasig Restrictios Export Cotrols Backgroud Exports To Afghaista Exports To Iraq Exports To Libya Exports To Syria Ati-Boycott Rules Foreig Corrupt Practices Act The purpose of this BRIEFING PAPER is to assist you, the cotractor, i uderstadig a umber of these special requiremets. However, as metioed above, it importat to realize that there are coutless rules that apply to Govermet cotracts both domestic ad iteratioal ad this PAPER caot cover all Adrew D. Irwi is a Special Cousel with Steptoe & Johso LLP i Washigto, DC ( where he is a member of the firm s Govermet Cotracts Team ad works closely with the firm s Iteratioal Departmet. NO WEST, A THOMSON BUSINESS COPYRIGHT 2004 ALL RIGHTS RESERVED

2 of them. I that regard, several other BRIEF- ING PAPERS have addressed a umber of issues specific to cotractors accompayig forces o the battlefield, 1 ad cotractors itedig to deploy overseas would be well served by reviewig these publicatios as well. Specifically, this BRIEFING PAPER provides a basic explicatio of U.S. ecoomic sactios, other special purchasig requiremets ad prefereces, ad export cotrols. It also briefly touches upo ati-boycott laws ad ati-bribery laws. These are all major risk areas that should ot be overlooked as a cotractor sets its sights o supportig the U.S. Govermet abroad, ad cotractors wishig to work overseas should cosider carefully how these risks apply to their busiesses. Sactios Backgroud For a umber of years, the Uited States has had i place sactios ad embargoes agaist other coutries. Some of these sactios regimes are multilateral ad arise from U.S. participatio i the Uited Natios. Others are uilateral, resultig from U.S. foreig policy imperatives. Give the umber of sactioed etities i the Middle East, U.S. sactios have the potetial to affect dramatically the busiess operatios of U.S. cotractors operatig i the regio. Moreover, because there are also specific sactios o idividuals ad compaies i most coutries i the world, it is importat to realize that U.S. sactios issues also ca arise i other, seemigly less risky, locales. Typically, sactios regimes are admiistered by the Office of Foreig Assets Cotrol (OFAC), a relatively small but importat office withi the U.S. Departmet of the Treasury. OFAC regulatios ca be foud i the Code of Federal Regulatios at Title 31, Chapter V. OFAC has a useful website at which also cotais various short summaries of U.S. sactios rules. OFAC s rules are typically promulgated pursuat to the Iteratioal Emergecy Ecoomic Powers Act, 2 the Tradig With the Eemy Act, 3 ad related Executive Orders issued pursuat to these statutes. If a cotractor wishes to deal with a sactioed coutry or etity, it must request a specific licese to do so from OFAC. 4 Whe preseted with a licese request, OFAC geerally cosults with the U.S. Departmet of State for foreig policy guidace before makig a decisio whether to authorize a trasactio. OFAC s jurisdictio is far reachig. All U.S. persos must comply with OFAC regulatios, icludig all U.S. citizes ad permaet residet alies regardless of where they are located, all persos ad etities withi the Uited States, ad all U.S. icorporated etities ad their foreig braches. I the cases of certai sactios programs (e.g., North Korea ad Cuba), all foreig subsidiaries owed or cotrolled by U.S. compaies also must comply. 5 Over the years, U.S. sactios have applied to a wide rage of coutries or regios, icludig Afghaista, Agola (UNITA), the Balkas, Burma, Cuba, Iraq, Ira, Libya, North Korea, Syria, Suda, ad Zimbabwe, amog others. 6 I additio to coutry-specific sactios, as metioed above, is importat to ote BRIEFING PAPERS (ISSN ) is published mothly except Jauary (two issues) ad copyrighted 2004 Valerie L. Gross, Editor Periodicals postage paid at St. Paul, MN Published by West, a Thomso busiess / th Street, NW / Washigto, DC Customer Service: (800) Postmaster: Sed address chages to Briefig Papers / PO Box / St. Paul, MN BRIEFING PAPERS West, a Thomso busiess, has created this publicatio to provide you with accurate ad authoritative iformatio cocerig the subject matter covered. However, this publicatio was ot ecessarily prepared by persos licesed to practice law i a particular jurisdictio. West is ot egaged i rederig legal or other professioal advice, ad this publicatio is ot a substitute for the advice of a attorey. If you require legal or other expert advice, you should seek the services of a competet attorey or other professioal. BRIEFING PAPERS is a registered trademark used herei uder licese. All rights reserved. Reproductio, storage i a retrieval system, or trasmissio of this publicatio or ay portio of it i ay form or by ay meas, electroic, mechaical, photocopyig, xerography, facsimile, recordig, or otherwise, without the writte permissio of West is prohibited, except that the publisher grats permissio to reproduce portios of this publicatio (ot the etire issue) provided that a $2.50 per page per copy fee is paid directly to Copyright Clearace Ceter (CCC), 222 Rosewood Drive, Davers, MA (978) Fee Code: ( )/97/$0+$

