ITAR BOOTCAMP

A Hands-On Workshop
June 12, 2008








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Topics for Today
1. Overview of Export Controls & ITAR Terminology
2. Classification of Items Under the ITAR
3. ITAR License Exemptions
4. ITAR Licensing
5. Deemed Exports and Technology Security
6. ITAR Enforcement & Voluntary Disclosures
7. ITAR Compliance Program Elements & Best
Practices

1. Overview of Export Controls
& ITAR Terminology

Holland & Knight LLP
Tel: 202-828-1870
E-mail: jonathan.epstein@hklaw.com
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Goals for this Training
By the end of this training, you should have:
Basic Understanding of the U.S. export regulatory
environment for defense goods and services
Understanding of when and how items become military
items subject to the International Traffic in Arms Regulations
Basic Understanding of ITAR exporting processes
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International Activities
Export controls are only one element of international
business
Foreign Corrupt Practices Act
Anti-Boycott restrictions
Foreign country import requirements:
Standards (CE marking)
Duties
Intellectual Property protections
Government Contracting issues

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Relevant Agencies and Regulations
Department of Commerce
Bureau of Industry and Security (BIS)
Department of State
Directorate of Defense Trade Controls (DDTC)
Department of Defense
Defense Technology Security Administration
Department of the Treasury
Office of Foreign Assets Control
Department of Homeland Security
Customs and Border Protection
Department of Justice




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Tight Restrictions on Defense Exports
Separate licensing regime administered by State Department
under International Traffic in Arms Regulations (ITAR)
Covers most equipment/technology designed specifically for
military use + satellite technology
U.S. Munitions List

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Differences in Dealing with DDTC Versus BIS
Generally all exports require licenses regardless of
destination
Licensing process has historically been slow
Extensive export clearance and record-keeping requirements
Considerably less access to licensing officers and information
than with BIS
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Commercial Dual-Use Exports
Administered by Commerce Department
Covers all commercial products from tires to supercomputers
and the related technology
Complex classification system, but at end of the day:
Most items can be shipped to most most countries without a
license




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U.S. Embargoes
Administered by the Department of Treasury Office of Foreign
Assets Control (OFAC)
Administers and enforces economic and trade sanctions
based on U.S. foreign policy and national security goals
Bars virtually all transactions (direct or indirect) with certain
embargoed countries including:
Cuba
Iran
(Syria)
Sudan
(North Korea)



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Anti-Boycott Regulations
U.S. business cannot participate directly or indirectly in Arab
League boycott of Israel
What to Look for (typically in contract/bid documents):
Terms requiring TRC to refuse to do business with Israel or
black listed companies
Request for information on race, religion, national origin of
officers or employees
Negative certificate of origin
Mandatory reporting requirements, even if TRC doesnt enter
into contract or changes terms
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Foreign Corrupt Practices Act
Prohibits U.S. business and persons from directly or indirectly
bribing foreign officials to obtain business from the country
Justice Department very aggressive in investigating violations,
high penalties
Arises in contracting with foreign governments, governmental
entities
Watch out of for extraordinary commissions paid to middleman,
broker in country
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Restricted End-Users/End-Uses
ITAR prohibitions
U.S. embargo prohibitions
Cuba, Iran, Syria, Sudan, (North Korea)
Various Government Lists
Specially Designated Nationals (SDN) List
Denied Persons List (DPL)
Restricted End-Uses
China military end-use rule
Weapons of mass destruction
Nuclear end-uses
Missile development

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International Traffic in Arms Regulations 22 C.F.R.
Parts 120-130
ITAR Part 120 - Purpose and Definitions
ITAR Part 121 - The United States Munitions List
ITAR Part 122 - Registration of Manufacturers and Exporters
ITAR Part 123 - Licenses for the Export of Defense Articles
ITAR Part 124 - Agreements, Off-Shore Procurement and Other
Defense Services
ITAR Part 125 - Licenses for the Export of Technical Data and
Classified Defense Articles
ITAR Part 126 - General Policies and Provisions
ITAR Part 127 - Violations and Penalties
ITAR Part 128 - Administrative Procedures
ITAR Part 129 - Registration and Licensing of Brokers
ITAR Part 130 - Political Contributions, Fees and Commissions
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Defense Articles
Any item (or technical data) designated on the U.S.
Munitions List of the ITAR including technical data recorded
or stored in any physical form, models, mock-ups or other
items that reveal technical data directly relating to items
designated on the U.S. Munitions List
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Technical Data
Information required for the design, development,
production, manufacture, assembly, operation, repair,
testing, maintenance or modification of defense articles
under the ITAR or the EAR with respect to dual-use
technologies.
Technical data may take the form of a blueprint, plan,
diagram, model, formula, table, engineering design, or
specifications, as well as manuals or instructions written or
recorded on other media or devices, such as disk, tape, or
read-only memories.
Also includes classified information related to defense
articles or defense services and software related to defense
articles.
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Defense Service
The furnishing of assistance (including training or technical
data) to a foreign person, whether in the United States or
abroad related to a defense article or furnishing to foreign
persons of any technical data controlled under the ITAR.
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Confusion in Definitions
Some danger in ambiguous definitions
Defense article includes technical data
Defense service includes the provision of technical data
Common sense generally prevails, but. . .


