• Congressional Notification is required.  The Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) requires a certification to Congress before any license concerning "the sale of major defense equipment, manufacture abroad of significant military equipment, defense articles and services, or the re-transfer to other nations."

 

• Required Government Assurances have not been met. The Department of State includes as examples, Missile Technology Control Regime Assurances and Cluster Munitions Assurances.

• End-use Checks have not been completed. These checks (also referred to as Blue Lantern checks) are used to prevent illegal defense exports and technical data transfers by assuring the recipient complies with U.S. regulations. Such checks can vary from contacting the end-user to physical examination of the export shipment.

• Department of Defense has notified the Directorate of Defense Trade Controls that an overruling national security exception applies.

• Waiver of Restrictions is required. The Department of State cites as an example, a sanctions waiver.

FOREIGN INVESTMENT IN THE US: EXECUTIVE ORDER 11858 (CFIUS)
January 23, 2008 - Washington, DC

On January 23, 2008, the White House issued an Executive Order providing guidance regarding operating procedures for the Committee on Foreign Investment in the United States (CFIUS). This committee, which is led by the Department of the Treasury, is charged with the responsibility of reviewing certain proposed foreign investments in the United States to determine if they threaten to impair the national security. The Executive Order provides clear guidance regarding the roles and responsibilities of the agencies involved in the review process as well as the procedures to raise issues of concern to the President for decision.

The Executive Order was immediately praised by the Business Roundtable, The Financial Services Forum, the Organization for International Investment and U.S. Chamber of Commerce. Their joint press release stated: "A clear and certain CFIUS process helps the United States to remain an attractive location for global capital."

PRESIDENT BUSH ANNOUNCES MAJOR EXPORT CONTROL INITIATIVE January 22, 2008 - Washington DC

President George Bush announced that the United States would take a number of steps to ensure that export control policies support national security objectives while facilitating U.S. economic and technological leadership.

Pursuant to this Presidential announcement, the Commerce Department issued a Fact Sheet indicating that specific steps will focus on increased attention to foreign end-users. Measures will be implemented to promote trade with reliable end-users and deny exports to those who would use U.S. technology for purposes contrary to foreign policy and national security interests. There will also be a focus on improving U.S. industrial competitiveness by a systematic review of the Commerce Control List and increased attention to current implementation practices including intra-company transfers, encryption controls and re-export provisions. In addition, there will also be a focus on increased transparency for the exporting community, including publication of advisory opinions on the Commerce Department web-site and foreign entities that deserve greater scrutiny.

The State Department also released a Fact Sheet outlining the initiatives it will undertake. These include a focus on more effective and timely export licensing and a formal interagency process to provide for timely resolution of Commodity Jurisdiction disagreements between State and Commerce. Further, the State Department noted that the National Security Council will undertake a review of the overall CJ process to ensure that it both timely and efficient. An interagency working group will also be established to improved procedures for conducting export enforcement investigations.

Although some of these initiatives have been policy objectives of the Departments of State and Commerce, they now take on added significance in light of the Presidential commitment. This represents a clear indication that the Bush Administration is seeking to make meaningful progress in the implementation of effective export controls during its last year in office.

THE DEPARTMENT OF COMMERCE PUBLISHES THE 2008 FOREIGN POLICY REPORT TO CONGRESS

January 2008 - Washington, DC

Commerce Department publishes 2008 Foreign Policy Report to Congress: The Department of Commerce has posted on the Bureau of Industry and Security (BIS) web site the 2008 Foreign Policy Report to Congress extending controls under Section 6 of the Export Administration Act. Foreign policy controls under the EAA are extensive and cover diverse areas such as chemical, biological and missile nonproliferation, crime control, unilateral sanctions and others.

BIS Publishes "Housekeeping" Revisions to EAR and DPAS

January 2, 2008 - Washington, DC

On January 2, 2008, BIS published a final rule: "Revisions and Technical Corrections to the Export Administration Regulations and the Defense Priorities and Allocations System Regulation".

