Archive for the ‘Export License’ Category

Excuse Not to Use If You Have a Violation: “I Was Too Busy”

Monday, March 4th, 2013 by Danielle McClellan

By: John Black

When asked why he did not get the required export licenses, Timothy Gormley from North Wales, PA, said he was “too busy.” Well, I doubt he will be “too busy” while serving 42 months in prison after pleading guilty to five export compliance violations. According to the Commerce Department, Gormley “altered invoices and shipping documents to conceal the correct classification of amplifiers to be exported so that they would be shipped without the required licenses; listed false license numbers on export paperwork for defense article shipments; and lied to fellow employees about the status and existence of export licenses.” Gormley’s action involved 50 unlicensed exports of sensitive amplifiers with military applications.

This case apparently arose when Amplifier Research, Gormley’s employer, did a voluntary disclosure and in the process pointed the finger clearly at Gormley. It’s rare that an export compliance person goes to jail, but when the government finds out that an export compliance person, or anybody, for that matter, falsifies documents and intentionally violates the rules, then as the song goes,

 

There’s gonna be trouble,

Right here in North Wales,

With a capital T

And that rhymes with P

And that stands for prison.

 

The good news is that Gormley was not put on the Denied Persons List, so when gets out of prison he can get right back into the export compliance field.

Posted in Commerce Dept, Export License, Licensing, Violations & Fines, Violations & Fines | Comments Off

Littlefuse, Small Value Export, Bigger Penalty (Grabe**!)

Thursday, January 17th, 2013 by Danielle McClellan

By: John Black

The Bureau of Industry & Security of the US Department of Commerce announced that Littlefuse, Inc. has agreed to pay an $180,000 penalty for illegal exports of liquid crystal polymer (ECCN 1C008.b) to the Philippines. Littlefuse voluntarily disclosed its violations for exports with a combined value $90,017.

A penalty that is twice the value of the exports may surprise some exporters because Littlefuse did a voluntary disclosure and exported to the Philippines, certainly a low risk country.

**Grabe is a Filipino word for “wow!”

Posted in 2013, BIS, Export License, Violations & Fines | Comments Off

The Continuing Saga of the PPG EAR Penalties: Former Director Goes to Prison, Pays $100,000

Thursday, January 17th, 2013 by Danielle McClellan

By: John Black

Xun Wang, a former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of United States-based PPG Industries, Inc., was sentenced on December 20, 2012, to a year in prison for conspiring to violate the International Emergency Economic Powers Act, the current legal basis for the Export Administration Regulations (EAR). In addition to the prison time, Wang must pay a $100,000 fine and to perform 500 hours of community service. Wang joins the list of other PPG US-based employees and PPG companies that have been hit with penalties for this one case.

Wang pled guilty to the conspiracy in November 2011, and agreed, as part of her plea, to cooperate with the government’s investigation. According to the US Department of Justice, her cooperation led to the Dec. 3, 2012, guilty plea by the China Nuclear Industry Huaxing Construction Co., Ltd. That plea is the first time that a PRC corporate entity has entered a plea of guilty in a U.S. criminal export case. Huaxing agreed to the maximum criminal fine of $2 million, $1 million of which will be stayed pending its successful completion of five years of corporate probation. For more information on the Huwaxing case go to http://www.bis.doc.gov/news/2012/doj12032012.htm

“Xun Wang was the most senior PPG Paints Trading corporate executive involved in this unlawful export scheme,” said U.S. Attorney Machen. “This prosecution has already held corporations accountable for their violations of U.S. export laws, but today’s prison sentence shows our determination to hold corporate executives personally responsible when they compromise our nation’s security in the pursuit of corporate profits.”

The US Department of Commerce’s Bureau of Industry and Security (BIS) led the investigation in this case. In addition to pleading guilty to criminal charges, in November 2011, Wang settled an administrative proceeding and agreed to pay a civil penalty of $200,000 with another $50,000 payment suspended, and to be placed on the Department of Commerce’s Denied Persons’ list for a period of five years with an additional five years suspended. Being on the denial list means Wang may not be involved directly or indirectly in any activity subject to EAR jurisdiction.

