export controls and sanctions compliance · commerce control list commerce control list categories...

5/15/2012

1

Export Controls and Sanctions Compliance(or how to sleep at night)

A. Export Controls1. Introduction2. Definitions3. Classifications and Licensing4. DDTC5. BIS6. Anti‐Boycott

B. OFAC1. Definitions2. Sanctioned Countries3. Take Aways

C. Violations and Penalties

D. Elements of a Compliance Program & Recordkeeping

5/15/2012

2

Do Export Controls Apply to You?

Top 5 Reasons why a company would need to worry about export controls:

1. You export goods from the U.S.

2. You have foreign national employees or contractors

3. You have military customers

4. You manufacture or sell military products

5. Customers or end users are located in a sanctioned

country

The United States controls the export of U.S. products, technology, and software to foreign countries and foreign persons. The U.S. also imposes economic and trade sanctions on specific countries, persons, and entities for the stated purpose of:

• Protecting national security

• Implementing foreign policy, e.g. maintaining regional stability

• Protecting U.S. business interests

• Preventing the proliferation of weapons of mass destruction (WMD)

• Preventing terrorist activities

Why Does the U.S. Have Export Laws?

5/15/2012

3

Definitions ‐Who is a Foreign Person?

Any Person who is not:

• A U.S. Citizen

• A U.S. Lawful Permanent Resident

• A Person Granted Asylum

• A Refugee

• A Temporary Resident Granted Amnesty

What is an “Export”?

Transfer of goods, technology or software to a foreign location or to a foreign person in the U.S. or abroad including:

• actual shipment or transmission outside U.S. • visual inspection in or outside U.S. • written or oral disclosure • training outside of the U.S.

5/15/2012

4

What is a “Re‐export”?

– Re‐exports of U.S. products, technology, and software already abroad

– Re‐exports from locations outside the U.S. of non‐U.S. made products incorporating more than a de minimis amount of U.S. content

– Re‐exports from locations outside the U.S. of non‐U.S. made products which are derived from U.S. technology

What is a “Deemed Export”?

• The release or transfer of technology or technical data to a foreign person IN the United States.

• It is NOT required for the data or technology to be exported outside of the U.S.

The RuleReleasing controlled technology to a foreign person isDEEMED to be an export to the person’s country or

countries of nationality.

5/15/2012

5

U.S. Agencies That Regulate Export

U.S. Department of Commerce, Bureau of Industry and Security (BIS) governs commercial and dual‐use items and technology, including software and encryption items. http://www.bis.doc.gov/

U.S .Department of State, Directorate of Defense Trade Controls (DDTC) governs defense articles and services and technical Data, including space and satellite related articles. http://www.pmddtc.state.gov/

U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) implements the primary sanctions regime and imposes economic and trade sanctions on designated countries, entities, and persons. http://www.treasury.gov/

Classification and Licensing

How do I find out if an item or technology is controlled?

5/15/2012

6

The Four Questions

1. What is the item intended for export?

2. Where is it going?

3. Who will receive it?

4. What will they do with it?

Publically Available Technology

– “Technology” or “technical data” otherwise within the scope of regulations that the EAR and the ITAR do not control.

– It is considered in the public domain and a license is not required to export it.

– This exception may cover educational information, published information, fundamental research, and information considered within the public domain depending on whether controlled by the EAR or the ITAR

5/15/2012

7

Directorate of Defense Trade Controls (DDTC)

ITARInternational Traffic in Arms

Regulations

Defense Articles and Services §120.9

Defense Article • Any article that is specifically designed,

developed, configured, adapted, or modified for a military application , no matter how minor, is sufficient for an article to be considered a “defense article.”

