Export Control News & Alerts

The Export Control Update Newsletter
January 2008

CONTENTS

1. DDTC Announces New Dual and Third Country National TAA and MLA Rule
2. Some Nuts and Bolts of New ITAR Agreements Requirements
3. Commerce Relaxes EAR to Be More Like the ITAR
4. $470,000 Fine for Safety Equipment to Iran
5. State Clarifies UN Sanctioned Countries in ITAR
6. Lucent Agrees to $1 Million Fine for FCPA Violations
7. GAO Report: Why It Takes State Dept. So Long to Process Applications
8. New Policy for ITAR Applications for Sri Lanka
9. Compliance with U.S. ITAR Can Cause Legal Problems for Canadian Companies
10. Update on Canada’s Trade Sanctions Against Burma (and More)
    
11. State Department Revises ITAR Voluntary Disclosure Rules: 60-Day Deadline Imposed
12. Older stories are in the Export Control Update newsletter archive

1. DDTC Announces New Dual and Third Country National TAA and MLA Rule

“Beware of apparently good news.” — John Black

In the December 19, 2007 Federal Register, the Directorate of Defense Trade Controls (DDTC) of the State Department announced its new policy for dual and third country nationals. The change primarily is related to the requirement that when you apply for a Technical Assistance Agreement (TAA) or Manufacturing License Agreement, you must identify the foreign nationalities of the foreign signatories to the agreement. For example, under the old rules if you apply for a TAA with a company in Germany, your application must identify any employees of the German company who will have access to the defense articles and have a nationality other than German. This would include a third country national who is a citizen of France, and a dual-national who has dual German and Mexican citizenship. In addition, under the old rules you have to get a Non-Disclosure Agreement (NDA) from the third country national (but not the dual national).

For more information on the nuts and bolts related to preparation and submission of TAAs and MLAs under the new policy, see the next article.

The new rule raises three issues:

1. Relaxed TAA and MLA requirements for to Nice Nationals
2. Implied Clarification of Requirements for Employees of Sub-Licensees
3. Implied Non-Clarification of the Term “Nationality”

Let’s take these one at a time.

1. Relaxed TAA and MLA Requirements for Nice Nationals

When you apply for a TAA, you no longer have to identify countries of nationality for dual and third country nationals who are nice nationals. Nice nationals are people with nationality exclusively of nice countries — for purposes of this ITAR rule, the nice countries are NATO member countries, EU member countries, Australia, New Zealand, Japan, and Switzerland, and you also do not have to get NDA from the same people.

Instead of listing individual countries and getting NDAs, you must include the new paragraph (a)(10) in ITAR 124.12 in which you request retransfer authorization for the nice nationals in ITAR 124.16. Once DDTC approves your TAA or MLA, items may be retransferred to nice nationals from any of the nice countries, and you don’t have to get NDAs. The blanket 124.16 authorization applies only to transfers within the United States or the nice countries. In addition, 124.16 does not authorize permanent retransfer of hardware-if a nice national needs to have access to ITAR hardware while doing his job he may have access, but if hardware actually needs to be permanently retransferred permanently to another party, that must be approved in the actual TAA/MLA or in a separate General Correspondence authorization.

There is one more requirement under the 124.16: the new benefits apply only to nice nationals employed parties who have either signed the TAA or MLA or who have signed an NDA. This leads us to the next point...

2. Implied Clarification of Requirements for Employees of Sub-Licensees

Well, after a dose of good ITAR news, I know all you experienced ITAR veterans are expecting some bad news. Here it is: (Insert funeral dirge tune here.) The ITAR now implies that you have to get NDAs from dual and third country nationals who are employees of sublicenses covered by your TAA and MLAs, in addition to having to get NDAs from duals and third employees of signatories to your TAAs and MLAs.

Ouch. Get NDAs from duals and third employed by sub-licensees.

OK, here are the details. The new ITAR 124.16 says you do not have to get NDAs from nice nationals employed by signatories who have signed the TAA/MLA or nice nationals employed sub-licensees who have signed the NDA. So, you might read this as implying that you have to get NDAs from non-nice nationals employed by sub-licensees.

