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ITAR for Defense Industry Executives


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ITAR for Defense Industry Executives

  1. 1. ITAR FOR DEFENSE INDUSTRY EXECUTIVES © Williams Mullen 2013 June 12, 2013 Thomas McVey Williams Mullen Washington, DC (202) 293-8118
  2. 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 © Williams Mullen 2013
  3. 3. Note Regarding Export Control Reform Certain provisions of the U.S. export control laws are in the process of being amended under the Export Control Reform. Many of these amendments will become effective on October 15, 2013. While we will be discussing certain of these amendments in this presentation, we will not be discussing every amendment, and many of the final regulations have not yet been issued as of the date of this webinar. Provisions in these final regulations could vary from the material in this presentation. Viewers reviewing this presentation after June12, 2013 are advised to check if amendments have become effective that apply to them. For questions regarding possible amendments please contact Thomas McVey at 3 © Williams Mullen 2013
  4. 4. U.S. Export Control Laws • ITAR - International Traffic In Arms Regulations • Export Administration Regulations • U.S. Sanctions Laws 4 © Williams Mullen 2013
  5. 5. International Traffic In Arms Regulations (ITAR) • Enabling statute: Arms Export Control Act • Regulations - International Traffic In Arms Regulations (“ITAR”) (22 C.F.R. Chapter 1, Subchapter M, parts 120-130) • Department of State – Directorate of Defense Trade Controls • List of Controlled Products - U.S. Munitions List • Controls Military Items – Broad scope encompassing many items originally developed for military use 5 © Williams Mullen 2013
  6. 6. Defense Articles - 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 © Williams Mullen 2013
  7. 7. ITAR Also Controls Technical Data and Software 7 © Williams Mullen 2013 Technical Data: Information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles, and other items. ( see 22 CFR §120.10)
  8. 8. Technical Data and Software (Cont’d) Blueprints Training Manuals Data 8 © Williams Mullen 2013 Models
  9. 9. Methods For Exporting Technical Data and Software 9 © Williams Mullen 2013 •Send or take it abroad (e.g., send disk in the mail) •Go abroad and talk about it •Electronic transmissions, e-mail, phone call, fax to foreign party •Foreign national comes to U.S. and has access to it
  10. 10. Defense Services • Furnishing of assistance to foreign persons related to Defense Articles; examples: 10 © Williams Mullen 2013 – Consulting – Engineering – Technical Services – Military training – Other services – Furnishing technical data • Requires Technical Assistance Agreement (TAA)
  11. 11. Examples of USML Items • Electronic equipment which is designed, modified or configured for military application • Drone aircraft • Navigation systems for military vessels • 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 11 © Williams Mullen 2013 1/ • Certain satellites 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 (certain Types only) • Naval vessels and related equipment, parts, technologies and software • Protective personnel equipment and shelters • Auxiliary military equipment This listing represents items on the USML as of June 12, 2013. Certain of these items may be amended and/or transferred to the Commerce Control List under the Export Control Reform Initiative. 1/
  12. 12. Items on USML ― Computers and Software Current USML: • Computers or software designed or modified for military use, or for use with any USML item (XI(a)(6)) • Experimental or developmental electronic equipment designed or modified for military use (Category XI(a)(7)) After Export Control Reform: • Certain of these items will be transferred to Commerce Control List 12 © Williams Mullen 2013
  13. 13. Intelligence and Security Example: 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. 13 © Williams Mullen 2013
  14. 14. Items on USML ― Parts and Components Current USML: • Many parts, components, accessories specifically designed for a USML item are also on USML After Export Control Reform: • Certain parts and components will be transferred to CCL or decontrolled • Certain “specially designed” parts and components remain on USML 14 © Williams Mullen 2013