3 that OFAC also publishes a list of so-called Specially Desigated Natioals (SDN) ad Blocked Persos, which icludes thousads of ames of compaies ad idividuals located throughout the world who are coected with sactioed coutries or are terrorists or arcotics traffickers. 7 (The State Departmet publishes a separate, much shorter list of Foreig Terrorist Orgaizatios such as Al-Qaida ad Hizballah. 8 ) Although some sactios regimes are more restrictive tha others, sactios violatios ca result i the impositio of crimial liability for both corporatios ad idividuals. Civil ad crimial pealties for violatios may be quite sigificat. 9 Moreover, violatios ad settlemets icludig those that result from volutary disclosures are published by OFAC regularly o its website. 10 Fially, as with ay violatio of this ature, there is always the loomig threat of potetial suspesio or debarmet from Govermet cotractig, as well as related egative publicity. 11 Ideed, major ewspapers have regularly reported o alleged sactios violatios ad volutary settlemets with OFAC. May sactios regimes have bee part of U.S. law for years, ad, as such, U.S. Govermet cotractors have bee subject to them. Ideed, the Restrictios o Certai Foreig Purchases clause at Federal Acquisitio Regulatio , which is i may U.S. Govermet prime cotracts, further implemets ad cotractualizes U.S. sactios regimes for Govermet cotractors. For the most part, however, Govermet cotractors operatig domestically have probably ot focused much attetio o this clause or o sactios more geerally. Ad abset havig large iteratioal supplier bases, the sactios compliace risks faced by may domestic Govermet cotractors has traditioally bee modest. Nevertheless, although sactios have ot historically bee a major cocer of domestic cotractors, for cotractors workig abroad or wishig to work abroad, ow more tha ever, it is importat to pay attetio to U.S. sactios, particularly give their costatly evolvig ature. Though sactios ivolvig Iraq ad Libya have bee vastly dowscaled throughout the last year ad ow basically lifted, sactios agaist Ira remai, ad ew sactios ad export cotrols agaist Syria have bee implemeted. Moreover, as the war o terror cotiues to ufold, the SDN list which icludes umerous etities i otherwise friedly coutries cotiues to icrease. By way of example, cotractors operatig abroad deal with may subcotractors, ad they receive may expressios of iterest from potetial vedors. They may eed to hire freight forwarders ad other etities that assist with shippig ad logistics. I short, they deal with may differet parties every day. I each istace, every dealig that they have with aother etity represets a sactios risk ad, i some seses, a physical security risk. I the curret eviromet, U.S. cotractors ca ill afford to take the risk of havig subcotractors or eve busiess cotacts that the U.S. Govermet has idetified as terrorists or as associated with coutries that support terrorism. A umber of the sactios regimes most relevat to U.S. Govermet cotractors are discussed below, alog with suggested measures for compliace. Sactios regimes that Govermet cotractors are less likely to coted with, e.g., Cuba ad North Korea (because few suppliers would be associated with such coutries), or the Balkas (because those sactios are largely lifted) are ot addressed, but details regardig these ad other sactios ca be foud o OFAC s website. Afghaista A July 1999 Executive Order blocks the property of ad prohibits most trade with the Taliba or ivolvig the territory of Afghaista cotrolled by the Taliba. 12 I Jauary 2002, however, as a result of U.S. military actios i Afghaista, the U.S. Departmet of State issued a otice i the Federal Register modifyig the descriptio of the territory of Afghaista cotrolled by the Taliba. As of the date of that otice, the U.S. Govermet determied that o territories withi Afghaista were cotrolled by the Taliba. As a cose- 3

4 quece, Afghaista was retured to its pre- July 1999 legal status. 13 However, though the Taliba o loger cotrols Afghaista, U.S. sactios agaist the Taliba remai. 14 I short, though dealigs with Afghaista ad Afgha parties are o loger uilaterally proscribed ad therefore do ot require a specific OFAC licese, Govermet cotractors workig i the regio must take steps to esure that that they are ot workig with parties idetified by the U.S. Govermet as associated with the former Taliba regime ad, therefore, whe workig locally, eed to esure that they are screeig suppliers agaist the OFAC SDN list. Likewise, as will be discussed later, sigificat export cotrol restrictios remai. Iraq I 1990, the U.S. first implemeted sactios agaist Iraq. 15 The U.N. also imposed multilateral sactios. 16 That meat that all dealigs by U.S. persos with Iraq were several proscribed, except for the ow much-scrutiized U.N. Oil-for-Food Program. I May 2003, as a result of the coalitio military campaig s ouster of Saddam Hussei, both U.S. ad U.N. sactios were largely suspeded ad U.S. cotractors were able to ship equipmet ito the Iraq. 17 However, give that the sactios were suspeded rather tha rescided, OFAC retaied idepedet export cotrol jurisdictio over shipmets to Iraq. 18 Ideed, the case of Iraq is a prime example of the overlap betwee export cotrol ad sactios policies. As of July 30, 2004, sactios have bee formally lifted, with the exceptio of the U.N. arms embargo. 19 Cosequetly, with the exceptio of cotiuig jurisdictio over existig liceses, OFAC o loger is the gatekeeper to workig i Iraq geerally. The ew export cotrol regime for Iraq admiistered ow maily by the Departmet of Commerce is discussed below. It is importat to ote, however, that sactios remai i place with respect to workig with SDNs who might be i Iraq. I other words, it is illegal to deal with members of the former Iraqi regime who are o OFAC s SDN list or other desigated terrorists who may happe to be i or have dealigs with the coutry. Ira Ira, which is desigated as a state supporter of terrorism by the U.S. Departmet of State, is uder a comprehesive U.S. embargo. 