Information Technology

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

Mazak Corporation, the North American manufacturing, sales and support arm of Japan-based Yamazaki Mazak Corporation announced that all of its products will have relocation detectors installed in them. Mr. Tomohisa Yamaszaki, president of Yamazaki Mazak Corporation has pushed the company to include these detectors on every machine produced and shipped from any Mazak plant to any location throughout the world.

The relocation detector is a permanent device that will be located in the electrical cabinet of the machine. Any repositioning of the machine or relocation will signal an alarm and in turn completely shut down the machine. A password will be required each and every time the machine is moved to verify the new location.

This technology has been available for quite some time. This is however, the first time it has ever been used to prevent violation of US and Japanese export laws.

Two Louisiana men have been indicted after officials claimed that their company, Engineering Dynamics, Inc., sold CAD software to companies in Iran. They did not actually directly sell the software to Iran, but sold the software to a distributor in Brazil who then sold the software to companies in Iran.

The indictment is based on sales by the foreign distributor and most of the allegations relate to communications from the Brazilian distributor to Engineering Dynamics, Inc. relating to its Iranian sales. Most of the communication was only for the purpose of calculating and paying commissions that were due to EDI. There were merely a handful of communications from EDI to the Brazilian distributors and of those communications none ever indicated that EDI was directing the distributor to sell the goods to Iran.

The indictment does raise the question as to the reach of U.S. sanctions against Iran. If a U.S. company sells an item to a foreign distributor who later sells an item to a sanction country, the U.S. company is not liable for that sale unless there is evidence that the original US export was made for the purpose of reexporting the goods to the sanctioned country. This is a lesson to be learned for many companies, it is a good idea to obtain an undertaking from foreign distributors that the exporter’s products won’t be sold to a sanctioned country. This is especially important because it is very hard for a U.S. exporter to prove that the distributor was solely responsible for the sale and that it was made with no prior knowledge, participation or assistance of the U.S. exporter.

More information:

Export Control Blog

Canada has released the implementation to the Special Economic Measures (Burma) Regulations applying sanctions against Burma.

The main measures taken by Canada prohibit:

1. The export from Canada to Burma of any goods, excepting only the export of humanitarian goods
2. The export of technical data
3. The provision of financial services to Burma

Canada implemented the new sanctions in light of resolutions by both the United Nations Commission on Human Rights and the General Assembly who condemned the human right violations in Burma at this time.

More information:

dfait-maeci.gc.ca/trade/eicb/notices/Ser155-en.asp

Northrop Grumman Corporation of Los Angeles, California has voluntarily self-disclosed violations to the Commerce Department’s Bureau of Industry and Security. The company and Litton Industries, Inc., which Northrop acquired in April 2001, committed 131 violations of the Export Administration Regulations. A significant portion of the violations involved unlicensed reexports from the UK to a wide range of relatively friendly countries. The items were specially designed components for navigation equipments and they were illegally delivered to the Philippines, Singapore, Malaysia, Italy, and the United Kingdom from January 1998, to September 2002.

Northrop has agreed to pay $400,000 in civil penalties to settle the allegations of the 131 violations. The Commerce Department said that because Northrop voluntarily disclosed all information and fully cooperated with the investigation, Commerce decided to give a large break in fines.

More information:

www.bis.doc.gov/news/2008/northrop01252008.html

President Bush issued an Export Control Directive on January 22, 2008, the directive is presumed to improve the way in which the Department of State responds to the many licenses it receives for the export of defense equipment, services, and technical data. Bush promised, “a more efficient and transparent export license process” and better “dispute resolution mechanisms” but was sure to include that there will remain a strong monitor on protecting national security.

The specific changes include:

1. Additional financial resources and intelligence support to provide timely adjudication of defense trade licenses
2. New guidelines requiring decisions by the U.S. Government on defense trade export license applications within 60 days unless there is strong reason for additional time which must be approved
3. The electronic licensing system will be upgraded to allow all types of defense trade licenses and their submission
4. An interagency will be created to allow for timely resolution of licensing jurisdiction issues under the Commodity Jurisdiction process
5. A multi-agency working group will be created to improve procedures for export enforcement investigations

Read More

On December 19, 2007, an amendment to the ITAR was published that revised the licensing procedures with regards to third party/dual nationals for technical assistance and manufacturing license agreements. It is no longer required that additional approval for a release of technical data, defense services, and access to defense articles for third part/dual national employees from NATO, EU, Australia, New Zealand, Japan, and Switzerland. Read More

