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US Export ControlUS Export Controlandand

Non US CompaniesNon US CompaniesThe basics of complianceThe basics of compliance

Oct 3, 2008Oct 3, 2008Don Buehler Don Buehler

Yokahama IAQG meetingYokahama IAQG meeting

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The TopicsThe Topics1. Why should Asian & European companies

care?2. What is an Export?3. What are the regulations &

what do they cover?4. What are the restrictions &

how do I know how to proceed?5. What are the challenges

for the industry?

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Why do countries haveWhy do countries have these regulations?these regulations?

Countries and companies have a Countries and companies have a right to protect information and right to protect information and products from other countries or products from other countries or companies as they deem in their best companies as they deem in their best interest.interest.

This is done through Export Control This is done through Export Control regulations and proprietary regulations and proprietary information.information.

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Why should Asian & Why should Asian & European companies European companies

care about US Export laws?care about US Export laws?1.1. If you do work on US origin If you do work on US origin

materials, the laws apply to your materials, the laws apply to your companycompany

2.2. Your customer (the US prime) Your customer (the US prime) probably has a clause in your P.O. probably has a clause in your P.O. which requires compliancewhich requires compliance

3.3. If you violate the regulations, your If you violate the regulations, your company may be subject to company may be subject to penaltiespenalties

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From the DDTC website:From the DDTC website:

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SOME EXAMPLES:SOME EXAMPLES: South African company finedSouth African company fined

((January 1997) January 1997) –– Fuchs Electronics of Fuchs Electronics of South South AfricaAfrica agreed to pay $5.5 million for the agreed to pay $5.5 million for the establishment of a national export control establishment of a national export control compliance program after arranging for the compliance program after arranging for the shipment of shipment of proximity fuse power suppliesproximity fuse power supplies from the U.S. to South Africa. In addition, from the U.S. to South Africa. In addition, Fuchs agreed to pay $2.25 million in civil Fuchs agreed to pay $2.25 million in civil penalties to the U.S. Department of State penalties to the U.S. Department of State for this violation.for this violation.

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French company fined & French company fined & disbarreddisbarred

(July 17, 2008) (July 17, 2008) –– CryostarCryostar SAS of SAS of FranceFrance agreed to pay $500,000 agreed to pay $500,000 and be subject to two years of and be subject to two years of probation for its involvement in a probation for its involvement in a conspiracy to illegally export conspiracy to illegally export U.S.U.S.--origin origin cryogenic cryogenic submersible pumpssubmersible pumps to Iran.to Iran.

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Chinese citizens jailedChinese citizens jailed

(May 2006) Beijing company Manten Electronics illegally exported national security items in radar & electronic surveillance to state sponsored institutions in China.

Four defendants Kevin Wu; Linda Chen; Jenny Chan; Daqing Zhou all received up to 30 months in prison. They also forfeited $391,397 of their revenue.

All four have been denied any export privileges up to 20 years.

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Japanese company Japanese company fined & debarredfined & debarred

(February 1992) – Japan Aviation Electronics Industry Ltd. (JAE) of Tokyo agreed to pay a civil penalty of $5 million and be subject to three years of statutory debarment, along with internal audits conducted by the U.S. Department of State, for allegedly transferring ITAR-controlled defense articles to Iran.

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Other aspects of penaltiesOther aspects of penalties

1.) It can wreck your international business1.) It can wreck your international business

2.) It can ruin your reputation 2.) It can ruin your reputation -- these these penalties are a matter of public recordpenalties are a matter of public record

3.) It can shake the confidence of your other 3.) It can shake the confidence of your other customerscustomers

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Any itemAny item sent from the United States to sent from the United States to a foreign destination (company or a foreign destination (company or person) is an Export. All items and person) is an Export. All items and articles leaving the United States are articles leaving the United States are Exports and, therefore, are controlled.Exports and, therefore, are controlled.