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An Export Is:
Exports from U.S. Territory
Actual shipment or transmission of goods from the U.S. to a
foreign country
Transferring title or ownership to a foreign person
(inside/outside the U.S.)
Extra-territorial Transfers
Re-export from one country to another
Retransfers within a country
Disclosure to a foreign person from a third country
Export of Intangibles
Disclosing technical data to a foreign person in the U.S. or
abroad
Performing a defense service for a foreign person in the U.S. or
abroad

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U.S. Person and Foreign Person
A U.S. Person (Access To Unclassified):
Is a U.S. citizen
Holds lawful permanent resident status (green
card)
Is a protected person or refugee
under the U.S. Asylum Program

A Foreign Person Is:
A person who holds a student or work visa
A U.S. Person representing a foreign
government or company
An employee of a company overseas facility
A foreign government and its offices (i.e.,
embassies)
An entity not organized to do business in the
U.S.

No License
Required


License
Required

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#1 Transfers of Technology or Technical Data
Disclosing or transferring (by any means) export-
controlled technical data (including software) to a
foreign person, whether in the U.S. or abroad:
Visits
Telephone conversations
Internet transfers (email)
Web site postings
Vendors and customers
Includes employees in U.S. or international locations,
consultants, long term visitors and contract employees
Conferences, symposia, marketing meetings
Faxes
Proposals containing technical data related to defense articles
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Registration ITAR Part 122
Any entity that manufactures or exports defense articles, or
exports defense services or technical data
Empowered officials must be designated in writing
Registration process straight-forward
Cannot apply for license unless you are registered
Many defense contractors require their subcontractors to be
registered
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Brokering ITAR Section 129
Anyone who facilitates the manufacture, export or import of
defense articles regardless of origin
Original purpose to prevent brokering of foreign made small
arms by U.S. persons
Covers financers, sales agents, both domestic and foreign
Freight forwarders are excluded
Separate registration and licensing requirements
Generally if broker is registered and is identified in a licensed
transaction, no separate authorization required


2. Classification of Items Under the
ITAR
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What Is ITAR-Controlled?
Unlike CCL, the US Munitions List is not inclusive
Generally any item specifically designed for a military
purpose
Down to the smallest part
Bare print circuit board
Look through analysis If any component is ITAR-
controlled then the equipment is ITAR-controlled
Also covers:
Commercial satellites
Some chemical precursors
Energetic materials

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Classification Under the ITAR
Classification will determine eligibility for certain license
exemptions
Classification will determine supporting documentation
requirements
DSP-83
Classification will help determine if congressional notification
is warranted for the export
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The United States Munitions List (USML)
I - Firearms
II Guns and Armament
III Ammunition/Ordnance
IV - Launch Vehicles, etc.
V - Explosives, Propellants, Incendiary
Agents and Their Constituents
VI - Vessels of War and Special Naval
Equipment
VII - Tanks and Military Vehicles
VIII - Aircraft and Associated
Equipment
IX - Military Training Equipment
X - Protective Personnel Equipment
XI - Military Electronics
XII - Fire Control, Range Finder,
Optical and Guidance and Control
Equipment
XIII - Auxiliary Military Equipment
XIV - Toxicological Agents and
Equipment and Radiological Equipment
XV - Spacecraft Systems and
Associated Equipment
XVI - Nuclear Weapons Design and
Related Equipment
XVII - Classified Articles, Technical
Data and Defense Services Not
Otherwise Enumerated
XVIII Directed Energy Weapons
XIX - Reserved
XX - Submersible Vessels,
Oceanographic and Associated
Equipment
XXI - Miscellaneous Articles
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Category VIVessels of War and Special Naval Equipment.
*(a) Warships, amphibious warfare vessels, landing craft, mine warfare vessels, patrol vessels
and any vessels specifically designed or modified for military purposes. (See 121.15.)
(b) Patrol craft without armor, armament or mounting surfaces for weapon systems more
significant than .50 caliber machine guns or equivalent and auxiliary vessels. (See 121.15.)
*(c) Turrets and gun mounts, arresting gear, special weapons systems, protective systems,
submarine storage batteries, catapults, mine sweeping equipment (including mine
countermeasures equipment deployed by aircraft) and other significant naval systems specifically
designed or modified for combatant vessels.
(d) Harbor entrance detection devices (magnetic, pressure, and acoustic) and controls therefor.
*(e) Naval nuclear propulsion plants, their land prototypes, and special facilities for their
construction, support, and maintenance. This includes any machinery, device, component, or
equipment specifically developed, designed or modified for use in such plants or facilities. (See
123.20)
(f) All specifically designed or modified components, parts, accessories, attachments, and
associated equipment for the articles in paragraphs (a) through (e) of this category.
A. (g) Technical data (as defined in 120.10) and defense services (as defined in 120.9)
directly related to the defense articles enumerated in paragraphs (a) through (f) of this category.
(See 125.4 for exemptions.) Technical data directly related to the manufacture or production of
any defense articles enumerated elsewhere in this category that are designated as Significant
Military Equipment (SME) shall itself be designated SME.
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When Is a Warship no Longer Subject to the ITAR?
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Other Specific Sections Provide Additional
Guidance
Missile Technology 121.1
Aircraft and related articles 121.2
Chemical agents 121.7
Military explosives and propellants 121.12

USML USUALLY CROSS REFERENCES ANNEXES WHERE
APPLICABLE

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Section 121.8 Definitions
End-item
assembled and ready to use
Component
Only useful in connection with an end-item
Component item which is useful only when used in conjunction with
an end-item
Major component - required for function of end-item
Minor component assembled element of a major component
Accessory/attachment are not necessary for function of end-item
Rifle scope
Firmware considered part of end unit
Software if installed is part of defense article/if separate it is
generally considered technical data
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Tactical Generator