For over a year we have reported on this PPG case involving shipment of EAR99 epoxy coatings to the Chashma II Nuclear Power Plant (Chashma II) in Pakistan, a nuclear reactor owned and/or operated by the Pakistan Atomic Energy Commission, an entity on the Department of Commerce’s Entity List. Generally speaking, all items subject to the EAR require a license for export or reexport to this entity.

Wang’s conviction is related to the Dec. 21, 2010, guilty plea of PPG Paints Trading to four violations. Together, PPG Paints Trading and its parent company, PPG Industries, paid $3.75 million in criminal and administrative fines and more than $32,000 in restitution.

In January 2006, PPG Industries applied for an export license for the shipments of coatings to Chashma II. In June 2006, the Department of Commerce denied that license application. Following that denial, Wang and her co-conspirators agreed upon a scheme to export, reexport and transship PPG Industries’ high-performance epoxy coatings from the United States to Chashma II, via a third-party distributor in People’s Republic of China, without first having obtained the required export license from the Department of Commerce.

(Editor’s Note: If you want to get caught for a violation, then I suggest that anytime the US Government denies your application, go ahead and ship anyway. The US Government knows that in many cases companies who have licenses denied ship anyway so the government watches those companies. While I don’t have a list of recommended violations, this type of violation makes my List of Top 10 Ill-Advised Violations.”)

From approximately June – March 2006, Wang and her co-conspirators intentionally concealed from PPG Industries that the coatings would continue to be delivered to Chashma II. Further, members of the conspiracy stated, or caused to be stated, that the coatings were to be used at a nuclear power plant in China-if that truly were the case, the export would not require a license. Using this ruse, Wang and her co-conspirators exported three shipments of coatings from the United States to Chashma II.

In addition to penalties against the companies, two US based employees of PPG were also personally penalized for their involvement in the conspiracy.

Curtis Hickcox, a former regional sales manager, agreed to pay a $500,000 civil penalty, most will be suspended if he continues to comply with the export regulations and receives compliance training.

(Editor’s Note: Sitting through compliance training might be tough, but like my grandfather always said, “Learning about the EAR is not as bad as being in prison.” But what if they made these guys go to prison and get EAR and ITAR training while they are in prison? If they take that combo to Gitmo, I am thinking waterboarding would start to look a whole lot better.)

Howard Combs, a former director of business development, agreed to a $250,000 penalty for setting up the transaction and telling an employee to ship the goods via a third party distributor.

Posted in 2013, China, Commerce Dept, EAR, Export License, Violations & Fines | Comments Off

Our License Expired Last Month and We Shipped Today: Our Penalty is Double the Value of the Export

Friday, November 2nd, 2012 by Danielle McClellan

By John Black

Times are tough.  Sometimes even an export valued at $14,000 may seem to be worth the risk of a violation.  (I personally prefer the math of committing violations on the $2. billion dollar order.)  Unfortunately, the US Government has at its disposal plenty of potential penalties and a willingness to impose them that can make that shipment after the license expired less than worthwhile.

Consider PhibroChem, who had a license to export sodium fluoride (classified as 1C350)  to a customer in Mexico.  The PhibroChem export license expired in December 2007.  In January, 2008, PhibroChem made a $14,000 export of sodium fluoride to the same customer in Mexico but it did not have a valid export license.  PhibroChem agreed to pay a $31,000 in a settlement agreement with the Commerce Department.  While $31,000 pales in comparison to the huge penalties we often talk about, it is notable that even though the chemicals went to a trusted recipient in a trusted country, the company’s penalty amount was more than twice the value of the export.  And the penalty amount does not include the likely significant amount PhibroChem paid in legal fees and administrative costs to enhance its compliance program.

(Sodium fluoride:  Is that the stuff in toothpaste?   I cannot imagine a toothpaste additive is a chemical weapons precursor, but it doesn’t surprise because I know the germs that cause cavities are nasty things because I have seen pictures of them in TV commercials.  I wonder if the government is on the lookout for a shipment of a million tubes of toothpaste to a terrorist cell that might try to extract the sodium fluoride to make a chemical weapon.)    