Items include Items include hardwarehardware (parts, (parts, materials, sub assemblies), materials, sub assemblies), informationinformation (drawings, specifications, (drawings, specifications, test data, calculations) and test data, calculations) and technologiestechnologies ((egeg. composites). composites)

What is an Export?What is an Export?

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An Export can be An Export can be ……

physicalphysical (sending a part to a foreign (sending a part to a foreign country or person)country or person)

aural or verbalaural or verbal (telling someone (telling someone information about a controlled part)information about a controlled part)

visualvisual (a foreign person sees (a foreign person sees controlled information controlled information –– even if they even if they see it on your laptop in a public place)see it on your laptop in a public place)

What is an Export?What is an Export?

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A foreign destination is any country A foreign destination is any country outside of the United States.outside of the United States.

A foreign person is anyone who is not a A foreign person is anyone who is not a U.S. citizen or green card holder.U.S. citizen or green card holder.

EXAMPLE: Sharing a drawing of an EXAMPLE: Sharing a drawing of an aircraft engine component with a French aircraft engine component with a French citizen is considered the same as sending citizen is considered the same as sending it to France.it to France. This is a This is a ““deemed export.deemed export.””

What is an Export?What is an Export?

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What are the regulations?What are the regulations? What do I need to know?What do I need to know?

The United States controls exports The United States controls exports with two major regulations:with two major regulations:

1.1. ITAR: International Traffic In Arms ITAR: International Traffic In Arms Regulations Regulations

2.2. EAR: Export Administration Regulations EAR: Export Administration Regulations

Plus the Office of Foreign Plus the Office of Foreign Assets Control (OFAC)Assets Control (OFAC)

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Which agency is responsible?Which agency is responsible?

MILITARY Application MILITARY Application –– ITAR ITAR –– State State DepartmentDepartment

DualDual--use (military and commercial) or use (military and commercial) or commercial application commercial application -- EAR) EAR) –– U.S. U.S. Department of Commerce.Department of Commerce.

If the product is going to a If the product is going to a sanctioned countrysanctioned country, , it is under the jurisdiction of the Office of it is under the jurisdiction of the Office of Foreign Assets Control (OFAC) Foreign Assets Control (OFAC) –– through the through the US Department of the Treasury and a variety US Department of the Treasury and a variety of federal laws.of federal laws.

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Broadly defined and tightly controlled Broadly defined and tightly controlled includes all items on USML (U.S. includes all items on USML (U.S. Munitions List)Munitions List)

If item is on the USML and is going to If item is on the USML and is going to be exported, then itbe exported, then it’’s controlled (and s controlled (and requires a license). *unless there is requires a license). *unless there is an exemptionan exemption

The ITARThe ITAR

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Category VIIICategory VIII——Aircraft and Associated EquipmentAircraft and Associated Equipment

VIII (h) Components, parts, accessories, VIII (h) Components, parts, accessories, attachments, and associated equipment (including attachments, and associated equipment (including ground support equipment) specifically designed ground support equipment) specifically designed or modified for the articles in paragraphs (a) or modified for the articles in paragraphs (a) through (e) of this category, excluding aircraft tires through (e) of this category, excluding aircraft tires and propellers used with reciprocating engines.and propellers used with reciprocating engines.

If a defense article is being sent outside the U.S. or a If a defense article is being sent outside the U.S. or a defense service provided to a foreign person or defense service provided to a foreign person or entity, this Export must be licensed by the State entity, this Export must be licensed by the State Department.Department.

The ITAR: USML exampleThe ITAR: USML example

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The EARThe EARAdministered by U.S. Department of Administered by U.S. Department of Commerce Bureau of Industry and Commerce Bureau of Industry and Security (BIS)Security (BIS)

If item is for commercial or dual use If item is for commercial or dual use (commercial and military), it is (commercial and military), it is controlled by the EAR and controlled by the EAR and administered by BIS.administered by BIS.

