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Breakout Session #306 Dr. Mike Criss, Sr. Fellow Flour Government Group April 15, 2008

Basic Training in Export Control: Raise Your Awareness. Breakout Session #306 Dr. Mike Criss, Sr. Fellow Flour Government Group April 15, 2008 3:20 – 4:20pm. Why is This Important?. 32 DOJ Enforcement Actions from January to October 2007 One Company Civil Penalty $15MM,

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Breakout Session #306 Dr. Mike Criss, Sr. Fellow Flour Government Group April 15, 2008

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  1. Basic Training in Export Control: Raise Your Awareness Breakout Session #306 Dr. Mike Criss, Sr. Fellow Flour Government Group April 15, 2008 3:20 – 4:20pm

  2. Why is This Important? • 32 DOJ Enforcement Actions from January to October 2007 • One Company • Civil Penalty $15MM, • Appointment of a Special Compliance Official, • Retained Outside Firm to Conduct Audits and Compliance with Decree, • Created a Senior Management Position Responsible for ITAR Compliance.

  3. Why is This Important? • Two Companies • $2MM and $1.25MM in Penalties, • $2MM and $1.75MM for Remedial Compliance Measures in addition to internal requirements. • One Year Administrative Debarment • $100MM Fine and Debarred

  4. Objectives • Baseline Understanding of Export Control • Know What is an Export • Understand What Questions to Ask Yourself

  5. What We Will Cover • What is an Export? • Who Controls Exports? • When do I need a License? • Terms and Definitions • Important Considerations • Export Control Checklist

  6. What is an Export? Any Item that is sent from the US to a foreign destination is an export. OR Export Administration Regulation (EAR), Department of Commerce

  7. What is an Export? Sending or taking a defense article out of the United States. Disclosing or transferring technical data to a foreign person whether in the United States or abroad. Performing a defense service on behalf of or for the benefit of a foreign person whether in the United States or abroad. Paraphrased from the International Traffic in Arms Regulations, Department of State

  8. Responsibilities of Parties • Who is responsible for the export? • ALL parties that participate in transactions subject to the EAR must comply with the EAR. Seller Broker Manufacturer Forwarder Buyer

  9. Responsibilities of Parties Acting through a forwarding or other agent, or delegating authority does not relieve anyone of responsibility for compliance with the EAR.

  10. Examples of Exports • Regular surface mail • Hand carried • Schematics • Software • Internet down loads • E-mail • Telephone conversation

  11. Examples of Exports, cont. • Export even if leaving US temporarily • Export even to a wholly-owned subsidiary • Export even if a gift • Even if foreign-origin item and exported from US • Includes transshipments through the US • Includes returns to the US • Release of technology or source code • Sensitive technical data

  12. Who Controls Exports? • Department of Commerce - Bureau of Industry and Security • U.S. Dept. of State - Directorate of Defense Trade Controls • U.S. Dept. of Treasury - Office of Foreign Assets Control • U.S. Dept. of Energy • Nuclear Regulatory Commission

  13. Who Controls Exports? • U.S. Dept. of Commerce – Patent & Trademark Office • U.S. Department of Commerce – Bureau of the Census (trade statistics and SEDs) • U.S. Department of Homeland Security – Border and Transportation Security • U.S. Customs Service/ICE (works with BIS to ensure compliance)

  14. When do I need a License? • Some items by their nature need a license • Dual use • Listed items • US Munitions List (DOS) • International Traffic in Arms Regulation (ITAR) • Arms Export Control Act (AECA) • Commerce Control List (DOC) • Export Administration Regulation (EAR) • Check with vendor

  15. When do I need a License? (cont.) • Questions to consider • What are you exporting? • From where are you exporting? • Who will receive the item? • For what purpose will the item be used?

  16. Department of Commerce, EAR Export Administration Act EAR General Prohibitions (1-10) Deemed Export BIS Technology CCL ECCN Country Chart SED Department of State, ITAR Arms Export Control Act ITAR United States Munitions List Defense Article Defense Services Red Flags Foreign Person Exceptions/Exemptions Terms and Definitions

  17. Export Administration Act • Enabling Legislation for commercial non-military items • Implements the Export Administration Regulations (EAR)

  18. Export Administration Regulations,EAR Regulates the export and re-export of most commercial (dual use) items.

  19. General Prohibitions (1-10) You may not without a License or License Exception: • No. 1: Export or re-export controlled items to listed countries. • No. 2: Re-export foreign-made items incorporating more than de minimis amount of controlled U.S. content • No. 3: Re-export foreign produced direct product of U.S. technology or software • No.4: Engage in Actions Prohibited by a Denial Order • Denied Persons

  20. General Prohibitions (1-10) • No. 5: Export or Re-export to Prohibited End-Uses or End-Users • No. 6: Export or Re-export to Embargoed Destinations • No. 7: Support Proliferation Activities • No. 8: in-Transit Shipments and Items to be Unladen from Vessels or Aircraft (in listed countries)