  15. 15. Services on the USML • Intelligence and security services often covered under ITAR • Military advice to foreign persons is covered under ITAR (§120.9) • Military training for foreign persons (§120.9) • Training in use of USML items (subject to certain exemptions) 15 © Williams Mullen 2013
  16. 16. 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 16 © Williams Mullen 2013
  17. 17. USML Category XVII: Classified Information > Classified Information is on 17 © Williams Mullen 2013 the USML > Category XVII: “Classified Technical Data and Services” > Major issue for government contracts firms > Another “Catch-All” category
  18. 18. Commodity Jurisdiction Requests 18 © Williams Mullen 2013 • Procedure for DDTC to determine if item is on U.S. Munitions List • Binding, written response • Can also be used to request removal of item from USML • Form DS - 4076
  19. 19. Requirements If Item Is On USML 19 © Williams Mullen 2013 • 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 party in U.S. without export license
  20. 20. Requirements If Item Is On USML (cont.) 20 © Williams Mullen 2013 • Services: – Cannot perform defense services for foreign persons overseas or in the United States without license (TAA) • Imports: – Items on USML and U.S. Munitions Import List subject to import restrictions
  21. 21. 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 12000 10000 8000 6000 4000 2000 0 Exporters Manufacturers Total 21 © Williams Mullen 2013
  22. 22. Recordkeeping Requirements 22 © Williams Mullen 2013 • Mandatory requirement to maintain records of ITAR - related activities for 5 year period • Covers paper, electronic and other media • Retention period can be extended in certain instances
  23. 23. 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 23 © Williams Mullen 2013
  24. 24. Denied Party Screening • Prohibited Party Lists: • Specially Designated Nationals List (OFAC) • Denied Persons List (BIS) • Unverified List (BIS) • Entity List (BIS) • DDTC Debarred Party List (DDTC) • Nonproliferation Sanctions List (DDTC) 24 © Williams Mullen 2013
  25. 25. Export Administration Regulations • Enabling Statute: Export Administration Act (expired), International Emergency Economic Powers Act • Regulations: Export Administration Regulations (EAR) • Department of Commerce – Bureau of Industry and Security • List of Controlled Products – Commerce Control List • Controls “Dual-Use” Items 25 © Williams Mullen 2013
  26. 26. Commerce Control List – Examples of Products Covered - encryption - computers, networking - aerospace devices - lasers -high performance - chemicals materials - power generation - telecom equipment - police equipment - high strength fibers - electronics - nuclear industry products - sensors - high performance pumps, - electronics generators, processing - machine tools equipment - fingerprint/biometrics - others 26 © Williams Mullen 2013
  27. 27. Commerce Control List Computers Telecom Lasers Machine Tools 27 © Williams Mullen 2013
  28. 28. Requirements for all exports (even if product is not on CCL): • Know Your Customer Requirements – 15 CFR Part 732, Supplement No. 3 • Denied persons list – 15 CFR Part 764 • Recordkeeping requirements – 15 CFR Part 762 • Shipment documentation – 15 CFR Part 758 • Prohibited End-Use Controls – 15 CFR Part 744 28 © Williams Mullen 2013
  29. 29. U.S. Sanctions Programs • Office of Foreign Assets Control (Department of the Treasury) • Prohibition against dealing with targeted list of countries • Prohibition against dealing with targeted list of entities and parties 29 © Williams Mullen 2013
  30. 30. Sanctions Programs - Summary OFAC Country Programs • Balkans • Belarus • Burma • Cote D’Ivoire (Ivory Coast) • Cuba • Dem. Republic of the Congo • Iran • Iraq • Lebanon • Liberia (Taylor Regime) • Libya • Magnitsky Sanctions • North Korea • Somalia • Sudan • Syria • Yemen • Zimbabwe 30 © Williams Mullen 2013 OFAC Non-Country-Specific Programs •Counter-terrorism Sanctions Program •Non-Proliferation Sanctions Program •Narcotics Trafficking Sanctions Program •Diamond Trading Sanctions Program •Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions •Transitional Criminal Organizations