Posted in Chemical & Biological Weapons, Commerce Dept, Export License, Violations & Fines, Violations & Fines | Comments Off

Sanctions Against Iran Target Foreign Entities Owned or Controlled by U.S. Companies and Hold U.S. Companies Responsible for Their Violations

Friday, November 2nd, 2012 by Danielle McClellan

By Suzanne Reifman, Vinson & Elkins, 202-639-6577, sreifman@velaw.com

Over the past two years, the United States has continued to escalate sanctions against Iran, targeting both U.S. and non-U.S. persons and particularly those persons dealing with or supporting Iran’s energy and financial sectors. On July 1, 2010, the U.S. passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA). CISADA amended the existing Iran Sanctions Act of 1996 (ISA) and was designed to expand restrictions on non-U.S. entities that provide goods, services, or other support meeting particular monetary thresholds to Iran’s petroleum industry. The goal of the ISA, as amended by CISADA, is essentially to force non-U.S. companies to choose between doing business with Iran and doing business with the U.S. Following the passage of CISADA, the U.S. has continued to target non-U.S. companies that provide support to Iran through a series of laws and executive orders that have broadened the scope of sanctionable conduct and isolated Iran’s financial sector.

On August 10, 2012, President Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA). The law contains many new prohibitions that affect a broad range of industries. In particular, the TRA addresses what many have described as a “loophole” in prior sanctions. Prior to the enactment of the TRA, in many instances foreign subsidiaries of U.S. companies could continue to legally engage in business with Iran as long as the business did not involve the provision of U.S. origin equipment or technology or require facilitation from U.S. persons. The prior sanctions were decidedly less restrictive than U.S. sanctions targeted against Cuba, under which foreign entities owned or controlled by U.S. companies are considered “U.S. persons” and fully subject to all of the sanctions’ requirements. However, under the TRA, any entity “owned or controlled by a United States person and established or maintained outside the United States” is now subject to the range of prohibitions applicable to U.S. persons or persons located in the U.S. with respect to dealings involving Iran.

It should be noted that the definition of “own or control” in TRA is broad, and means “holding more than 50 percent equity interest by vote or value in the entity;” “holding a majority of seats on the board of directors of the entity;” or “otherwise control[ling] the actions, policies, or personnel decisions of the entity.” The TRA does not identify the circumstances in which an entity can be “otherwise control[led]” and no other guidance has been issued. As such, U.S. companies that are parties to foreign joint ventures or similar entities in which they do not hold a majority equity interest or control a majority of board seats will still need to assess their level of control in order to determine whether these foreign entities could be construed as controlled by a U.S. company and, thus, subject to the Iran sanctions that apply to U.S. persons.

The TRA provided that the President would have to implement this provision within 60 days after the law’s enactment. Accordingly, Section 4 of the October 9, 2012 EO formally satisfied this statutory requirement. The EO provides that the penalties for violations of the prohibitions may be assessed against the U.S. person that owns or controls the entity that engaged in the prohibited transaction. The EO also provides that penalties shall not apply if the U.S. person that owns or controls the entity divests or terminates its business with the entity not later than February 6, 2013. Therefore, given the short grace period allowed for divestment/termination, U.S. companies will need to promptly determine:

  • Does the U.S. company own or control foreign entities that are engaged in conduct involving Iran that would violate U.S. sanctions against Iran? Note that in cases where U.S. companies are involved in joint ventures or other arrangements, it may be difficult to immediately identify all circumstances in which they control an entity based on the broad description set forth in the TRA.
  • If the foreign entity is engaged in business involving Iran, can this business be discontinued prior to February 6, 2013? Note that there is no general license or other authorization that would enable a U.S. company to provide unauthorized facilitation during this process. For example, a U.S. company could not participate in negotiations involving a foreign subsidiary and its Iranian customer to try and mitigate any breach of contract claims that would result from the foreign subsidiary’s termination of a contract.
  • If the owned or controlled foreign entity is either unable or unwilling to discontinue its business with Iran, can the U.S. company divest or terminate its interest in the foreign entity prior to February 6, 2013? Note that unlike the more general ISA sanctions, there is no “safe harbor” provision or other exception that would be granted to a foreign entity owned or controlled by a U.S. company that continues to do business with Iran (even if the entity is in the process of winding down or reducing its business).
  • Does the U.S. company have any of its own licenses from OFAC to engage in transactions involving Iran? If so, the company needs to consider whether it will need to cover any of its foreign owned or controlled foreign entities under these licenses going forward.
  • Can the U.S. company put the appropriate policies and procedures in place at its owned or controlled foreign entities to ensure compliance on a going-forward basis?

