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UK Establishes Baseline for Compliance Procedures for ITAR Foreign National Exemption for Foreign Parties

Holly Thorne — Tue, 03 Jan 2012 16:10:38 +0000

UK BIS/ECO Posts Exchange of Diplomatic Notes Concerning New Dual/3rd National ITAR Exemption

United States Department of State

Bureau of Political-Military Affairs

Directorate of Defense Trade Controls

Washington, DC

11 August 2011

Mr. William Mark Jesselt

Minister -Counselor (Defense Material)

British Embassy

Sir:

I have the honor to refer to discussions which have taken place between our two Governments concerning access of employees and in particular dual nationals and third country nationals to United States defense articles and technology. These discussions reflect the shared objectives of ensuring the security of defense articles, including technical data, in order to facilitate enhanced defense cooperation between our two Governments. As a result of these discussions it is the understanding of the Government of the United States of America that arrangements of mutual interest have been reached which are described below and will apply between our two Governments.

Our two Governments recognize that it is in the sovereign national security interests of both the United States and the United Kingdom to provide for protection of their own and each other’s defense articles and technical data, in furtherance of defense cooperation between our two Governments. It is understood that the Government of the United Kingdom has instituted security procedures for governmental and industrial operations concerning access to sensitive assets and information.

The Government of the United Kingdom requires a Baseline Personnel Security Standard (BPSS) for employment screening of civil servants, members of the armed forces and temporary staff, and for government contractors undertaking contracts involving sensitive information. It is understood that this screening covers nationality rules for government service where appropriate, verification regarding immigration and nationality, screening to guard against persons posing as prospective employees for commercial or personal gain, verification regarding criminal records, and screening for other factors indicating an individual’s suitability for access to sensitive government assets. It is also understood that a BPSS allows employee access to secret assets of United Kingdom origin, custody of secret assets and entry to work areas where secret assets are stored.

In acknowledgement of the aforementioned mutual interests and security procedures, the Government of the United States of America hereby recognizes that HMG’s BPSS, constitutes a screening process meeting the screening requirements of the International Traffic in Arms Regulation (ITAR), section 126.18(c)(2).

The two Governments further recognize that, in the course of investigations involving diversions of defense articles, including technical data, it may become necessary to exchange information concerning industrial security programs and individual data that may be considered private. It is understood that existing protocols and agreements between our two Governments provide for the sharing of such programs and data for the purposes of law enforcement under specified conditions, which include a requirement to protect such information within Government channels and to prevent it from public release. The two Governments intend accordingly to adhere to applicable, agreed procedures when requesting, receiving, and exchanging such information.

Additionally, it is noted that certain defense articles, including technical data, may be classified, in addition to being export controlled by the ITAR. In such cases, it is understood that employees possessing appropriate security clearances issued by the United Kingdom Government may be given access to United States’ classified defense articles, including technical data, consistent with and in accordance with the General Security Agreement of April 14, 1961, between the United Kingdom and the United States of America, as amended.

If the arrangements set out above are acceptable to the Government of the United Kingdom, I have the honor to propose that this Note and your reply to that effect, which instruments are not intended to be binding under international law, will place on record the understanding of our two Governments in this matter which will come into operation on the date of your reply.

I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

For the Secretary of State:

Beth M. McCormick

British Defense Staff — United States

British Embassy

3100 Massachusetts Ave, NW

Washington, DC

11 August 2011

Deputy Assistant Secretary McCormick

Bureau of Political-Military Affairs

US Department of State

Washington DC

Dear Deputy Assistant Secretary McCormick,

EXCHANGE OF NOTES BETWEEN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND MINISTRY OF DEFENSE AND THE UNITED STATES DEPARTMENT OF STATE DIRECTORATE OF DEFENSE TRADE CONTROLS

I have the honour to acknowledge receipt of your Note dated 11th August 2011 concerning the access of employees and in particular dual national and third country nationals to Unites States ITAR controlled defence articles and technology and to confirm that the arrangement set out in your Note are acceptable to the Government of the United Kingdom that these instruments are not intended to be binding under international law.

