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U.S. Export Controls -- An Overview – Session #1402 April 23 1:40 – 2:40 pm. James W. Reed Rhoads & Reed PLLC Washington, D.C. U.S. Export Controls -- Topics. What Is An Export? What Laws & Regulations Apply? Basic ITAR Concepts Basic EAR Concepts Economics Sanctions Programs
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U.S. Export Controls-- An Overview –Session #1402April 23 1:40 – 2:40 pm James W. Reed Rhoads & Reed PLLC Washington, D.C.
U.S. Export Controls -- Topics • What Is An Export? • What Laws & Regulations Apply? • Basic ITAR Concepts • Basic EAR Concepts • Economics Sanctions Programs • Enforcement & Penalties
What Is An “Export”? • The actual shipment or transmission of an item out of the U.S. • Includes transmissions via telephone, fax, and the Internet • “Releases” of technology or software to foreign nationals with the U.S. (so-called “deemed exports”)
What Is a “Re-export”? • The shipment or transmission of U.S.-origin items from one foreign country to another foreign country. • “Releases” of U.S.-origin technology or software to foreign nationals outside the U.S.
What Laws & Regulations Apply? Commercial (Dual-use) Items: • Export Administration Regulations (EAR) • Legal basis: Export Administration Act of 1979, as amended • Codified at 15 CFR Parts 730-774 Military Items: • International Traffic in Arms Regulations (ITAR) • Legal basis: Arms Export Control Act • Codified at 22 CFR Parts 120-130 Economic Sanctions Programs: • Trading With the Enemy Act • International Emergency Economic Powers Act • Codified at 31 CFR Part V
The Regulatory Framework Commercial Items EAR (EAA) Military Items (“specially designed”) Commerce Dept. ITAR (AECA) State Dept. Economic Sanctions Programs (Cuba, Iran, Sudan, Syria) Treasury Dept.
Basic ITAR Concepts -- Definitions The ITAR regulates exports and re-exports of: • defense articles • technical data • defense services
Basic ITAR Concepts -- Definitions Defense article: • Any item that is specifically designed, developed, configured, adapted, or modified for a military application.
Basic ITAR Concepts -- Definitions Technical data: • Information that is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of a defense article. • Includes information in the form of blueprints, drawings, photographs, plans, instructions and documentation.
Basic ITAR Concepts -- Definitions Defense service: • The furnishing of assistance (including training) to foreign persons, whether in the U.S. or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operations, demilitarization, destruction, processing or use of defense articles.
Basic ITAR Concepts -- Registration ITAR 122.1 requires all U.S. companies to register with the State Department’s Directorate of Defense Trade Controls if they engage in: • Manufacturing defense articles • Exporting defense articles • Providing defense services
What the ITAR Regulates . . . • Permanent exports of defense articles, technical data, and defense services • Temporary exports of defense articles • Re-exports of defense articles and technical data • Temporary imports of defense articles NOTE: Permanent imports of defenses articles are controlled by the Bureau of Alcohol, Tobacco, and Firearms (BATF)
Bottomline on the ITAR . . . • If your product or technology is controlled under the ITAR, a license (or approved agreement) is almost always required to export it. • Some exceptions are available (e.g., the Canadian exemption), but are very limited.
Basic EAR Concepts The EAR applies to: • Exports of U.S.-origin commercial items (hardware, software, technology) • Re-exports – even by non-U.S. persons – of items containing more than “de minimis” U.S.-origin content • Exports of certain foreign-made items produced from U.S.-origin technology
Basic EAR Concepts The EAR does not apply to: • Items subject to the jurisdiction of other agencies, e.g., “defense articles” controlled by the State Dept., or nuclear materials controlled by NRC or DOE. 2) Items that are “publicly available” 3) Reexports by foreign persons of items containing less than “de minimis” U.S.-origin content
Basic EAR Concepts The EAR does not apply to: • Reexports by foreign persons of items containing less than “de minimis” U.S.-origin content . . . • The “De Minimis” Rule: -- 10% or less “controlled” U.S.-origin if to a “terrorist- supporting” country -- 25% or less to all other countries -- calculations based upon the value of U.S.-origin hardware, software, and technology in the final product
Steps in Determining EAR Licensing Requirements • Is my product/technology subject to the EAR? • What is the EAR classification of my product/technology? • Given the classification, is there a license requirement to my destination country? • Is a license exception available? Note: Statistically, approx. 85% of exports under the EAR donot require an export license.
Classification of Products & Technology CCL: Commerce Control List (EAR Part 774) 0 - Nuclear Materials, Facilities, and Equipment (+ misc.) I - Materials, Chemicals, Microorganisms, and Toxins II - Materials Processing III - Electronics IV - Computers V - Telecommunications / “Information Security” VI - Sensors and Lasers VII - Navigation and Avionics VIII - Marine IX - Propulsion Systems, Space Vehicles, etc. Note: If item is not on the CCL, it is “EAR 99.”
EAR Licensing Determinations • Based on the EAR Country Chart (EAR Part 738) • License exceptions: decision to use a license exception is a licensing determination • Common exceptions: TSR -- Technology and software under restriction TMP -- Temporary imports, exports, and reexports RPL -- Servicing and replacement of parts and equipment BAG -- Baggage ENC -- Encryption commodities and software
Customer and End-Use Screening • The Ten General Prohibitions – EAR Part 736 • EAR’s ‘Red Flag’ indicators – signs of a risk of diversion to a prohibited end-user or a prohibited end-use. (The ‘know or have reason to know’ standard) • Implied requirement to conduct customer/end-use screening • Even uncontrolled EAR 99 items have a license requirement if ‘red flags’ cannot be resolved • EAR Lists to screen • Denied Parties List (EAR Part 764) • Unverified List (Commerce/BIS Website) • Entities List (EAR Part 744, Suppl. 4)
Embargoed Countries & Economic Sanctions • Intersection of Commerce Dept’s EAR and Treasury Dept’s economic sanctions regulations • Administered by the Office of Foreign Assets Regulation (OFAC) • Countries currently subject to U.S. embargo/economic sanctions: -- Cuba -- Sudan -- Iran -- Syria • OFAC’s Specially Designated Nationals (SDN) List
OFAC Economic Sanctions Programs • Significant differences among each of the programs – few general rules. • Restrictions typically include prohibitions on: • Exports • Imports • All financial transactions • Contracting • Even “facilitation” of a transaction • If any contacts with potential customers in Cuba, Iran, Sudan or Syria – be careful!
Significant Penalties for Export Violations ITAR/AECA – • Criminal -- $1 million/violation + 10 years • Civil -- $500,000/violation + debarment EAR/EAA – • Criminal -- $500,000/violation + 10 years • Civil -- $50,000/violation + denial of export privileges Treasury/OFAC – • Criminal -- $50,000/violation + 20 years • Civil -- $50,000/violation
Export Controls “Best Practices” • Implement formal Export Control Compliance Policies & Procedures (EMS) • Develop a strategy and process for classifying products and technology -- maintain a product/technology classification matrix • Screen all export transactions for end-user/use and diversion risk • Perform periodic audits -- both internal and external • Recordkeeping -- document decisions . . . it’s what can “save” you when things go wrong • Identify controlled technologies and manage access to it by foreign national employees, visitors, contractors • When things go wrong: have a process for seeking help and handling potential violations.
Thank you for your attention! James W. Reed Rhoads & Reed PLLC Washington, D.C. Tel: (703) 451-1194 E-mail: email@example.com