Given these issues, compliance with the TRA, as implemented by the October 9 EO, will present a major challenge for many U.S. companies and their owned or controlled foreign entities.

http://www.velaw.com/resources/SanctionsAgainstIranTargetForeignEntitiesOwnedControlledUSCompanies.aspx

Posted in BIS, Commerce Dept, Commerce Dept, EAR, Export License, Finance & Banking, Iran, Licensing, Sanctions | Comments Off

DDTC Implements New UK Exemption

Friday, May 11th, 2012 by John Black

It’s here.  The ITAR exemption for the UK.  After years and years of failed attempts to get the US Congress to change the Arms Export Control Act to allow an exemption for the UK, the Bush Administration decided to use US-UK treaty as the basis for the exemption because the US House of Representatives does not have the authority to block treaties.  Then the US and the UK negotiated the treaty.  Then we waited while the two governments worked out the details involved in implementing the treaty.  There were preliminary regulations, draft regulations, proposed regulations.

Now we have the real regulations.  We have the ITAR exemption for the UK.  So now it is time to export away!

NOT!

Maybe your boss or your sales department heard the new exemption gets rid of ITAR issues for the UK.  Unfortunately, the ITAR exemption for the UK is not a free ticket to export.  Instead it is a complex exemption with multiple requirements, limitations, and burdens.

As I approach my 28th year in export compliance I wonder if I have ever seen anything as complicated as this.  Certainly many exporters right now still prefer to get an export license over trying to use the new exemption.  I guess the first test of whether the exemption is for you, is to see whether you can even finish reading this article.

Before you use this new exemption in ITAR 126.17, you need to ask, answer and act on at least these questions:

  • What are the eligible exports from the US to the UK?
  • What are the eligible transfers within the UK?
  • What are the eligible retransfers from the UK?
  • What are the eligible defense articles and defense services?
  • What are the eligible parties—The “UK Community”?
  • What are the eligible end-uses?
  • What are the mandatory marking and destination control statement requirements?
  • What are the mandatory recordkeeping requirements?
  • What are the mandatory EEI requirements?
  • What compliance procedures should I put in place to make sure we use this properly?

Let’s get some background before we start. The general idea is that UK exemption authorizes movements of ITAR items within a trusted community, which consists of the “US Community” and the “UK Community,” as long as the item and the end-use are eligible.

The exemption has some special definitions that apply only for the exemption:

“Export” means the initial export from the US to the UK.

“Transfer” means the movement of an item inside of the UK Community or between a member of the US Community and the UK Community.

“US Community” is the US Government and US persons registered with DDTC and eligible to export under the ITAR.

“UK Community” is UK Government entities identified on the DDTC website and UK non-governmental entities identified on the DDTC website.  (Funny that DDTC will publish the names of eligible UK companies on its website but it will not publish the names of eligible US companies.)

“Intermediate Consignee” is an entity that receives defense articles, but does not have access to them, for the purpose of effecting movement to members of the approved Community.

Special Webpage:  The exemption and this article frequently refer to something being on the DDTC website.  That “Treaties” webpage is:  http://pmddtc.state.gov/treaties/index.html.  The Federal Register notice is http://www.pmddtc.state.gov/FR/2012/77FR16592.pdf.

Now let’s take a look at answering some of these questions

What are the eligible exports from the US to the UK?    ITAR 126.17(a)(3)

An export from an entity registered with DDTC to a member of the UK Community involving only intermediate consignees who are not ITAR ineligible.  The export must be for an eligible end-use as defined in 126.17(e) and (f).  The item must not be excluded from eligibility by 126.17(g) or the new Supplement No. 1 to Part 126.  If Congressional Notification is required, you have to satisfy the requirements of 126.17(o) before you export.

What are the eligible transfers within the UK?