Category XIII Auxiliary Military Equipment
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Reading the USML
Generally each Category has subcategory for:
One or more categories of end-item
Components, parts, and accessories specifically designed for
that end-item
Technical data and defense services
Items with a * are Significant Military Equipment (SME)
This may trigger congressional notification
Restrict exemptions
Dictate end-use certification
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Factors to Consider in Determining if a
Product is controlled Under the ITAR
Is it Specially designed for a military application
No real consideration of civil equivalent or sophistication of item
1940s Swordfish torpedo bomber
Standard coax cable with standard fittings made to order
What is the Origin of the Product?
Was the specific product originally designed for military or civil
use?
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Additional Factors
What is the predominant use? Who do you sell this particular
product to?
Does the Product have particular military characteristics?
Tempest
Radiation hardening
MILSPEC standards
Whether the item has a performance equivalent in terms of
form, fit, and function similar to articles designed for civil use
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What do Third-Parties Say?
How does OEM/prime contractor classify this?
Does the Government Contract impose restrictions?
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Was It developed with DoD funding, or
Under a Government Contract?

Efficient, Low Emission Generator
Navy SBIR 2008.2 - Topic N08-105
MARCOR - Mr. Paul Lambert - sbir.admin@usmc.mil
Opens: May 19, 2008 - Closes: June 18, 2008
N08-105 TITLE: Efficient, Low Emission Generator
TECHNOLOGY AREAS: Ground/Sea Vehicles
ACQUISITION PROGRAM: PM Expeditionary Power ACAT III.
The technology within this topic is restricted under the
International Traffic in Arms Regulation (ITAR), which
controls the export and import of defense-related
material and services. Offerors must disclose any
proposed use of foreign nationals, their country of origin, and
what tasks each would accomplish in the statement of work
in accordance with section 3.5.b.(7) of the solicitation.
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Help in Classification
DDTC Response Team
(202) 663-1282
DDTCResponseTeam@state.gov
Response team is helpful on straight forward questions but
woefully understaffed
Very difficult to get licensing officer to respond to questions
No body of interpretations

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Commodity Jurisdiction Determination
Procedures available to submit request to determine if EAR or
ITAR-controlled
Lengthy process
DDTC takes broad view of their jurisdiction
Current fight with Commerce over demilitarized aircraft on civil
registries
Sometimes CJ is only option
Must make full submission, as partial or misleading
submission can have negative consequences



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How Do You Classify This?
WWII Vintage DUK converted
to carry tourists
Cat VI(a) covers landing
craft and amphibious
warfare craft
121.15(a)(b)(2) deals
with demilitarized
amphibious warfare craft
-Cat VII(f) covers amphibious
vehicles
121.4 if built on auto
chassis and specially
designed to meet military
requirements

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Aviation Bomb Loader
Cat VIII(h) . . . Ground
support equipment
specifically designed or
modified for [military
aircraft]
Cat IV(c) . . . Apparatus for
handling [bombs, missiles,
rockets, torpedoes . . .]

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ITAR Jurisdiction Goes Beyond Military
Equipment
Cat XV controls
Commercial satellite and some related ground equipment
Some space qualified parts
Certain toxicological equipment and toxins
Certain personal protection equipment
Certain chemical agents
Explosive/jet fuel
Chemical warfare
Chemicals and biologics need to check CCL and USML
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Panel Discussion and Q&A

3. ITAR License Exemptions
47
ITAR License Exemptions
Exemption permit the export or import without a specific
license to accompany a particular shipment
Many license exemptions
Most are limited very limited
Often have specific record-keeping/reporting requirements
48
Most Useful Exemptions

Canadian Exemption
Special NATO countries + Australia, Japan, and Sweden
exemption
Foreign Military Sales (FMS)
Exporting under TAA/MLA


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List of Exemptions
50
More Exemptions
51
Canadian Exemption
Potentially useful tool for certain types of collaboration, but
limited in scope:
Excluded Categories:
All classified defense articles, technical data, or services
All defense articles, technical data, or services excluded by
126.6(b)(5)-21) including missile systems, firearms, nuclear
systems and aircraft (not aircraft parts)
Any export requiring Congressional Notification
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Canadian Exemption
End-Use Limitations
Defense articles must be for end-use by the Canadian
Government or for return to U.S. (after processing in Canada)
Technical data and defense services must be used for a
Canadian or U.S. government program
- Ex: Canadian subcontractor making component for U.S. prime
contractor on DoD Contract
Limitation on Technical Data/Defense Services
Limited to build-to-print, build-to-design, basic research, and
maintenance
Design review, engineering analysis excluded

