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Exporting from the United States: Key Legal Considerations
 

Exporting from the United States: Key Legal Considerations

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  • This presentation does not cover the International Emergency Economic Powers Act (IEEPA)Similar PenaltiesCriminal sanctions – up to 1M per violation (company or individual), individual imprisonment for up to 20 years (FOR EACH VIOLATION)Civil sanctions – up to 250k per violation
  • Note: This slide shows the highest penalty for each violation (combining individual, entity/EAR, ITAR & OFAC). For example, EAR violation civil sanctions are lower, 12k per violation.CivilEAR 12k perITAR 500k perOFAC 55k perCriminalEAR 10 year, 1M perITAR 10 year, 1M perOFAC 20 year, 1M perSunrise Technologies example Reported to have less than 20 employees, and less than 5M revenue, in business for 17 years, sells surplus electronics partshttp://www.bis.doc.gov/news/2011/doj10072011.htmPPG Example 20B companyhttp://www.ppg.com/en/newsroom/news/Pages/20101221A.aspxBIS held the company liable for exporting the coatings to PPG Trading, finding that the company "failed to detect and resolve certain red flags that indicated that PPG…Trading was supplying the items for use at the PAEC facility…." Those red flags were as follows: 1) the coatings were not certified by the Chinese government for use in a Chinese nuclear facility, 2) public sources indicated that the alleged end user had not yet undertaken operations that would require the coatings, and 3) advance purchase of the coatings was unlikely given their shelf life. More significantly, BIS also established culpability based on PPG Industries' failure to follow its own policy and procedure of shipping coatings directly to the end user.
  • Note: This slide shows the highest penalty for each violation (combining individual, entity/EAR, ITAR & OFAC). For example, EAR violation civil sanctions are lower, 12k per violation.CivilEAR 12k perITAR 500k perOFAC 55k perCriminalEAR 10 year, 1M perITAR 10 year, 1M perOFAC 20 year, 1M perSunrise Technologies example Reported to have less than 20 employees, and less than 5M revenue, in business for 17 years, sells surplus electronics partshttp://www.bis.doc.gov/news/2011/doj10072011.htmPPG Example 20B companyhttp://www.ppg.com/en/newsroom/news/Pages/20101221A.aspxBIS held the company liable for exporting the coatings to PPG Trading, finding that the company "failed to detect and resolve certain red flags that indicated that PPG…Trading was supplying the items for use at the PAEC facility…." Those red flags were as follows: 1) the coatings were not certified by the Chinese government for use in a Chinese nuclear facility, 2) public sources indicated that the alleged end user had not yet undertaken operations that would require the coatings, and 3) advance purchase of the coatings was unlikely given their shelf life. More significantly, BIS also established culpability based on PPG Industries' failure to follow its own policy and procedure of shipping coatings directly to the end user.
  • Note: This slide shows the highest penalty for each violation (combining individual, entity/EAR, ITAR & OFAC). For example, EAR violation civil sanctions are lower, 12k per violation.CivilEAR 12k perITAR 500k perOFAC 55k perCriminalEAR 10 year, 1M perITAR 10 year, 1M perOFAC 20 year, 1M perSunrise Technologies example Reported to have less than 20 employees, and less than 5M revenue, in business for 17 years, sells surplus electronics partshttp://www.bis.doc.gov/news/2011/doj10072011.htmPPG Example 20B companyhttp://www.ppg.com/en/newsroom/news/Pages/20101221A.aspxBIS held the company liable for exporting the coatings to PPG Trading, finding that the company "failed to detect and resolve certain red flags that indicated that PPG…Trading was supplying the items for use at the PAEC facility…." Those red flags were as follows: 1) the coatings were not certified by the Chinese government for use in a Chinese nuclear facility, 2) public sources indicated that the alleged end user had not yet undertaken operations that would require the coatings, and 3) advance purchase of the coatings was unlikely given their shelf life. More significantly, BIS also established culpability based on PPG Industries' failure to follow its own policy and procedure of shipping coatings directly to the end user.
