Winter Education Conference Contracting March 6, 2008

National Contract Management AssociationThe Cape Canaveral Chapter

Basic Training in Export Control

Dr. Mike Criss

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.

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

Objectives

• Baseline Understanding of Export Control

• Know What is an Export

• Understand What Questions to Ask Yourself

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

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

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 theInternational Traffic in Arms Regulations,Department of State

Responsibilities of Parties

• Who is responsible for the export?

– ALL parties that participate in transactions subject to

the EAR must comply with the EAR.

Responsibilities of Parties

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

Examples of Exports

• Regular surface mail

• Hand carried

• Schematics

• Software

• Internet down loads

• E-mail

• Telephone conversation

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

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

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)

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

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?

Terms and DefinitionsDepartment 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

Export Administration Act

• Enabling Legislation for commercial non-military items

• Implements the Export Administration Regulations (EAR)

Export Administration

Regulations, EAR

Regulates the export and re-export of most commercial

(dual use) items.

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

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)

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

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

Bureau of Industry Security - BIS

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

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)

Export Control Classification Number ECCN

• What items are controlled• BIS controls the product • Which destinations require a

license• Example of ECCN: 5A001

ECCN, Divided into 10 categories

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

5A001

ECCN Groups

• 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

5A001

ECCN, Reason for Control

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

5A001

Country Chart

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

Country Chart StructureSupplement 1 to Part 738

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

Arms Export Control Act

• Enabling legislation for export licensing for defense articles.

• Commercial military sales are subject to regulation.

• Implements– ITAR– Munitions List

ITAR

• International Traffic in Arms Regulation–Controls Military Items

–Does not control Commercial Items

–Does not Control Dual Use Items

United States Munitions List

A list of items and services subject to the Arms Export Control

Act

Defense Article

• Items listed on the Munitions List–Includes:

•Technical Data

•Mock-ups

•Models

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

Foreign Person

A person who is not a lawful permanent resident

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

License Exception

An affirmative condition that exists such that a license

is not required.

Exemptions

Specific exceptions in the EAR or ITAR that allow an export

without a license

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

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

• 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

Export Control ChecklistIs 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?

Questions?