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Canadian Exemption
Canadian contractor must be registered with the Canadian
Controlled Goods Directorate
http://www.cgd.gc.ca/cgdweb/text/index_e.htm
Certificate of Agreement by Canadian Contractor to language in
126.5(c)
Special record-keeping and export clearance requirements
Semi-annual reports by U.S. exporter
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Canadian Exemption
Canadian exemption most useful when:
Established relationship with Canadian company
Parent/subsidiary in Canada
Canadian entity is providing goods on built-to-print basis:
Bare circuit boards
Even then return of defective boards/repairs, etc., may cause
issues
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Special NATO+ Exemptions
NATO countries + Australia, Japan, and Sweden
NATO exception for preparing bids on U.S. DoD procurements
NATO exception for maintenance, repair, overhaul of U.S.
origin defense exports
Impact is limited:
Limited to build-to-print build-to-design and basic
research
Excludes design methodology, engineering analysis, and
manufacturing know how
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Foreign Military Sales (FMS) Exemption
FMS program is where U.S. Government acts as party to sale
to foreign military, and U.S. exporter contracts with DoD
entity, not foreign entity
Exports of defense articles, technical data, and defense
serves generally exempt if meet all requirements:
Must be specifically identified within the scope of the FMS letter
of offer and acceptance and implementing
contracts/subcontracts, that is currently in effect
DSP-94 Form accompanies shipment

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Exporting Under TAA/MLA
Broad exemption in ITAR 124.3 to export Unclassified
technical data as authorized under an overarching TAA/MLA
agreement
Must be within scope of agreement
Must file initial notice (Electronic DS-4071 once available on D-
Trade)
Comply with recordkeeping requirements
58
Australia/UK Treaties
When implemented will provide Canadian exemption type
exemption
Limited to specific items
Limited to items for ultimate end-use by either the U.S. or
treaty partner
59
Using License Exceptions Correctly
Improper use is source of violations
Develop specific protocol for commonly used exceptions,
dont rely on general knowledge




60
Panel Discussion and Q&A

4. ITAR LICENSING
62
Registration is a Precondition to Licensing
You must be registered before you can export under a
license or under an exemption
Different from EAR
Factor in time for registration it can take from 1 day to 1 year
M# for manufacturer / exporter
K# for broker
For the export of unclassified defense articles, you must also
register with D-Trade allow at least a week
DSP-5
DSP-61
DSP-73
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ITAR Licensing
Identify Licensing Requirements
Work with Export Control Officer
Know the controls on your products or technology
Always assume that export approval is required
If licenses are needed allow processing time
at least 60 days
64
DDTC Processing Times
7-14 days for non-staffed applications
Repeat exports
4-6 weeks for staffed applications
Add another 45-60 days if:
Congressional notification
Sensitive nature of product (e.g., UAV, EW, classified)
If U.S. company has pending voluntary disclosure

65
ITAR Licensing Processing Time
National Security Presidential Directive-56, Defense Trade
Reform January 22, 2008
Department of State directed to complete the review and
adjudication of license applications within 60 days of receipt,
except in cases where national security exceptions apply
73 Fed. Reg. 20357 (April 15, 2008) exceptions:
Congressional Notification required (sale of major defense
equipment, manufacture abroad of SME)
Required Government Assurances not received (e.g., Missile
Technology Control Regime)
End-use checks not completed
DoD overriding national security exception
Waiver of Restrictions required (e.g., a sanctions waiver)
66
67

License Review Process

State Department
Office of Defense Trade Controls
Licensing (USML)
Defense Department
Defense Technology Security
Administration
Commerce Department
Bureau of Industry and Security
(CCL)
Defense Agencies
Joint Staff & Military
Services
APPLICANT
Other
Government
Agencies


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ITAR License Review
Possible Issues/Delays
New or inexperienced licensing officers
Other priorities - special projects - Operation Iraqi Freedom
(OIF)
Foreign policy and national security issues
Staffing to outside agencies
Inaccurate or incomplete submission
Incomplete end-user or end-use information

PLAN AHEAD !!!
69
ITAR Types of Licenses
Export/Import Licenses
Export and/or Temporary Import licenses are issued by the
Department of State for the export or temporary import of
defense articles. Common ITAR license types include:
DSP-5 Application for permanent export license for
unclassified defense articles/technical data
- Most common
DSP-73 Application for temporary export license for
unclassified defense articles
DSP-61 Application for temporary import license
(and subsequent re-export) of unclassified defense
articles
DSP-85 Application for permanent or temporary
export of classified defense articles or technical data


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Complex Licensing Arrangements - Part 124
Technical Assistance Agreement (TAA)
Provision of defense services/technical data to a foreign person
Manufacturing License Agreement (MLA)
For U.S. company to provide defense services/technical data for a
foreign company to manufacture defense articles
Offshore Procurement Agreement
Where U.S. company provides build-to-print specifications to foreign
manufacturer to produce articles for use in the U.S.
Warehouse/Distribution Agreement
Agreement for warehousing/distributing U.S. defense articles overseas
Special Comprehensive Export Authorizations for NATO+ Countries
JSF not aware of any use since

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Other Licenses/Forms
General correspondence not well defined used
for reexports and other approvals
May get better when this goes electronic
Brokering Requests
DSP-94 Notification of export pursuant to FMS
exception

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DSP-5: Permanent Export of Unclassified
Defense Articles and Technical Data
May only be filed electronically through D-Trade
Can be used to cover multiple shipments of multiple products
Valid for a maximum of 4 years; decremented with each
shipment
Use up to X units doesnt have to match commercial deal
exactly but should be equal or greater than
Application Package consists of:
Electronic application
Supporting documentation invoice, description of the product,
letter of explanation PDF format recommended
End-Use certificate DSP83 Non-Transfer and Use Certificate
If in furtherance of a TAA / MLA attach a complete set

