COMING SOON!!: SPECIAL NEWSLETTER WITH REGULATORY ANALYSIS OF 2011 CHANGES AND PROPOSALS AS WELL AS US EXPORT CONTROL REFORM

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:

s/

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,

s/

Will Jessett CBE

Minister (Defense Materiel)

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.

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

1. 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>

Introduction

(1) The US Department of State (DoS) has issued a final rule amending the International Traffic in Arms Regulations (“ITAR”) to include a new license exemption for transfers of defence articles to Dual National or Third Country National (DTCN) employees 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) However, use of 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) Based on comments received from Her Majesty’s Government (HMG), the Export Group for Aerospace&  Defence (EGAD) and others in response to the proposed rule originally published on 11 August 2010, DoS made some important amendments before issuing the final rule.  Most notably, DoS has preserved the limited exemption already available under ITAR Section 124.16 for transfers of certain defence articles (including technical data) to employees from NATO and EU member states, Australia, Japan, New Zealand and Switzerland and has expanded the definition of “regular employee” to include contract employees with long term employment relationships with the foreign end-user.

(4) Those foreign end users and consignees who intend to make use of the new licence exemption must have a TSP and Non-Disclosure Agreement (NDA) in place in order to comply with the rule change.  This UK specific TSP has been endorsed by DoS and provides a step by step approach to ensure compliance with the rule change requirements.  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 relay on it should ensure that it has obtained its own legal advice to ensure it is complied in accordance with UK law.

By DOUGLAS BIRCH

WASHINGTON — A wealthy San Francisco-area suburbanite on Tuesday rebutted charges that she was the ringleader of a scheme to illegally export special paint used in the construction of a Pakistani nuclear plant, a project some Western experts fear will produce plutonium for the country’s expanding nuclear arsenal.

Xu Wang, 51, was arrested at Atlanta’s Hartsfield-Jackson airport last month, court records show, as she and her family were headed to Italy to celebrate her oldest daughter’s graduation from prep school before starting Princeton in the fall. Wang has been in custody ever since.

At a detention hearing in federal court here, Wang’s lawyers argued that charges against her were “technical,” that she was at worst peripherally involved in the scheme and that any connection between the case against her and the global spread of nuclear weapons was purely speculative.

“This case is about paint,” said attorney Bruce Baird, as his client sat at the defendant’s table in short-sleeve prison garb. “…One thing we know for sure, it’s not a case representing a threat to America or a threat of nuclear proliferation.”

U.S. Magistrate Judge Deborah Robinson on Tuesday denied the government’s request that Wang be held without bond, but stayed the order pending a hearing Wednesday to set the terms of her release. She and her husband had pledged to put up their $2.3 million home in Hillsborough, Calif., as collateral.

Wang, who has a doctorate in physics from the University of California, Santa Cruz, was charged with three counts of violating U.S. export laws and one count of conspiracy in connection a Chinese government-owned company’s purchase of 625 gallons of paint to Pakistan’s Chashma II nuclear power plant. The felony charges carry a maximum penalty of 65 years in prison and fines of more than $1 million.

The case highlights China’s commercial ties to Pakistan’s nuclear program. Islamabad, which has never signed the Nuclear Nonproliferation Treaty, first tested a nuclear weapon in 1998 and is estimated to have built between 70 and 120 warheads in its ongoing arms race with India.

The Wang case also demonstrates the challenges prosecutors can face enforcing economic sanctions, which often involve the sale of so-called “dual-use” technology that can have civilian as well as military purposes.

Judge Robinson Tuesday appeared skeptical, questioning the prosecution’s assertion that the case had “serious national security implications.”

“This is not latex paint,” said assistant U.S. Attorney G. Michael Harvey. “This is a very sophisticated paint, which has been tested and certified for use inside the containment facility of a nuclear reactor.”

After she and her husband sold their paint import-export business to the Pittsburgh-based PPG Industries in 2006 for more than $17 million, the U.S. company hired her to run its wholly-owned Chinese subsidiary, PPG Paints Trading Co.