You may only transfer items exported pursuant to 126.17(a)(3) or transitioned from an approved license or other approval according to the requirements of 126.17(i).  The transferor and transferee must be members of the UK Community.  The end use must be eligible per 126.17(e) and (f).  The item must not be excluded from eligibility by 126.17(g) or the new Supplement No. 1 to Part 126.  If Congressional Notification is required, you have to satisfy the requirements of 126.17(o) before you export.

What are the eligible retransfers from the UK?   126.17(h)

First, as you probably guessed the item and end use have to be eligible as discussed above for exports and transfers.  Also, the authorized retransfer does not apply to items excluded by 126.17(g) or Supplement No. 1 when they are embedded into a larger system that is eligible—for example, an electronically scanned array radar embedded in a ship or aircraft.   Here are the eligible retransfers/reexports:

Eligible items from a member of the US Community or the UK Community to UK Ministry of Defence (MOD) elements deployed outside of the UK and engaged in an authorized end use.

Eligible items from a member of the US Community or the UK Community to another member of the US Community or the UK Community operating in direct support of UK Ministry MOD elements deployed outside of the UK and engaged in an authorized end use.

Eligible items for delivery to the UK MOD for an authorized end use.  The UK MOD may use the items for official business inside or outside of the UK.  The items must remain under the effective control of the UK MOD and access may not be given to unauthorized third parties.

What are the eligible defense articles and defense services?  126.17(g)

ITAR 126.17(g) defines the items excluded from the exemption and says that the items in the new Supplement No. 1 to Part 126 are not eligible.  This new Supplement No. 1 is a lengthy document that identifies the items ineligible for the ITAR exemptions for Canada and the UK, and eventually Australia.

You really need to read the entire Supplement No. 1 before you decide whether your defense article or defense service is eligible.  Do not fail to read the Notes at the end of Supplement No. 1 because they often play a critical role in defining the scope of what is eligible.  Also, the way the supplement works is an item might appear to be eligible if you read only one area of the supplement, when in fact it may be made ineligible by another area in the supplement.  For example, you may open up the supplement and jump to the USML Category VIII and see that your marketing technical data related to complete aircraft in Category VII are eligible.  The problem with that approach is that at the very beginning of the supplement, long before you get to the Category VIII, there is an exclusion that says you may not use the exemption for technical data in every Category (I-XXI) if it is going to be used for marketing items that DDTC has not previously licensed for export.

In addition to saying the items in Supplement No. 1 are ineligible, paragraph 126.17(g) has these limitations on eligible items:

  • You may export eligible items for marketing defense articles only if DDTC has previously approved the export of the eligible item.
  • Defense articles specific to the existence of (e.g., reveals the existence of or details of) anti-tamper measures made at the direction of the US Government are ineligible.
  • 126.17(g)(3) has special rules for classified items.
  • 126.17(g)(4) has special rules for development systems that have not obtained Milestone B approved for the US Department of Defense.
  • 126.17(g)(5) has special rules for certain items that are eligible but incorporate an item that is ineligible—for example, an electronically scanned array radar embedded in an eligible aircraft or ship.
  • 127.17(g)(8) explains that items that are on the European Union Dual Use List are not eligible.  These items are actually in Supplement No. 1.  This just points out that if the EU (and the UK) does not apply their military export controls to something that the US controls with the ITAR, the US is going to exclude them from the exemption.

What are the eligible parties—The “Approved Community”?

At the beginning of this article we defined the US Community and the UK Community.  The exemption applies only when the parties involved are in the approved communities or an eligible intermediate consignee.

ITAR 126.17(k) defines when and which intermediaries may be involved in an eligible transaction.

Don’t forget the ITAR requires that a party is eligible at the time of shipment.  The ITAR warns you that some UK parties may be removed from the UK Approved Community.  That means you might not want to just check the list once for Company X and assume that Company X is always ok.

What are the authorized end-uses?   126.17(e) and (f)

126.17(e) talks about the types of end uses that will be eligible.  126.17(e) gives you an idea of the eligible end uses but for an actual end use to be eligible for your export or transfer, it has to be listed on the DDTC webpage, identified in a DDTC letter, or a DOD contract as required by 126.17(f).