  21. General Prohibitions (1-10) • No. 9: Violation of any Order, Terms and Conditions • No. 10: Proceeding with Transactions with Knowledge that a Violation has occurred or is About to Occur

  22. Deemed Export • Release of technology or source code subject to the EAR • To a foreign national in the United States • Is "deemed" to be an export to the home country of the foreign national

  23. Bureau of Industry Security - BIS

  24. Technology • Specific information necessary for the development, production, or "use" of a product. • The information takes the form of technical data or technical assistance. EAR

  25. Commerce Control List , CCL • Approval of an export is usually in the form of an export license for which the exporter must apply. • DOC through the EAR administers the export of nonmilitary items it maintains on the CCL. • Military Items are controlled by DOS through the ITAR and Munitions List • CCL Identifies items subject to BIS authority • Commodities, Software and Technology • Controlled by Export Classification Control Numbers (ECCN)

  26. Export Control Classification Number ECCN • What items are controlled • BIS controls the product • Which destinations require a license • Example of ECCN: 5A001

  27. 0. Nuclear Materials, Facilities and Equipment and Miscellaneous 1. Materials, Chemicals, Microorganisms, and Toxins 2. Materials Processing 3. Electronics 4. Computers 5. Telecommunications and Information Security 6. Lasers and Sensors 7. Navigations and Avionics 8. Marine 9. Propulsion Systems, Space Vehicles and Related Equipment ECCN, Divided into 10 categories 5A001

  28. ECCN Groups 5A001 • Categories subdivided into five groups • A through E: • A Equipment, assemblies and components; • B Test, inspection and production equipment; • C Materials • D Software • E Technology

  29. ECCN, Reason for Control 5A001 001-099 National Security 100-199 Missile Technology 200-299 Nuclear Nonproliferation 300-399 Chemical & Biological 900-999 Foreign Policy 980-989 Short Supply/Crime Control 990-999 Anti-Terrorism/United Nations

  30. Country Chart • Once the Reasons for Control are established, Examine Country Chart to determine EAR applicability

  31. Country Chart StructureSupplement 1 to Part 738

  32. Shipper’s Export Declaration SED • US Census Bureau • When is an SED Required? For virtually all shipments: • To Foreign Countries • Between the U.S. and Puerto Rico • From Puerto Rico to Foreign Countries • From Puerto Rico to U.S. Virgin Islands • From the U.S. to the U.S. Virgin Islands. • From U.S. Possessions to Foreign Countries

  33. Arms Export Control Act • Enabling legislation for export licensing for defense articles. • Commercial military sales are subject to regulation. • Implements • ITAR • Munitions List

  34. ITAR • International Traffic in Arms Regulation • Controls Military Items • Does not control Commercial Items • Does not Control Dual Use Items

  35. United States Munitions List A list of items and services subject to the Arms Export Control Act

  36. Defense Article • Items listed on the Munitions List • Includes: • Technical Data • Mock-ups • Models

  37. Defense Services • Furnishing to foreign persons • Assistance in • Design • Development • Manufacture • Production • Assembly, etc of Defense Articles • Furnishing Technical Data • Training of Foreign Units and Forces

  38. Foreign Person A person who is not a lawful permanent resident

  39. Red Flags • Possible indicators that an unlawful diversion might be planned by the customer • Abnormal or suspicious circumstances • Product capabilities do not fit buyer’s business • Buyer evasive about destination or use • Routine on-site service is declined

  40. License Exception An affirmative condition that exists such that a license is not required.

  41. Exemptions Specific exceptions in the EAR or ITAR that allow an export without a license

  42. Important Considerations • Enforcement • Knowledge • Reporting and Record Keeping • Fluor and the Individual can be Held Accountable • Use of Subs and Freight Forwarders is not a Defense • Must Clear Customs • At port of exit and entry

  43. Enforcement • Department of Justice is Stepping Up Investigation and Enforcement • Export Administration Act (EAA) • $50,000 to $1,000,000 in fines per violation • Up to 10 years Imprisonment per violation • Denied Persons List, Temporary Denials • Debarment • Export Administration Regulation (EAR) • Same as EAA • Other Penalties for more specific aspects of violation

  44. International Traffic in Arms Regulations (ITAR) • $500,000 to $1,000,000 per violation • Ten years Imprisonment • Debarment • Other Penalties • Can be combined with other offenses • False Claims • Mail Fraud

  45. Export Control Checklist • Is the item being exported or re-exported? • Is a foreign person going to have access to sensitive technical information? • Do we know who will be receiving the item or service (denied person)? • Do we know the intended purpose of the item or service? • Did we ask the vendor if an export license is needed for this item? Did our subcontractors ask their vendors?

  46. Questions?

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