Commerce Dept

The Bureau of Industry and Security, US Department of Commerce has denied export privileges to Winter Aircraft Products SA of Madrid for a period of 10 years. The company was denied privileges because the BIS found that the company had taken actions with intent to transship aircraft part subject to the Regulations without a license.

Although the company did not actually follow through with the transshipment, their intent was enough to deny them exporting privileges from the US. It is now an export violation to directly or indirectly export, reexport or even “think” of doing business with this company beginning on May 19, 2008.

More information:

• efoia.bis.doc.gov/exportcontrolviolations/e2047.pdf (PDF)

TFC Manufacturing Inc., a California-based aerospace fabrication facility has been charged with violating the “deemed export” rule. The Commerce Department’s Bureau of Industry and Security has required the company pay a $31,500 penalty.

From March to April 2006, TFC Manufacturing Inc. released unlicensed US technology for the production of aircraft parts classified under ECCN 9E991. The company gave the information to an employee who was a national of Iran, under the Export Administration Regulations; this release of technology to a national of Iran is deemed to be an export and is prohibited without a license.

More information:

• BIS Imposes $31,500 Penalty on California Company For Violating Deemed Export Rule (International Trade Law News)

The Export Compliance Training Institute’s Economic Sanctions and Export Controls Conference at Canary Wharf, London included a keynote address from Secretary of Commerce Mario Mancuso on May 13, 2008. Mancuso discussed US policy efforts to meet US national security challenges targeting financial measures and trade controls.

Mancuso explained, “Globalization is having profound implications for financial markets, technology trade, and national security.”

After attending the Export Compliance Training Institute’s seminar, Mancuso held meetings with the UK government, industry and academic leaders. He hopes that this visit will mark a BIS effort to elevate international engagement and diplomacy with key partners and markets on national security, high technology and strategic trade issues.

More information:

• US alerts banks to ‘legal risk’ of Iran support (Financial Times)
• Under Secretary Mancuso Addresses Global Financial Institutions in London (BIS Web site)
• Information on upcoming Export Compliance Training Institute’s Seminars available at LearnExportCompliance.com

On April 17, 2008 Don Manzullo (R-Illinois) and Adam Smith (D-Washington), introduced new legislation to modernize the Automated Export System. The Securing Exports Through Coordination and Technology Act is described as being able to, “clarify the confusing US export system that punishes mistakes with costly fines” as well as “strengthen the government’s ability to crack down on deliberate violators” as described by Smith and Manzullo. The bill will also include provisions designed to improve the use and operation of e AES.

Under the Act the AES would be required to:

• Reject data submitted for exports that would violate US export control or sanction regulations by virtue of the destination country or entity;
• Alert the exporter of potential export license requirements under the EAR and/or the ITAR based on codes;
• Issue a fatal error notice when the data submitted includes: names, addresses or restricted entities or destination countries subject to US sanctions and embargoes;
• Issue compliance alerts or other warnings to the filer if: the data submitted includes an inconsistent classification number, a license exception which is not available for the country or ultimate consignee or if there is no license number

Exporters say that these types of errors happen often because of the many different export control laws and regulations they have to handle. Read More

So, you got some commercial hardware controlled by the Export Administration Regulations, and then you load some military software on to it. What do you have? You have an item that is now controlled by the International Traffic in Arms Regulations.

And even if the Commerce Department gives you many licenses for many exports of those things, you still have ITAR violations.

That seems to be what happened in this case in which Northrop Grumman Corp. reached a settlement agreement related to exports that Northrop Grumman discovered after it acquired Litton Industries in 2001. The violations Northrop discovered occurred from 1994-2001. According to documents provided to the State Department from Northrop the company had committed over 110 violations involving sales of 73 aircraft navigation systems. Northrop Grumman discovered the violations as it was working to install its compliance procedures in its new acquisition.

Read More

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

Read More

A letter from a group of 12 trade organizations was sent to the Department of Commerce on February 15, 2008 opposing the many proposed changes to the US deemed export control policy. The Deemed Export Advisory Committee outlined these changes in their December 20, 2007 report. The letter argued that many of the approaches are not sufficient with the industry, urging Commerce “to go back to the drawing board” and work closely with industry to develop a more “balanced” approach.

Over the past 20 years the government has not been able to agree on meaningful reductions to the scope of the controlled technologies lists. The DEAC did not attempt to make any recommendations fro narrowing the list because of such criteria and the letter agreed.

The DEAC proposed a “probable loyalty” test in reference to foreign nationals, this test would significantly increase the number of foreign nationals subject to deemed export licensing and restrictions to US origin technological information. The letter argued that would lead to an expansion of both the list of countries whose nationals would become subject to deemed export controls and the number of such nationals that would be subject to licensing.

Overall, the group of 12 stressed the fact that the DEAC’s suggestions would harm US technological competitiveness and would lead to a license “logjam”, there will be increases in both the number of deemed export license applications and an increase in license denials fro nationals of more countries. All in all the US government is not prepared to process this many licenses.

The DOC has already announced that its Bureau of Industry and Security has begun to implement the committee’s recommendations. They has been directed to immediately create an Emerging Technologies Advisory Committee and the BIS is also beginning to improve outreach and engagement efforts to the academic and technology communities about the progress and scope of its deemed export policy efforts. The BIS has begun to work with the departments of Defense, State and Energy to consider other specific DEAC proposals.