This rule amended the Export Administration Regulations (EAR) by making a number of technical and formatting modifications. These included the following:

In addition to the above noted modifications to the EAR, this rule amended the Defense Priorities and Allocations System (DPAS) Regulation by updating an office name and by removing a reference to a form.

STATE DEPARTMENT ANNOUNCES POLICY OF DENIAL FOR DEFENSE ARTICLES TO SRI LANLA

December 26, 2007 - Washington, DC

The Office of Defense Trade Controls announced that, effective December 26, 2007, it would deny applications for licenses and other approvals to export or otherwise transfer defense articles and services to Sri Lanka. DDTC noted that the only exception to this policy is that licenses may be issued for technical data or equipment related to certain maritime and air surveillance and communications. Such license applications would be subject to a case-by-case review. DDTC further noted that existing licenses remain valid.

DEEMED EXPORT ADVISORY COMMITTEE REPORT

December 20, 2007 - Washington, DC

On December 20, 2007, the Deemed Export Advisory Committee (DEAC) submitted its report and recommendations to the Secretary of Commerce. The Secretary commissioned a group of distinguished Americans headed by Norman Augustine (former senior DOD official and Chairman and CEO of Lockheed Martin Corporation) in September 2006 to examine the complex issue of "deemed exports." "Deemed exports" involve the transfer of controlled dual-use technology to foreign nationals.

The DEAC report concluded that the current implementation of deemed export licensing requirements should be substantially revised.

The Committee noted that the United States is the only country that controls deemed exports and also participates in multilateral export control regimes. Other countries rely on immigration restrictions, intelligence information and intellectual property controls to address "deemed export" technology transfer issues. Accordingly, the DEAC report notes that the United States could change its implementation procedures on a unilateral basis.

The DEAC stressed that the globalization of research and technological innovation serve to undermine the utility of the deemed export regime as currently constructed. It also noted that the wide scope of controls can serve to undermine U.S. access to foreign technological expertise and be inimical to our security interests. The DEAC's principal findings include the following:

• The current deemed export program will not deny scientific and technical information to U.S. adversaries. They will obtain it from other sources.
• The current regulations cover a wide range of technologies that are not critical to U.S. security.
• Further the rules regarding technology transfers are complex and vague.
• Many academic and industry organizations are not aware of the deemed export licensing requirements. Despite the broad scope of the rules, fewer than 1000 export license applications are submitted each year - the vast majority of these are approved. Less than one percent of the applications are denied.
• There has been only one deemed export case ever brought to trial due to the difficulty in proving a violation.
• The rules regarding implementation of the licensing requirements and to whom they pertain are often illogical.

The DEAC's principal recommendations include the following:

Based on these recommendations, the DEAC then suggests a seven step process for implementing the revised controls.

These recommendations would serve to streamline the licensing process and clarify the rules. The DEAC recommendations are not binding on the U.S. Government. Given the complexity of these matters and the need for interagency review, it can be expected that it will take time before there will be significant modifications to current "deemed export" procedures.

STATE DEPARTMENT REVISES ITAR RULES FOR TRANSFERS TO CERTAIN "THIRD COUNTRY" AND DUAL-NATIONALS

December 19, 2007 - Washington, DC

On December 19, 2007, the State Department's Office of Defense Trade Controls (DDTC) published an amendment to the ITAR that revised licensing procedures with regard to third party/dual nationals for technical assistance/manufacturing license agreements. A new §124.16 has been added to no longer require additional authorization for release of technical data, defense services, and access to defense articles for third party/dual national employees of the foreign signatory/sublicensee to an agreement that are exclusively from NATO, EU Australia, New Zealand, Japan, and Switzerland. The State Department stresses that such persons may not hold nationality from any other country.

The State Department considers country of origin or birth in addition to citizenship. For the purposes of this approval, the individuals must be physically located within one of the countries to receive access to the technical data.

The State Department adds a new section of the transmittal letter -- §124.12(a)(10) to specifically request the authorization under §124.16. The Department points out that specific language should also be added as a section in the agreement that is executed with the foreign party to identify the authorization.