I furthermore confirm that the arrangements set out in your Note will place on record the understanding of our two Governments in this matter which will come into operation on today’s date. I avail myself of this opportunity to renew to you the assurances of my highest consideration.

Yours sincerely,

Will Jessett CBE

Minister (Defense Materiel)

British Defense Staff (United States) Source: http://www.bis.gov.uk/assets/biscore/eco/docs/itar-rule-change/us-note-itar-rule-change.pdf

UK BIS/ECO Posts Q&A Matrix on Implementation of New Dual/3rd National ITAR Exemption

Holly Thorne — Tue, 03 Jan 2012 16:07:13 +0000

Introduction

1. This Table sets out a number of questions put to and answered by the US Department of State (DoS) (Director of Policy, Directorate of Defense Trade Controls) by HM Government (HMG) and UK industry, concerning this rule change which alters the way in which access by Dual and Third Country Nationals (DTCN) employees of importing (non-US) entities to ITAR-controlled material is controlled. The effective date of the rule was 15^th August 2011.

2. This UK-specific Questions and Answers Matrix has been agreed by DoS to help UK End Users and Consignees comply with the rule change requirements and complements the Technology Security Plan (TSP) that HMG has also agreed with DoS. The information suggested in this document is for guidance only and made without any endorsement, representation or warranty. It is not intended to provide legal or professional advice, and any party seeking to rely on it should ensure that it has obtained its own legal advice to ensure that it is applied in accordance with UK law.