20 U.S. sactios were first implemeted i the 1980s. 21 Except as authorized by amedmets to the Iraia Trasactios Regulatios ivolvig carpets ad food, which were issued at the ed of April 2000, 22 U.S. persos are prohibited from egagig i ay trasactios, icludig purchase, sale, trasportatio, swap, fiacig or brokerig trasactios, related to goods or services of Iraia origi or goods or services owed or cotrolled by the Govermet of Ira. 23 Ideed, these restrictios are so strict that the prohibitios apply to trasactios by U.S. persos i locatios outside the Uited States with respect to goods or services that the U.S. perso kows or has reaso to kow are of Iraia origi or are owed or cotrolled by the Govermet or Ira. Also, U.S persos may ot import such goods or services ito or export them from foreig locatios. 24 For cotractors, the impact of some of the restrictios is obvious. Specifically, cotractors caot purchase Iraia-origi goods. They caot hire Iraia subcotractors. They caot ship items through Ira. Beyod these seemigly relatively straightforward scearios, however, the restrictios affect U.S. cotractors workig i the Middle East more tha is readily apparet ad there lurk a larger rage of potetially ettlesome situatios. For istace, a subcotractor may be from a third coutry but have a represetative office i Ira that it would like to use to support work. Or a first-tier subcotractor may ot be sesitive to sactios issues ad attempt to purchase or ship items through Ira to supply the prime cotractor. Each of these istaces represets a potetial sactios violatio. Accordigly, whe workig i support of the U.S. Govermet i the Middle East, it is importat to brief employees about the broad reach of Ira sactios ad commuicate with subcotractors ad suppliers regardig their sourcig ad shippig plas. 4

5 Libya I February 2004, the Uited States bega the process of formally rescidig sactios agaist Libya, ad by September 2004, those sactios were lifted. 25 The sactios had bee i place largely as the result of the 1988 bombig of a Pa-Am jet over Lockerbie, Scotlad. 26 Although the sactios have bee removed, tight export cotrols remai i place, as discussed below. Moreover, there are still SDNs preset i Libya with whom U.S. cotractors caot deal ad Libya, at least for ow, is still desigated by the State Departmet as a state sposor of terrorism. Thus, dealigs with a umber of etities i Libya by U.S. cotractors, although ot outright prohibited uder may Govermet cotracts (except for the time beig, for istace, those subject to separate Foreig Assistace Act restrictios ad subcotracts with etities owed or cotrolled by the Govermet of Libya), 27 will be difficult i the ear term. Syria I December 2003, the Presidet siged the Syria Accoutability ad Lebaese Sovereigty Restoratio Act (SAA). 28 Cogress eacted the SAA to sactio Syria for its support of terrorism, its occupatio of Lebao, its weapos of mass destructio programs, its illegal imports of Iraqi oil, ad its role i the ogoig security problems i the Middle East. I May 2004, the Presidet issued a Executive Order implemetig the sactios. 29 This essetially elimiates the export ad reexport of all items subject to the Export Admiistratio Regulatios (EAR) to Syria. 30 Because these restrictios are admiistered by the Departmet of Commerce rather tha OFAC, they are discussed later i this PAPER i the sectio o export cotrols. ad compaies are called SDNs. The SDN list is updated frequetly. It is illegal for persos subject to U.S. jurisdictio to deal with SDNs. Because a SDN might just as easily be a etity i Lodo as Dubai, it is importat for cotractors to scree all cotacts with other busiesses or persos as a matter of routie course, o matter where such busiesses might be located. The SDN list ofte provides aliases or alterative spellig for people whom it idetifies. Moreover, persos ad busiesses o the list may move from coutry to coutry. FAR Clause For may cotractors, the most practical maifestatio of sactios requiremets is the FAR Restrictios o Certai Foreig Purchases clause. The curret December 2003 versio of the clause reads as follows: 32 (a) Except as authorized by the Office of Foreig Assets Cotrol (OFAC) i the Departmet of Treasury, the Cotractor shall ot acquire, for use i the performace of this cotract, ay supplies or services if ay proclamatio, Executive order, or statute admiistered by OFAC, or if OFAC s implemetig regulatios at 31 CFR chapter V, would prohibit such a trasactio by a perso subject to the jurisdictio of the Uited States. (b) Except as authorized by OFAC, most trasactios ivolvig Cuba, Ira, Libya ad Suda are prohibited as are most imports from North Korea, ito the Uited States or its outlyig areas. Lists of etities subject to ecoomic sactios ad idividuals subject to ecoomic sactios are icluded i OFAC s List of Specially Desigated Natioals ad Blocked Persos at [sic]. More iformatio about these restrictios, as well as updates, is available i the OFAC s regulatios at 31 CFR chapter V ad/or o OFAC s Website at (c) The Cotractor shall isert this clause, icludig this paragraph (c), i all subcotracts. SDNs As discussed previously, OFAC publishes a list of idividuals ad compaies owed or cotrolled by, or actig for or behalf of, targeted coutries. It also lists idividual groups ad etities, such as those desigated as terrorists ad arcotics traffickers, that are ot coutry-specific. 31 Collectively, such idividuals I essece, this straightforward FAR clause simply requires cotractors to comply with OFAC rules. Importatly, it otes that the prime cotractor must esure that this clause is flowed dow to subcotractors. 33 Some cotracts may cotai a outmoded versio of this clause, either iadvertetly or 5

