1. Hello,
U.S. Export Controls
Nancy Wood Outsource Trade Group, LLC Managing Director Pacific Contours, Inc April 10, 2014

2. Export Control Regulations
International Traffic in Arms Regulations (ITAR)
22 CFR Parts
Controls on Defense Articles, Technology and Services (Munitions Items)
Department of State, Directorate of Defense Trade Controls (DDTC)
Arms Export Control Act (AECA)
Export Administration Regulations (EAR)
15 CFR Parts
Controls on Dual-Use Goods and Technology (Items with a commercial and military utility) and purely commercial items
Department of Commerce, Bureau of Industry and Security (BIS)
Export Administration Act (EAA)
2 main bodies of U.S. export controls regulations.

3. Overview: Scope of Export Controls
What is an Export?
Any item sent from the United States to a foreign destination
An “item” includes commodities (products, test equipment, production equipment, computers, spare parts), software, technology (design drawings, technical specifications, production data, technical assistance)
Technology is “deemed” to be exported when provided to non-U.S. nationals within the United States
How an item leaves the United States does not matter for export control purposes
Hand carry
Air/ocean
Electronic
In person
Transfers or shipments to non-U.S. affiliates/parent company are exports

4. U.S. Trade Compliance Overview
Assumption that ALL products are export controlled
Products & Technical Data
Are Licensable or Non-Licensable
based on “Export Classification”
The scope of this presentation will be on technical data. To start this process, do not think exclusively of only shipping to "restricted countries" because some of our potential exports are controlled worldwide, that includes within the U.S. itself.
Where we may or may not ship our goods can vary with each transaction and is dependent primarily on these variables:
the export classification of our product or technical data,
the Country we are planning on exporting to
the identity or nationality of all of the parties or recipients involved,
and the activities in which those Parties and our final customer is involved.
We must determine this information before we can decide whether or not an export license or various other authorizations are required.
The individual regulations each list countries and parties that are subject to embargoes or other special controls thus we need to be aware of the subtle differences between the individual regulations.
For example, under Commerce guidelines there are presently 5 countries for which export of almost all of our product would require an export license. Those countries are Iran, Syria, Sudan, North Korea, and Cuba, but under Treasury regulations we would also add Afghanistan if dealings with the Taliban, and Angola if our customer was UNITA. It all depends.
NEXT SLIDE
Countries
Are Controlled or No Controlled based on the Regulations
Persons/Parties –
Who & What They Do
Are Controlled or Not Controlled
based on the Regulations

5. Pacific Contours
Refer to part 6, Technology Transfer page 9. Under the EAR and the ITAR, a “deemed” export takes place any time the company releases technology to a foreign national, whether it takes place in the U.S. or abroad. Technology is specific information necessary for the “development”, “production” or “use” of a product. Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.); when it is exchanged orally; or when it is made available by practice or application under the guidance of persons with knowledge of the technology

6. International Traffic in Arms Regulations (ITAR)

7. International Traffic in Arms Regulations (ITAR)
Administered by the U.S. Department of State, Directorate of Defense Trade Controls (DDTC)
Enforced by Homeland Security, Immigration and Customs Enforcement (ICE) and the FBI
Control the temporary and permanent export to ALL countries of defense articles (including technical data and software)
Control temporary imports of defense articles (including technical data and software)
Control the provision of defense services

8. ITAR
Anyone who manufactures or exports defense articles, provides defense services or brokers defense articles must register with the DDTC
Registration alone does not satisfy license/prior approval requirements
Brokering defense articles and defense services is also controlled
U.S. persons acting as an agent for the transfer or sale of defense articles or services, both foreign and U.S.
Foreign persons acting as an agent for the transfer or sale of U.S. origin defense articles or services
Pacific Contours is registered with DDTC