  31. 31. U.S. Sanctions Programs – SDN’s • Prohibition against dealing with Specially Designated Nationals anywhere in the world – 3,000 Parties – 15 CFR Chapter 5, App. A-C 31 © Williams Mullen 2013
  32. 32. Consolidated Screening List 32 © Williams Mullen 2013
  33. 33. Penalties for Violations • Criminal Sanctions – up to 20 years imprisonment • Fines: Up to $1,000,000 per violation • Press release • Debarment • For criminal cases Justice Department can prosecute: – Company – Officers and Directors – Employees in their individual capacities 33 © Williams Mullen 2013
  34. 34. 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 34 © Williams Mullen 2013
  35. 35. 35 © Williams Mullen 2013
  36. 36. SENTENCING OF COMPANY FOR EFFORTS TO TRADE WITH IRAN For Immediate Release: July 31, 2008 Contact - BIS Public Affairs 202-482-2721 U.S. Department of Justice United States Attorney's Office District of Columbia (202) 514-2007 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 probation 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. 36 © Williams Mullen 2013
  37. 37. 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 37 © Williams Mullen 2013
  38. 38. 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 38 © Williams Mullen 2013
  39. 39. Export Control Reform Initiative 20456961.1 39 © Williams Mullen 2013
  40. 40. Initial Export Reform Goals 1. Rationalize and coordinate the Commerce Control List and U.S. Munitions List 2. Three-tiered licensing system 3. United enforcement effort 4. Unified licensing IT system 40 © Williams Mullen 2013
  41. 41. Unified Export Enforcement Effort • Export Enforcement Coordination Center – Government-wide Enforcement Initiative For Export Control Violations • Established under Executive Order 13558 – November 9, 2010 • Departments of State, Treasury, Justice, Commerce Energy, Homeland Security and U.S. intelligence agencies 41 © Williams Mullen 2013
  42. 42. 42 © Williams Mullen 2013
  43. 43. Unified Licensing IT System • Will use DoD’s USXPorts System for all internal export licensing processing • Departments of Commerce, State and Defense will use same system • Effective fall/winter 2012 43 © Williams Mullen 2013
  44. 44. Rationalize USML and CCL • Review and revise U.S. Munitions List • Emphasize product specifications rather than design intent • Transfer certain items to Commerce Department and CCL Series 600 • Emphasis for CCL Series 600 on parts and components 44 © Williams Mullen 2013
  45. 45. Commerce Control List Series 600 • Items will still require export licenses for all destinations except Canada • May be eligible for Strategic Trade Authorization exception (to government end-users only) • Will be subject to de minimis rules for incorporating U.S. parts and components into foreign made items • Reduced controls on services • “Specially designed” – effort to remove routine components (bolts, washers, screws, etc.) from controls 45 © Williams Mullen 2013
  46. 46. Status of Amendments April 16, 2013 Implementing Regulations • Authorize framework for reform and Series 600 • Definition of “Specially Designed” • Transition Rules • Become effective October 15, 2013 April 16, 2013 Finalize Categories VIII and XIX • Finalize USML Category VIII (Aircraft) • Add Category XIX (Gas Turbine Engines) • Effective October 15, 2013 Expected Later 2013 • Final versions of remainder of USML Categories • Individual Categories published on periodic basis over rest of year • Each Category becomes effective 180 days after publication date • Reform becomes effective on rolling basis until mid-2014 46 © Williams Mullen 2013
  47. 47. Congressional Review • “Informal Notification” to Congress for each USML Category – 30 day “informal consultations” • 38(f) Notification to Congress for each USML Category – Congress has 30 days to object. • After Congressional review of revised USML Categories, Categories are issued in final form • Transfer of commercial satellites to CCL has been authorized under separate legislation 47 © Williams Mullen 2013
  48. 48. Specially Designed (ITAR § 120.41) Two Pronged Determination – “Catch and Release” A. Catch – Except for items in B below, a commodity or software is “specially designed” if: (1) As a result of development, it has properties peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics or functions described in the relevant USML paragraph; or (2) It is a part, component, accessory, attachment or software for use in or with a defense article. 48 © Williams Mullen 2013
