International Traffic in Arms Regulations (ITAR) Export Control Reform Initiative Update May 11, 2016                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Copyright Holland & Hart LLP 2016. All Rights Reserved.

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AGENDA Introductions EAR / ITAR Overview Licensing and Commodity Jurisdiction OFAC Compliance Lunch Keynotes Economic Espionage and Theft of Trade Secrets Export Regulations Enforcement Export Control Reform Initiative Update ITAR Registration Requirements (Including ITAR Part 129 Brokering) Export Controls Compliance Programs (Including Key Lists to Check) and Voluntary Disclosures

Export Control Reform Initiative Regulatory and Policy Reform Obama Administration is pushing for completion of Export Control Reform Initiative (ECRI) by end of term. Goal: “higher fences around fewer items.” Risk-based approach – enhancement of national security controls while making U.S. exporters more competitive.

Export Control Reform Initiative ECRI 4 Areas of Reform: Single controlled items list (defense articles and dual-use items). Single licensing agency. Single IT licensing system. Single enforcement organization.

Export Control Reform Initiative ECRI Control List Strategy The 2 separate control lists that currently exist will be combined into a single, tiered, risk-based list. Present Future Commerce Control List & United States Munitions List

Export Control Reform Initiative Single Controlled Items List Movement of USML items to the CCL Not “decontrol”, just different control Creates “Commerce Munitions List” Final rules for 15 USML Categories – effective now Categories IV, V, VI, VII, VIII, IX, X, XI, XIII, XV, XVI, XVII, XIX, XX, XXI Final rules for remaining USML Categories expected this year Categories I, II, III, XII, XIV, XVIII Some movement of items from the USML to the CCL required Congressional notification or approval (e.g., Category XV – Spacecraft, including commercial satellites) New BIS licensing division created for CCL munitions items Bureau of Industry and Security Public comments on revisions to USML Category XII closed in April. Category XII includes night vision goggles, and is being amended to to describe more precisely the articles warranting control on the USML.

Export Control Reform Initiative Single Controlled Items List (cont.) New CCL “600” & “515” series ECCNs Allows for use of some EAR License Exceptions (LE) for items formerly on the USML New LE STA eligible for: 36 countries - NS, CB, NP, RS, CC, SI controls 8 countries – NS control Interactive Compliance Tool: http://www.bis.doc.gov/index.php/statool Items to be controlled, no “design intent” Export Control Classification Numbers = ECCNs Items that are now defense articles but that are no longer listed on the revised USML categories will become subject to the EAR’s “600 series” ECCNs. STA = Strategic Trade Alliance

Export Control Reform Initiative USML vs. “600 Series” USML “defense article” CCL “600 series” items End-items Worldwide license Worldwide license – except Canada Identified parts & components License Exception STA Specifically/Specially designed parts & components (“.x”) License Exception STA Insignificant parts & components (“.y”) NLR except T-5 + China De minimis None 25% except, 0% for ITAR 126.1 countries Registration Yes No Prohibitions ITAR 126.1 Exemptions/Exceptions Limited GOV, STA (ultimate government use), TSU, TMP, RPL Temporary Import Controls All USML items Source: Defense Technology Security Administration.

Export Control Reform Initiative Single Controlled Items List (cont.) New “catch all” ECCNs– 0A521, 0B521, 0C521, 0D521, 0E521 Temporary categories for control of “sensitive emerging technologies” not yet on CCL or USML (up to 3 years + extensions possible) Items so classified will be in a new Supplement No. 5 to the CCL (i.e., EAR Part 774) - currently only 1 item on the list: epoxy system used on x-ray and microscopy imaging. Factors for classification under these ECCNs: “significant military or intelligence advantage to the United States” or “foreign policy reasons.” License required for all countries except Canada Licensing policy – case-by-case No appeal process

Export Control Reform Initiative USML Category CCL “600 series” Entries Rule Status I-Firearms Proposed Rule in Process II-Guns III-Ammunition IV-Missiles 604 Final Rule Published 1/2/14 / Effective 7/1/14 V-Explosives 608 VI-Vessels 609 Final Rule Published 7/8/13 / Effective 1/6/14 VII-Vehicles 606 VIII-Aircraft 610 Final Rule Published 4/16/13 / Effective 10/15/13 IX-Training Equipment 614 X-Protective Equipment 613 XI-Electronics 611 Final Rule Published 1/2/14 / Effective 12/30/14 XII-Sensors 611/615 Proposed Rule Published 2/19/16 XIII-Aus. Military Equip. 617 XIV-Chem/Bio 607 Proposed Rule Published 6/17/15 XV-Satellites 515 Final Rule Published 5/13/14 / Effective 6/27/14 & 11/10/14 XVI-Nuclear None XVIII-Directed Energy 619 XIX-Gas Turbine Engines XX-Submersibles 620 “Specially Designed” Rule N/A Transition Rule Note: only minor revisions were made to Categories XVII and XXI; the final State and Commerce rules for these categories were included with the final rules for Categories XIII and XIX.

Export Control Reform Initiative Single Licensing Organization Intended to provide a “one stop shopping” approach to licensing Requires increased licensing staff at BIS – so far, no strategy or money for this Applications will still be “staffed” to other agencies for review and approval No proposals released to date

Export Control Reform Initiative Single IT Licensing System Internal government migration to a common licensing system – USXports DDTC is in final phase of migration to USXports BIS migration to USXports is in process No announced strategy for submission of license applications

Export Control Reform Initiative Single Enforcement Organization Export Enforcement Coordination Center (E2C2) established by the President – Nov. 2010 Responsible for coordination of DDTC, BIS, OFAC, DoJ, DoE, Homeland Security & National Intelligence Full-time director from DHS Serves as primary focal point between licensing and enforcement authorities Responsible for “de-confliction” and coordination of enforcement activities 52% de-confliction rate to date

Export Control Reform Initiative New ECRI Tool Order of Review Tool Provides assistance with how to apply the ITAR and EAR under Export Control Reform Initiative Available at: http://pmddtc.state.gov/licensing/dt_OrderofReview.htm NOTE: Helpful tool, but not a “safe harbor” – always refer back to the regulatory provisions

Questions?