9. ITAR USML
Category I
Firearms, close assault weapons and combat shotguns
Guns Armament
Category III
Ammunition/Ordance
Category IV
Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes
Category VI
Vessels of War and Special Naval Equipment
Category VII
Tanks and Military Vehicles
Category VIII
Aircraft and Associated Equipment
Category IX
Military Training Equipment and Training
Category X
Protective Personnel Equipment and Shelters
Category XI
Military Electronics
Category XII
Fire Control, Range Finder, Optical and Guidance and Control Equipment
Category XIII
Auxiliary Military Equipment
XIV
Toxicological agents including Chemical agents, Biological, And Associated Equipment XV
Spacecraft Systems and Associated Equipment
XVI
Nuclear Weapons, Design and Testing Related Items
XVII
Classified Articles Technical Data and Defense Services Not Other Enumerated
XVIII
Directed Energy Weapons
XIX
Reserved
Is the List of controlled items. Identified in Red is where Pacific Contours applies in respect to technical data (i)

10. ITAR Definition: Technical Data
§ : information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles
Also includes software as defined by § 121.8(f) directly related to defense articles
Includes: information in the form of blueprints, drawings, photographs, plans, instructions or documentation
Excludes: basic marketing information, public domain information, and fundamental research
Be careful! Marketing activities can quickly slip into the provision of technical data.
Pacific allowed

11. ITAR Definition: Defense Service
§120.9:
(1) the furnishing of assistance (including training) to foreign persons, whether in the U.S. or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operations, demilitarization, destruction, processing or use of defense articles
Does not require the transmission of ITAR-controlled technical data
Assistance involving public domain information or information subject to the EAR can still be a defense service if the assistance relates to a defense article
Pacific not allowed

12. ITAR Definition: Defense Service
§120.9 (cont.):
(2) the furnishing to foreign persons of any technical data controlled under this subchapter (§120.10) whether in the U.S. or abroad
(3) military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the U.S. or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice
Remember: You cannot have a defense service without a foreign person

13. ITAR: Types of Licenses
Licenses for Export or Temporary Import
DSP-5: Permanent export of unclassified defense articles or technology. *New submitting Agreements
DSP-73: Temporary export of unclassified defense articles or technology
DSP-61: Temporary import of unclassified defense articles or technology
DSP-85: Permanent or temporary export of classified defense articles or technology
Duration for all: 4 years or when total authorized quantity or dollar value has been shipped, whichever occurs first.

14. ITAR: Types of Licenses
Technical Assistance Agreements (TAA)
An agreement for the performance of a defense service or the disclosure of technical data, as opposed to an agreement granting a right or license to manufacture defense articles. Authorization for the assembly of defense articles can be included, provided production rights or manufacturing know-how are not conveyed. Duration defined in TAA, up to 10 years.
Manufacturing License Agreements (MLA)
An agreement whereby a U.S. person grants to a foreign person authorization to manufacture defense articles abroad and which involves the export of technical data or defense articles or the performance of a defense service; or the use by the foreign person of technical data or defense articles previously exported by the U.S. person. Duration defined in MLA, up to 10 years.
Warehouse and Distribution Agreements (WDA)
An agreement to establish a warehouse or distribution point outside the United States for onward distribution within an approved sales territory of defense articles exported from the United States. Duration defined in WDA, up to 10 years.

15. Types of Activities Requiring Agreements
Supporting sales to foreign parties
Providing overseas maintenance or training
Technical studies or evaluations with foreign parties
Release of manufacturing data or rights
Efforts to import technology from abroad
Supporting a foreign military sales case
Supporting U.S. gov’t sponsored foreign contracts

16. ITAR: Brokering
ITAR Part 129 governs BROKERING of defense articles and defense services
Registration and licensing/prior notification requirements separate from those for exports under the ITAR
Brokering provision covers any person, regardless of nationality, that acts as a broker by:
Negotiating or arranging contracts, purchases, sales or transfers
Of defense articles or defense services (U.S. or foreign origin)
In return for a fee, commission or other consideration

17. ITAR: Brokering Examples
Foreign sales representative that seeks to find foreign customers for U.S. company’s components for use on military aircraft; sales representative receives a fee for contracts negotiated
 Brokering
Foreign affiliate sells its own defense articles to non-US customers
 Not brokering
“Employee” of U.S. company resides at and is on the payroll of foreign affiliate. “Employee’s” job is to market U.S. company’s defense articles and negotiate contracts

18. ITAR: Part 130
ITAR Part 130 requires reporting on the payment of certain political contributions, fees and commissions
Reporting requirement triggered for exports of defense articles or services valued in an amount of $500,000 or more
Political contributions in an aggregate of $5,000 or more
A Part 130 Statement must be submitted with ALL ITAR license applications and agreements submitted for approval
Overlap with the Foreign Corrupt Practices Act and other anti-bribery/anti-corruption laws

