Export Control News & Alerts

The Export Control Update Newsletter
JULY 2007

CONTENTS

1. Australian Ministry of Defence Memo:
   Expedited Treatment for ITAR Exports; Special Dual National Policy
2. Commerce and State Change Jurisdiction for Rad-Hardened Microelectronic Circuits
3. Thales Builds ITAR-Free Satellite for China:
   Avoiding ITAR Components Adds 6% to Sales Price
4. Commerce Nails Littelfuse, Inc. with $221,200 Penalty for 67 EAR Violations
5. Before You Submit Your CJ, Read the new FAQs
6. California Man Agrees to Plead Guilty Illegal Exports to India
7. Export Compliance Hits the Tonight Show:
   Michael Moore Complains to Jay Leno about OFAC
8. Another Valve Company Gets Nailed
9. APPENDIX: Australian Department of Defence memo

1. Australian Ministry of Defence Memo:
Expedited Treatment for ITAR Exports; Special Dual National Policy

 

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 Appendix at the end of the newsletter for a copy), here are the two expedited procedures the US and Australian agreed upon:

ELR I: Applicants will be approved/denied within a 10 day processing time and will be review only by the State Department (e.g., no staffing for Defense Department review). ELR I is available for license applications for (and “a very limited number of agreements”) when the applications meet both of these requirements:

1. Items that would be eligible for export under the Canadian exemption; and
2. Exports intended for the Australian Defense Department.

ELR II: If an application for a license or agreement is not eligible for ELR I, the US State and Defense Department “have agreed to work to a 30 approval time (rather than the current average of about three months).”

According to the memo, to make sure an application gets the benefit of ELR I or ELR II, the US applicant should indicate when its application qualifies for ELR I.

Part 2: Special Australian Dual National Policy

The same memo reminds Australian companies of the special US policy for Australian dual nationals. Applications for exports to Australia do not have to identify the second nationality of Australian dual-nationals company employees with a RESTRICTED security clearance and a need-to-know. In addition, the same dual-nationals do not have to sign a Non-Disclosure Agreement normally required for agreements. This policy applies only when the Defence Department is the ultimate end-user of a proposed US export. And, of course, this policy does not apply to dual nationals whose nationalities include a proscribed country listed in 126.1 of the ITAR (e.g., China, Vietnam, Iran).

So, if a US company is putting together a TAA, it does not have to list the second nationality for eligible Australian dual nationals and it does not have to get a signed Non Disclosure Agreement from the Australian dual nationals.

See Appendix 1 below for a copy of the Australian Department of Defence memo.

— John Black

2. Commerce and State Change Jurisdiction for Rad-Hardened Microelectronic Circuits

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.

— John Black

3. Thales Builds ITAR-Free Satellite for China:
Avoiding ITAR Components Adds 6% to Sales Price

Peter Selding of SPACE.com reported China has successfully launched a Thales satellite that did not contain any US components controlled by the International Traffic in Arms Regulations (“ITAR”). Any non-US origin satellite with one or more ITAR-controlled part (regardless of value) would require approval by the US State Department for transfer to China — and the State Department would not approve transfers of any commercial communication satellite with ITAR content to China. The Thales ITAR-free satellite proves that it is possible for companies to build satellites and sell them without having to deal with the cumbersome and sometimes prohibitive ITAR controls.