  • Note: This slide shows the highest penalty for each violation (combining individual, entity/EAR, ITAR & OFAC). For example, EAR violation civil sanctions are lower, 12k per violation.CivilEAR 12k perITAR 500k perOFAC 55k perCriminalEAR 10 year, 1M perITAR 10 year, 1M perOFAC 20 year, 1M perSunrise Technologies example Reported to have less than 20 employees, and less than 5M revenue, in business for 17 years, sells surplus electronics partshttp://www.bis.doc.gov/news/2011/doj10072011.htmPPG Example 20B companyhttp://www.ppg.com/en/newsroom/news/Pages/20101221A.aspxBIS held the company liable for exporting the coatings to PPG Trading, finding that the company "failed to detect and resolve certain red flags that indicated that PPG…Trading was supplying the items for use at the PAEC facility…." Those red flags were as follows: 1) the coatings were not certified by the Chinese government for use in a Chinese nuclear facility, 2) public sources indicated that the alleged end user had not yet undertaken operations that would require the coatings, and 3) advance purchase of the coatings was unlikely given their shelf life. More significantly, BIS also established culpability based on PPG Industries' failure to follow its own policy and procedure of shipping coatings directly to the end user.
  • Note: This slide shows the highest penalty for each violation (combining individual, entity/EAR, ITAR & OFAC). For example, EAR violation civil sanctions are lower, 12k per violation.CivilEAR 12k perITAR 500k perOFAC 55k perCriminalEAR 10 year, 1M perITAR 10 year, 1M perOFAC 20 year, 1M perSunrise Technologies example Reported to have less than 20 employees, and less than 5M revenue, in business for 17 years, sells surplus electronics partshttp://www.bis.doc.gov/news/2011/doj10072011.htmPPG Example 20B companyhttp://www.ppg.com/en/newsroom/news/Pages/20101221A.aspxBIS held the company liable for exporting the coatings to PPG Trading, finding that the company "failed to detect and resolve certain red flags that indicated that PPG…Trading was supplying the items for use at the PAEC facility…." Those red flags were as follows: 1) the coatings were not certified by the Chinese government for use in a Chinese nuclear facility, 2) public sources indicated that the alleged end user had not yet undertaken operations that would require the coatings, and 3) advance purchase of the coatings was unlikely given their shelf life. More significantly, BIS also established culpability based on PPG Industries' failure to follow its own policy and procedure of shipping coatings directly to the end user.
  • Give examples, mention importance of a well crafted diversion clauseITAR 120.10 defines “technical data” asInformation . . . required for the design, development production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles.Invention covered by an invention secrecy orderSoftware directly related to defense articles
  • Give examples, mention importance of a well crafted diversion clauseITAR 120.10 defines “technical data” asInformation . . . required for the design, development production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles.Invention covered by an invention secrecy orderSoftware directly related to defense articles
  • Give examples, mention importance of a well crafted diversion clauseITAR 120.10 defines “technical data” asInformation . . . required for the design, development production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles.Invention covered by an invention secrecy orderSoftware directly related to defense articles
  • Give examples, mention importance of a well crafted diversion clauseITAR 120.10 defines “technical data” asInformation . . . required for the design, development production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles.Invention covered by an invention secrecy orderSoftware directly related to defense articles
  • Link to DDTC http://pmddtc.state.gov/regulations_laws/itar_official.html Link to BIS http://www.bis.doc.gov/policiesandregulations/index.htm Link to OFAC http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx
  • Certain businesses that engage in international wire transfers are at a higher risk
  • Commerce Department Examplehttp://www.bis.doc.gov/licensing/exportingbasics.htm
  • Invest at least R$150,000, or An exception may be made if the investment is less than R$150,000.  1.      The old rules (from 2004) stated that the applicant must submit a plan for a business that creates at least 10 Brazilian jobs within 5 years.  Even with a plan the issuance of a visa was at the discretion of the National Immigration Council (NIC).  2.      The guidance under the new 2009 resolution simply states that the NIC may consider factors such as; the number of jobs created, the type of industry, the geographic location, and the type of production or technology contribution that the investment will provide (which is even more vague).