More information:
BIS- The Deemed Export Rule in the Era of Globalization (PDF)

Effective November 7, 2007, the Department of Commerce will control the licensing of the QRS11-00100-100/101 and the QRS11-00050-443/569 Micromachined Angular Rate Sensors. The Department of State previously held the licensing jurisdiction for the sensor, as it was found on the United States Munitions list. Many industry inquiries about incorporating the part into civil automatic flight control systems and standby systems led to its removal from the Munitions List causing the part to no longer be under the jurisdiction of the state. The instrument systems, automatic flight control systems and the aircraft which would house the sensor will remain subject to the EAR.

More information:

Federal Register Notice

The Commerce and State departments published changes to their respective export control regulations, the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR) to change the scope of radiation hardened microelectronic circuits that are subject to the export jurisdiction of the ITAR.

Specifically, in Category XV of the US Munitions List in the ITAR, paragraph (d)(4) was changed from single event upset rate of 1 X 10 to the minus seven power to a single event upset rate of 1 X 10 to the minus ten power.

This paragraph (d) in Category XV controls any device with all five of the rad hardening characteristics in (d)(1) - (5). If a device does not have all five of those characteristics, it falls under the jurisdiction of the EAR. Of course, any device designed, modified, configured or adapted for space use falls under the ITAR regardless of its rad hardening characteristics.

On June 5, 2007, Assistant Secretary of Export Administration Christopher A. Padilla has issued the following: BIS is revising the EAR by amending a general order published in the Federal Register on June 5, 2006 and later amended on September 6, 2006 to add nine additional persons. The general order imposed a license requirement for exports and reexports of all items subject to the EAR where the transaction involved Mayrow General Trading (“Mayrow”) or entities related, as specified in that general order. The order also prohibited the use of License Exceptions for exports or reexports of any items subject to the EAR involving such entities.

This rule will expand the general order and add sixteen additional persons to it. Pursuant to the expansion, the general order will cover: (i) Persons regarding whom the U.S. Government possesses information of affiliation or relationship to Mayrow; and (ii) other persons regarding whom the U.S. Government possesses information concerning the acquisition or attempted acquisition of commodities capable of being used to construct IEDs, as well as persons who are related to or affiliated with such persons 2E The order will apply to persons specifically listed who fit within either of these two groups. To reflect this expansion, this rule will update the heading of the general order to use the term “persons”.

Details from Department of Commerce

— Hannah Bandalan

In an effort to scare the governments of countries that are major transshipment points to US embargoed countries (or as Commerce would say, ‘in order to strengthen the trade and export compliance systems of countries that are hubs for transshipments), the Commerce Department’s Bureau of Industry and Security (“BIS”) published a notice of proposed rule making in which it stated it is considering adding a “Country Group C” for countries of particular diversion concern.

Read More

The issue of “deemed exports” in the fundamental research arena at US universities is back front and center thanks to a new GAO report. The report, issued in early December, 2006, used unusually critical language in questioning whether the DDTC and BIS were doing an adequate job of educating universities about compliance with US export regulations as they relate to research programs. The GAO’s major concern was that sensitive information could be accessed by foreign students.

Universities contacted by the GAO complained that any guidance from State and Commerce was focused too much on corporations and didn’t address the specific issues of universities.

In response to the report, the DDTC issued a statement saying, in essence, that they recognize that a risk exists but do not know if they have the resources to do anything about it at this point. Both agencies (DDTC and BIS) also candidly stated that their top priorities were processing license applications, not outreach and education.

At the December 5, 2006 meeting of the Regulations and Procedures Technical Advisory Committee, the following enforcement issues were discussed:

1. The increase in boycott requests from Iraq and Libya. Since power has transferred from the Coalition Provisional Authority to the new Iraqi government, boycott requests there have increased significantly since falling in 2004. Closing the Libyan boycott compliance office has resulted in increased requests from Libya as well. The biggest of the boycotting countries is U.A.E.
2. The Office of Export Enforcement reported that one of their highest priorities is the renewal of the Export Administration Act (EAA). Proposed changes for the act upon renewal include penalties increased from $11,000 to $50,000 as well as imposing criminal penalties for violations. They will continue to encourage Voluntary Self-disclosures (VSDs) with the policy that penalties will be reduced by 50% with the option to consider other factors which could reduce penalties even further. From 2004-2006 only 5% of VSDs resulted in any penalty at all. Half of the other 95% resulted in the conclusion that no violation had occurred.

On December 5, 2006, the Government Accountability Office (GAO) released a report assessing the need for US Departments of State and Commerce to do a better job of educating companies on how to protect export-controlled information — especially electronic transfers of such information. Nearly one fourth of companies that the GAO interviewed in preparing the report remarked that the web sites of State and Commerce do not address how to protect information transferred electronically— through email or over the web. They went further in noting the risks that are inherent in using such a variety of methods of attempting to control information. There is no standard guidance from the government on how to keep controlled data from being accessed by foreign national employees or visitors. The report also noted that only one-third of interviewed companies had internal procedures in place for protecting export-controlled information.

The Simplified Network Application Process (SNAP) Program of the Bureau of Industry and Security has recently added a number of enhancements.  SNAP is an electronic system of submitting export/re-export license applications, commodity classification requests and other documents.  The redesign includes a new user manual and has been renamed SNAP-R.

The first enhancements to be implemented under SNAP-R include the following:

1. the ability to attach supporting documents for license application submissions through the Web interface,
2. enhanced system security and improved authentication,
3. e-mail capabilities to facilitate BIS/exporter communication,
4. enhanced “search” capabilities for retrieving license applications and supporting documents,
5. the ability to copy and re-use work items and supporting documents, and
6. the capability to share work items within the same company

Access the new SNAP-R user manual at www.bis.doc.gov/snapr/SNAPR_Exporter_User_Manual.pdf .