According to the report, the Chinasat 6B telecommunications satellite is the fourth satellite built for the Chinese satellite-fleet operators by Thales Alenia Space. And it looks like it doesn’t cost all that much to avoid ITAR components. According to the report, avoiding ITAR restrictions added approximately six percent to the cost of the satellite due to lack of options in choosing more competitive parts suppliers and the currency used in payment. Thales Alenia Space has pointed out going to a fully ITAR-free product line is out of the question because of the risk of not being able to keep up with the market demand as ITAR-free satellites rely on a supply chain that would have difficulty increasing deliveries in the short term. This sale might be a scary prospect for US satellite makers and US satellite component suppliers. The State Department will not approve license for transfers of US satellites or foreign-origin satellites with US content to China. Now Thales seems to have a monopoly on sales of satellites to China, or, at least Thales is going to get sales that neither US satellite manufacturers nor any foreign manufacturers who use ITAR components will get. Clearly, in attempting to prevent satellite sales to China, the US has used the ITAR to dam up most of the river while leaving an opening wide enough to launch a Thales satellite through. So, the Chinese get communication satellites and US manufacturers get bumpkiss (i.e., nothing). Well, perhaps US policy makers still feel good about the symbolic nature of the US “no satellite sales to China” policy, and as US policy makers are perched high atop their self-designated moral high ground, they will have a clear view of the ITAR-free satellite sales to China.

I will not ask if anybody in the US Government has unofficially threatened Thales or attempted to convince Thales to not go down the ITAR-free path.

— John Black

4. Commerce Nails Littelfuse, Inc. with $221,200 Penalty for 67 EAR Violations

Hmmm, file a voluntary disclosure for relatively low value exports of ceramic yarn and you get hit with a $221,200 penalty. Looks like Commerce is trying to discourage voluntary disclosures. In this case Littelfuse had 62 small exports of ceramic yarn without a license and turned itself in. scuss the fact that the United States accounts for over 50% of all arms sales in the world.

Details (PDF)

— John Black

5. Before You Submit Your CJ, Read the new FAQs

Check out the link below if you’re interested in thematically-based FAQ documents made by the DDTC Response Team to facilitate consistent guidance to the defense export community. The FAQs address basic issues, but it is always important to get the basic fundamentals right.

Commodity Jurisdiction FAQs (PDF)

— John Black

6. California Man Agrees to Plead Guilty Illegal Exports to India

According to the Justice Department, Samuel Shangteh Peng, who formerly was involved in export sales for Edevco Corporation, agreed to plead guilty to five illegal export criminal charges, each of which carries a maximum of 10 years in jail. Mr. Peng was charged with illegal exports in 1999 and 2000 of vibration amplifiers, cable assemblies and vibration processor units to Hindustan Aeronautics Limited’s Engine Division in India, which was on BIS’ Entity List during that time.

Ouch.

DOJ News Release

— John Black

7. Export Compliance Hits the Tonight Show:
Michael Moore Complains to Jay Leno about OFAC

So you’re up after 11PM one night, watching Jay Leno on the Tonight Show for a little comic relief after a long day of trying to enhance export compliance in your company. The next thing you know, there is some guy talking to Jay about the US embargo on Cuba and the Office of Foreign Assets Control. First, you think you’re dreaming, just another one of those frequent export compliance nightmares you get after too many years of reading the ITAR and avoiding OFAC facilitation.

But, no, this time you are not having a nightmare. Michael Moore did really complain to Jay Leno that federal officials were going to issue a subpoena to get more information to pursue their case against him for his trip to Cuba to film part of the movie “Sicko.”

According to a Reuters report, Moore’s attorney David Boies has been contacted by a US Department of Commerce division regarding the name of the person who would be accepting the subpoena on Mr. Moore’s behalf.

US Officials May Subpoena Filmmaker Moore
Reuters: July 27, 2007

— John Black

8. Another Valve Company Gets Nailed

Well, I think it is safe to say that the US valve industry ought to be aware of US export controls by now. Plast-O-Matic Valves (as far as I know not affiliated with Ronco and Ron Popeil) agree to pay a $55,000 fine for 13 violations of the EAR related to exporting thermoplastic valves and controls classified as ECCN 2B350 in the Commerce Control List. This is another in a steady stream of enforcement cases against valve companies over the past couple of years. I have to say that this industry ought to be catching on to the fact that seemingly innocuous valves might require an export license, even when destined for a friendly country. It’s about time the industry put a shut off valve on its steady stream of violations.