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Tips on Avoiding Returned without Action
Follow guidelines
Be sure to list all intermediate consignees, freight
forwarders, etc.
Letter of Explanation
List Precedents: previous approvals of the same
or similar items; to the same country
74
Technical Assistance Agreements (TAA)
For the export of defense services and technical data
Most common form of a complex license
Although it looks like a contract between the parties, it is
really a license application
do not include business terms
Typically Used:
Joint development projects
Technical assistance
Anytime there will be technical interaction between engineers
75
Resources for Drafting TAA
ITAR Section 124
48-page Guidelines with
sample formats
http://www.pmddtc.state.go
v/docs/agbook.pdf

ITAR Section 124
48-page Guidelines with
sample formats
http://www.pmddtc.state.go
v/docs/agbook.pdf
Check for updates to the
Guidelines on DDTC website
not always incorporated

76
TAA Application
Letter of Transmittal
Provides certain affirmations by the U.S. party
Details of nature of transaction such as value, types of services,
technical data to be provided, etc.
Follows specific format
Draft TAA
Follows specific format
Submitted in draft (e.g., unsigned)
Technical Annex
Statement of work, description of technical data, etc.
Other Supporting Documentation
DSP-83 (if SME involved)
Certification Letter
77
Wrap in All Relevant Parties
U.S. Prime
Contractor
Foreign employees
of U.S. Prime
U.S. Subcontractor
Foreign Prime
Contractor
Foreign
Subcontractor
Third country
nationals/dual
citizens
78
Strategic Issues in TAAs
U.S. Prime often doesnt include U.S. subcontractor
U.S. sub cant interface directly with foreign persons
Worse U.S. Sub may assume it is authorized when it is not
U.S. sub identified as a domestic licensee cant export
Business people dont account for TAA processing delays
Potential limitations in TAA
Foreign entities and U.S. subs not involved in TAA drafting
U.S. prime may be unaware of all foreign subs, or third-party
nationals
Key consultant who is a Canadian citizen
79
Strategic Issues for TAAs
Export staff that drafts TAA not coordinated
With the contract requirements
The specific type of technical data involved
Advance planning for delays or denials
80
Drafting Tips
Include all types of transfers, in the relevant countries (e.g.,
face-to-face, telephonic, correspondence)
Include description and value of any defense articles that will
be exported under the agreement
Note: Although ITAR allow for exemption, you will need a DSP-5
to cover the specific defense article exports
Provide a detailed work description and the type of technical
information to be transferred
81
TAA Authorizations
Processing times can be several months (although a TAA is
covered by the Presidential Directive)
Provisos
Some generic
Some may limit transfers that undermine the purpose of
the agreement
Create ambiguity
You can negotiate provisos
82
Sample TAA Transmittal Letter
83
T
84
85
86
Other Provisos
87
Post-Approval Requirements
Check the license (TAA, DSP-5, etc.)
Check the license attachments
Review the provisos in the approval letter
o Comply with the provisos
o If problems, submit proviso change letter immediately
o If clarification is needed, request it immediately
o Comply with the provisos (yes, this is redundant)
Keep records
88
Proposals Requiring Advance Approval/Notice
Involves Technical Data
Meets certain thresholds
Marketing relating to SME
Advertising
Reports in publications of general circulation
Preliminary discussions
No controlled Technical Data (technical data must be
authorized separately)
Distinguish from marketing TAAs

89
Prior Approvals
Detailed Marketing Presentations/Proposal Relating to SME
Detailed marketing pitch
Communicates info about price, performance characteristics,
availability for delivery, etc.
Sufficient to permit the proposed purchaser to enter into an
agreement to purchase
Advance notice/approval would not generally apply if:
Sales under $14 million
Sales to NATO, Australia, New Zealand, Japan armed services
Non-military sales (e.g., sale for police, civil applications)



90
Reporting of Commissions/Political
Contributions
If export is valued at more than $500,000 and for
use by a foreign armed force must report:
Political contributions of $5,000 or more
Commissions of $100,000 or more if used to help secure the
sale
91
D-TRADE
DDTC is moving to fill electronic licensing
Currently following applications must be made through
D-Trade:
DSP-5
DSP-61
DSP-71
Slowly moving other forms to D-Trade
Must register for D-Trade
Lots of Information on D-Trade at:
http://www.pmddtc.state.gov/sl_dtrade.htm
92
Select Type of Application from Drop Down
Menu
93
Application Form with Drop Down Menus
94
Example of Drop Down Menus
95
Types of Attachments
96
Menu for Adding Documents
97
98
99
100
Panel Discussion and Q&A

5. Deemed Exports and Technology
Security
102
Deemed Exports
What is a deemed export?
Hot enforcement issue
BIS and DDTC have differing interpretation and
procedures
Deemed Export Advisory Committee looking at
issue:
IG Report in 2004 led to proposal for BIS to screen on place of
birth

103
Who Is a Foreign Person
A U.S. Person (Access To Unclassified):
Is a U.S. citizen
Holds lawful permanent resident status (green
card)
Is a protected person or refugee
under the U.S. Asylum Program

A Foreign Person Is:
A person who holds a student or work visa
A U.S. Person representing a foreign
government or company
An employee of a company overseas facility
A foreign government and its offices (i.e.
embassies)
An entity not organized to do business in U.S.