126.17(e) says these end uses are the types that will be authorized

(1) United States and United Kingdom combined military or counter-terrorism operations;

(2) United States and United Kingdom cooperative security and defense research, development, production, and support programs;

(3) Mutually determined specific security and defense projects where the Government of the United Kingdom is the end-user; or

(4) U.S. Government end-use.

126.17(f) tells you how to determine if an end-use is eligible.  It says that only these end uses are eligible:

  • Operations, programs and projects that can be publicly identified will be posted on the DDTC website.
  • Operations, programs and projects that cannot be publicly identified will be confirmed in written correspondence from DDTC.
  • US Government end-use will be identified specifically in a US Government control or solicitation as eligible under the Treaty.

So if your end use is described by 126.17(e) but does meet the 126.17(f) requirement that it be listed on the DDTC website, identified in a DDTC letter, or in a DOD contract, you may not use the exemption.

What are the mandatory marking and labeling requirements?  126.17(j)

When you use the exemption for exports or transitions, you have to mark the defense articles and services with a special marking.  The two primary markings are:

1)      [126.17(j)(1)(i)]  For exports of classified defense articles and defense services the standard marking or identification shall read: “//CLASSIFICATION LEVEL USML//REL GBR and USA Treaty Community//.” For example, for defense articles classified SECRET, the marking or identification shall be “//SECRET USML//REL GBR and USA Treaty Community//.”

2)      [126.17(j)(1)(ii)]   For exports of unclassified defense articles and defense services exported under or transitioned pursuant to this section shall be handled while in the UK as “Restricted USML” and the standard marking or identification shall read “//RESTRICTED USML //REL GBR and USA Treaty Community//.”

There is a third marking to be used in a special circumstance:

Where U.S.-origin defense articles are returned to a member of the United States Community,  any defense articles marked or identified pursuant to paragraph (j)(1)(ii) above as “//RESTRICTED USML //REL GBR and USA Treaty Community//” will be considered unclassified and the marking or identification shall be removed;

Different types of items have to be marked in these ways:

  • For defense articles other than tech data, the items must be individually labeled with appropriate statement from above.  If you cannot label an individual item (e.g., a powder or propellant) then you must include with such items documents (e.g., contracts or invoices) that have the marking.
  • Technical data must be individually labeled with appropriate statement from above.  If you cannot label an individual item (e.g., a powder or propellant) then you must include with such items documents (e.g., contracts or invoices) that have the marking or by a verbal notification of the marking.
  • Defense services must be accompanied by documentation (contracts, invoices, shipping bills or bills of lading) clearly labeled with the marking.

In addition to the above marking, there is a special destination control statement required for exports:

“These U.S. Munitions List commodities are authorized by the U.S. Government under the U.S.-UK Defense Trade Cooperation Treaty for export only to United Kingdom for use in approved projects, programs or operations by members of the United Kingdom Community. They may not be retransferred or reexported or used outside of an approved project, program, or operation, 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.”

What are the mandatory recordkeeping requirements?  126.17(l)

The exemption says that US exporters must keep records for their exports and transfers.  Interestingly, the paragraph 126.17(l) does not say that UK parties have to keep records.

US exporters who use the exemption must keep these records:

(i) Port of entry/exit;

(ii) Date of export/import;

(iii) Method of export/import;

(iv) Commodity code and description of the commodity, including technical data;

(v) Value of export;

(vi) Reference to this section and justification for export under the Treaty;

(vii) End-user/end-use;

(viii) Identification of all U.S. and foreign parties to the transaction;

(ix) How the export was marked;

(x) Security classification of the export;

(xi) All written correspondence with the U.S. Government on the export;

(xii) All information relating to political contributions, fees, or commissions furnished or obtained, offered, solicited, or agreed upon as outlined in paragraph (m) of this section;

(xiii) Purchase order or contract;

(xiv) Technical data actually exported;

(xv) The Internal Transaction Number for the Electronic Export Information filing in the Automated Export System;

(xvi) All shipping documentation (including, but not limited to the airway bill, bill of lading, packing list, delivery verification, and invoice); and

(xvii) Statement of Registration (Form DS-2032

What are the mandatory EEI requirements?  ITAR 126.17(l)