Export Violation List on BIS web site

— John Black

9. APPENDIX: Australian Department of Defence memo

Head Industry Division Russell Offices R2-5-C085
Ph: 02 6266 7489
Defence Materiel: equipping and sustaining Australia’s Defence Force

HID/OUT/2007/223

EXPEDITED U.S. PROCESSING FOR AUSTRALIAN LICENCES & AGREEMENTS

This letter provides information on further developments in United States (U.S.) export control arrangements affecting Defence and Australian companies. My previous advice (HID/OUT/2006/811) of 30 November 2006 outlined the agreement reached with the U.S. State Department under the AUSMIN Defence Acquisition Committee’s (ADAC) Technology Transfer Process Improvement Initiative concerning access to U.S. technology by Australian dual-nationals employed in Australian companies. Under the dual-national agreement, Australian dual-national company employees with a RESTRICTED security clearance and a need-to-know do not need to provide nationality information or a Non-Disclosure Agreement before being granted access to U.S. Controlled Unclassified technology. This does not apply to non-citizens, or to those whose dualnationality includes a country proscribed under U.S. International Traffic in Arms Regulations (ITAR) Clause 126.1 (eg, Cuba, Iran, Libya, North Korea, Syria, China and Vietnam). In such cases, State Department approval is required before access is granted. Importantly, this agreement applies only where the Defence Department is the ultimate enduser of a proposed U.S. export; a fact that can be verified either by Defence being a party to the agreement, or by the U.S. exporter making reference to the relevant Defence Capability Plan (DCP) project in the agreement submission letter. The latter should be supported by a letter from the relevant DMO project office or Capability Development Executive sponsor.

The latest development to which I now draw attention involves the streamlined processing of U.S. export licences and agreements for Australia, as follows:

a. Expedited Licence Review I (ELR I). The U.S. State and Defense Departments have agreed that Australian licences (and a very limited number of agreements) will be reviewed only by the State Department if the items to be exported meet the Canadian ITAR exemption criteria (ITAR 126.5) and the export is intended for the Australian Defence Department. The State Department will endeavour to approve such licenses and agreements within 10 days.

b. Expedited Licence Review II (ELR II). For licences and agreements for which Defence is not an end user or which do not meet the Canadian ITAR exemption criteria (most TAAs are not covered by the Canadian exemption), the U.S. State and Defense Departments have agreed to work to a 30 day approval time (rather than the current average of about three months).

The U.S. has also undertaken, where possible, to advise Defence of anticipated delays. The U.S. implementation of Expedited Licence Review arrangements are dependent on the continued implementation of D-Trade, an on-line U.S. export licensing system which currently applies only to unclassified licences, and not to agreements or classified licences. The State Department hopes to have D-Trade 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 current approval times. To ensure that the potential benefits of ELR I and II are gained as soon as possible, Australian companies should request that U.S. companies flag in their licence or agreement submission letters whether a licence or agreement appears to be eligible for treatment under ELR I (as described above). In particular, the letter should specify whether a proposed export would be eligible under the Canadian ITAR exemption if it were destined for Canada. Where this is not the case, the letter should seek expedited 30 day processing under ELR II arrangements. While U.S. companies will be best equipped to determine eligibility under the Canadian ITAR exemption (which is based on applying ITAR Clause 126.5 to items controlled under the U.S. Munitions List), an indicative list of items likely to be covered by the Canadian exemption is attached to assist you in assessing whether a particular U.S. technology might be eligible for ELR I consideration.

Assistance and clarification of matters outlined above can be obtained from Mr Steve Hyland, Director U.S. Export Control Systems, by phone on (08) 8305 6370 or by email at steve.hyland@defence.gov.au.