There is nothing in the ITAR that explicitly or directly (much less clearly) says you have to get NDAs from foreign employed by sub-licensees. The Agreement Guidelines almost say that. The Guidelines include a reference to such a requirement but never actually impose the requirement-that is what you find, I should say, if you make a literal reading of the guidelines (using English grammar, an English language dictionary and logic). I am not going to give you the exact details of the almost requirement in the Guidelines-if you are not aware of it already, cherish your ignorance.

So there you go, the ITAR now implies that you have a huge new burden of getting NDAs from non-nice country nationals employed by sub-licensees. (Logically I would say that if, for example, a TAA includes a sub-licensee in Mexico, if the sub-licensee company signs the NDA, I certainly would not try to get NDAs from Mexican citizens who work for the sub-licensee.)

So, now the ITAR implies you have to get NDAs from non-nice country nationals employed by sub-licensees. Do you take the next step and say, well, if we have to get NDAs from those employees of the sub-licensees, shouldn’t we have to identify all of the nationalities of those employees in our TAA and MLA applications? My answer: Neither the Guidelines nor the ITAR require that you do so. Many of you do not have resources available to attempt to comply with an unstated extension of an implied requirement. If DDTC tells you to do it, then do it. If your compliance program is at a place where you can do it, it won’t hurt, until, of course, you put forth a great deal of effort trying to get a list of all of the dual and third nationalities from all of the sub-licensees in your TAA/MLA (or until you learn that your sub-licensee in France employees a dual French-Venezuelan national).

OK, now that you ITAR veterans have shifted from the initial good mood about the new rules to the more familiar irritated, overwhelmed and exasperated mood, let’s go to the last issue of this rule.

3. Implied Non-Clarification of the Term “Nationality”

In the Supplementary Information section of the Federal Register notice, DDTC made this statement, “In addition to citizenship, DDTC considers country of birth a factor in determining nationality.”

Importantly, DDTC does not define “nationality” with the above statement. DDTC only lets you know that it looks at citizenship and country of birth when it tries to determine a person’s nationality. It doesn’t say how it looks at those two factors nor does it tell you what other factors are involved (e.g., nationality of parents, time the person lived in various countries, passports the person holds, passports the person is eligible to hold, the first letter of the first name of the US exporter, DDTC policy of the week, current state of mind of licensing officer). So, DDTC raises the question of the definition of nationality, and refuses to define it.

I conclude that DDTC does not want to publish a definition of nationality because it wants to have the leeway to define it however it wants and change its definition, and, ultimately use one definition in one case and another definition in another case. Say a guy is born in Mexico, but moves to Canada when he is 1 year old, and is a Canadian citizen and has lived in English-speaking Canada his whole life-maybe DDTC thinks he is Canadian, but if the same guy were born in Iran and has only Canadian citizenship, maybe DDTC would like to call him Iranian. And, of course, if a guy is born in Iran and moves to the US when he is 21 and gets a US permanent resident alien status, well, of course DDTC treats him like a US citizen.

So, DDTC tells you it considers citizenship and country of birth, but does not even put this statement of what it considers into the ITAR, and it publishes no definition of “nationality.” So where does that leave applicants, signatories and sub-licensees when it comes to figuring out an employee’s nationality? Well, it leaves everybody some leeway, so choose a standard approach. It appears to me that most companies look at passport information, so if a guy holds a British and Mexican passport, he has those two corresponding nationalities-sure, if a guy was born in China and just last month renounced his Chinese citizenship/passport and now is a Mexican citizen with a Mexican passport, consider his country of birth. If you choose an alternative reasonable approach, that is fine, just choose an approach and stick with it until the ITAR is changed, DDTC tells you specifically to do it differently, or DDTC gives other guidance.

So, there you go, that is my analysis of the good, the bad, and the ugly of the recent Federal Register notice. The best thing about this analysis is the line, “Cherish your ignorance.” Unfortunately, I guess there ain’t much left to cherish.

For the details of the new rule, go to www.pmddtc.state.gov.

— John Black

2. Some Nuts and Bolts of New ITAR Agreements Requirements

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.

When determining nationality, the Department of Defense Trade Controls will consider an individuals country of origin or birth in addition to citizenship. The individuals must be physically located within one of the countries to receive access to the technical data.