19. Export Administration Regulations

20. Export Administration Regulations (EAR)
Administered by the U.S. Department of Commerce, Bureau of Industry and Security (BIS)
Enforced by Commerce Department, Office of Export Enforcement (OEE), Homeland Security, Immigration and Customs Enforcement (ICE) and the FBI
Control the export and reexport of commercial and “dual-use” items (products, equipment, materials, software, technology)
Restrict activities of U.S. persons with respect to proliferation activities

21. EAR Definition: Technology
Specific information necessary for the “development”, “production”, or “use” of a product
The information takes the form of “technical data” or “technical assistance”
Technical assistance may take the form of instruction, skills training, working knowledge, or consulting services, among others
Servicing a product is considered to be a transfer of technology under the EAR

22. Commerce Control List (CCL)
Category 0 – Nuclear Materials, Facilities, and Equipment [and Miscellaneous Items]
Category 1 – Materials, Chemicals, “Microorganisms,” and Toxins
Category 2 – Materials Processing
Category 3 – Electronics
Category 4 – Computers
Category 5 – Telecommunications and “Information Security”
Category 6 – Sensors and Lasers
Category 7 – Navigation and Avionics
Category 8 – Marine
Category 9 – Propulsion Systems, Space Vehicles and Related Equipment
EAR99 - Items that do not fall into any of the above categories
U.S. Export Control reform where they will be merging list gradually from USML to the CCL into what is known as 600 series
Each Category controls: A. Systems, Equipment and Components, B. Test, Inspection and Production Equipment, C. Materials, D. Software and E. Technology. Each entry describes the controlled items in very technical terms. All products (including spare parts), software and technical data must be classified to determine licensing requirements.

23. EAR: License Determination Process
Determine classification
Check CCL for goods, technology, software for ECCN
If not on CCL, use EAR99
Destination
Embargoed destination?
If on CCL, check country chart
If going to specific aircraft/helicopter, also check.
End user
End use
If a license requirement exists, review license exceptions to see if may proceed without a license under a particular license exception
Section 4 page 6 Prohibited end-uses and end-users. Before exporting material or data to an individual entity, you should check the lists identified in the Bureau of Industry and Security consolidated screening list at:
The EAR prohibits U.S. persons from exporting goods, software, and technology with the “knowledge” that such items could contribute to the proliferation of weapons of mass destruction. Additional details about nuclear end-use controls, missile technology end-use controls, and chemical and biological weapons end-use controls can be found at Part 744 of the EAR.
The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury administers and enforces certain country-specific controls that take the form of economic embargoes against countries, including to date, Cuba, Iran, North Korea, Sudan and Syria

24. Export Control Compliance:
For your Business
Department Roles

25. Management

26. Export Compliance Representative

27. Human Resources
There is a national security exception to Title VII (42 USC 2000e-2(g)):
“It shall not be an unlawful employment practice for an employer to fail or refuse to hire and employ any individual for any position, for an employer to discharge any individual from any position, or for an employment agency to fail or refuse to refer any individual for employment in any position, or for a labor organization to fail or refuse to refer any individual for employment in any position, if–
the occupancy of such position, or access to the premises in or upon which any part of the duties of such position is performed or is to be performed, is subject to any requirement imposed in the interest of the national security of the United States under any security program in effect pursuant to or administered under any statute of the United States or any Executive order of the President; and
such individual has not fulfilled or has ceased to fulfill that requirement. “

28. ITAR: Foreign Person A foreign person is defined in ITAR § 120.16 as:
Any natural person who is not a lawful permanent resident of the United States, or
Any natural person who is not a protected individual
U.S. citizens and green card holders are U.S. persons
A company must have authorization from DDTC to provide access to defense articles or services to a foreign person employee or visitor
DDTC considers country of origin (birth) to be part of a person’s nationality
DDTC considers dual nationalities relevant