Yours sincerely
Kerry Clarke AO Head Industry Division, DMO
15 May 2007

INDICATIVE LIST OF ITEMS THAT MIGHT BE ELIGIBLE FOR U.S. EXPORT CONTROL UNDER EXPEDITED LICENCE REVIEW I

The following list of items against U.S Munitions List categories that could be subject to the Canadian ITAR exemption, and thus eligible for ELR I. This list is subject to change by the U.S. Government.

Category II and III. Artillery and Projectiles

• Guns over .50 calibre, howitzers, mortars and recoilless rifles.
• Military flame-throwers and projectors.
• As well as:
  • Components, parts, accessories and attachments.
  • Ammunition, including components, parts, accessories and attachments (except for firearms).
  • Ammunition belting and linking machines (except for firearms).
  • Ammunition manufacturing machines and ammunition loading machines (except hand-loading).

Category IV. Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines (except those on the MTCR Annex)

• Launchers for these items (except MTCR Annex).
• Apparatus, devices, materials for the handling, control, activation, monitoring, detection, protection, discharge or detonation of these items (except MTCR Annex).
• Military explosive excavating devices.
• Components, parts, accessories, attachments and associated equipment (except MTCR Annex).

Category V. Explosives, Propellants, Incendiary Agents and Their Constituents

• Military explosives.
• Military fuel thickeners.
• Propellants for articles in Categories II and IV (except MTCR Annex) .
• Military pyrotechnics, except pyrotechnic materials having dual military and commercial use.
• All compounds specifically formulated for articles in this category.

Category VI. Vessels of War and Special Naval Equipment

• Warships, amphibious warfare vessels, landing craft, mine warfare vessels, patrol vessels and any vessels specifically designed or modified for military purposes.
• 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 vehicles.
• Harbour entrance detection devices (magnetic, pressure and acoustic) and controls.
• All specifically designed or modified components, parts, accessories, attachments, and associated equipment.

Category VII. Tanks and Military Vehicles

• Military type armed or armoured vehicles, military railway trains, and vehicles specifically designed or modified to accommodate mountings for arms or other specialised military equipment or fitted with such items.
• Military tanks, combat engineer vehicles, bridge launching vehicles, half-tracks and gun carriers.
• Self-propelled guns and howitzers.
• Military trucks, trailers, hoists, and skids specially designed, modified, or equipped to mount or carry firearms, artillery or missiles, or for carrying and handling of ammunition.
• Military recovery vehicles.
• Amphibious vehicles.
• Engines specifically designed or modified for the above (except for those in the bullet beginning “military trucks”).
• All specifically designed or modified components and parts, accessories, attachments and associated equipment.

Category VIII. Aircraft and Associated Equipment

• Military aircraft engines, except reciprocating engines, specifically designed or modified for military aircraft.
• Cartridge-actuated devices utilised in emergency escape of personnel and airborne equipment (including airborne refuelling equipment) specifically designed or modified for use with military aircraft or engines.
• Launching and recovery equipment for military aircraft.
• Inertial navigation systems, aided or hybrid navigation systems, Inertial Measurement Units (IMUs), and Attitude and Heading Reference Systems (AHRS) except for those on the MTCR Annex.
• Ground effect machines (GEMs), including but not limited to surface effect machines and other air cushion vehicles, and all components, parts and accessories, attachments and associated equipment specifically designed or modified for use with such machines.
• Components, parts accessories, attachments and associated equipment (including ground support equipment) specifically designed or modified for the above or complete military aircraft.

(NB: The Canadian ITAR exemption does not cover complete military aircraft, helicopters, non- expansive balloons, drones and lighter-than-air aircraft that are specifically designed, modified or equipped for military purposes. It would also not cover developmental aircraft, engines and components.)

Category IX. Military Training Equipment

• Military training equipment including attack trainers, radar target trainers, radar target generators, gunnery training devices, anti-submarine warfare trainers, target equipment, armament training units, operational flight trainers, air combat training systems, radar trainers, navigation trainers, and simulation devices related to defense articles.
• Components, parts, accessories, attachments and associated equipment.