The “Guidelines for Preparing Agreements” available on the DDTC website will be revised to incorporate this change and are effective February 1, 2008. Any submission that does not meet the following requirements will be subject to being Returned Without Action:

• On pages 10 and 22 of the Guidelines, insert the following statement: This agreement (does/does not) request retransfer of defense articles and defense services pursuant to ITAR 124.16. (Change or No Change on page 22)
• On page 15 of the Guidelines, the applicant must include the following statements (if applicable) which are required by the ITAR. Both the second and third statement my be used in conjunction depending on the location of the foreign licensees and or sublicensees:
  1. If Not Requesting Third Country/Dual Nationals: This agreement does not authorize access to defense articles or transfer of technical data/defense services to third country/dual national employees of the foreign licensees (or approved sublicenses - if applicable).
  2. If Requesting Third Country/Dual Nationals Who Do Not Qualify for ITAR 124.16: Pursuant to ITAR 124.8(5), this agreement authorizes access to defense articles and/or retransfer of technical data/defense services to individuals who are third country/dual national employees of the foreign licensees (and its approved sublicensees - if applicable). The exclusive nationalities authorized are listing all foreign nationalities of the employees who are not eligible for application of ITAR 124.16. Prior to any access or retransfer, the employee must execute a Non-Disclosure Agreement (NDA) referencing this DTC case number. The applicant must maintain copies of the executed NDAs for five years from the expiration of the agreement.
  3. If Requesting Third Country/Dual Nationals Who Do Qualify for ITAR 124.16: Pursuant to ITAR 124.16, this agreement authorizes access to unclassified defense articles and/or retransfer of technical data/defense services to individuals who are third country/dual national employees of the foreign licensees (and its approved sublicensees - if applicable). The exclusive nationalities authorized are limited to NATO, European Union, Australia, Japan, New Zealand, and Switzerland. All access and/or retransfers must take place completely within the physical territories of these countries or the United States.

More information available at: www.pmddtc.state.gov/dual_nationals.htm

At this time the Department of State is reviewing and modifying the current Guidelines for Preparing Agreements. Here are some key links. State says it will publish comprehensive new Agreements Guidelines this summer.

Current Guidelines for Preparing Agreements:

Word Version

PDF version

Updates to Guidelines for Preparing Agreements:

Section 9.4, Exporting Hardware Via Separate License in Furtherance of an Agreement (DOC)

Section 10.1, Sublicensing (DOC)

Agreements Menu:

Agreements Expiration Schedule

Agreements Renewal Deadline

— Danielle McClellan

3. Commerce Relaxes EAR to Be More Like the ITAR

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.

The rule makes several changes to Section 740.9 which amends the “tools of trade” and the definition of U.S. persons which are applicable to export and report certain technology. Restrictions have also been added to prevent unauthorized export or reexport of technology which will require U.S. employers to demonstrate and document the reasons why the technology is needed by employees in business activities which are abroad. There will also be an additional requirement and guidance for the return or disposal of the technology, which will include an illustrative list of examples of technology that exists in a format that could facilitate a subsequent release of technology.

Section 740.14 amends the tools of trade provision which will authorize the export or reexport of certain technology to U.S. persons for use in the trade, occupation, employment, vocation, or hobby of the traveler or members of the U.S. person’s household, provided that they are U.S. persons, who are traveling or moving. The rule also provides a specific definition the above mentioned U.S. persons.

This rule also specifies certain restrictions applicable to the exports and reexports of certain types of encryption technology. The encryption technology will be controlled under ECCN 5E002 and will not be authorized under the new “tools of trade” and the new U.S. persons tools of trade will not authorize the export or reepxort of ECCN 5E002 technology to any destination found in the Country Group E:1 of Supplement No. 1 to part 740.

More information:

Federal Register Notice

— Danielle McClellan

4. $470,000 Fine for Safety Equipment to Iran

Mine Safety Appliances Company in Pittsburg, PA has been charged with violating the Export Administration Regulations and forced to pay a fine of $470,000. The company is charged with committing 107 violations beginning as early as May of 2001.

During 71 separate occasions Mine Safety Appliance Company reexported various safety equipment items that were subject to the Regulations, from the United Arab Emirates to Iran without the required U.S. government authorizations. Then on 31 other occasions the company reexported controlled items to the same location without the required licenses from the BIS.