No License
Required


License
Required

104
What Is the Nationality of Dual Nationals
BIS
Latest country of permanent residence
Indian foreign national who recently obtained UK citizenship
(UK)
BIS warns to be conscious of nationality
DDTC
Dual citizen must consider both countries
In theory must consider place of birth/nationality
Doesnt apply to U.S. citizens/permanent residents

105
What Is Licensable Disclosure?
DDTC
Virtually any access to technical data, defense services
Access to defense articles?
BIS
Breaks down Technology into use, production, and design
Many technologies are releasable to all but persons from
embargoed countries
The EAR defines use technology as specific information
necessary for the operation, installation (including on-site
installation), maintenance (checking), repair, overhaul and
refurbishing of a product
Both Exclude Fundamental Research
106
Licensing Through BIS
BIS detailed application
guidelines at
http://www.bis.doc.gov/DeemedExp
orts/foreignationals.pdf
Very detailed disclosure required:
On technology
On the companies technology
control plan
On person
Education
Employment history
Military service
License conditions
Limitations
Submission of TCP
107
Licensing Through BIS
Recent Stats
Processing time about 40 days
86% approved
14% RWO
4 denied
Foreign nationals
60% Chinese
13% Indian
9% Iranian
108
Licensing Through DDTC
Generally two-stage process
DSP-5 Authorization for employment and access to
technical data in specified areas
TAA to receive defense services
Guidance online
http://www.pmddtc.state.gov/docs/foreign_national_employ
ment.doc


109
Restrictions on Information
In addition to ITAR/EAR (export controlled
information)
DoD classified materials restricted to cleared U.S.
citizens
Government materials may be NOFORN
DHS Sensitive Security Information
Government contract may restrict who can work
on project
110
Sample Restriction from Government
Contract
Equipment and technical data generated or delivered under
this contract are controlled by the International Traffic in
Arms Regulation (ITAR) . . . . An export license is required
before . . . granting access to foreign persons to any
equipment and technical data generated or delivered during
performance . . . . The Contractor shall . . . obtain written
approval of the Contracting Officer prior to assigning or
granting access to . . . foreign persons or their
representatives. The notification shall include the name
and country of origin of the foreign person . . ., and
whether the foreign person is cleared to have access to
technical data (DoD 5220.22-M, National Industrial
Security Program Operating Manual (NISPOM)).

111
Anti-Discrimination Laws
Generally you cant refuse to hire someone because of
national origin or citizenship status (as long as they are
lawfully in the U.S.)
Need to coordinate closely with Human Resources
Title VII of Civil Rights Act
Prohibits discrimination based on race, creed, color, and
national origin
Immigration Reform and Control Act of 1986 (IRCA)
Fills gap to add alienage (e.g., individuals current citizenship
status)


112
Government Contractor Exception
Narrow exception under IRCA where discrimination is
allowed:
[D]iscrimination because of citizenship status which is otherwise
required in order to comply with law, regulation, or executive
order, or required by Federal, State, or local government
contract, or which the attorney general determines to be
essential for an employer to do business with an agency or
department of the Federal, State, or local Government.
8 U.S.C. 1324(2)(C).

113
What Can/Cant You Ask?
Coordinate with Human Resources
If U.S. citizenship/permanent resident status is
required for a job then it is a legitimate question
Probably a legitimate reason for denying employment, although
license may be available
Back-checking of records regarding residency
should be done by Human Resources

114
Technology Control Plan (TCP)
TCP should be tailored to type of technology
Classified
ITAR
EAR
May have different procedures for different
facilities
TCP deals with both physical and IT security
115
Elements of a TCP
General Access policy
Specific controls for foreign subsidiaries/affiliates
Foreign employee/visitor briefing (if necessary)
Non-disclosure agreement
Facility Security
ID check and nationality screening at front desk
Badging and escorts
Computer access
Access controls to certain spaces
116
TCP
IP Security
Segregating and securing access to controlled technology
Need to know basis
Who are your IT Staff?
Special requirements for classified data
117
Panel Discussion and Q&A

6. ITAR Enforcement & Voluntary
Disclosures
119
Enforcement Issues
ITAR Enforcement Environment
Voluntary disclosures Under ITAR
What to do when the government comes
knocking?
120
Violations and Voluntary Disclosures
Company should have internal procedures for
reporting suspected violations
Any investigation should be done by or under the
auspices of legal department/outside counsel to
protect findings

121
Current Enforcement Environment
Increasing criminalization of ITAR export violations
Steven Pelak DOJ Coordinator for Export Enforcement
150 FBI Agents trained on export controls
Strict Enforcement
Even technical violations can result in substantial
penalties
Strict Liability Standard for Civil Enforcement

122
What Constitutes a Violation?
ITAR 127.1
Exporting a defense article, technical data without
approval
Exceed provisos or limited in licenses or agreements
Exporting on expired license
Misuse of exemptions
Failing to record use of exemptions
123
How Does the U.S. Government Learn
of Potential Violations?
Flagged at border by Customs (going in or out)
AES now a powerful enforcement tool
Disgruntled former employee
Competitors who seek advantage or to level
playing field
Your company is mentioned in a Voluntary
Disclosure by another entity
124
How Does an ITAR Enforcement Case
Proceed?
Letter, phone call or visit from DDTC or seizure of items
Rarely starts with a charging letter
Strong incentive for companies to make disclosure and settle
as virtually no other options:
Administrative appeal process not used
Absent criminal prosecution, no real judicial remedy
Government appears to have penalized companies who didnt
cooperate, both in terms of civil penalties and potential criminal
referral