6 as a vestige of a award date several years previous. These clauses are less carefully matched to OFAC rules tha the curret clause. The 2000 versio of the clause provides as follows: 34 (a) The Cotractor shall ot acquire, for use i the performace of this cotract, ay supplies or services origiatig from sources withi, or that were located i or trasported from or through, coutries whose products are baed from importatio ito the Uited States uder regulatios of the Office of Foreig Assets Cotrol, Departmet of the Treasury. Those coutries are Cuba, Ira, Iraq, Libya, North Korea, Suda, the territory of Afghaista cotrolled by the Taliba, ad Serbia (excludig the territory of Kosovo). (b) The cotractor shall ot acquire for use i the performace of this cotract ay supplies or services from etities cotrolled by the Govermet of Iraq. (c) The cotractor shall isert this clause, icludig this paragraph (c), i all subcotracts. A earlier 1996 versio has a slightly differet first paragraph that reads as follows: 35 (a) Uless advace writte approval of the Cotractig Officer is obtaied, the Cotractor shall ot acquire, for use i the performace of this cotract, ay supplies or services origiatig from sources withi, or that were located i or trasported from or through, coutries whose products are baed from importatio ito the Uited States uder regulatios of the Office of Foreig Assets Cotrol, Departmet of the Treasury. Those coutries iclude Cuba, Ira, Iraq, Libya, ad North Korea. Arguably, the historical clauses have the potetial to cause cofusio. The 2000 clause, for example, cotais a ow icorrect list of sactioed coutries ad suggests that the list is the full uiverse of such coutries. Likewise, some readers might be tempted to iterpret the 1996 clause as statig that the CO has the apparet uilateral right to allow what otherwise might be OFAC violatios. they frequetly ru a check of a party s ame agaist the List of Parties Excluded From Federal Procuremet ad Noprocuremet Programs maitaied by the Geeral Services Admiistratio 36 to esure that the party is ot suspeded or debarred. Cotractors eed to apply the same diligece efforts with respect to the SDN list. While a umber of approaches are available ad there is o oe size fits all solutio, at a miimum, cotractors should regularly ru the ame of ay parties with whom they are i cotact agaist the Govermet s versio of the SDN list, which is available electroically ad ca be fed ito a database. 37 Ideed, the process is ow easier, as a copy of the SDN list resides o the GSA s mai excluded parties website. There are also a umber of commercial vedors that provide iquiry-based computer systems to check the ames of possible busiess parters agaist the SDN list ad other related Govermet lists. (The Departmets of Commerce ad State issue lists of parties that are debarred from export trasactios, ad the Departmet of Commerce issues a list of parties that are kow weapos proliferators; ideally, these lists should be checked cotemporaeously with the SDN list.) 38 I additio, cotractors also eed to esure that their employees particularly members of their procuremet staffs are well versed about coutry-specific sactios. Employees should be istructed to report ay cotact or expressio of iterest from a perso or etity i a coutry subject to sactios to the cotractor s legal or compliace staff as soo as possible ad ot to iitiate cotact or respod to etities from such coutries uless authorized by those resposible for compliace matters withi their orgaizatios. Diligece Issues Cotractors face a umber of challeges to esure that they ad etities workig at their behest are ot potetially violatig U.S. sactios. Cotractors are used to udertakig some level of diligece with respect to busiess parters i the Uited States i that Other Purchasig Restrictios The U.S. Agecy for Iteratioal Developmet fuds a umber of U.S. cotracts abroad i a wide rage of coutries pursuat to the Foreig Assistace Act. 39 With respect to these cotracts, there is a etire set of additioal rules set forth at 22 C.F.R. Part 228 etitled 6

7 Rules o Source, Origi ad Natioality for Commodities ad Services Fiaced by USAID. I some respects, these rules overlap with sactios, but the coverage is far broader, ad it behooves ay etity workig with USAID to familiarize itself with the 22 C.F.R. Part 228. I this regard, USAID cotracts have a clause settig forth this requiremet, which reads as follows: 40 Source, Origi ad Natioality Requiremets (FEB 1997) (a) Except as may be specifically approved by the Cotractig Officer, all commodities (e.g., equipmet, materials, vehicles, supplies) ad services (icludig commodity trasportatio services) which will be fiaced uder this cotract with U.S. dollars shall be procured i accordace with the requiremets of 22 CFR Part 228, Rules o Source, Origi ad Natioality for Commodities ad Services Fiaced by USAID. The authorized source for procuremet is Geographic Code 000 uless otherwise specified i the schedule of this cotract. Guidace o eligibility of specific goods or services may be obtaied from the Cotractig Officer. (b) Ieligible goods ad services. The Cotractor shall ot procure ay of the followig goods or services uder this cotract: (1) Military equipmet, (2) Surveillace equipmet, (3) Commodities ad services for support of police ad other law eforcemet activities, (4) Abortio equipmet ad services, (5) Luxury goods ad gamblig equipmet, or (6) Weather modificatio equipmet. (c) Restricted goods. The Cotractor shall ot procure ay of the followig goods or services without the prior writte approval of the Cotractig Officer: (1) Agricultural commodities, (2) Motor vehicles, (3) Pharmaceuticals ad cotraceptive items, (4) Pesticides, (5) Fertilizer, (6) Used equipmet, or (7) U.S. govermet-owed excess property. If USAID determies that the Cotractor has procured ay of these specific restricted goods uder this cotract without the prior writte authorizatio of the Cotractig Officer, ad has received paymet for such purposes, the Cotractig Officer may require the Cotractor to refud the etire amout of the purchase. This clause is potetially deceivig, however, as 22 C.F.R. Part 228 covers eve more groud tha set forth i the clause. With respect to coutry-specific purchasig prefereces, these source/origi rules partially replicate, or i some istaces expad upo U.S. sactios. For istace, the source/origi rules delieate certai Foreig Policy Restricted Coutries from which purchases caot be made ad to which other restrictios apply. 