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Commerce Control ListCommerce Control List

Includes five product groupsIncludes five product groups

Extensive system for categorizing Extensive system for categorizing products (Export Control products (Export Control Classification Number)Classification Number)

Complex rules about what requires a Complex rules about what requires a license (depends on product, license (depends on product, technology and end use)technology and end use)

The EARThe EAR

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The purpose of the ECCN is to The purpose of the ECCN is to clearly identify the component, clearly identify the component, material, or technology so that material, or technology so that proper licenses, restrictions and proper licenses, restrictions and exemptions may be applied.exemptions may be applied.

If you are going to export items If you are going to export items under the EAR, the ECCN is critical.under the EAR, the ECCN is critical.

The EARThe EAR

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Office of Foreign Asset ControlsOffice of Foreign Asset Controls (OFAC)(OFAC)

U.S. Department of Treasury agency U.S. Department of Treasury agency which administers sanctions against which administers sanctions against targeted foreign governments, individuals, targeted foreign governments, individuals, entities and practices.entities and practices.

Includes blocked assets, trade restrictions Includes blocked assets, trade restrictions and financial transactions.and financial transactions.

Jurisdiction applies to all U.S. persons Jurisdiction applies to all U.S. persons and citizens.and citizens.

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OFACOFACSanctions and programs against:Sanctions and programs against:

-- BalkansBalkans-- BelarusBelarus-- BurmaBurma-- CoiteCoite dd’’IvorieIvorie-- Cuba**Cuba**-- Diamond TradingDiamond Trading-- Iran**Iran**-- IraqIraq-- Liberia Liberia

-- Narcotics TraffickingNarcotics Trafficking-- Non ProliferationNon Proliferation-- North KoreaNorth Korea-- Sudan**Sudan**-- SyriaSyria-- TerrorismTerrorism-- ZimbabweZimbabwe

** Indicates comprehensive programIf any company works with US exports with any of these countriesthey are breaking US law

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What are the restrictions?What are the restrictions?

Basically 2 kinds of restrictions:Basically 2 kinds of restrictions:1.1. You must get a license from the You must get a license from the

appropriate appropriate GovtGovt agency before you agency before you export the item or materialexport the item or material

2.2. There is a prohibition to export the There is a prohibition to export the item to a particular destination/ item to a particular destination/ foreign personforeign person

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How do I know if there is a need for a How do I know if there is a need for a license or a restriction is in place?license or a restriction is in place?

1.1. Basically you need to understand Basically you need to understand the regulationsthe regulations

2.2. ITAR ITAR -- United States Munitions United States Munitions ListList-- identifies items which are identifies items which are under the ITARunder the ITAR

3.3. EAR EAR -- ECCN ECCN –– along with the along with the country of destination identifies country of destination identifies when a license or restriction is in when a license or restriction is in effecteffect

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What are the challenges for the US What are the challenges for the US aerospace industry?aerospace industry?

1.1. Flow down of Export Control data Flow down of Export Control data to suppliersto suppliers

Pressing need for common method of Pressing need for common method of identification & common terminologyidentification & common terminology

2.2. Supplier comprehension & Supplier comprehension & compliancecompliance

3.3. Law & regulation simplification Law & regulation simplification –– we we need to lobby Washington to need to lobby Washington to simplify the regulationssimplify the regulations

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Here are the URLs for the State (ITAR) & Commerce (EAR)

& OFAC

ITAR http://www.pmddtc.state.gov/regulations_laws/itar.html

EAR:http://www.bis.doc.gov/licensing/exportingbasics.htm

OFAC http://www.ustreas.gov/offices/enforcement/ofac/

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QUESTIONS? QUESTIONS? –– COMMENTS?COMMENTS?Thank you for attending this IAQG workshopThank you for attending this IAQG workshopDon Buehler Don Buehler donb@sae.odonb@sae.orgrg 513513--305305--74937493