29. EAR: Foreign National A foreign national is:
A person who is not lawfully admitted for permanent residence in the United States, or
A person who is not a protected individual
A company must have authorization from BIS to provide access to technology to a foreign national if an export of that technology to the individual’s home country would require a license
BIS considers “last in time” nationality; BIS does not treat individuals as dual nationals
BIS does not currently consider country of origin (birth) to be relevant as a separate factor

30. Human Resources/Security
ITAR and EAR consider it an export to transfer controlled technical data/technology to a foreign person, even when that person is located IN THE UNITED STATES
Identify foreign nationals present at the Company
New Hires
Existing employees
Seconded employees (long or short term)
Contract employees
Visitors
Refer page Section 7 page 13 Screen all visitors against Restricted Parties List
Determine whether the visitor will require access to controlled data or articles and inquire about nationality as needed to satisfy export control requirements, apply for license as needed
Determine if foreign national employees require access to controlled technical data and if so apply for license as needed or license exception

31. HR/Security Visitors to facility
Not exempt from export control restrictions because duration of stay is more than a day, week, month or because it is a repeat visitor
Plan ahead!
Screen all visitors against Restricted Parties Lists
Determine whether the visitor will require access to controlled data or articles and inquire about nationality as needed to satisfy export control requirements
Obtain an export license, as needed
Implement a Technology Control Plan
Annex D

32. Information Systems
System administrator and system maintenance personnel must be U.S. persons
Software safeguards – e.g., Location and security of backup file copies
Know the classification of all software on the system, particularly any software installed on Company laptop computers with which employees may travel
Ensure controlled technical data is not accessible to unauthorized parties.
Fulfill and implement Technology Control Plan such as restricting access or securing controlled data from unauthorized foreign nationals

33. Role in export compliance generally
Product Engineering
Role in export compliance generally
Assist with product classification
Identify and mark controlled technical data
Be aware of export controls on technical data and defense services in all you do
If you are using existing drawings/specifications as a starting point for a new product, understand the export classification of the initial data
Specifically designed.

34. Product Engineering Outsourcing engineering drawing support
Transfers of data/drawings to customers during design phase
Meetings with customers
Presentations to customers
Transfers of hardware as samples/prototypes/etc.
Hand-off of drawings/product specifications to purchasing/sourcing team requires a clear communication of export control status
Aware

35. Purchasing Global sourcing
Be conscious of countries and parties with whom you deal
Screen all potential suppliers against Restricted Parties List
If suppliers have access to database/extranet, ensure adequate controls exist to limit access to controlled technical data
Consider export control status of any drawings/specifications that must be provided to supplier
If working with supplier to design, modify, integrate parts for your purposes, determine if any controlled defense services or technical assistance
Ensure suppliers/subcontractors fulfill responsibilities under applicable regulations and report on the status of their products and associated commodities regarding export restrictions
Dealing with a buying agent? Beware of possible brokering under the ITAR

36. Marketing & Sales
Temporary exports for trade shows or other demonstrations
Temporary exports under the EAR: TMP license exception
Temporary exports under the ITAR: need a license—plan ahead
Make sales contingent upon receiving any required export authorizations
Ensure customer is aware of possible end-user/end-use limitations and retransfer or reexport restrictions
Is an agent or sales representative involved? Beware of brokering under the ITAR

37. Shipping
Ensure you are aware of the export classification and export license requirements for all items to be shipped from the Company
Request additional information from shipping requestor to determine export control requirements
Coordinate with ECO as necessary
For controlled goods, confirm a valid license or exemption authorizes the shipment
Properly document the export on all required export documentation
Ensure proper destination control statement is included on shipment
For exports of technical data, ensure adequate information is provided in export documentation (especially if using online shipping software for express delivery services)
Do not release shipments that lack proper export authorization

38. Penalties for Non-Compliance
Under EAR -Individual criminal penalties for willful violations of up to 1 million and/or, or imprisonment for up to 20 years. Under ITAR -Criminal penalties under munitions are $1 million and/or 20 years imprisonment. And for civil violations $500,000 and forfeiture of goods It can also include denial of export privileges and fines are subject to public record
UTC example fined 75 million exporting without a license U.S. origin military software that could be used in the development of China’s first modern military helicopter Z-10.

39. Thank You
Q&A
If you have any questions in the future please do not hesitate to contact:
Nancy Wood
Outsource Trade Group, LLC
Or View your company online database at: