1 GETTING STUFF FROM HERE TO THERE MANAGING THE WORLD OF EXPORTS Presented by: James R. Loux, President January 2010

2 OVERVIEW of the U.S. DEPARTMENT OF STATE EXPORT REGULATIONS

3 Discussion Agenda ITAR Trade Terms Regulatory Oversight & Reasons for Control Key Terms/Definitions Warning Flags Primary ITAR Differences/The ITAR Exportation: AES INCOTERMS/Valuation of Exports

4 U.S. Government Policy It is the policy of the United States Government to control the import and export of arms, ammunition and implements of war –(1976 AECA 22 USC 2778) It is unlawful to attempt to export any defense article, defense service or technical data without a license It is unlawful to import any defense article without a license It is unlawful to violate the terms or conditions of a license (e.g. provisos)

5 Reasons for Export Compliance Protect U.S. National Security –Safeguarding American technology (defense & dual- use articles) Comply with regulations and prevent ITAR and EAR violations –To continue to conduct business in the USA Advance National Objectives & Foreign Policy Goals –Through defense trade controls and policies

6 Export Control Why U.S. Has Export Controls –To protect its technological advantage –To protect against revelation of and providing the means to exploit its technologies To protect short supply interests To prevent proliferation of Toxins & WMD Key Technologies to Protect –Unmanned Aerial Vehicles –Night Vision –Precision Guided Munitions –Stealth & Advanced Composites –Missile Technologies –Networked Centric Warfare –Space Capabilities

7 Export License Application Review Process STATE DEPARTMENT Directorate of Defense Trade Controls (Munitions) DEFENSE DEPARTMENT Defense Technology Security Administration Technology Security Directorate COMMERCE DEPARTMENT Bureau of Industry & Security (Dual-Use) DEFENSE AGENCIES JOINT STAFF & MILITARY SERVICES APPLICANT OTHER GOVERNMENT AGENCIES

8 Exporting articles from the U.S.A is a PRIVILEGE, not a RIGHT. Premise: All exports are controlled. The Government tells you what is NOT controlled! (Changes due to world events) FAILURE TO COMPLY with the regulations can be cause for suspension or outright denial of YOUR PRIVILEGES U.S. Export Compliance Awareness

9 The U.S. Government is here to help you manage the world of international trade with the following regulations: –19 CFR Parts (Customs) –15 CFR Parts (BIS - EAR) –22 CFR Parts (State - ITAR) –15 CFR Part 30 (Census - AES/SED) –27 CFR Part 447 (ATF&E – USMIL) U.S. Export Compliance Awareness

10 Differences: ITAR & EAR ITAR: Covers military items (munitions/defense articles) Includes most space related technologies due to application to missile technology Includes technical data related to defense articles and services (furnishing technical assistance including design, engineering and use of defense articles) Very strict, not much latitude, few exemptions

Differences: ITAR & EAR EAR: Regulates dual use items = 10 CCL categories of different technologies (equipment, tests, materials, software and technology) Regulates items designed for commercial purposes but that can have military applications (computers, pathogens, civilian aircraft, etc.) Covers goods, test equipment, materials and the technology (technical data and technical assistance) and software Covers re-export of foreign commodities incorporating U.S. origin controlled items outside the U.S. DOC easier to work withmore exemptions available 11

12 Warning Flags US export control laws require documentary evidence concerning the transaction. The misrepresentation or concealment of material facts is prohibited, both in the licensing process and in all export control documents. –State Department/Commerce have developed a series of warning flags for suspicious activities Customer, end-user, and shipment flags –If these flags appear, personnel should be especially cautious in verifying end-user and end- use information

13 Warning Flags End-User Red Flags –Requested equipment does not match the known requirements or inventory of foreign end-user –Requests for spare parts exceed projected needs or are for systems not in the foreign end-users inventory –End-use involves private use of significant amounts or types of military hardware –Performance/design requirements are incompatible with the foreign end-users resources or environment, of with the foreign consignees line of business –Stated end-use is incompatible with the customary or known applications for the articles being purchased