When you file your Electronic Export Information (EEI) for your US export “shipments” you must fill in the appropriate field in your EEI as follows:

  • For exports in support of United States and United Kingdom combined military or counter-terrorism operations identify §126.17(e)(1) (the name or an appropriate description of the operation shall be placed in the appropriate field in the EEI, as well);
  • For exports in support of United States and United Kingdom cooperative security and defense research, development, production, and support programs identify § 126.17(e)(2) (the name or an appropriate description of the program shall be placed in the appropriate field in the EEI, as well);
  • For exports in support of mutually determined specific security and defense projects where the Government of the United Kingdom is the end-user identify 126.17(e)(3) (the name or an appropriate description of the project shall be placed in the appropriate field in the EEI, as well); or
  • For exports that will have a U.S. Government end-use identify 126.17(e)(4) (the U.S. Government contract number or solicitation number (e.g., “U.S. Government contract number XXXXX”) shall be placed in the appropriate field in the EEI, as well). Such exports must meet the required export documentation and filing guidelines, including for defense services, of §§123.22(a), (b)(1), and (b)(2) of this subchapter.

What compliance procedures should I put in place to make sure we use this properly?

If you are still reading, you may have decided that you will just stick to the old fashioned DSP-5s, TAAs, and the like.  If you want to use the new exemption, you need to put in place compliance procedures to make sure you comply with the complex, complicated and lengthy requirements.   Before you put in place procedures or use the exemption, you need to spend time reading and studying the exemption.

  • Procedures for determining if a specific export or transfer is eligible by assessing the items, parties, and end use.  You may want to check some or all of these things on a shipment-by-shipment basis.
  • Procedures for doing the proper markings, destination control statement, EEI information.
  • Procedures for recordkeeping.
  • Procedures for other things such as Congressional Notification and reporting political contributions, fees and commissions.
  • Procedures for training your export compliance people and everybody else who will be involved in your activities under the exemption.  You need to train your management too because implementing these procedures will require significant resources.  You may also want to train the other companies and entities that will be involved in your activities under the new exemption.

Honestly, I am just highlighting the tip of the iceberg on compliance procedures.  You most likely already do things that are similar to what you have to do under the exemption—for example, you already do EEI filing so you just have to modify the existing procedure to do EEI properly for the exemption.

These things may be similar to what you already do, but significantly different.  For example, you already screen for prohibited parties and at first glance you might think you could tweak that system to screen for approved parties.  The prohibited parties lists are published and you can do batch screening.  The UK Community list is not published.  You have to get the UK party’s ACID and enter it into the tool on the DDTC website to find out if it is valid.  It might be valid today and invalid tomorrow so you might have to check an ACID on a case-by-case basis.

(Note: It is an ACID, not an ACID number, because ACID number would be an Approved Community Identification Number number.)

Off the record, a couple of days ago I actually went to the tool and since I didn’t have an ACID, I made up a few using what I thought would be reasonable combinations of letters and numbers.  I got a couple replies that the ACID was invalid and then the tool told me if I entered another invalid ACID I would be in a heap of trouble.  Just now, as I was writing this article, I went back to the tool to try again and this time I got this message when the tool opened:  “Recursion too deep; the stack overflowed.”

Exactly.

Be careful using the new UK exemption. If you are not careful the next thing you know you will be up to your eyeballs in recursion with no hope of capping your stack.

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Posted in Export License, ITAR, UK, USA Regulations | Comments Off

Census Bureau Tells Exporters to Stop Saying EAR99

Friday, May 11th, 2012 by John Black

No, it’s not a government ruling on whether the pronunciation is “ear 99” or “E-A-R 99.”

But it is actually more important.  The Census Bureau Foreign announced that exporters may not enter EAR99 in the ECCN field of the Automated Export System when the filer selects license code C32—No License Required.

For EAR99 items when transaction is designated as “No License Required” the filer should use License Code C33, which is for EAR99 items designated as “No License Required” and items under ECCNs having a reason for control of Anti-Terrorism only.

The Bureau of Industry and Security (BIS) requires a 5-position ECCN from the Commerce Control List when License Code C32 is reported. The License Code C32 is for an item under the designation “No License Required” having an ECCN with a reason for control other than, or in addition to, Anti-Terrorism. The classification EAR99 does not meet this criteria and therefore cannot be reported under License Code C32.