The State Department stresses that existing authorizations must be amended to take advantage of the new release procedures. Specifically, the agreements must be re-executed with the foreign signatories with a clause inserted that lists countries of the nationals under §124.16 that technical data will be released. The revised and re-executed agreement should be submitted to the Office of Defense Trade Controls Licensing (DTCL).

The Department also notes that Guidelines for Preparing Agreements available on the DDTC web site will be revised to incorporate this change.

OFAC Issues Interim Policy on Increased IEEPA Civil Penalties

November 29, 2007 - Washington, DC

The Office of Foreign Assets Control (OFAC) has issued interim policy on its application of increased civil penalty levels for violations of the International Emergency Economic Powers Act (IEEPA).

Maximum civil penalties for IEEPA violations were increased to $250,000 or twice the value of the involved transaction, whichever is greater, under provisions of the International Emergency Economic Powers Enhancement Act, signed into law by President Bush on October 16, 2007 (see our Client Advisory dated October 16, 2007). The prior maximum civil penalty for IEEPA violations had been $50,000 per offense.

OFAC intends to publish revised enforcement guidelines and procedures to implement the new maximum penalty amounts. In the interim period until those revisions are issued,OFAC will continue to apply its current penalty guidelines [the Economic Sanctions Enforcement Guidelines, 68 Fed. Reg. 4422 (January 29, 2003) and Economic Sanctions Enforcement Procedures for Banking Institutions, 71 Fed. Reg. 1971 (January 12, 2006)] to the new statutory provisions. OFAC pre-penalty notices will generally be issued at the transaction amount, which under OFAC's enforcement guidelines is the lesser of the transaction amount or the statutory cap. OFAC will continue to apply aggravating and mitigating factors and percentages as set forth in the current guidelines.

Additionally,

OFAC’s issuance of this interim policy follows a policy statement issued by the Bureau of Industry and Security (BIS) on its application of the increased IEEPA civil penalties to violations of the Export Administration Regulations (see our Client Advisory dated November 2, 2007).

Export compliance practitioners, attorneys and other interested parties can anticipate that OFAC will employ the new, higher IEEPA civil penalty levels for all administrative penalty cases brought on or after October 16, 2007, with the exceptions noted above. Exporters are encouraged to review their internal programs and procedures to ensure compliance with all applicable U.S. export controls and requirements and avoid violations and penalties.

MK Technology’s well-established practice in export compliance consulting can assist you in establishing and evaluating your export compliance programs and procedures, providing training on export control requirements and assessing potential enforcement issues confronting your company. The MK Technology team includes experts with years of experience in managing and evaluating compliance programs with the U.S. Government and major manufacturers and exporters in defense and high technology companies, who will bring their expertise to bear on identifying and recommending solutions to resolve underlying root causes of non-compliance to help avoid violations and facing the Government’s stepped-up enforcement efforts.

In the area of export enforcement, our partner Mike Turner was Director of the Office of Export Enforcement in the Commerce Department and held other senior posts in the Customs Service and successor agencies.  He has extensive experience in dealing with the Justice Department, FBI, OFAC and other agencies involved in export investigations, prosecutions and penalties.

Our Export Enforcement assessments are designed to help you address specific enforcement issues facing your firm; evaluate alleged violations; correct underlying causes of non-compliance; evaluate exposure to criminal prosecution and civil penalties; and explore potential strategies including defenses, voluntary disclosures and negotiated settlements.  Enforcement assessments help clients identify and resolve gaps to address and mitigate the impact of a Government investigation or enforcement action, saving clients money and avoiding disruption of business and negative publicity.

Contact our experts for more information on the compliance and enforcement services we have to offer.

BIS Expands Licensing Jurisdiction over QRS11 Sensors

November 13, 2007 - Washington, DC

On November 7, 2007, the Bureau of Industry and Security (BIS) published a final rule expanding its licensing jurisdiction for certain QRS11 Micromachined Angular Rate Sensors.

On February 9, 2004, BIS published a rule implementing Commerce Department jurisdiction over certain QRS11 sensors when integrated into a Commercial Standby Instrument System (CSIS). In all other cases, these QRS11 items remained under the State Department's export control jurisdiction.