Category X. Protective Personnel Equipment

• Body armour specifically designed, modified or equipped for military use.
• Articles, including but not limited to clothing, designed, modified or equipped to protect against or reduce detection by radar, infrared (IR) or other sensors.
• Military helmets equipped with communications hardware, optical sights, slewing devices or mechanisms to protect against thermal flash or lasers, excluding standard military helmets. · Partial pressure suits and liquid oxygen converters used in military aircraft.
• Protective apparel and equipment specifically designed or modified for use with toxicological agents or equipment or radiation equipment.
• Components, parts, accessories, attachments and associated equipment.

Category XI. Military Electronics Electronic equipment specifically designed, modified or configured for military application, including:

• Underwater sound equipment to include active and passive detection, identification, tracking and weapons control equipment.
• Underwater acoustic active and passive countermeasures and counter-countermeasures.
• Radar systems with capabilities such as: search, acquisition, tracking, moving target identification, imaging radar systems, ground air traffic control radar (except for MTCR Annex).
• Electronic combat equipment such as: active and passive countermeasures, active and passive countercountermeasures, and radios (including transceivers) specifically designed or modified to interfere with other communication devices or transmissions.
• Command, control and communications systems to include radios (transceivers), navigation, and identification equipment (except for MTCR Annex).
• Computers specifically designed or developed for military application and any computer specifically modified for use with any defense article on the U.S. Munitions List. (MTCR Annex items are not included in the exemption.)
• Any experimental or developmental electronic equipment specifically designed or modified for military applications or specifically designed or modified for use with a military system (except MTCR Annex).
• · Electronic systems or equipment specifically designed, modified, or configured for intelligence, security, or military purposes for use in search, reconnaissance, collection, monitoring, direction-finding, display, analysis and production of information from the electromagnetic spectrum and electronic systems designed or modified to counteract electronic surveillance or monitoring (except MTCR Annex).
• Components, parts, accessories, attachments and associated equipment. Category XII. Fire Control, Range Finder, Optical and Guidance and Control Equipment
• Fire control systems: gun and missile tracking and guidance systems; gun range, position, height finders, spotting instruments and laying equipment; aiming devices (electronic, optic and acoustic); bomb sights, bombing computers, military television sighting and viewing units, and periscopes for articles in this section.
• Lasers specifically designed, modified or configured for military application, including those used in military communication devices, target designators and range finders, target detection systems, and directed energy weapons.
• First and second generation image intensification tube and first and second generation image intensification night sighting equipment.
• Inertial platforms and sensors for weapons or weapon systems; guidance, control and stabilisation systems; astro-compasses and star trackers and military accelerometers and gyros.
• Components, parts, accessories, attachments and associated equipment.

Category XIII. Auxiliary Military Equipment

• Cameras and specialised processing equipment therefore, photo-interpretation, stereoscopic plotting, and photogrammetry equipment.
• Military Information Security Systems and equipment, cryptographic devices, software, and components.
• Self-contained diving and underwater breathing apparatus controlled on the USML.
• Carbon/carbon billets and preforms.
• Concealment and deception equipment, including but not limited to special paints, decoys and simulators and components, parts and accessories.
• Energy conversion devices for producing electrical energy from nuclear, thermal, or solar energy, or from chemical reaction that are specifically designed or modified for military application. · Chemiluminescent compounds and solid state devices.
• Devices embodying particle beam and electromagnetic pulse technology and associated components and sub-assemblies.
• Metal embrittling agents.
• Hardware and equipment associated with the measurement or modification of system signatures for detection of defense articles (e.g., signature measurement equipment, prediction techniques and codes, signature materials and treatments, and signature control design methodology) .

Category XV. Space Systems and Associated Equipment

• Commercial communications satellites.
• Ground control stations for telemetry, tracking and control of spacecraft or satellites.
• Global Positioning System (GPS) receiving equipment specifically designed, modified or configured for military use, but for Australian Government end-users only.

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