Defense Service• Furnishing of assistance (including training) to foreign persons,

in the U.S. or abroad, in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles

• Military training and advice• Technical Data transfer not necessary for services to be provided

5/15/2012

8

Consequences of ITAR Control

If your hardware, technical data, or services are ITARcontrolled:

• Registration with DDTC is required

• Licenses are required for all destinations with few exceptions

• Licenses are required to transmit or communicate technicaldata to foreign nationals

United States Munitions List ‐ Structure

I Firearms, Close Assault Weapons, and Combat ShotgunsII Guns and ArmamentIII Ammunition/OrdinanceIV Launch Vehicles, Guided Missiles, Ballistic Missiles,

Rockets, Torpedoes, Bombs and MinesV Explosives and Energetic Materials, Propellants,

Incendiary Agents and their ConstituentsVI Vessels of War and Special Naval EquipmentVII Tanks and Military VehiclesVIII Aircraft and Associated EquipmentIX Military Training EquipmentX Protective Personnel Equipment

16

5/15/2012

9

United States Munitions List – Structure Cont.

XI Military ElectronicsXII Fire Control, Range Finder, Optical and Guidance and

Control EquipmentXIII Auxiliary Military EquipmentXIV Toxicological Agents, Including Chemical Agents,

Biological Agents and Associated EquipmentXV Spacecraft Systems and Associated EquipmentXVI Nuclear Weapons, Design and Testing Related ItemsXVII Classified Articles, Technical Data and Defense Services

not Otherwise EnumeratedXVIII Directed Energy WeaponsXIX ReservedXX Submersible Vessels, Oceanographic and Associated

EquipmentXXI Miscellaneous Articles

17

Category VIII - Aircraft, [Spacecraft] and Associated Equipment

a) Aircraft, including but not limited to helicopters, non-expansive balloons, drones, and lighter-than-air aircraft, which are specifically designed, modified, or equipped for military purposes . . .

b) Military aircraft engines…

e) Inertial navigation systems…

h) Components, parts, accessories, attachments, and associated equipment...specifically designed or modified for the articles in paragraphs (a) through (d) of this category.

i) Technical Data (as defined in §120.10) and defense services...directly related to the defense articles enumerated in paragraphs (a) through (h) of this category . . .

5/15/2012

10

Bureau of Industry and Security (BIS)

EARExport Administration

Regulations

Commerce Control List

Commerce Control List Categories

0 = Nuclear materials, facilities and equipment (and miscellaneous items)

1 = Materials, Chemicals, Microorganisms and Toxins

2 = Materials Processing

3 = Electronics

4 = Computers

5 = Telecommunications and Information Security

6 = Sensors and Lasers

7 = Navigation and Avionics

8 = Marine

9 = Propulsion Systems, Space Vehicles, and Related Equipment

Five Product Groups

A.Systems, Equipment and Components

B. Test, Inspection and Production Equipment

C. Material

D. Software

E. Technology

9 = Aerospace and Propulsion

A = Systems, Equipment & Components

9A001

5/15/2012

11

BIS/DDTC

Commerce Department (BIS)

• “Dual Use” Commercial/Military

• Controlled items appear on Commerce Control List

• A number of exceptions available

• Examples of EAR controlled Items:

– semiconductors

– telecommunications

– high speed computers

– manufacturing equipment

State Department (DDTC)• Designed, modified, adapted,

or configured for military/space• Controlled items appear on the

United States Munitions List

• Very few exceptions available; license typically required

• Examples of ITAR controlled items:– high altitude GPS receivers– cryptographic electronics– satellite components– guns over .50 caliber

EAR99

EAR99 is the catch all classification

• If your item is not found on the USML or the CCL it is classified as EAR99 and can be shipped “No License Required” unless the destination is an embargoed country

5/15/2012

12

End Use & End User Prohibitions

1. Don't export if the transaction is prohibited by a denial order

2. Don't export to a prohibited end‐user

3. Don’t export to an embargoed destination

4. Don’t export an item if it will assist with proliferation activities

5. Don’t ship your export through the listed countries without a license or license exception if one would be needed to directly export the product there.

6. Don't export if you will violate a license or license exception

7. Don’t do anything with knowledge that it may violate the law.

OFACOffice of Foreign Assets Control

Department of the Treasury

5/15/2012

13

What is OFAC?

Office of Foreign Assets Control (OFAC):

• Department of the Treasury

• Mission: To administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against selected targets

• Induce change by disfavored governments – i.e. give Iran an incentive to stop developing nuclear weapons, Syria –human rights abuses

• Cut off resources to terrorists, drug traffickers, nuclear proliferators, human rights violators and others

25

Global Reach of OFAC

• Applies to every person in the U.S.