Exporting from the United States: Key Legal Considerations Exporting from the United States: Key Legal Considerations Presentation Transcript

  • Export Controls Agents, Distributors and Labor EXPORTING FROM THE UNITED STATES: KEY LEGAL CONSIDERATIONS www.keglerbrownGlobal.com @DWilsonJDMBA David M. Wilson, Esq.
  • Export Controls      Why is compliance important? Who has to comply? What is an export? How do I comply? What changes can I expect? Export Controls Agents, Distributors and Labor
  • Why Is Compliance Important?  Criminal penalties    Civil penalties   20 years imprisonment $1 million per violation, or 5x the value of the exports for each violation $1 million per violation Administrative penalties  The greater of $500,000 per violation or twice the amount of the transaction that is the basis of the violation  Loss of export privileges (“Denial Orders”)  Risk to reputation Export Controls Agents, Di stributors and Labor
  • Why Is Compliance Important?  Criminal penalties  Civil penalties  Administrative penalties  Loss of export privileges (“Denial Orders”)  Risk to reputation PPG -20B+ Multinational Corporation -Global manufacture of paints, coatings and chemicals -Operates in over 70 countries Sunrise Technologies -Less than 5M in annual revenue -Sells surplus electronics parts -Less than 20 employees -In business for 17 years Export Controls Agents, Distributors and Labor
  • Why Is Compliance Important?  Criminal penalties  Civil penalties  Administrative penalties  Loss of export privileges (“Denial Orders”)  Risk to reputation PPG -Failed to detect and resolve certain red flags that it was supplying items for use in a Pakistan Atomic Energy Commission facility Sunrise Technologies -Shipped computer goods to Dubai, which were later sent to Iran Export Controls Agents, Distributors and Labor
  • Why Is Compliance Important?  Criminal penalties  Civil penalties  Administrative penalties  Loss of export privileges (“Denial Orders”)  Risk to reputation PPG -$3.75 million criminal + civil Sunrise Technologies Export Controls Agents, Distributors and Labor
  • Why Is Compliance Important?  Criminal penalties  Civil penalties  Administrative penalties  PPG -$3.75 million criminal + civil Loss of export privileges (“Denial Orders”)  Risk to reputation Sunrise Technologies -5 year prison sentence -$1 million criminal fine + civil settlements -Denied export privileges for 10 years Export Controls Agents, Distributors and Labor
  • Who has to comply?  U.S. Person is defined as:  A “Lawful Permanent Resident” (8 USC 1101 (a)(20))       U.S. Citizen or national Legal immigrant with a “green card” A “Protected Individual” under the INA (8 USC 1324(b)(3))   U.S. and Foreign Persons designated an asylee or refugee a temporary resident under amnesty provisions but does not include Protected Individuals who:  fail to apply for citizenship within 6 months of becoming eligible  have not been naturalized within 2 years after applying Any entity incorporated to do business in the United States “Foreign Person” means everyone else  Includes foreign businesses not incorporated in the U.S.  EAR does not use the term “foreign person”, instead refers to “foreign national,” exempting Protected Individuals (See EAR 734.2(b)(ii)) Export Controls Agents, Distributors and Labor
  • What is an export?  What is an Export? ITAR 120.17, EAR 734.2(b)  An actual shipment or transmission of “items” subject to the EAR or ITAR (commodity, technical data or software) out of the United States  Releasing (including oral or visual disclosure) “technical data” or software “source code” to a “foreign person,” in the United States (“deemed export”)  Performing technical assistance, training, or other “defense services” for, or on behalf of, a “foreign person,” (including foreign corporations) whether in the United States (“deemed export”) or abroad  Re-exporting from foreign countries U.S. origin goods or technical data, goods incorporating U.S. components, or goods manufactured from U.S. technology or re-exporting U.S.-origin “technical data” or software Export Controls Agents, Di stributors and Labor
