Presenting a live 90-minute webinar with interactive Q&A Complying with ITAR Requirements Amid Increased Enforcement Identifying Risks, Implementing an Effective Compliance Strategy, and Avoiding Inadvertent Violations WEDNESDAY, FEBRUARY 5, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Thaddeus R. McBride, Partner, Sheppard Mullin Richter & Hampton , Washington, D.C. Hilary L. Hageman, Vice President & Deputy General Counsel, CACI International , Arlington, Va. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Complying With ITAR Requirements Amid Increased Enforcement Strafford Publications Webinar February 5, 2014
Agenda Importance of compliance Overview of ITAR controls Compliance best practices Questions 5 5
Importance of Compliance Maintain export privileges Avoid penalties Protect national security Safeguard corporate reputation 6
Defense Exports International Traffic in Arms Regulations (ITAR) U.S. Department of State, Directorate of Defense Trade Controls (DDTC) Controls based on destination of item All exporters / manufacturers must register 7 7
Coverage Defense articles – Any item specially / specifically designed or modified for a military purpose or space application – Includes physical items and related technical data Defense services – Providing assistance to a foreign person in the U.S. or abroad in design, repair, use, etc. of a “defense article” – Includes providing controlled technical data to a foreign person 8 8
No de minimis threshold Any item containing any U.S.-origin ITAR component is likely subject to ITAR ITAR applies even if other country’s laws do too • Example : Military aircraft engine manufactured in Japan includes an ITAR component • Engine likely subject to both ITAR and Japanese controls 9 9
Technical Data Information required for – Design, development, production, operation, maintenance, modification, etc. of defense articles. – Includes information in many forms, including: • Blueprints • Drawings • Photographs • Plans • Instructions • Documentation 10
Technical Data Exports Emailing design drawings to colleague in design center in Bangalore Delivering presentation containing controlled technical data to audience of foreign persons Discussing repair of a U.S.-origin defense article with your non-U.S. engineering manager If disclosure occurs in the United States, it is treated like an export to person’s home country 11
Foreign Persons Any non-U.S. person – Not a U.S. citizen – Not a LPR – Not a protected individual under INA – Not a U.S. government entity 12
Foreign Persons (cont’d) Non-U.S. governments International organizations Corporations or organizations not incorporated or organized to do business in U.S. – May include U.S. person acting on behalf of non-U.S. corporation (Arms Export Control Act, 22 USC 2778) Any non-U.S. person wherever located 13
Embargoes Approximately 30 countries currently subject to U.S. arms embargo Presumed denial for any export with company or individual from embargoed country Includes China and other trading partners – Example: Chinese national researcher in Shenzen or Chinese national graduate student interning in your lab for summer 14
Export Control Reform (ECR)
Background ECR initiative designed to – Maintain ITAR controls on sensitive items – Move less sensitive defense articles to EAR controls Remember: The “R” in ECR is for “Reform” not “Release” 16
600 Series 600 series of Export Control Classification Numbers (ECCNs) created in Commerce Control List (CCL) – CCL forms part of Export Administration Regulations (EAR) – EAR administered by U.S. Commerce Department, Bureau of Industry & Security (BIS) – Very significant differences between ITAR and EAR regimes 17
600 Series (cont’d) 600 series items still subject to controls for – National Security – Regional Stability – Anti-Terrorism – United Nations Embargo This means that a license will usually be needed to export such items 18
600 Series (cont’d) New 600 series items are not eligible for any de minimis threshold for U.S. arms-embargoed destinations, including China For all other countries, the EAR 25% de minimis rule applies to 600 Series items 19
Classification Review revised USML to see whether item is affirmatively listed If not, review CCL category applicable to item If not, review new 600 series in CCL category 20
Classification (cont’d) 600 Series items have a new appended letter: – “.a” – “.w” for former ITAR items now specifically enumerated in the EAR – “.x” category for former ITAR items not specifically enumerated in the EAR – “.y” category for items not specifically enumerated, but expressly removed, from the controls of the “.x” category 21
Classification Example You manufacture a tire for military aircraft – Was USML Category VIII(h), “catch - all” of aircraft parts Review that Category to see if the tire is specifically listed – Now VIII(h) is an express list, not including tires 22
Example (cont’d) So now refer to the 600 Series for aircraft – ECCNs 9A610.a - 9A610.w list parts formerly in Category VII(h). Tires are not listed – ECCN 9A610.x is the catch-all for the 600 series – ECCN 9A610.y contains a list of lesser-controlled items • Aircraft tires are not listed as a 9A610.y item – Military aircraft tires are now 9A610.x 23
USML Revisions Revisions to 6 USML categories in effect: – Cat VI: Vessels of War and Special Naval Equipment – Cat VII: Tanks and Military Vehicles – Cat VIII: Aircraft and Associated Equipment – Cat XIII: Auxiliary Military Equipment – Cat XIX: Gas Turbine Engines and Associated Equipment – Cat XX: Submersible Vessels, Oceanographic and Military Equipment 24
Compliance Best Practices
Value of Export Compliance Program Reduces risk of civil and criminal liability – Compliance programs count – Charges take “adequate compliance systems” into account Culture of compliance viewed favorably in government reviews Mitigates reputational risks Improves business prospects 26
Best Practices - Culture Culture of compliance and tone at top – Senior management support is essential – Ensures that compliance messages are adapted to corporate culture – Explains the importance of compliance to each employee – Emphasizes that there will be accountability for non- compliance 27
Best Practices - Resources Dedicate appropriate resources to compliance – Policies, procedures, manuals, and other written compliance guidance • Legally accurate and complete • Tailored to company and culture • Updated regularly • User friendly / practical 28
Best Practices - Infrastructure Adequate and effective compliance infrastructure – Dedicated compliance personnel • Manage program • Promote awareness • Address routine questions • Update senior management / Board regularly – Maintain detailed records • Required under the regulations • Document transparent and consistent processes to demonstrate commitment to compliance 29
Best Practices - Awareness Training – Legally accurate and complete – Mandatory – At hire and regularly thereafter – Recorded – Make user friendly 30
Awareness (cont’d) Make awareness efforts count – Tailored to company’s business – Relevant to audience – Keep it interesting with different formats • newsletters, posters, internet banners, websites, posts, blogs Your best chance to reach personnel directly 31
Best Practices - Monitoring Monitoring, auditing, evaluation – Regular due diligence on transaction partners – Periodic review of company’s processes – Defensible system of reviewing potential issues 32
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