	Clarification Question	DoS Clarification

	1. Is ITAR 124.16 still available for use as an alternative to ITAR 126.18 in TAA and MLA?	Yes ITAR 124.16 is still available.
	2. Does the new rule change offer two genuine alternatives to compliance by foreign consignees/end users; as employers they either obtain formal Government security clearance for their affected employees, or subject them to bespoke screening?	There are two genuine alternatives, ITAR 126.18(c)(1) and ITAR 124.18 (c)(2). The screening procedures and associated requirement only apply to the second, and not the first which is solely concerned with security clearance of employees.
	3. What level of a formal Government Security clearance will suffice to meet the requirements of ITAR 126.18(c)(1)?	Any security clearance approved by the host Government of the end user/consignee is sufficient to meet these requirements. In the UK, Security Check (SC) clearance meets these requirements.
	4. Does the new rule apply to the export of UNCLASSIFIED ITAR-controlled material only? What then is the position in relation to the export of classified material?	The ITAR 126.18 exemption is only available for UNCLASSIFIED US ITAR-controlled exports (below US CONFIDENTIAL). The US-UK Exchange of Notes (EoN) makes it clear that classified exports are to be dealt with separately under the UK-US General Security Agreement
5. Does the new rule extend to all ITAR-controlled exports, or only to those governed by TAAs and MLAs?		The new rule applies to the export of all ITAR-controlled material and hence all forms of US arms export licence. DoS has recently published guidance on how to implement the new rule for licenses and Warehouse and Distribution Agreements.
6. Why does the scope of the new rule include technical data but exclude “defense services”, even though both are encompassed by TAA/MLA?		“Defense services” cannot be retransferred as such. “Defense services” do however remain a feature of retained ITAR 124.16 (amended) for MLA/TAA.
7. How does the new rule treat sub-licensees and how do sub-licensing provisions work in relation to hardware licensing?		The new rule applies equally to sub-licensees as it does to licensees. It has no bearing on formal applications for re-transfer. For hardware licensing see 5 above.
8. Does conflict exist between ITAR 126.18 and ITAR 126.1(a), if so how will this be dealt with?		No conflict exists, because of the insertion of the phrase “notwithstanding any other provision of this part” into ITAR 126.18. “Part” here means Part 126. Hence the exemption applies to 126.1(a) nationals and dual nationals who have undergone the UK’s Baseline Personnel Security Standard (BPSS).
9. How does the new rule apply to end users and foreign consignees? Is there a distinction?		The new rule applies equally to end users and foreign consignees wherever they operate.
10. Does the ITAR 126.18 requirement for NDAs (for employers with non-security cleared employees) apply to employers, employees or both? How will this requirement work in relation to foreign governments and international organisations (NATO, EDA etc?)		Only the employer itself needs to enter into an NDA on a self-certification basis. Individual employees need not do so. This does not prohibit use of employee NDAs to support employer NDAs, but this is not an ITAR requirement and is a matter for the end user/consignee. End users and consignees should note that the NDA required for the purpose of this rule change is not the same as the NDA referred to under existing Dept of State/DDTC Agreements Guidelines (Tab 11 refers). HMG may follow the same process. The NDA requirement does not apply to international organisations such as NATO and EDA.
11. What form should the NDA take?		A model NDA is to be found in the TSP and has been endorsed by DoS. This forms part of the agreed TSP for the UK and meets the NDA requirements for all exports. DoS have also confirmed that the NDA process will involve self-certification without any need for delivery to DoS.
12. Does the new rule permit transfers to employees outside of “the physical territories of the country where the end-user is located or the consignee operates”?		The transfer of defense articles pursuant to this section must take place completely within the physical territory of the country where the end-user is located, where the governmental entity or international organization conducts official business, or where the consignee operates, and be within the scope of an approved export license, other export authorization, or license exemption.
13. How does the rule apply to personnel within the UK’s Armed Forces? Are these to be treated as “bona fide, regular employees, directly employed by the….foreign government entity” (ITAR 126.18 (a) refers)?		HM Armed Forces personnel are to be treated by the rule in the same way as other employees.
14. Will the new rule require or imply the use of certification by end users/foreign consignees to exporters, that they have screened their affected employees for risk of diversion?		No certification is required. Indeed certification should not be requested by exporters.
15. Does the rule require the disclosure of personnel records of employees of UK employers to DoS?		DoS understands that any disclosure must be in accordance with UK law. The EoN between the US and UK Governments recognises this and acknowledges the existence of previously agreed bilateral arrangements between the two Governments. Any disclosure requests by DoS or its agents will be made via HMG.
16. ITAR 126.1 cross-reference – Is it accepted that employees can travel for business, family and personal reasons?		Yes.
17. What about current employees who don’t have Baseline Personnel Security Standard (BPSS) clearance?		Those affected employees already handling ITAR controlled materiel should already be covered under existing licences. Other employees will be covered when the consignee has a BPSS process in place.
18. Under ITAR 127.1(b), compliance obligations fall to the licensor. Is this still the case with ITAR 126.18?		This is not specifically addressed in the final rule change, but the answer is no. DoS guidance on their website makes it clear that licensors have no obligation to obtain written statements or certifications from foreign companies with regard to 126.18.
19. What about supply chains? How are UK primes to ensure compliance by their sub-contractors, including those across the EU?		There is no requirement to flow down ITAR 126.18 requirements to suppliers (sub-licensees). Each supplier must take responsibility for complying with ITAR 126.18 etc. Prior DDTC consent is still required for retransfers to third country suppliers.