On December 14, 2007, Minister Maxime Bernier, Minister of Foreign Affairs, announced that Canada’s economic sanctions against Burma entered into force on December 13, 2007. Read More

It used to be that the International Traffic in Arms Regulations allowed a US citizen employee of a US exporter to carry export-license-required-technical data (technology) out of the country on his/her laptop while the EAR did not allow the same thing to happened. That has now changed.In the December 12, 2007 Federal Register, the Bureau of Industry and Security, Commerce has revised the Export Administration Regulations (EAR) to expand the export license exceptions Temporary Imports, Exports, and Reexports (TMP) and Baggage (BAG) to allow for certain exports and reexports of technology between two U.S. persons or their employees traveling or those that are temporarily assigned abroad.

The rule expands the availability of License Exceptions TMP and BAG but does not authorize any new release of technology. Any technology exported under the new rule may only be released to persons who may receive that same technology pursuant to other provisions of the EAR which means it will still be subject to restrictions applicable to technology exports and reexports. Read More

Special Guest Article from Pillsbury Winthrop Shaw Pittman LLP

The U.S. Government recently completed the negotiation of two defense trade cooperation treaties, one with the United Kingdom and the other with Australia. These treaties establish a bilateral framework with each country to enhance defense cooperation and reduce barriers to the exchange of defense goods, services and information. If ratified, the treaties will allow the U.S. to streamline licensing for items subject to the International Traffic in Arms Regulations (ITAR) when exported to members of an “Approved Community” in each country for specified programs. Read More

The Australia-United States of America Treaty on Defense Trade Cooperation is underway and, if ratified, would permit some license-free exporting of defense goods and services between the two countries. The important point is that if US Senate ratifies the treaty, there could be significant relaxations in US export restrictions on defense articles under the International Traffic Arms Regulations (ITAR). The State Department approved 2361 licenses and 312 agreements for Australia in 2006. The United Kingdom is the only other country to have such a treaty United States, but the US Senate has not yet ratified the UK-US treaty. The ITAR already gives certain favorable and license free treatment to exports to Canada. Read More

In the August 30, 2007 Federal Register, the Office of Foreign Assets Control (OFAC) made several amendments to the Cuban Assets Control Regulations, Burmese Sanctions Regulations, Sudanese Sanctions Regulations, and Iranian Transactions Regulations to extend the general licensing to cover services in connection with written publications. A key element of the amendments applies to electronic publications that are already exempt from OFAC jurisdiction. The amendments extend the exemption for informational materials to also apply to embedded software that is embedded in the informational materials and used to search, view or read the electronic publications.

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.

Part 1: Expedited License Review

Don’t Tell Anybody-Expedited Treatment Available for ITAR Exports to Australia?

According to Kerry Clarke AO, in the Australian Department of Defence, the US State and Defense departments have agreed to give streamlined processing for exports to Australia under two new policies known as Expedited License Review I (ELR I) and Expedited License Review II (ELR II).

But, according to Kerry Clarke, the expedited processing might not yet be in operation and is “dependent on the continued implementation of D-Trade — [which] — the State Department hopes — to have fully implemented by the end of 2007. Until then, licence and TAA approvals may take longer than the 10 and 30 day target times, but hopefully less than the current approval times.”

(Not sure I agree with the hopefulness of Kerry Clarke.)

OK, so the bottom line appears to be that the expedited system might not be in operation yet and hopefully it will be up and running by the end of the year. (I personally am not going to use up my limited supply of personal hope hoping for streamlined processing. I plan to spend all my hope on hoping I win the lottery so I can retire to the mountains.)

Anyway, according to an Australian Department of Defence memo (see end of this article for a copy), here are the two expedited procedures the US and Australian agreed upon:

Read More

OK, it has been a month since the US slapped new export controls on China to attempt to slow the growth of the Chinese defense industry, and thus hamper the growth of Chinese military capability. A considerable amount of concern about the rule was exhibited when more than 700 persons joined in the BIS conference call to discuss the new rule on June 20. Since the rule was published in the June 19, 2007 we have had plenty of opportunities to hear the US Government and other parties focus on how the new rule relaxes exports to China by establishing a procedure for license-free exports to Validated End-Users (VEUs) even though no VEUs actually exist.

What does exist today, and what companies must comply with today, is a new approach to restricting certain export to China that are imposed by the new set of export restrictions on China. So, let’s look at the details of the new requirements.

Read More