  • What is an export?  Export Examples  Shipping OUT of the US    Physical shipments or hand carried items Release of technical data or software in a foreign country Releasing Information IN the US    Release of technical data to a foreign national in the US Release of source code to a foreign national in the US Inspections of US equipment and facilities by a foreign national Export Controls Agents, Distributors and Labor
  • What is an export?  The “Safe Harbor” What is NOT defined as export controlled “technical data” or “software”? ITAR 120.10, EAR 772.1  Publicly available technical data and software  Published for sale, in libraries open to the public, or through patents available at any patent office  General scientific, mathematical, or engineering principles commonly taught in colleges and universities  Available through unlimited distribution at a conference, meeting, seminar, trade show, or exhibition – provided no previous government or industry restrictions on distribution applied  Arises during or results from fundamental research, where no restrictions on publication or access accepted  Non-technical contract or business documents Export Controls Agents, Distrib utors and Labor
  • What is an export?  The “Safe Harbor” NSDD-1899  No restrictions may be placed upon the conduct or reporting of Federally funded fundamental research in science, technology and engineering at colleges, universities and laboratories unless classified, except as provided in applicable U.S. statutes.  Fundamental research  Basic and applied research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community.  Distinguished from research which results in information which is restricted for proprietary reasons or pursuant to specific U.S. Government access and dissemination controls. Export Controls Agents, Di stributors and Labor
  • What is an export?  The “Safe Harbor” Tools of the Trade  All tools of trade may accompany the individual departing from the US or may be shipped unaccompanied within one month before the individual’s departure from the US, or at any time after departure.  Usual and reasonable kinds and quantities of tools of trade (commodities and software) for use by the exporter or employees of the exporter in a lawful enterprise.  The tools of trade must remain under the effective control of the exporter or the exporter’s employee (retain physical possession of the item, locked in hotel safe, or guarded).  Encryption commodities and software may be pre-loaded on a laptop, handheld device or other computer or equipment. *No tools of the trade in Cuba or Sudan* Export Controls Agents, Distributors and Labor
  • How do I comply? State Department Directorate of Defense Trade Controls (DDTC) Commerce Department Arms Export Control Act Three Primary U.S. Export Control Sources UML - U.S. Munitions List International Traffic in Arms Regulations ITAR 22 C.F.R. Parts 120-130 Export Administration Act Bureau of Industry and Security (BIS) CCL - Commerce Control List Export Administration Regulations (EAR) 15 C.F.R. Parts 700-799 Treasury Department Office of Foreign Assets Control (OFAC) Trading with the Enemy Act, Int’l Emergency Economic Powers Act List of Specially Designated Nationals & Blocked Persons Cuba Iraq Sanctions, Terrorism Regulations, and Others 31 C.F.R. Parts 500-599 Export Controls Agents, Di stributors and Labor
  • How do I comply? 7 Three U.S. Export Licensing Programs U.S. Department of State (Office of Defense Trade Controls) - ITAR Controls defense articles, defense services and related technical data, including most space-related articles. 1. Ongoing program to assist in monitoring defense trade activities & updated manual. a) Draft and update manual clearly articulating company policy related to compliance with defense trade laws and regulations. b) Outline procedures related to licensing and compliance matters. c) Identify empowered and responsible persons. d) Specify duties of empowered and responsible persons. e) Create procedures for record keeping and internal auditing. 2. Resources a) Dtrade – Directorate of Defense Trade Controls, electronic system b) Directorate of Defense Trade Controls acronym list may be found on the DDTC Website c) Country policies and embargoes may be found on the DDTC Website Export Controls Agents, Distrib utors and Labor