41 This list icludes Laos, ad util May 2003, icluded Chia, despite the fact that it was ot sactioed. 42 Likewise, Libya is also still icluded o the list, despite o loger beig subject to sactios. 43 (Several other coutries that are subject to OFAC sactios, e.g., Burma (Myamar), are ot icluded but are obviously subject to those idepedet OFAC restrictios.) But beyod that, the rules grow icreasigly complex with respect to their coverage ad defiitios of appropriate items ad suppliers. For istace, Govermet-owed orgaizatios operated as commercial busiesses so called parastatals geerally caot become subcotractors. 44 Because exigecies ca arise i the course of performig such work, cotractors should also review portios of the rules that may allow agecy waivers of certai of the source/origi requiremets. 45 Cotractors workig for USAID should dissemiate iformatio about these rules to their procuremet staffs, ad prime cotractors ad higher-tier subcotractors should likewise take steps to let lower-tier subcotractors kow of these rules as well. Export Cotrols Backgroud Although domestic U.S. Govermet cotractors particularly those with diverse workforces ad foreig supplier bases are ot 7

8 immue from eedig to uderstad U.S. export cotrols, complyig with U.S. export cotrols becomes icreasigly more difficult whe a U.S. compay wishes to ship commodities, techology, ad software (collectively items ) abroad i support of a U.S. Govermet cotract. That is because may seemigly iocuous items might actually be subject to dual-use export cotrols ad coceivably eed a licese to be shipped i support of the U.S. Govermet cotract beig performed abroad. Some backgroud regardig basic export cotrols is i order. Most U.S. export cotrol laws fall withi the jurisdictio of either the Departmet of State or the Departmet of Commerce. (The Departmet of Eergy ad the Nuclear Regulatory Commissio also have export cotrol rules. 46 ) The Departmet of State Office of Defese Trade Cotrols (ODTC) admiisters the Iteratioal Traffic i Arms Regulatios (ITAR), 47 ad the Bureau of Idustry ad Security (BIS) of the Departmet of Commerce admiisters the Export Admiistratio Regulatios (EAR). 48 This discussio below focuses maily o the dual-use restrictios of the EAR, as they are ofte less obvious to cotractors. Needless to say, all cotactors workig with potetially military-cotrolled items should review the U.S. Muitios List 49 which is the list of items cotrolled uder the ITAR before shippig ay such items or techical data abroad or before performig defese services. I short, uder the EAR, ay item that is set from the Uited States to a foreig destiatio is a export. 50 Items iclude commodities, software, ad techology. 51 Some examples iclude buildig materials, circuit boards, automotive parts, blue prits, desig plas, retail software packages, ad techical iformatio. 52 U.S.-origi items set from elsewhere i the world to a foreig cotract site are also typically subject to export cotrol rules, ad sharig techical data, eve i the Uited States with a foreig atioal who is ot a permaet residet alie (gree card holder), costitutes a deemed export. 53 It is also importat to realize that the meas by which a item is trasferred outside the Uited States does ot matter i determiig export licese requiremets. A item ca be mailed, or it ca be shipped. Documets ca be faxed or set via the iteret. Ideed, a telephoe coversatio ca result i a export. Moreover, a item is also cosidered a export eve if it is leavig the Uited States temporarily or if it is goig to a U.S. subsidiary i a foreig coutry. 54 Licese requiremets deped o a item s techical characteristics, the destiatio, the ed-user, ad the ed use. Whe determiig whether a licese is required, a cotractor must cosider (1) what is it exportig, (2) where is it exportig, (3) who will receive its item, ad (4) for what purpose the item will be used. 55 I this regard, cotractors who kow little about Commerce Departmet export cotrols would be well served by readig the Export Cotrol Basics page o the BIS website at There are also a umber of useful flowcharts i the EAR itself that ca act as decisio trees for cotractors ad their compliace staffs. 56 Uder the BIS regime, the first step i determiig export cotrol requiremets ivolves ascertaiig the item s export cotrol classificatio umber (ECCN). ECCNs are part of a large list of item descriptios called the Commerce Cotrol List (CCL). 57 Oce you have a item s ECCN, you ca determie whether the item is cotrolled by lookig at the reasos for cotrol for that item, e.g., ati-terrorism (AT) or uclear oproliferatio (NP) or missile techology (MT), as well as other reasos, ad comparig them with the coutry chart icluded i the EAR to see if the coutry to which the export is beig made is subject to cotrol for those reasos. 58 If it is, the abset a licese exceptio applyig (e.g., exceptios with respect to certai items ad coutries may allow the temporary shipmet of items), 59 you will eed to apply for ad receive a licese before shipmet. For istace, if Widget A has a ECCN that states that the item is cotrolled for MT reasos, a cotractor workig i Saudi Arabia or Kuwait geerally could ot ship that item there without first obtaiig a licese because 8