• Applies to imports to or exports from the U.S.

• Applies to U.S. companies (and branches*) anywhere in the world (not subsidiaries)

• Applies to U.S. citizens or permanent residents anywhere in the world – even if working for a non‐U.S. company

• Cuba sanctions apply to subsidiaries of U.S. companies anywhere in the world

*Entities organized under US law

5/15/2012

14

Who Must Comply with OFAC

• Entities organized under U.S. law

– Includes offices and branches abroad

• U.S. citizens, wherever located

• U.S. permanent resident aliens, wherever located

• Persons in the U.S.

• Cuba only: Foreign subsidiaries of U.S. person• Blocking legislation – seek advice of local counsel

Types of OFAC Sanctions Programs

Purely List‐Based Programs

• Narcotics trafficking

• Non‐proliferation WMD

• Terrorism

• Organized Crime

• Western Balkans (former Yugoslavia)

• Belarus

• Dem. Rep. of Congo

• Iraq

• Ivory Coast (Cote d’Ivoire)

• Lebanon

• Liberia

• Libya

• Somalia

• Zimbabwe

*OFAC sanction programs are in constant flux, countries may be added or removed at any time.

5/15/2012

15

Sanctions Programs – Specially Designated Nationals (SDN)

• Specifically Designated Nationals and Blocked Persons– Over 3000 unique entities identified by OFAC

– Individuals or entities all over the globe

– Owned, controlled by or acting on behalf of targeted governments or groups

– May be front companies, parastatals, high‐ranking officials or specifically identified persons

– Designated narcotics traffickers, terrorists, terrorist groups, WMD proliferators and support networks, organized crime

* Available at: www.treas.gov/offices/eotffc/ofac/sdn/index.html

Sanctions Programs – Regime‐Based

• Balkans/Yugoslavia

– Block property of Milosevic supporters and persons who threaten international stabilization efforts in the Western Balkans

5/15/2012

16


• Belarus

– Block property of persons undermining democratic processes or institutions

– Aimed at corrupt members of the Government of Belarus

– Executive order signed on June 19, 2006

• Iraq

– Iraqi Sanctions Regulations terminated

– All new transactions are authorized

– Assets previously blocked remain blocked

– Licensing authority transferred BIS


• Liberia

– Block property of Charles Taylor and his supporters and persons who have undermined Liberia’s transition to democracy

– Import of Liberian‐origin timber is prohibited

5/15/2012

17

Sanctions Programs – Limited Programs

• Cote d’Ivoire– Block property of individuals found to:

• Threaten peace and national reconciliation efforts

• Supply armaments and military training to Cote d’Ivoire, or

• Publicly incited violence and hatred in Cote d’Ivoire


• Nonproliferation– Import restrictions against foreign persons engaged in proliferation of WMD technology

– June 28, 2005, Executive Order identifying and blocking the property of WMD proliferators and their supporters

– Additional Iranian and Chinese entities identified as WMD proliferators in 2006

5/15/2012

18


• Diamond Trading

– Import and export of rough diamonds restricted

Types of OFAC Sanctions ProgramsCountry Based Programs

Broad comprehensive sanction programs in the following countries & each is unique:

Cuba, Iran,

Sudan*, and Syria

*Not South Sudan

*OFAC sanction programs are in constant flux, countries may be added or removed at any time.

Lesser Restrictions in the following countries:

Burma(Myanmar)

North Korea (DPRK)

5/15/2012

19

Sanctions Programs ‐ Comprehensive

In general the following are prohibited under comprehensive sanctions programs:• Exports (direct or indirect)

• Imports (direct or indirect)

• Trade brokering, financing, or facilitation

• Any attempt to evade or avoid the sanctions

Applies to most goods, technology, and services

Limited exceptions may be licensable by OFAC, such as agricultural goods or humanitarian items

Facilitation and Approval

• OFAC sanctions cover not only direct business with foreign country but also “facilitation” or “approval” of business by others.