A short time later, the indictment says, the U.S. government rejected an application from PPG for a license to sell paint to an unnamed government-owned Chinese company, for use on the steel lining of the containment area of Chashma II.

Some U.S. experts say there is evidence Pakistan is building a plant near Chashma II to take spent fuel from the reactor and turn it into weapons grade plutonium.

When Wang told the Chinese buyers about the denial, court papers show, they complained they would be forced to scrape off PPG paint they had already applied, delaying the project. They angrily threatened to sue.

Prosecutors say Wang responded that the company should “pretend this never happened” and buy the paint through a front company. The government claims another employee later came up with a plan to have the order placed through a Chinese construction company building a nuclear plant in Dalian, China. China is not subject to the same export controls.

When a co-worker asked what would happen if the U.S. discovered the ruse, the indictment says, Wang replied: “U.S. government can’t really touch us…The most that will ever happen to me is that I will not travel to the U.S. anymore. I don’t need to travel to the U.S. I don’t care. It’s okay.”

PPG Industries pled guilty in December to conspiring to violate export regulations in connection with the sale of the paint used in construction of Chashma II, and was hit with $3.75 million in fines.

Wang was fired by PPG Industries in 2007, her indictment did not come until June.

Wang’s husband, Chunlin Yiang, sat in the courtroom Tuesday and, at one point, waved at his wife. In a letter to the court, he said he and his wife were committed to remaining in the United States because of their two daughters.

A younger daughter, 13, suffers from Asperger’s Syndrome, he said, and is attending a school for children with learning disabilities. “We want them to achieve whatever they can achieve and live the American dream,” he wrote.

The charges against Wang come at a time when the U.S. and Pakistan are trying to overcome deep mutual distrust in their joint fight against militant extremists. And it marked at least the second time in four months that the U.S. has charged someone with smuggling restricted technology to Pakistan’s nuclear program.

The U.S. announced in March that it was charging a Pakistani man living in Maryland with illegally buying sensitive technology for his country’s nuclear program. The indictment charged Nadeem Akhtar, 45, of Silver Spring with buying radiation detection devices, resins for coolant water purification and calibration devices for the Chashma nuclear power project and perhaps other, weapons-related facilities.

Source: Huffington Post

Published: July 12, 2011

TAMPA – A Filipino man who was caught selling a US Military spy plane on Ebay was sentenced last week.  As part of a plea agreement, a Tampa Federal judge sentenced Henson Chua of Manila, Philippines to three years of supervised release and ordered him to pay a $13,000 fine.  Chua plead guilty earlier this year for violating the Arms Export Control Act, according to reports. He had faced 20-year sentence in federal prison.

According to the US Attorney’s office, Chua was caught selling a US military spy plane called the RQ-11B Raven on Ebay. The Raven is an unmanned aircraft used to provide situation awareness and target information for the US Military in Iraq and Afghanistan, according to the US Air Force.  The plane has a wingspan of 4.5 feet and weighs less than five pounds.

Chua received the Raven in the Philippines before transporting it to the US in three different packages. He then listed the Raven for sale on the auction website Ebay for $13,000 on May of last year.  By then, military officials had already been tipped off and a Department of Homeland Security undercover investigator – posing as a buyer – purchased the item and made contact with Chua.

After recovering the Raven, US Immigration and Customs Enforcement’s Homeland Security Investigations (ICE/HSI) officers arrested Chua in February in Los Angeles and charged him with violations of the Arms Export Control Act and smuggling.

It is still unknown how Chua received the Raven, which is a $175,000 spy drone.

Treasury identified the following countries that “require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986),” e.g., the Arab boycott of Israel:

- Kuwait

- Lebanon

- Libya

- Qatar

- Saudi Arabia

- Syria

- United Arab Emirates

- Yemen

Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.

Amendment to the International Traffic in Arms Regulations: Filing, Retention, and Return of Export Licenses and Filing of Export Information

The Department of State is amending the International Traffic in Arms Regulations (ITAR) to reflect changes in the requirements for the return of licenses. Applicants are no longer required to return certain expired DSP-5s. This change will reduce the administrative burden on applicants.

This rule is effective November 4, 2011.

Click here for full amendment and supplementary information.