A complete list of all License and License Exemption Type Codes and Reporting Guidelines can be found in Appendix F of the Automated Export System Trade Interface Requirements (AESTIR).

http://www.cbp.gov/xp/cgov/trade/automated/aes/tech_docs/aestir/june04_intro/appendices/

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Former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., Charged with IEEPA and EAR Violations

Monday, August 29th, 2011 by admin

By Jennifer Kessinger, Esq., and Tammie Krauskopf, Esq.

On July 8, 2011, the Bureau of Security and Security (BIS) announced that Xun Wang, a former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of U.S.-based PPG Industries, Inc., has been charged with conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR), and other related offenses.

A former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of U.S.-based PPG Industries, Inc., has been charged with conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR),

Xun Wang, 51, is accused of conspiring to export and reexport, and exporting and reexporting specially designed, high-performance epoxy coatings to the Chashma 2 Nuclear Power Plant (Chashma II) in Pakistan, a nuclear reactor owned and/or operated by the Pakistan Atomic Energy Commission. This entity is on the list of prohibited end users under the EAR.

Wang was arrested on the indictment on June 16, 2011, at Atlanta Hartsfield-Jackson Airport and transferred to the District of Columbia. She is a Chinese national and lawful permanent resident of the United States. The United States is seeking to have her held without bond pending trial.

The indictment against Wang is related to the December 21, 2010, guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), to a four-count information in the U.S. District Court for the District of Columbia. Together, PPG Paints Trading and its parent company, PPG Industries, Inc., paid $3.75 million in criminal and administrative fines and over $32,000 in restitution. The combined amount of criminal and civil fines represented one of the largest monetary penalties for export violations in the BIS history.

According to the indictment against Wang, in January 2006, PPG Industries sought an export license for the shipments of coatings to Chashma II. In June 2006, the Department of Commerce (DOC) denied that license application. Following that denial, Wang and her co-conspirators agreed upon a scheme to export and reexport the high-performance epoxy coatings from the U.S. to Chashma II, via a third-party distributor in People’s Republic of China (PRC), without the required export license from the DOC.

The indictment further alleges that from June 2006 through March 2007, Wang and other co-conspirators intentionally concealed from PPG Industries that the paint would be delivered to Chashma II. Specifically, they falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the DOC. The indictment alleges that, through these means, Wang and her co-conspirators took part in three shipments of coatings from the United States to Chashma 2 without the required license.

Source: Global Trader Newsletter

Reprinted with permission

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Change to ITAR Registration Payment Method: Going Virtual

Monday, August 29th, 2011 by Holly Thorne

Effective September 26, the Department of State will amend the International Traffic in Arms Regulations (ITAR) to change the method of payment to electronic submission of registration fees. This form of electronic registration will simplify the collection and verification of payments for the State, and hopefully also for registrants by eliminating the possibility of “lost” submissions and payments and ensure clarification in the process.

Formerly, ITAR required the respondent to provide separate correspondence via a transmittal letter to certify criminal history, eligibility, and foreign ownership. Often, this mandate was overlooked by the respondent, resulting in the return without action of the incomplete application. The revised DS-2032 incorporates these certifications within the form.

Companies registering on or after October 1, 2011 will be required to submit their payments electronically. Beginning August 2011, registration renewal letters will contain instructions for submitting registration fees electronically.

Individuals and companies engaged in the business of manufacturing, exporting, importing and/or brokering defense articles or services should register with the Directorate of Defense Trade Controls (DDTC) annually. With this change registrants will instead be required to submit registration fees electronically via Automated Clearing House (ACH) payable to the Department of State.

For further information contact: Lisa V. Aguirre, Director, Office of Defense Trade Controls Compliance, Directorate of Defense Trade Controls, Department of State, 2401 E Street, NW, SA-1, Room H1200, Washington, DC 20522-0112; telephone 202-632-2798 or fax 202-632-2878; or e-mail through DDTCResponseTeam@state.gov, with the subject line, “Electronic Payment of Registration Fees.”

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

Monday, August 29th, 2011 by Holly Thorne

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.

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