  • How do I comply? Three U.S. Export Licensing Programs U.S. Department of Commerce (Bureau of Industry and Security) EAR Controls “dual-use” items – goods and technology with both civilian and military/strategic uses. 1. Export Management and Compliance Program (ECMP) a) Draft written export compliance standards for the Company. b) Commit sufficient resources for the Program. c) Ensure senior organizational officials are designated with the overall responsibility for the Program. d) Conduct continuous risk assessment of the Program. e) Engage in ongoing systematic compliance training and awareness activities. f) Screen employees, contractors, customers, products, transactions and implementation of compliance safeguards throughout the export lifecycle. g) Conduct internal and external monitoring and audits 2. Resources a) Commercial Control List (CCL) ,Supplement No. 1 to Part 774 of the EAR is available on the Government Printing Office Website (10 Categories, 5 Product Groups) b) Commerce Country Chart, Supplement No. 1 to Part 738 of the EAR is available on the Government Printing Office Website Export Controls Agents, Distributors and Labor
  • How do I comply? Three U.S. Export Licensing Programs U.S. Department of the Treasury (Office of Foreign Assets Control) Oversees U.S. trade embargoes and Enforces all three programs at U.S. borders through U.S. Customs Service. 1. Maintain a rigorous risk-based compliance program a) Questions to ask: i. Who are your customers? ii. What kinds of business do you do? • Shipping, wire transfers, bank, insurance b) Resources i. OFAC Starter Kit • Specially Designated Nationals (SDNs) list • Industry specific information ii. Interdiction software iii. OFAC “Regulations by Industry” brochure iv. OFAC Exporter assistance Hotline 1-800-540-6322 Export Controls Agents, Distributors and Labor
  • How do I comply?  Can’t Give Culprits Capabilities to be Lunatics  Classify  Begin by looking in the Commerce Control List, CCL    Determine your Export Control Classification Number (ECCN) – Category and Product Group If not listed on the CCL, then EAR99 . . . Is it NLR? Export License? EAR process  General Prohibitions        What is the Item? Where is it going? Who is involved?  Entity List – EAR Part 744, Supplement 4  Treasury Department Specially Designated Nationals and Blocked Persons  The Unverified List  Denied Persons What will the Item be used for? Commercial Control Country Chart License Exceptions Export Controls Agents, Distributors and Labor
  • How do I comply?  Step 1 - Classification of item.   Example: Shipment of Polygraph Start by looking in the Commerce Control List, CCL under the category of electronics (Category 3) and product group which covers equipment (Product Group A). Then read through the list to find whether your item is included in the list. The ECCN for polygraphs is 3A981. Step 2 - License requirements.  These list the reason that the item is controlled. Polygraphs are controlled for “CC”, or crime control. Export Controls Agents, Distrib utors and Labor
  • How do I comply?  Example: Shipment of Polygraph Step 3 – Destination Country.  Check whether a license is required for the country. Export Controls Agents, Di stributors and Labor
  • How do I comply?  Example: Shipment of Polygraph Step 4 – Screening.  Certain individuals and organizations are prohibited from receiving U.S. exports.  Entity List   Specially Designated Nationals and Blocked Persons List   BIS list of organizations identified as engaging in activities related to the proliferation of WMD. OFAC list of individuals and organizations representing restricted countries or known to be involved in terrorism or narcotics trafficking. Unverified List  BIS list of firms for which it was unable to complete an end-use check. Export Controls Agents, Distributors and Labor
  • How do I comply? Do’s & Don’ts General  Do NOT ship or transmit any item outside the U.S. without first checking the ITAR and EAR lists to determine if the item is controlled.  Secure all license approvals or verify license exceptions BEFORE shipment or transmission of controlled Item.  Consult an advisor before accepting Access Controls in research agreements.  Screen all contracts, employees, suppliers and customers.  Do NOT travel to embargoed countries without consulting and advisor and satisfying requirements. Export Controls Agents, Distributors and Labor