125
State Cases Typically Settled
126
Elements of Settlement
Civil Penalties ranging from under $100,000 to multi-million
dollars depending on a number of factors
ITAR Civil Penalties up to $500,000 per violation
- OFAC/BISAs of Oct. 16, 2006, Max penalty raised from $50,000
to $250,000 per violation may apply retroactively
Some portion may be suspended if used for internal
compliance, auditing, hiring additional personnel, etc.
Hiring of Special Compliance Official (SCO)
Debarment or denial of exports for a certain period




127
Criminal Sanctions
Increase criminal investigation of suspected export
violations
Intent requirement
Corporations and individuals may be penalized
Criminal fines
$1,000,000
Imprisonment up to 20 years or statutory
debarment
128
Voluntary Disclosures
If your company makes a voluntary disclosure it is
in good company
DDTC expects that companies that regularly export
will have violations, and the absence of any
voluntary disclosures for a major defense
contractor may in and of itself raise suspicion


129
Why do Companies Make Voluntary
Disclosures to DDTC?

Can be single most important mitigating factor in
violations
For public company violation may be material for
SEC purposes
Since past violations stay with companies after
they are sold, often see voluntary disclosures
following M&A due diligence
130
Voluntary Disclosures
Depending on a number of factors, may result in a warning
letter or minimal penalty
Transaction would have been licensed if applied for
properly
Export didnt involve highly sensitive technology
Involved export to friendly country
Company had or is implementing compliance measures
Did management endorse disclosure
Did the company cooperate in investigation


131
Voluntary Disclosure to DDTC
Initial notification followed by full disclosure within sixty days
after internal investigation
VD must be in writing include:
Description of violation and regulations violated
Circumstances, why, when, how
Products involved
Corrective action taken
Include relevant documentation
Applications, licenses, shipping documents, etc.
132
Differences Between BIS/DDTC Voluntary
Disclosures
Both have enormous discretion on penalties
Historically DDTC penalties higher, but BIS has narrowed gap
Historically, BIS issued warning letters for very high
percentage of VDs, but this may be changing
DDTC will typically ask for the company to conduct an audit
of past exports and report
BOTH EXPECT YOU TO BE CANDID
Company which stated it took immediate action, but in fact had
kept shipping for some time after initial discovery
133
What to Do When the Government Comes
Knocking?
Increasingly we see the government showing up with little or
no announcement
Who:
BIS special agents
Customs special agents
FAA agents (HAZMAT)
FBI
Why are they coming?
Compliance visit
Search warrant
Civil investigation

134
General Guidelines
As soon as you are aware of a visit:
Notify your general counsels office
Notify the senior person at that facility
If they are serving a search warrant, ask for a
copy and the supporting affidavit and get it to
legal
Check IDs they may not be entitled to access
(e.g., if classified areas)
Get card or write down names of each visitor
135
General Guidelines
Do NOT sign a consent to search for or similar
document without consulting with legal
Pledge to cooperate and be polite and respectful
Be sure officials are escorted at all times
You can ask the purpose of the visit and whether
CDI or specific employees are the target of an
investigation

136
Regulatory Officials
Generally, federal agencies have a right to inspect export or
other records
Reason for visit:
May have specific information about a possible violation by CDI
(disgruntled former employee)
May be investigating a customer of CDI
May be awareness visit
FBI visiting manufacturer of sensitive technology to make
them aware of threat
Many universities visited



137
If No Search Warrant
If they ask to review documents, ask them to put the request
in writing so you can be sure to provide everything
Ask for reasonable time to provide (e.g., days)
If they insist, put them in designated room and bring docs to
them
They can inspect originals, but in general if they want a
document make them a copy
WITHOUT A WARRANT THEY DONT HAVE THE RIGHT TO SEIZE
ANYTHING
Questioning of employees
Cooperate, but only answer factual questions you can answer in
full
If situation becomes adversarial you have absolute right not to
answer

138
Regulatory Subpoena
Used extensively by some agencies
Generally gives you x number of days to respond
Fax it immediately to legal
Customs/FAA Notices

139
140
Officials with a Search Warrant
This means there is a criminal investigation
Cooperate to the extent of the warrant
Dont volunteer information or make admissions
Review warrant to make sure it covers your facility
and is actually signed by a judge
Try to delay until you can speak with counsel
(probably wont be successful)
141
Search Warrant
Discuss the scope of warrant They dont have
right to records or premises outside scope of
warrant
Do not, without a lawyer present, allow them to
interview employees
If they want to remove records/computers, etc.,
ask for a chance to make copies or at least an
inventory of what was seized

142
Post Visit
Do not destroy records, or erase emails, etc., even
if regular practice, without consulting with legal
143
Panel Discussion and Q&A

7. ITAR Compliance Program
Elements & Best Practices
145
Overview
Why create a tailored program?
What are the major elements?
Best practices
How comprehensive should your program be?
How do you implement it?
(And sell it to management)

146
Benefits of a Tailored ECP
Streamline export processing
Cut costs of an export transaction
Push export clearance to lowest level possible
Clarify & standardize procedures
Both export procedures and control procedures
export shipping procedures
foreign visitors
Why out of the box programs dont work
147
Further Benefits Risk Reduction/Mitigation