20. To what extent, if any, could S 2(3)(B) of the Protection of Trading Interests Act 1980 render any discovery type activity by US authorities inadmissible?		There is no restriction on the UK Secretary of State’s powers under the 1980 Act. The EoN makes it clear that exchange of information must adhere to applicable agreed bilateral US UK protocols. It will not therefore be necessary to invoke the PTIA.
21. Is HMG content there are no conflicts with national regulations on employment law, privacy law etc?		It is for each end user/consignee to ensure that their implementation of the rule change is effected in a manner which complies with UK law. The TSP, model NDA and this Q&A Matrix are provided as guidance to assist end users/consignees in this exercise, but in the event of specific issues end users/consignees should obtain their own legal advice.
22. Will Non-Disclosure Agreements (NDAs) still be required even if a company has BPSS in place?		Yes. A model NDA can be found in the TSP.
23. Will there be legal conflicts if employers have to screen certain employees for substantive contacts with ITAR prohibited nations (for e.g. Syria)?		Dept of State has confirmed that adopting the BPSS will meet the screening requirements. Those UK end users/consignees who decide not to adopt the BPSS will have to introduce their own screening arrangements in order to comply with the rule change.
24. Will employers have to disclose private information to the US Dept of State about employees who are deemed as ‘diversion risks’?		If an end user/consignee decides not to use BPSS to meet the screening requirements of the rule change then they may follow the guidance issued by DoS on their website dated 31 August 2011.
25. Will employers need to refuse or remove an employee to work on a project on the basis of a risk of diversion?		The end user/foreign consignee must assess the risk and act reasonably and proportionately in accordance UK law.
26. Currently the use of 124.16 permits the exchange of defence articles with DTCN employees of the approved sub-licensees provided they are nationals of countries that are members of NATO, the European Union, Australia, Japan, New Zealand, and Switzerland, without the need to sign a personal Non-Disclosure Agreement. Where this does not apply or cannot be used 126.18 to provide a mechanism for approval for DTCNs outside of the exempt 124.16 countries. Currently this approval is satisfied using 124.8(5) which must be specifically approved within the MLA/TAA agreement. Subsequently approved individuals are obliged to sign personal NDA’s before access to defence articles is permitted. The issue with the current approach, with many European countries, is the conflict with anti-discrimination, human rights and data protection laws when requesting an employee’s place of birth or nationality.		The new rule provides additional flexibility which avoids the issues pertaining to the current approach. It is potentially a simpler process provided risks of diversion are accounted for. It provides a choice – end users/foreign consignees could use either approach. Whether adoption of 126.18 clearance or screening procedures in other countries is practical or consistent with their domestic law is a matter for them.
27. Section 124.8(5) will now direct DTCN approvals through 124.16 and 126.18. Does this mean 124.8(5) can no longer be used to approve nationals from countries outside of 124.16?		No. Licensing can still be used pursuant
28. Will existing agreements remain valid but require amendment to incorporate the appropriate 126.18 wording?		DoS have issued updated guidance on this transitional matter through their website.
29. As agreements are amended for other reasons will it be mandatory for the new 124.8(5) clause to be incorporated in place of the old one?		Yes.
30. Can the use of 124.16 and 124.8(5) still be used to approve employees access to defence articles in new agreements or must the provision at 126.18 be used?		DoS have confirmed that end users/consignees have a choice.
31. Who determines if a end user/consignees screening process is robust enough to meet the rule change requirements? Will the TSP only need to be provided at the request of the Dept of State or DDTC or its agents for civil and criminal law enforcement purposes?		If a company uses the standard UK TSP agreed with DoS, there is no requirement in the new rule to have an individual company’s security plan endorsed by DoS. Guidance is provided by DoS if a company wishes to pursue or develop its own TSP. The TSP only needs to be provided for civil and criminal law enforcement purposes and DoS understands any disclosure must be in accordance with UK law.
32. Do the screening results need to be provided to the US agreement holder?		No.
33. Is there any requirement for the foreign consignee to maintain records of its sub-licensee DN/TCN approvals?		No.
34. What responsibility does the foreign consignee have towards its sub-licensees?		None. The sub-licensee must ensure that it is compliant with the rule change. The foreign consignee may report its sub-licensees’ compliance preferences to the UK exporter.
35. ‘Regular Employees’ as defined in new 120.39 – that is permanent direct employees plus individuals ‘in a long term contractual relationship’ with the employer. (i) Please confirm that sublicensees and contract employees, except those meeting the above criteria are not covered? (ii) What does “long term” mean?		(i) This is correct. (ii) Per 120.39, Dept of State has confirmed that a regular employee generally includes individuals working under the direction and control of the company, working full time and exclusively for the company and where the staffing agency has no role in the work the individual performs. This excludes sub-licensees and those working under short term contracts less than a year in length.
36. Can ‘temporary staff’ be taken to be ‘contract employees’ as defined in para 3.9b of the DDTC’s Agreement Guidelines, i.e. will contract employees with a UK Government BPSS clearance be covered by the 126.18 (c) (2) exemption?		Probably, but HMG is awaiting final guidance from DoS.
37 The provisions of this rule apply explicitly to governments / end users. Is it the intention of government end users to comply with them?		Dept of State understands HM Government will follow the TSP guidance, at its discretion and in accordance with UK law.
38. Do the four key elements of the BPSS fully meet the screening requirements of 126.18 (c) (2)?		Yes – the EoN agreed between the US Government and HMG on 11 August states that the BPSS meets the screening requirements of the rule change.