  • What changes can I expect?  Export Control Reform Initiative: ECR  Four key areas of reform      Controlled items on a single list Build a single licensing agency Create modern IT system for export controls Export control enforcement “The current export control system is still based on the geopolitical, economic, and technological realities of the Cold War era and must be changed to meet 21st century national security needs.” -White House Press Release July, 2011 Why?   Currently there are three different primary licensing agencies, each applying their own policies, and none seeing the others’ licenses, and all operating under unique procedures and definitions. 55% of all licenses currently issued for Category VII (military vehicles) items will be eliminated.   Brake pads for the M1A1 tank are virtually identical to the brake pads for fire trucks and heavy equipment. Under the current system, “we devote the same resources to protecting the brake pad as we do to protecting the M1A1 itself.” – White House Press Release July, 2011 Export Controls Agents, Distributors and Labor
  • Foreign Market Requirements  Import  Register with the governmental registration system (if required)   Export Process Generally, Secretary of Foreign Trade Obtain import license (if required)   Automatic Non-Automatic (process may take several months) Export Controls Agents, Distributors and Labor
  • Agents, Distributors and Labor  Employee Considerations  Agents & Distributors  Immigration In many countries, labor rights are outlined in the Constitution, as well as laws, decrees, provisional measures, ordinances and regulations and international conventions and treaties. Export Controls Agents, Distrib utors and Labor
  • Employee Considerations  Is the person an employee?   Rights and duties?   Taxes, benefits Termination    Is an employment contract required? Severance Does settlement extinguish a private right of action? Permanent Establishment? Export Controls Agents, Di stributors and Labor
  • Employee Considerations  Ok, but they aren’t employees; they are . . .  In many countries, it does not matter what the parties call the relationship, regardless of whether there is a written contract.  Courts will weigh factors, including:    The regular payment of salary Required personal rendering of service Subordination (direct control by employer, hours worked, benchmarks) Export Controls Agents, Distrib utors and Labor
  • Commercial Agents & Distributors  What is the relationship?   Is a written agreement required?     Taxes, benefits Reimbursement for investments made to promote the company? Exclusivity presumed? Termination   Compensation, territory, products, time of payment? Rights and duties?   Agent, distributor, . . . employee? Enumerated “for cause” reasons? Permanent Establishment?   Treaties Effectively Connected Income (ECI) Export Controls Agents, Di stributors and Labor
  • Commercial Agents & Distributors  Agent     General Themes Distributor Activities subject to some control by supplier Does NOT take title to goods  May handle products of other suppliers; but, is less likely to do so than distributor Generally compensated on a commission basis Bears no risk of failure of payment   Activities subject to only minimal control by supplier Takes title to goods, buys and sells for own account May handle products of other suppliers    Earnings based on resale profit margin   Bears economic risk of failure of payment by customer Usually warehouses and physically delivers goods Uses own capital Has no power to bind the supplier contractually Usually does not warehouse goods    Usually does not use own capital May have power to contract on behalf of the supplier   Export Controls Agents, Distributors and Labor
  • Immigration  Visa    Permanent Visas Temporary Visas Technical Visa Export Controls Agents, Distrib utors and Labor
  • Legal Advice  The content of this presentation is for educational purposes only. Each legal issue is fact dependent, THIS PRESENTATION SHOULD NOT BE USED OR VIEWED AS LEGAL ADVICE; your legal counsel should be consulted on the application of your particular factual situation to the current law.  Copyright: 2013 Kegler, Brown, Hill & Ritter LPA Export Controls Agents, Distributors and Labor
  • Export Controls Agents, Distributors and Labor EXPORTING FROM THE UNITED STATES: KEY LEGAL CONSIDERATIONS www.keglerbrownGlobal.com @DWilsonJDMBA David M. Wilson, Esq.