The World Leader in High Performance Signal Processing Solutions

Managing Channel Partner Export Compliance

Dennis Farrell – Global Export Compliance ManagerAnalog Devices, Inc.

Outline

Analog Devices Corporate Profile

Export Basics (3 Slides)

Standards to Consider

Vehicles for Managing Channel Partner Export Compliance

How Much Due Diligence is Enough ?

Conclusions & Other Business Considerations

Analog Devices, Inc. – Corporate Profile

Worldwide HQ: Norwood, MA Other Manufacturing & Engineering U.S. Sites – Wilmington, MA,

Greensboro, NC, San Jose, CA, Nashua, NH Global Presence in approximately 23 Countries Number of Employees: Approx. 9,000 (Worldwide) FY 2010 Revenue: $US 2.8 Billion (as of October 30, 2010) Primary Products: Digital Signal Processors, High Speed Digital Analog

and Analog Digital Converters, Accelerometers, Gyroscopes and other MEMS devices

Commerce Control List: Categories 3, 5 and 7 Jurisdiction: U.S. EAR = 99%; ITAR = 1% Sales/Revenue Mix: Direct – 62% Channel Partners – 38%

5 Key Elements of Export Compliance (Both you and your Channel Partners should know these)

• What is the product ?• Capabilities and performance levels

• Where will it be used ?• Prohibited country screening

• Who is going to use it ?• End-User screening (What line of business is the customer in ?)

• How will it be used ?• End-Use screening (How is the customer going to use ADI products? Will they be producing

weapons of mass destruction [nuclear, missile, chem/bio agents] ?)

• Proliferation and/or diversion risks ?• Red Flags – is there something unusual about the request or the order ? Example: Is the

customer not in the high tech industry, ordering unusually large quantities and are they offering to pay cash for items purchased ?

• Important: Even if a product is not export controlled based on its technical properties and/or destination country, it may still require an export license based on end use.

Customer Based Controls• U.S. (and other countries’) export regulations require that exporters “Know their customers”

• Screen ALL PARTIES on a transaction against various Sanctioned Parties Lists• Purchaser• Intermediate Consignees (taking possession of goods en route to end user)• Ultimate Consignee or End User• Freight Forwarders and/or Customs Brokers

• ADI is responsible for screening end users, even if they are not known at the time of original order receipt

• Example: ADI Sales to Distributors – screen all parties when order is received and after Disti re-ships to their end user if they report the activity back to ADI via POS

• All Parties should be screened against (at minimum) these Sanctioned Parties lists:

• US Denied Persons List -- http://www.bis.doc.gov/dpl/thedeniallist.asp• US Entity List -- http://www.access.gpo.gov/bis/ear/pdf/744spir.pdf• US State Dept Debarred Parties -- http://pmddtc.state.gov/licensing/debar.html• US Treasury SDN List -- http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf

• Important: ADI’s Distributors also have a responsibility to perform all of the above referenced screening activities and those on the next slide.

• If a sanctioned party is discovered during screening, place the transaction on HOLD and contact ADI to determine next steps.

End Use Controls

End Use is Important for Export License DeterminationProducts which are NOT export controlled based on their technical

properties may still require an export license based on end use (this includes items classified EAR99)

Under the U.S. EAR – if end use involves the use of an item in any of the applications listed below, an export license may be required: Weapons of mass destruction (WMDs) [missiles, nuclear weapons,

chemical/biological weapons]Unsafeguarded nuclear activities (nuclear reactors, etc.)Space Launch VehiclesUnmanned Air Vehicles (UAVs)Maritime Nuclear Propulsion

Note: Under EU Export Regulations, the military “catch all” provisions for end uses are more robust than those under U.S. Export Regulations

Standards to Consider Knowledge (US EAR Part 772) - Knowledge of a circumstance (the term may be a variant,

such as “know,” “reason to know,” or “reason to believe”) includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person's willful avoidance of facts. This definition does not apply to part 760 of the EAR (Restrictive Trade Practices or Boycotts).

General Prohibition # 10 (US EAR Part 736) - Proceeding with transactions with knowledge that a violation has occurred or is about to occur (Knowledge Violation to Occur). You may not sell, transfer, export, re-export, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service, in whole or in part, any item subject to the EAR and exported or to be exported with knowledge that a violation of the Export Administration Regulations, the Export Administration Act or any order, license, License Exception, or other authorization issued thereunder has occurred, is about to occur, or is intended to occur in connection with the item. Nor may you rely upon any license or License Exception after notice to you of the suspension or revocation of that license or exception.

Information “received during the normal course of business” (this can vary) – if you have or receive information, you must do something with it Example: Analog Devices receives POS or “sales out” data from our Authorized Distributors

Vehicles for Managing Channel Partner Export Compliance

Export Language in Channel Partner Contracts

Screening against Sanctioned Parties Lists (US and Other) Buyer acknowledges and agree that items (commodities, software, technology) are subject to

the export control laws and regulations of the United States and/or other national governments Specify which national laws (EAR, ITAR, EU regulations, other) – “including but not limited to

….” Will not export/transfer to any country subject to a U.S. trade embargo or sanction or to any

resident or national of said countries End Use Screening (WMDs, etc.) License determination and procurement of required licenses

Make ECCN data available to Channel Partners (web site, e-mails, etc.)

Other Ideas:

Obtain an Annual Export Certification Have your Channel Partners certify, in writing, they have met ALL export-related provisions of the

contract

Conduct Occasional Desk Audits or On-Site Audits Example: ask for last 20 transactions for shipments to China for ECCN 3A001

How Much Due Diligence is Enough ? Variables

What are your products and how many potential end uses do they have ? For example: If your products are commercial or dual use with small likelihood to be used in

military/satellite/space applications and/or in Group D countries the amount of due diligence you perform is likely to be BASIC

If your products are dual use but there is a high probability they can be used in military communications, radar and other like applications and ship often to Group D countries, your due diligence is likely to be ADVANCED

If your products are ITAR controlled, your level of due diligence is likely to be HIGH

Knowledge

You do not need to ask a lot of questions and you should not go “looking for trouble” “Received during the normal course of business” --- unless you see a red flag or feel you

need to do more probing

US Law Enforcement Agencies (OEE, FBI, ICE, etc.)

You must establish a relationship with these agencies which will govern how many questions they will ask you and how much “babysitting” they think you need to do

Conclusions and Other Business Considerations

There is no “one size fits all” model for managing Channel Partner export compliance or conducting the proper amount of oversight

Business model and product dependencies will dictate what your acceptable level of due diligence should be

You have a business relationship with your Channel Partners ….. so……..

If you know your Channel Partner has committed an export violation, talk with them about: Is it reportable (VSD) ? Consult with internal or external legal counsel Who will report it (you or them) ? Note .. should be them Don’t jeopardize your business relationship with a long time, loyal, competent

Channel Partner by jumping to conclusions and threatening to throw them under the bus

Questions ?