Source: http://www.bis.gov.uk/assets/biscore/eco/docs/itar-rule-change/11-1337-question-and-answer-matrix-itar-rule-change.doc

UK BIS/ECO Posts ITAR Guidance for UK Entities

Holly Thorne — Tue, 03 Jan 2012 16:03:53 +0000

(Source: http://www.bis.gov.uk/exportcontrol)

If you a UK end-user or consignee company that handles material covered by the United States’ controls specified by the International Traffic in Arms Regulations (ITAR) then, you should make yourself aware of an important ITAR rule change and associated guidance information. This rule change issued by the US Department of State concerns Dual and Third Country National (DTCN) employees. The rule change came into force on 15 August 2011.

To help UK industry comply with this particular aspect of the US ITAR controls, the UK government have issued a number of guidance documents concerning the rule change including a Technology Security Plan and a Question and Answer Matrix. This guidance has been produced in consultation with industry representatives from the Export Group for Aerospace and Defence (EGAD).

The Notice to Exporters (published by the UK’s Export Control Organisation)below provides an overview of the rule change and links to guidance documents (published on the export control pages of both the Department for Business and Businesslink websites). It also includes some initial questions to understand how the rule change might impact on you and your company.

Details of ITAR rule change (76 FED REG 28174)

1. The US Department of State (DoS) has issued a final rule amending the International Traffic in Arms Regulations (“ITAR”)[1] to include a new license exemption for transfers of defence articles[2] to Dual National or Third Country National (DTCN) employees[3] of foreign end-users. The new rule came into force on 15 August 2011 and eliminates the need to obtain prior approval from DoS for the transfers of unclassified defence articles (including unclassified technical data) to DTCN employees of foreign business entities, foreign government entities, or international organisations that are approved end-users or consignees (including approved sub-licensees) for such defence articles.

2. Those UK end users/consignees who handle US ITAR controlled material should be aware that the exemption is subject to satisfying certain screening and recordkeeping requirements. In particular, in lieu of prior approval, the new ITAR Section 126.18 requires eligible companies and organisations to implement “effective procedures to prevent diversion to destinations, entities, or for purposes other than those authorised by the applicable export license or other authorisation.”

3. To this end, the US Government and Her Majesty’s Government (HMG) have agreed an approach confirmed in a diplomatic Exchange of Notes.[4] This means that HMG’s pre-existing Baseline Personnel Security Standard (BPSS) constitutes a screening process meeting the screening requirements of ITAR 126.18(c)(2). Those UK end users/consignees who decide not to adopt the BPSS will have to introduce their own screening arrangements in order to comply with the rule change. Further information can be found in the guidance documents, which can be referred to in the links at paragraph 4 (below).

Published guidance material

Following a number of meetings between the Export Group for Aerospace and Defence (EGAD) and HMG officials[5] a series of guidance documents have been agreed to help UK End Users/Consignees comply with the rule change. The guidance documents include:

A copy of the Exchange of Notes agreed between the US and UK Governments – see the UK Note and US Note
A model Technology Security Plan (including a Non Disclosure Agreement)
A Question and Answer matrix

These documents are published on the export control pages of the Businesslink website at:
http://www.businesslink.gov.uk/bdotg/action/layer?r.l1=1079717544&r.l2=1084228483&r.l3=1084228526&r.s=tl&topicId=1097086699

You can also download the documents from the Department for Business website at: http://www.bis.gov.uk/policies/export-control-organisation/eco-summary-guidance

5. UK end users/consignees should also note that the Ministry of Defence intends to communicate the guidance through the Defence Contracts Bulletin and Acquisition Operating Framework in due course.

6. The US Dept of State has been consulted on all of the UK’s guidance documents and has endorsed the approach taken. The US Dept of State also intends to issue its own guidance to US exporters making them aware of the specific bilateral arrangements/protocols, which have been agreed between the US Government and HMG.

Initial questions about the rule change

7. To understand how the rule change might impact on you and your company see the questions below:

Ques1: This is a ruling from the International Traffic in Arms Regulations (ITAR). I do not manufacture or trade in arms related equipment – will this ruling affect me?