Reduce risk of violations
Receiving heavy emphasis from DDTC & BIS
Major mitigating factor if there are violations
Federal Sentencing Guidelines (this protects you)
State & Commerce view as key factor in penalties
Improving program -- often condition to DDTC
settlements
148
De-Facto Requirement for Public Company
Sarbanes-Oxley
Internal controls mandatory to ensure financial accuracy
and accountability
Internal controls must ensure, among other things, that:
All business transactions conform with applicable laws
Annual internal control report required by Section 404
Section 302/306 require certain executives (CEO/CFO) to
certify as to the effectiveness of internal controls
Required to disclose material changes in financial
condition in reports
149
What Are the Major Elements of the ECP?
Management Commitment
Defining the scope meaningful risk analysis
The ECP manual
This must be tailored for your company
Training
Internal auditing
Recordkeeping
System for Reporting Violations
Remedial / Disciplinary Actions
150
Major Elements Management Commitment
Communicating managements emphasis of compliance
Policy statement
Active management involvement
Compliance committee
Reviewing audits
Export Compliance Officer ensure direct channel of communication to
management / legal counsel
Provide adequate resources
Staffing
IT support
Training funding


151
Major Elements - How Comprehensive?
What regimes apply? ITAR, or EAR, or both?
OFAC always applies
Export Compliance also overlaps:
Industrial security
Anti-boycott laws
Foreign Corrupt Practices Act (FCPA)
New anti-money laundering regulations
including mandatory anti-money laundering programs
by financial institutions

152
Elements of the ECP Manual

Policy Directive from CEO / President
Export Controls Overview
Policies and Procedures
Roles and responsibilities of management, export compliance
personnel, HR, IT, security staff
Training tailored to employees responsibilities
Recordkeeping
Internal audit procedures
Detection and reporting (whistleblower provisions)
Clear disciplinary procedures
Appendices
Decision trees; charts; checklists; questionnaires; key contacts
153
Tailored Procedures Avoiding Pitfalls
Give tools to lowest level and avoid:
Generic references to regulations
Overly complex procedures
Requiring information not readily at hand
Multi-layered review of routine transactions
Avoid front office review where possible
No error-proof system
Due diligence better than overly burdensome procedures
that are ignored



154
Develop Flow Charts & Step-by-Step
Procedures
Vetting transaction:
Is the purchaser barred?
Is a license needed to export this product to this purchaser?
Anything suspicious about the transaction? (red flags)
For companies with high-volume product sales
Detailed matrix of product ECCN classification
For license required transactions
Clear guidance on who applies, how process flows
Export clearance procedures
155
Sample Export Control Flowchart
I nformation
USML technical data
CCL listed technology /
software
Tangibles / defense services
USML / CCL listed articles
USML defense services
Information /
informational
materials
Equipment,
technology,
software
NO
not subject to ITAR / EAR
EAR99
YES
IS THE ITEM OR TECHNOLOGY
LISTED ON USML OR CCL?
(if uncertain contact Export Compliance Officer)
Is it going to an
embargoed country /
barred individual?
NO YES
Apply for a license
or do not export

No restrictions
on export
OK to:
Disclose to foreign
nationals
Is it:
in the public domain /
publicly available
educational information
result of fundamental
research
NO YES
Is there an exemption or
exception available?
* cannot use exemption /
exception if export to
embargoed countries or
barred individuals
YES NO
Document use of exemption
or exception and export
Apply for a license
or do not export
156
Other Elements of ECP Manual
Post-license ongoing compliance
Particularly an issue with large contracts under TAA
Handling deemed exports (always a problem area)
Procedures for foreign national employees
Procedures for plant visits by foreign nationals
E-mails and other lines of communication (a training
issue)
Sample forms
Procedures for reporting suspected violations
Contact information for assistance
157
Training
Develop module based training program
Tailor training to needs:
Export compliance personnel (train the trainers)
industry sponsored events; outside counsel
Senior management overview; regular briefings
Employees that work with controlled information and
articles
engineers
sales
production
shipping/logistics
158
Audit Function
Baseline audit
Periodic audits
Use independent auditors
Update ECP manual keeping it current
Procedures for evaluating a process
identify process problems that need fixing
recordkeeping deficiencies
training deficiencies
Export Compliance Council review
159
Implementing an ECP
The nuts & bolts
Overcoming internal hurdles
160
Implementation - Conduct a Baseline Audit
Who should conduct the audit?
Outside counsel / consultant
Independent corporate employees
Find current procedures in various divisions
Find where thats the way its always been done
will be an issue
Identify relevant personnel
161
The Decision to Automate Functions
Cost-benefit analysis depending on size of
company / type of exports
For large defense contractor a de-facto
requirement
For high-volume exporter - can streamline process
Intranet-based manual best way to stay current
162
Where to Get Help?
Written Resources
Nunn-Wolfowitz Task Report: Industry Best Practices
Regarding Export Compliance Program (2000)
Hughes Electronics Corp. sponsored blue ribbon task
force
Detailed report contains numerous best practices
Follows closely the Sentencing Guidelines and BIS EMS
Guidelines
- DDTC GUIDELINES - General Guidance
BIS - EMS GUIDANCE MODULES
163
Gaining Management Support
Streamlined procedures prevent delays
Knocks decision-making to lowest level possible
Programs are de-facto requirement
BIS recent release: Formal written compliance procedures and
directives are the fundamental baseline of any compliance program.
Cost-benefit analysis
Preventive costs pale when compared to violation & repair costs:
civil/criminal penalties
major contracts delayed/products seized
risk of suspension of export privileges
costly DDTC settlement conditions regarding ECPs
Sell changes as improvements to existing structure
Help overcome defense of former systems



164
Panel Discussion and Q&A













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