14 Warning Flags Customer Red Flags –Customer or purchasing agent is reluctant to provide foreign end-use/end-user information –Customer is willing to pay cash for article/item –Little or no customer business background is available –Customer appears to lack familiarity with the articles performance and design characteristics or uses –Customer or purchasing agent refuses installation or service contracts that are normally accepted in similar transactions

15 International Traffic in Arms Regulations 22 CFR Parts –Provides purpose and concise definitions: hardware, technical data, etc –Identifies articles controlled via the U.S. Munitions List –Commodity Jurisdiction –Requires registration and certification of US company and certain staff –Identifies license, agreements, off-shore procurement, and defense service requirements for hardware and technical data: DSP5, DSP73, Technical Assistance Agreement

16 Administered by the U.S. Department of State and indirectly by the DOD Defense Technology Security Administration (DTSA) Applies to exports of arms, ammunition, and implements of war on USML (hardware, technical data, and services) Enforced by the U.S. Customs Service, U.S. Postal Service, and Treasury Department Controls foreign reexports of the following: –All U.S. origin products and technical data –All U.S. origin parts and components incorporated into foreign materials –Foreign manufactured products using US origin technology International Traffic in Arms Regulations

17 ITAR Denial/Embargoed Countries as of 03/25/09 ITAR denial list includes Belarus, Cuba, Iran, North Korea, Syria, Venezuela and Vietnam, and imposes embargoes with Burma, China, Liberia, Somalia and Sudan, Sri Lanka, Afghanistan, Cote dIvoire, Cyprus, Dem. Republic of Congo, Iraq, Lebanon, Libya, Haiti, Eritrea, Sierra Leone, Yemen, Zimbabwe The EAR identifies countries in Part 746 – different structure from the ITAR 126.1

18 NON-DIVERSION STATEMENTS In order to protect an exporter from penalties due to shipment diversion to restricted destinations, all export invoices, bills of lading and packing lists are to incorporate a non-diversion statement. There are two different statements depending upon which Department (State or Commerce) controls the export. 15 CFR Part of the EAR (the Commerce version) states: – These commodities, technology or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. Law prohibited Exporter may add additional language – this is a minimum guideline

19 Non-Diversion Statements Per 22 CFR 123.9(b), the ITAR (State Department version) states: – These commodities are authorized by the U.S. Government for export only to (country of ultimate destination) for use by (end user). They may not be transferred, transshipped on a non-continuous voyage, or otherwise be disposed of in any other country,either in their original form or after being incorporated into other end-items, without the prior written approval of the U.S.Department of State. Exporter may add additional language – this is a minimum guideline

20 EXPORT DECLARATION As of 9/29/08, all exports from the US must be filed via the AES or Automated Export System EDI. As of this date, all paper export filings (SEDs) are forbidden. Each accepted AES transaction file will have an ITN or International Transaction Number assigned to it which must be placed on the commercial invoice and bill of lading of the shipment being exported.

21 Automated Export System (AES) Facts** U.S. Census Bureau/Customs & Border Protection (CBP) computerized system for tracking and controlling cargo export information (replacing Shippers Export Declaration-SED) AES interfaces with other federal agencies Allows CBP to monitor and enforce compliance with export laws and regulations Currently all exports must be filed through AES USML and CCL articles submitted through AES regardless of dollar value

22 Export Clearance Transport Cutoff Times*: Mode & Jurisdiction ModeUSMLCCL Truck8 Hours1 Hour Rail24 Hours2 Hours Air8 Hours2 Hours Vessel24 Hours *

23 DISCUSSION ISSUES RECORDKEEPING, DUE DILIGENCE DENIED PARTY SCREENING COMPLIANCE POLICY/PROCEDURES CORPORATE POLICY STATEMENT VISITOR CONTROL COMMUNICATIONS CONTROL ORDER PROCESSING PROCEDURE SCHEDULE B

24 DISCUSSION ISSUES CONSCIOUS OVERSIGHT WEBSITES: US CUSTOMS & BORDER PROTECTION: COMMERCE/BUREAU OF INDUSTRY AND SECURITY: STATE/DIRECTORATE OF DEFENSE TRADE CONTROLS:

25 Thank you for your attention! This presentation copyrighted by Allegheny Brokerage Co. January All rights reserved.