1. Export Controls
Agents, Distributors
and Labor
EXPORTING FROM THE
UNITED STATES: KEY
LEGAL CONSIDERATIONS
www.keglerbrownGlobal.com
@DWilsonJDMBA
David M. Wilson, Esq.

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. Immigration

Visa



Permanent Visas
Temporary Visas
Technical Visa
Export
Controls
Agents, Distrib
utors and
Labor

31. 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

32. Export Controls
Agents, Distributors
and Labor
EXPORTING FROM THE
UNITED STATES: KEY
LEGAL CONSIDERATIONS
www.keglerbrownGlobal.com
@DWilsonJDMBA
David M. Wilson, Esq.