  49. 49. Specially Designed (cont.) B. Release – A part, component, accessory, attachment, or software is not controlled by a USML “catch-all” or technical data control paragraph if it: (1) Is subject to the EAR pursuant to a commodity jurisdiction determination; (2) Is, regardless of form or fit, a fastener (e.g., screws, bolts, nuts, nut plates, studs, inserts, clips, rivets, pins), washer, spacer, insulator, grommet, bushing, spring, wire, or solder; (3) Has the same function, performance capabilities, and the same or ‘‘equivalent’’ form and fit as a commodity or software used in a commodity that: (i) is or was in production (i.e., not in development); and (ii) is not enumerated on the USML; (4) Was or is being developed with knowledge that it would be for use in both defense articles on the USML and also commodities not on the USML; or (5) Was or is being developed as a general purpose commodity or software, i.e., with no knowledge for use in a particular commodity or type of commodity. 49 © Williams Mullen 2013
  50. 50. Specially Designed • The above text regarding “Specially Designed” has been edited for this PowerPoint presentation. • To apply this definition for actual classification determinations refer to the exact text of the definition as follows: – ITAR: 22 C.F.R. § 120.41 – EAR: 15 C.F.R. § 772.1 50 © Williams Mullen 2013
  51. 51. Transition Rules • Licenses (DSP-5’s) issued by DDTC prior to the effective date where all of the items on license have transferred to the CCL will remain valid until expired, returned by the license holder, or for period of two years from the effective date of the final rule – whichever occurs first. • Licenses (DSP-5’s) where some items covered on license have been transferred to BIS and some remain under jurisdiction of DDTC will remain valid until their expiration. • TAA’s and other agreements containing transitioning and non-transitioning items issued prior to the effective date will remain valid until they have expired (unless they require an amendment), or for a two year period from the effective date, whichever occurs first. 51 © Williams Mullen 2013
  52. 52. Transition Rules (Con’t.) • Agreements containing solely transitioning items issued prior to the effective date will remain valid for two years from the effective date, unless revoked, suspended or terminated. After this two year period all activities must be conducted under BIS authorization. • Previously issued CJ Determinations for items determined to be subject to the EAR shall remain valid. Previously issued CJ Determinations for items that have been transitioned to the CCL will be superseded by the newly revised lists. • Any limitation, proviso or other requirement will remain in effect. 52 © Williams Mullen 2013
  53. 53. Steps for Companies to Prepare for Export Reform Companies should prepare a management plan to manage export reform changes over the next twelve months: • Review classifications of company’s products/services to see if jurisdiction and classifications have changed; review new USML Categories and companion CCL Series 600 entries. • For parts, components, accessories, apply the “Specially Designed” test for relevant items • If required, apply for commodity jurisdiction or commodity classification requests from DDTC and BIS • If classifications have changed, determine impact on your compliance requirements: » Use of Strategic Trade Authorization or other BIS exceptions? » Use of de minimis rule? » Decontrol of regulation of services and use of TAA’s? » Impact on DDTC registration status? • Plan licenses, TAA’s during transition period in accordance with DDTC Transition Plan and BIS General Order No. 5 • Amend company’s export compliance procedures to reflect changes in the law and changes in company’s export requirements • Conduct training of relevant company employees on changes in company’s export obligations • Coordinate with subcontractors, suppliers and other program partners 53 © Williams Mullen 2013
  54. 54. Export Control Newsletter: Contact Tom McVey: Thomas B. McVey 1666 K Street, NW Suite 1200 Washington, DC 20006 202.293.8118 21762626 54 © Williams Mullen 2013