Answer: Yes it could. ITAR controls the import and export of all defence related items and services on the United States Munitions List. For more details about ITAR controls see: http://www.pmddtc.state.gov/regulations_laws/itar.html

Ques2: I employ British citizens and some US citizens – does this security procedure apply to me?

Answer: Yes if either you or your employees handling US ITAR unclassified material are dual nationals or third country nationals

Ques3: If I want to adopt BPSS screening procedures what should I do?

Answer: You should refer to the guidance contained in the Technology Security Plan referred to at paragraph 4 above.

Ques4: I already comply with UK Export Control requirements and have licenses in place. Do I also need to comply with these ITAR requirements?

Answer: Yes – the ITAR requirements are separate from UK export control requirements.

Link to notice and contact information: http://www.bis.gov.uk/assets/biscore/eco/docs/notices-to-exporters/2011/nte201124.doc>

[1] ITAR is the set of United States government regulations that control the export and import of defence-related articles and services on the US Munitions List (USML).

[2] ‘Defense Articles’ mean items or technical data designated in Ch 121.1 of the US ITAR regulations. This includes technical data, recorded or stored in any physical form (including electronic transfers), models and mock ups.

[3] DoS defines a Third Country National as ‘an individual holding nationality from a Country or Countries other than the Country of the foreign signatory to the agreement. A Dual National is defined as an individual who ‘holds nationality from the Country of a foreign signatory and one or more additional foreign Countries.

[4] Exchange of Notes refers to the agreement between the US Government and Her Majesty’s Government on 11 August 2011 confirming that the UK’s BPSS meets the screening requirements of the new Rule Change.

[5] Ministry of Defence, Foreign & Commonwealth Office, Dept for Business, Innovation and Skills and the UKTI Defence & Security Organisation

Commerce/BIS Amends EAR re: Exports and Reexports to the Principality of Liechtenstein

Holly Thorne — Tue, 03 Jan 2012 15:42:20 +0000

The Bureau of Industry and Security (BIS) publishes this final rule to amend certain requirements in the Export Administration Regulations (EAR) that apply to the Principality of Liechtenstein (Liechtenstein). In this final rule, BIS aligns license requirements and licensing policy under the EAR for Liechtenstein with those for Switzerland. As a result, for purposes of the EAR, Liechtenstein will be treated the same as Switzerland.

By virtue of a Customs Union Treaty with Switzerland, Liechtenstein has adopted the export controls implemented under Swiss law, including controls equivalent to those prescribed under multilateral regimes, and has authorized Switzerland to administer and enforce export controls within Liechtenstein’s territory. As a result of this arrangement, Liechtenstein and Switzerland serve as one territory for customs and export purposes. Having recently been made aware of the full scope of this arrangement and its consequences on export controls, BIS has determined that it is appropriate to codify the treatment of Liechtenstein and Switzerland as one territory for purposes of the EAR. This treatment of Liechtenstein is consistent with the effort of the United States to streamline licensing requirements where export controls prescribed by the multilateral regimes are implemented. This rule is effective November 14, 2011.

Source: http://www.gpo.gov/fdsys/pkg/FR-2011-11-14/html/2011-29357.htm

Missouri-based Freight Forwarder to Pay $40,000 for Unlicensed Exports to Pakistan

Holly Thorne — Tue, 01 Nov 2011 16:49:21 +0000

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that the freight forwarding company Ram International Inc. (Ram) of St. Louis, MO, has agreed to pay a $40,000 civil penalty to settle allegations that it committed two violations of the Export Administration Regulations (EAR).

BIS alleges that on two occasions in 2006, Ram’s Elk Grove Village, IL office aided and abetted the unlicensed export of salvage scrap electrolytic tin plate steel to Allied Trading Company in Karachi, Pakistan, without the required BIS licenses. Allied is included on the Commerce Department’s Entity List which names certain foreign persons — including businesses, research institutions, government and private organizations, individuals, and other types of legal persons– that are subject to license requirements for the export, reexport and/or transfer in-country of specified items.

The Commerce Department Assistant Secretary for Export Enforcement, David W. Mills, commended the BIS Office of Export Enforcement Chicago Field Office for its work on the investigation.