9 Saudi Arabia ad Kuwait (as well as may other coutries i the Middle East) are cotrolled uder the EAR for missile techology reasos. If, as a prime cotractor, you are the exporter of record for a item beig shipped abroad, it is therefore importat to ascertai the item s ECCN ad likewise determie if there are ay licese restrictios (or exceptios that you ca use) before shippig the item i support of your cotract. Oftetimes this will require cooperatio with the supplier or maufacturer of the item. If you are ot the exporter of record, however, it is oetheless importat to covey to your subcotractors or suppliers the importace of complyig with U.S. export cotrol laws, icludig obtaiig liceses if ecessary. I may circumstaces, it may be helpful to have a separate clause i subcotracts or purchase orders addressig compliace with export cotrols ad delieatig how the parties ited to allocate compliace ad licesig resposibilities. Exports To Afghaista Afghaista remais subject to a rage of export cotrol rules. 60 I may respects, it faces a similar umber of cotrols as may coutries i the Middle East. Cosequetly, before shippig to Afghaista, cotractors must carefully review ay ECCNs to esure that they are ot cotrolled for categories for which liceses are eeded for Afghaista. Exports To Iraq O July 30, 2004, the BIS chaged the export cotrol rules for Iraq. 61 As discussed previously, while sactios were still i place, liceses eeded to be obtaied by applyig to OFAC. Now, liceses may be obtaied by applyig to BIS through ormal licesig procedures. 62 The ew regulatios require a licese for all reasos for cotrol except most items cotrolled for ati-terrorism purposes oly. (A small umber of AT-cotrolled items still require a licese.) 63 However, may previously uavailable licesig exceptios may ow be used i support of work i Iraq. For example, a exceptio commoly used elsewhere that facilitates the ulicesed export of certai ecryptio products to most coutries is ow available for Iraq. 64 Certai temporary exports are also ow allowed. 65 Moreover, cotractors may ow also apply for a Special Iraq Recostructio Licese (SIRL). 66 The SIRL would allow seemigly blaket exports for U.S. Govermet-fuded recostructio projects, as well as U.N., World Bak, or Iteratioal Moetary Fud projects. 67 The SIRL would appear to facilitate exports of all items o the CCL, except those cotrolled for reasos of missile techology, uclear oproliferatio, ad chemical ad biological weapos cotrols. 68 Although the SIRL licese applicatio process cotemplates a 40-day processig period 69 which is shorter tha the time for processig stadard applicatios it will ot be a paacea for cotractors, however. That is because applicats will eed to idetify ahead of time all items that they ited to ship uder the licese. 70 As a practical matter, such advace plaig may be difficult to achieve. Exports To Libya I April 2004, the Departmet of Treasury s Office of Foreig Assets Cotrol (OFAC) issued a Geeral Licese which trasferred licesig jurisdictio for the export of items subject to the EAR to the BIS. 71 However, Libya remais subject to a full paoply of export cotrol rules. Essetially, all items o the CCL, icludig those cotrolled for atiterrorism, require export liceses, although a umber of licesig exceptios are ow available. 72 Therefore, as the eviromet i Libya cotiues to ufold, compaies will eed to carefully assess export cotrol issues before sedig items to Libya. Ideed, may seemigly basic items are cotrolled for AT purposes oly, ad ulike with respect to Iraq, where all but a hadful of AT-cotrolled items ca be shipped without liceses, a licese would typically be required for shipmets to Libya. 9

10 Exports To Syria As idicated i the Sactios sectio above, because of the SAA ad because like Ira, ad at least for time beig Libya (as well as several other coutries), Syria is also desigated by the Departmet of State as a state sposor of terrorism Syria is subject to a wide rage of export ad other restrictios. Although there are limited exceptios, basically ay item subject to the EAR which meas ay item o the CCL or ay EAR 99 item (a broad catchall category of items ot havig a ECCN but still subject to the EAR because, for istace, they are of U.S. origi, products of U.S. techology, or have trasited through the Uited States) caot be exported to Syria. 73 The SAA itself, however, does ot restrict shipmets of foreig origi items ot subject to the EAR by U.S. persos. Ati-Boycott Rules I the 1970s, Cogress eacted two laws aimed at couteractig the participatio of U.S. citizes i other coutries boycotts. The ati-boycott laws were icluded i the 1977 amedmets to the Export Admiistratio Act (EAA), 74 which are implemeted i the EAR, 75 ad the Ribicoff Amedmet to the 1979 Tax Reform Act (TRA). 76 The Arab League boycott of Israel is the primary boycott with which U.S. compaies must be cocered today. Coduct that may costitute a violatio uder the TRA or the EAR icludes: 77 (1) Agreemets to refuse or actual refusal to do busiess with or i Israel or with blacklisted compaies. (2) Agreemets to discrimiate or actual discrimiatio agaist other persos based o race, religio, sex, atioal origi or atioality. (3) Agreemets to furish or actual furishig of iformatio about busiess relatioships with Israel or with blacklisted compaies. (4) Agreemets to furish or actual furishig of iformatio about the race, religio, sex, or atioal origi of aother perso. There are sigificat reportig requiremets uder both the EAR ad the TRA. For istace, uder the EAR, U.S. persos must report o a quarterly basis requests received to comply with, further, or support ay foreig boycott. 