– U.S. person cannot “approve, finance, facilitate or guarantee” transaction that would be prohibited to U.S. person

– U.S. person cannot facilitate transaction by foreign person that U.S. person can’t do – even if transaction is legal for foreign person

5/15/2012

20

Sanctions Programs – Changing Programs

• Burma/Myanmar

OFAC Take‐Aways

• Risk based review ‐> Documented procedures– Effective Screening – Customers, Vendors, etc…

• Training! Training! Training!

• Remember the SDN and other screening requests– EU

– Asia

– Canada

– Latin America

IGNORANCE IS NO EXCUSE!

5/15/2012

21

Other Export Compliance Considerations

U.S. persons and companies may not:

• Agree to comply with the Arab League’s boycott of Israel and certain companies

• Discriminate on the basis of race, religion, national origin, nationality, or sex or agree to provide trading partners with information on others with respect to those characteristics

• Agree to disclose information about dealings with Israel or to provide other information that might be used to verify compliance with a boycott of Israel

5/15/2012

22

• Keep documents for at least five years

• Documents include the commercial invoice, bill of lading or air waybill, and shipper's export declaration

• Have recordkeeping compliance procedures

Violations & Penalties

5/15/2012

23

How are Export Laws Violated?

• Exporting without a license

• Violating any terms or conditions of licenses or approvals

• Engaging in manufacturing, exporting, or brokering defense articles without complying with registration requirements

• Making false statements in documents

• Misrepresenting or omitting a material fact in order to export

• Exporting to prohibited end‐users

• Exporting for prohibited end‐uses

• Exporting to prohibited destinations

Penalties

EAR Civil A fine of up to $250,000 for each violation and denial of export privileges; or twice the value of

the transaction with respect to which the penalty is imposed, whichever is greater Denial of export privileges of items controlled by the EARCriminal For knowing offenses a fine of 50,000 or five times the value of the exports, whichever is greater;

and/or imprisonment of five years. For the willful offenses imprisonment for not more than twenty years for an individual and

possibly a fine not to exceed $1,000,000Other Statutory sanctions, seizure and forfeiture, and denial of licenses from other agencies

ITAR Criminal A fine of up to $1,000,000, up to ten years in prison, or both, for each violationCivil A fine of not more than $500,000 per violationOther Debarment from exporting defense articles and services

OFAC Civil Depending upon the violation fines can be up to $250,000 or double the value of the transaction

that is the basis of the violations, whichever is greater.Criminal Depending on the violation fines can be up to $1,000,000 or 20 years imprisonment or both

5/15/2012

24

Red Flags

• Customer has no available financial information and company is unknown

• Customer rejects commonly available installation and maintenance services

• Customer is reluctant to provide end‐use/end‐user information

• Customer requests unusual payment terms or currencies

• Order amounts, packaging, or delivery routing do not correspond with normal industry practice

• Customer’s line of business or end‐use does not conform to performance/design characteristics of product

• Customer uses only a “P.O. Box” address or has facilities that appear inappropriate for the commodity ordered

• Customer’s order is for parts for which the customer appears to have no legitimate need

• Customer is connected to parties and/or destinations on the restricted parties or embargoed countries lists

• Product to be shipped to trading company or freight forwarder is not connected to customer

• Packing requirements are inconsistent with shipping mode and/or destination

• Circuitous or economically illogical routing

• Customer appears unfamiliar with the product or application

5/15/2012

25

Mitigating Factors

• Whether the Company voluntarily disclosed its violation

• Whether transaction would have been authorized had proper application been made

• Why the violation occurred

• The degree of cooperation with the investigation

• Whether the organization has instituted or improved an internal compliance program to reduce the likelihood of future violations

• Whether the organization/person made the disclosure with the full knowledge and authorization of senior management

• The company’s compliance history

• The company’s export experience

Elements of a Compliance Program1. Document standards and procedures

2. Institute a top down approach

3. Establish effective training programs

4. Monitor, audit, and evaluate effectiveness of compliance program

5. Provide incentives for employees to perform in accordance with program, and impose disciplinary measures on those who engage in criminal conduct

6. Have a compliance officer and procedures to report possible violations

7. Record Keeping

5/15/2012

26

Questions & Answers