Source: http://www.bis.doc.gov/news/2011/bis_press09162011.htm

Commerce/BIS “Best Practices for Industry to Guard Against Unlawful Diversion”

Holly Thorne — Wed, 05 Oct 2011 18:02:29 +0000

The Bureau of Industry and Security (BIS) recently published a new set of “best practices” to help secure trade through transshipment hubs, or to any intermediate country before being shipped to the country of ultimate destination. Transshipment has logistical benefits, but also can be used illegally to disguise the actual country of ultimate destination.

BIS is encouraging industry to use the following best practices to avoid unlawful diversion:

Pay heightened attention to BIS’s Red Flag Indicators and communicate red flag concerns internally.

Seek to utilize only those trade facilitators and freight forwarders that administer sound export control management and compliance programs that include transshipment trade best practices.

Obtain detailed information on the credentials of foreign customers to assess diversion risk.

For routed transactions, establish and maintain a trusted relationship with parties to mitigate risks.

Communicate export control classification and destination information to end-users and consignees on government and commercial export documentation.

Provide the ECCN or the EAR99 classification to freight forwarders for all export transactions and report the classifications in the Automated Export System (AES), if applicable.

Use information technology to the maximum extent feasible to augment “know your customer” and other due-diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end-users for authorized end-uses.

The full list of Best Practices can be found here

A.M. Castle & Co. of Franklin Park, IL, to Pay $775,000 to Settle Export Violation Charges

Holly Thorne — Wed, 05 Oct 2011 17:42:55 +0000

A.M. Castle & Co. of Franklin Park, IL have turned themselves in to the BIS for illegally exporting aluminum alloy (an item controlled for nuclear non-proliferation reasons) to the People’s Republic of China, Singapore, Malaysia and Mexico without the required licenses. On 65 occasions between 2005-2008, A.M. Castle & Co. illicitly exported approximately $200,000 worth of alloy, costing them $775,000 in fines.

Additional information

BIS Update 2011 Conference Remarks of Kevin J. Wolf, Assistant Secretary for Export Administration

Holly Thorne — Mon, 29 Aug 2011 17:59:40 +0000

At the Update 2011, Assistant Secretary for Export Administration Kevin Wolf gave remarks on his three general priorities since joining BIS: Ensuring aggressive compliance with the laws and regulations that we have now; addressing the biggest problems that exporters face on a day-to-day basis, such as unnecessary impediments on trade with close allies, becoming more reliable and predictable suppliers generally; and dealing with the (real or imagined) overlap between the U.S. Munitions List (USML) and the Commerce Control List (CCL). Wolf noted that his long-term priority is to address the compliance burden faced by exporters subject to the U.S. export control system.

After reviewing two recent changes to BIS regulations that address burdensome dual-use controls, Wolf turned his attention to getting “into the tall grass of the next step in the reform effort,”- the structure for how militarily less significant defense articles eventually moved from the USML (US Munitions List) will be controlled on the CCL (Commerce Control List).

A newly structured USML and “Commerce Munitions List” within the CCL is being proposed for national security, “It’s that simple,” Wolf said.

Wolf paraphrases former Secretary of Defense Gates, with his belief that our national security will be strengthened if (i) our export control system allows for more interoperability with our NATO and other close allies, (ii) our industrial base is enhanced by, for example, reducing the current incentives for foreign companies to design out or avoid U.S.-origin content, and (iii) our resources are more focused on controlling or prohibiting, as needed, the items that provide at least a significant military or intelligence advantage to the United States.

Wolf calls his goal finding “that sweet spot between facilitating trade to trusted end users and ensuring that sensitive items do not find their ways into the hands of entities and nation states that seek to undermine our national security.” Wolf calls all interested stakeholders – exporters, export counselors, licensing officers, enforcement agents, and prosecutors – to make our system effective.

The Federal Register notice describing the background, process, and the content of the plan can be found here. The BIS will accept comments through September 12, 2011 on this proposed ruling.

Click here for complete conference remarks.

When Will They Ever Learn?

admin — Mon, 29 Aug 2011 17:24:42 +0000

By R. Clifton Burns, Esq.