78 The TRA madates taxpayers to report operatios i, with, or related to a boycottig coutry or its atioals ad requests received to participate i or cooperate with a iteratioal boycott. 79 The Departmet of the Treasury publishes a quarterly list of boycottig coutries. 80 The EAR states that reports of receipts of boycott requests must be filed quarterly o form BIS 621-P for sigle trasactios or BIS 6051 for multiple trasactios received i the same caledar quarter. 81 TRA reports are filed with tax returs o IRS form This form is available from IRS offices. There are a umber of ways that Govermet cotractors workig abroad particularly i the Middle East ca ru afoul of the atiboycott rules. For istace, it has bee the practice of some Middle Easter coutries to request certificates of origi whe items are processed through customs. These certificates might request that a cotractor certify that items are ot of Israeli origi. Likewise, the registratio process for settig up a subsidiary or local presece i some Middle Easter coutries might require the provisio of statemets or iformatio that would otherwise be restricted by the U.S. ati-boycott laws. Numerous other hypothetical examples of proscribed activity are foud i the supplemets that are part of the Commerce Departmet boycott regulatios, 83 ad cotractors workig i the Middle East should review these scearios ad Govermet iterpretatios carefully. Therefore, if a cotractor begis workig i the Middle East, iformatio regardig the importace of complyig with U.S. ati-boycott laws will eed to be dissemiated to cotractor employees potetially ivolved i ay activities such as logistics, busiess developmet, ad procuremet. Because a mere boycott request eve if ot agreed to implicates reportig obligatios uder U.S. law, it 10

11 is absolutely essetial that ay such request be iterally reported through a cotractor s iteral chaels so that the perso with ultimate reportig resposibility ca make correct ad timely reports. I particular, because Libya sactios have ow bee dropped, to the extet that U.S. cotractors may be allowed uder certai circumstaces to begi dealig with Libya etities, particular care should be paid to boycott issues, as Libya is ot used to dealig with busiesses subject to U.S. ati-boycott laws. Foreig Corrupt Practices Act The Foreig Corrupt Practices Act was eacted to prohibit U.S. compaies from makig bribe paymets to foreig officials to obtai or maitai busiess. 84 Uder the FCPA, ulawful paymet to foreig officials made by ay issuer, perso, or domestic cocer are prohibited. 85 U.S. citizes or compaies that egage i improper acts outside the Uited States are also subject to the Act, as are foreig compaies that operate withi the Uited States. 86 Apart from coverig paymets to officials of foreig govermets, the Act also applies to paymets made to officials affiliated with public iteratioal orgaizatios. 87 I U.S. Govermet cotractig, the customer is the U.S. Govermet. So ostesibly, the risk of makig a bribe paymet that violates the FCPA uder a U.S. Govermet cotract may appear small. But the FCPA still presets risk to U.S. Govermet cotractors operatig overseas. That is because it may oetheless be possible to costrue bribes to host coutry officials as oetheless implicatig the FCPA. For istace, paymets by U.S. cotractors to host coutry taxatio or customs authorities might coceivably be costrued as bribes. Therefore, as they would with respect to the Ati-Kickback Act, 88 cotractors should implemet policies aimed at esurig that employees ad cosultats do ot make bribe paymets. GUIDELINES These Guidelies are iteded to assist you i addressig some major risks i workig abroad i support of the U.S. Govermet. They are ot, however, a substitute for professioal represetatio i ay specific situatio. Ideed, may of the laws ad regulatios discussed i this BRIEFING PAPER are exceedigly complex ad require careful review whe applied to particular factual circumstaces. 1. Keep apprised of curret sactios ad export cotrol rules, as these rules ted to chage frequetly ad restrictios may sometimes be broader tha first meets the eye. Moitorig the websites of the Office of Foreig Assets Cotrol at the Departmet of Treasury ( the Bureau of Idustry ad Security at the Departmet of Commerce ( ad the Office of Defese Trade Cotrols at the Departmet of State ( is a good start. May of these sites allow users to sig up for automatic updates regardig regulatory chages. 2. Commuicate with key fuctios i your compay such as busiess developmet, procuremet, ad iformatio techology about the impact of the sactios ad export cotrol rules. Ecourage employees i such areas to ask questios of legal ad compliace staff. 3. Develop procedures that red flag questioable parties ad trasactios before they become possible violatios. Implemet a diligece mechaism to address potetial dealigs with SDNs ad for vettig foreig busiess parters more geerally. 4. Esure that ay boycott requests are declied ad that you report all such requests to the U.S. Govermet i accordace with applicable rules. 5. Iform your persoel workig abroad about the ati-bribery rules ad develop cotrol mechaisms to esure that improper paymets are ot made. Implemet periodic traiig as part of overall busiess ethics efforts. 11