Late last week, the Bureau of Industry and Security (“BIS”) released documents relating to an agreement by Toll Global Forwarding (USA), Inc. to pay $200,000 to settle charges that it had aided and abetted nine unlicensed exports of EAR99 items to companies on BIS’s Entity List. The company also agreed to conduct an external audit of its export controls compliance program.

The violations at issue were committed by Baltrans Logistics prior to its acquisition by Toll Global Forwarding in 2008. The exports in question were to Bharat Dynamics Ltd. and Solid State Physics Laboratory, both government-owned entities in India which have since been removed from the Entity List.

It is hard to work up much sympathy for companies engaged in this kind of violation by failing to consult an easily accessible list on the BIS website. And in this instance, it wasn’t an isolated failure but instead nine separate failures. Worse yet, this wasn’t Baltrans’s first time at the rodeo. In 2007 Baltrans agreed to pay a $6,000 fine to settle charges of an unlicensed export to another Indian company on the Entity List. Moreover, one of the unlicensed exports in the current case occurred after Baltrans agreed to pay the earlier fine. That might explain the high fine in this case as well as the external audit requirement.

Source: Bryan Cave LLP, Wash DC, 202-624-3949
Export Law Blog

Reprinted by permission.

Violations

Holly Thorne — Mon, 29 Aug 2011 17:13:16 +0000

Toll Global Forwarding Will Be Paying It Back

The Bureau of Industry and Security (BIS) announced that Rosedale, New York-based Toll Global Forwarding (successor to Baltrans Logistics, Inc.) of will be paying a $200,000 penalty for nine violations of the Export Administration Regulations. The Violations include:

Causing, Aiding or Abetting an Act Prohibited by the Regulations on eight different occasions between 2005-2007. On these occasions, Toll Global acted as a freight forwarder and arranged for the export of electronic components designated as EAR99 items from the US to Bharat Dynamics Limited in India.

Causing, Aiding or Abetting an Act Prohibited by the Regulations in November 2007 by acting as a freight forwarder and arranging for the export of platinum pellets (designated as EAR99 items) from the US to Solid State Physics Laboratory in India.

The interesting point in this case is that this forwarding company was penalized even though it apparently was not the exporter. This case points out that BIS will not hesitate to impose penalties on parties involved in illegal transactions, even if they are the exporter who has the primary responsibility for compliance.

More information: http://efoia.bis.doc.gov/exportcontrolviolations/e2216.PDF

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Swiss Technology Inc. Pleads Guilty to Violating Arms Export Control Act, to Pay $1.1 Million Penalty

New Jersey-based defense contracting company Swiss Technology, Inc. will pay a $1.1 million penalty for violations of the Arms Export Control Act for exports of U.S. “defense articles” to the People’s Republic of China.

In August 2004, Swiss Tech entered into contracts with the U.S. Department of Defense (DoD) to manufacture defense articles and parts for use in military operations. Between 2004 and June 2009, the Clifton, N.J.-based company exported their DoD drawings, specifications, and sample parts to the People’s Republic of China without obtaining a license from the U.S. State Department. Swiss Tech intended to contract with the Chinese company to cheaply outsource the manufacture of parts for M4 and M16 rifles, as well as M249 machine guns used in military operations. Their money-saving scheme didn’t come to fruition and instead resulted Swiss Tech receiving a $1.1 million penalty.

More information:
http://www.justice.gov/usao/nj/Press/files/Swiss%20Tech%20Plea%20PR.html; www.justice.gov/usao/nj

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Singapore Man Exports Carbon Fiber Illegally, To Pay $100,000 to Settle Charges

Jianwei Ding is facing BIS is facing the music for allegedly conspiring to export carbon fiber items from the United States to China without the required licenses.

Ding is the manager of Jowa Globaltech Pte. Ltd. (also known as FirmSpace), and Far Eastron Co., both Singapore-based companies that acquire items for customers, including the China Academy of Space Technology. Despite several warnings from US suppliers, Ding acted in concert with these companies, and possible others, to export Toray carbon fibers that are controlled for nuclear proliferation and national security reasons.

More information: http://efoia.bis.doc.gov/exportcontrolviolations/e2216.pdf)