12 H REFERENCES H 1/ McCullough & Edmods, Cotractors o the Battlefield Revisited: The War i Iraq & Its Aftermath, Briefig Papers No (May 2004); McCullough & Pafford, Cotractors o the Battlefield: Emergig Issues i Combat & Cotigecy Operatios, Briefig Papers No (Jue 2002). 2/ 50 U.S.C / See geerally 31 C.F.R pt / Exec. Order No. 12,722, 55 Fed. Reg. 31,803 (Aug. 2, 1990); Exec. Order No. 12,724 (Aug. 13, 1990). 16/ U.N. Security Coucil Res. 661 (Aug. 2, 1990), available at 3/ 50 U.S.C. app / 31 C.F.R / See Frequetly Asked Questios available at offices/eforcemet/ofac/faq/. 17/ See Presidetial Determiatio No (May 7, 2003), 68 Fed. Reg. 26,459 (May 16, 2003) ; May 7, 2003 OFAC Geeral Licese Nos. 2 ad 4 available at eforcemet/ofac/actios/ shtml; May 23, 2003 OFAC Geeral Licese available at ofac/actios/ shtml ; see also U.N. Security Coucil Res (May 22, 2003), available at 6/ See geerally Sactios Program ad Coutry Summaries available at ofac/sactios. 7/ See geerally SDN ad Blocked Persos List available at offices/eforcemet/ofac/sd/; see also 31 C.F.R / See May 7, 2003 OFAC Geeral Liceses available at offices/eforcemet/ofac/actios/ shtml; May 23, 2003 OFAC Geeral Licese available at ofac/actios/ shtml. 19/ Exec. Order No. 13,350, 69 Fed. Reg. 46,055 (July 30, 2004). 8/ See list available at usifo.state.gov/is/archive/2004/apr/ html. 20/ See geerally 31 C.F.R. pt / See Frequetly Asked Questios available at offices/eforcemet/ofac/faq/. 21/ See Ira Program Summary available at eforcemet/ofac/sactios/t11ira.pdf. 10/ See eforcemet/ofac/civpe/pealties/. 11/ See FAR subpt See geerally McCullough & Pafford, Feature Commet: Govermet Cotract Suspesio ad Debarmet What Every Cotractor Needs To Kow, 45 GC 465 (Nov. 19, 2003). 12/ Exec. Order No. 13,129, 64 Fed. Reg. 36,759 (July 4, 1999). 13/ See 67 Fed. Reg (Ja. 29, 2002). 22/ See 31 C.F.R / See geerally 31 C.F.R. pt. 560, subpt. B. 24/ See geerally 31 C.F.R. pt. 560, subpt. B. 25/ See Exec. Order No. 13,357 (Sept. 20, 2004), 69 Fed. Reg. 56,665 (Sept. 22, 2004), available at gov/offices/eforcemet/ofac/actios/ shtml ad various OFAC Geeral Liceses throughout 2004 available at offices/eforcemet/ofac/actios/. 12

13 26/ See Exec. Order No. 12,801, 57 Fed. Reg. 14,319 (Apr. 15, 1992); see also Exec. Order No. 12,543, 51 Fed. Reg. 875 (Ja. 7, 1986); Exec. Order No. 12,544, 51 Fed. Reg (Ja. 8, 1986). 40/ 48 C.F.R / 22 C.F.R / See 68 Fed. Reg. 23,891 (May 6, 2003). 27/ 22 C.F. R ; see also 10 U.S.C. 2327; DFARS / 22 C.F.R / Pub. L. No , 117 Stat (Dec. 17, 2003). 44/ 22 C.F.R / Exec. Order No. 13,338, 69 Fed. Reg. 26,751 (May 11, 2004). 30/ See 15 C.F.R. pt. 736, supp. 1, Geeral Order No / 22 C.F.R / See 10 C.F.R. pt. 810 (DOE); 10 C.F.R. pt. 110 (NRC). 47/ 22 C.F.R. pts / See SDN ad Blocked Persos List available at offices/eforcemet/ofac/sd/. 48/ 15 C.F.R. pts / FAR / 22 C.F.R. pt / See geerally Perry & Victorio, Practical Tips & Cosideratios for Subcotract Negotiatios: A Subcotractor s Perspective, Briefig Papers No (Aug. 2003); Feldma, Subcotractors i Federal Procuremet: Roles, Rights & Resposibilities, Briefig Papers No (Feb. 2003); Humphries & Irwi, Teamig Agreemets/Editio III, Briefig Papers No (Sept. 2003). 50/ 15 C.F.R (b)(1). 51/ 15 C.F.R / See Export Cotrol Basics available at exportigbasics.htm. 34/ FAR (2000). 35/ FAR (1996). 53/ See 15 C.F.R (b)(2). See geerally Burgett & Sturm, Foreig Natioals i U.S. Techology Programs: Complyig With Immigratio, Export Cotrol, Idustrial Security & Other Requiremets, Briefig Papers No (Feb. 2000). 36/ See see also FAR / See SDN ad Blocked Persos List available at offices/eforcemet/ofac/sd/. 38/ See Lists To Check available at bis.doc.gov/compliaceadeforcemet/ idex.htm#ltc. 54/ See Export Cotrol Basics available at exportigbasics.htm 55/ See Export Cotrol Basics available at exportigbasics.htm 56/ 15 C.F.R. pt. 732, supps. 1, 2. 39/ 22 U.S.C et seq. 57/ 15 C.F.R. pt

14 58/ 15 C.F.R. pt. 738, supp / 26 U.S.C / See geerally 15 C.F.R. pt / See 15 C.F.R. pt. 738, supp / See geerally 15 C.F.R ; see also atiboycottcompliace/oacrequiremets. html. 61/ 69 Fed. Reg. 46,070 (July 30, 2004); see 69 Fed. Reg. 46,090 (July 30, 2004). See geerally Irwi, Kraulad & Lorello, Departmet of Commerce Revises Export Licesig Framework for Iraq: The Practical Impact o U.S. Govermet Cotractors, 82 Fed. Cot. Rep. (BNA) 296 (Sept. 21, 2004). 78/ 15 C.F.R ; see also bis.doc.gov/atiboycottcompliace/ oacrequiremets.html. 79/ 26 U.S.C. 999(a)(1); see also oacrequiremets.html. 62/ 69 Fed. Reg. 46,070 (July 30, 2004); see 69 Fed. Reg. 46,090 (July 30, 2004). 63/ 15 C.F.R (a)(3). 64/ 15 C.F.R / 26 U.S.C. 999(a)(3); see also List of Coutries Requirig Cooperatio With a Iteratioal Boycott, 69 Fed. Reg. 42,085 (July 13, 2004); 69 Fed. Reg. 59,643 (Oct. 5, 2004); bis.doc.gov/atiboycottcompliace/ oacrequiremets.html 65/ 15 C.F.R / 15 C.F.R (b)(5); see also BoycottRequestReportigForm.htm. 66/ 15 C.F.R. pt / 15 C.F.R / See f5713sa.pdf. 68/ 15 C.F.R / See 15 C.F.R. pt. 760, Supp / 15 C.F.R / 15 C.F.R / See Libya Geeral Licese available at eforcemet/ofac/actios/ shtml. 84/ 15 U.S.C. 78dd-1 et seq. See geerally Goddard, Busiess Ethics i Govermet Cotractig Part I, Briefig Papers No (May 2003); Irwi, Ethics i Govermet Procuremet/Editio III, Briefig Papers No (July 1999); Dyer, Foreig Corrupt Practices Act, Briefig Papers No (Apr. 2000). 85/ 15 U.S.C. 78dd-1, 78dd-2, 78dd-3. 72/ See 15 C.F.R. pt. 738, supp / 15 U.S.C. 78dd-1, 78dd-2, 78dd-3. 73/ See 15 C.F.R. pt. 736, supp. 1, Geeral Order No / 15 U.S.C. 78dd-1, 78dd-2, 78dd-3. 74/ See 50 U.S.C. app / See 15 C.F.R. pt / 41 U.S.C See geerally Goddard, supra ote 84; Irwi, supra ote

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