Mine Safety Appliance Company also reexported safety equipment items subject to the regulations from the United Arab Emirates to Syria without the required Department of Commerce licenses on 5 separate instances.

The Pittsburgh Company will not be debarred as long as their fine is paid as agreed.

More information:

BIS Order (e2025.pdf) (PDF)

— Danielle McClellan

5. State Clarifies UN Sanctioned Countries in ITAR

On December 19, 2007, the Department of State issued an amendment to the International Traffic in Arms Regulations concerning exports and sales which were prohibited by United Nations Security Council embargoes. The amended list will add countries subject to such embargos. The current list includes: Cote d’Ivoire, Democratic Republic of Congo, Iraq, Iran, Lebanon, Liberia, North Korea, Rwanda, Sierra Leone, Somalia, and Sudan.

More information:

Federal Register 72FR71575.pdf (PDF)

— Danielle McClellan

6. Lucent Agrees to $1 Million Fine for FCPA Violations

Lucent Technologies Inc., a global communications solutions provider has entered into an agreement with the Department of Justice to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA). The company provided travel and other items of value to Chinese government officials and included it as expenses in company books and records.

During 2000 to 2003 the company spent millions of dollars on 315 trips for Chinese government officials that included sightseeing, entertainment and leisure. On all occasions the trips were approved by senior officials and even by corporate headquarters. Some trips were characterized as “factory inspections” or “training” in contracts, however by early 2001 Lucent Technologies Inc. had outsourced nearly all of its manufacturing and did not have any factories for customers to tour, yet many Chinese government officials were provided with trips for “factory inspections” around the world which involved little or no business content. These trips consisted of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon and many other attractions. The trips lasted around 14 days and each costs between $25,000 and $55,000 per trip.

In the agreement with the Department of Justice Lucent admits all of this conduct and even other instances of providing travel and educational opportunities to Chinese government officials and admits to improperly recording them as expenses in its corporate books and records. The company has agreed to pay a penalty of $1 million to the United States Treasury and will adopt new internal controls, policies, and procedures. The new internal controls must ensure that the company makes and keeps fair and accurate books, records, and accounts as well as an anti-corruption compliance code, standards and procedures to ensure that any violations of the FCPA will be detected immediately.

The Justice Department has agreed not the prosecute Lucent Technologies Inc. as long as it complies will all requirements contained in the agreement over a two year term. The Securities and Exchange Commission (SEC) has filed a settled complaint against Lucent and the company has agreed to pay them $1.5 million in civil penalties in connection with similar conduct.

More information:

DOJ news release

— Danielle McClellan

7. GAO Report: Why It Takes State Dept. So Long to Process Applications

The GAO has analyzed State Department arms export case data for fiscal years 2003 through April 30, 2007 in order identify the reasons why it takes the State Department such a long time to process export applications. On November 30, 2007 the GAO produced a report of their findings and the need to address the inefficiencies and challenges in the arms export process.

There were three key trends that the GAO reported that seem to be holding up the DDTC in processing export licenses and other arms cases. One major issue is that the number of export cases processed has increased by 20 percent in the past 3 years. The second issue is that during this jump in cases came a median processing time that nearly doubled, because of this, the number of open arms export cases increased by 50 percent causing the third issue that the DDTC is faced with, numerous open cases. In September alone there were over 10,000 cases still open and the number is continuing to grow.

At the beginning of fiscal year 2007, the DDTC launched a new campaign to reduce the amount of open cases; they cancelled staff training, meetings, and industry outreach to ensure that cases would be closed. DDTC was able to cut the number of open cases by 40 percent in only 3 months, the problem is that this is not a long term solution and does not address how to fix the inefficiencies and problems they are faced with.

More information:

GAO Report (PDF)

— Danielle McClellan

8. New Policy for ITAR Applications for Sri Lanka

Effective December 26, 2007, it is the policy of the U.S. to deny applications for licenses and other approvals to export or transfer defense articles and services to Sri Lanka. The only exception will be that certain licenses will be issued for technical data or equipment made available for the limited purposes of maritime and air surveillance and communications. These licenses will be subject to case by case review.

Legislation explains that the embargo will continue until three conditions are met:

1. members of the Sri Lankan military alleged to have engaged in human rights violations are suspended and brought to justice;
2. journalists and humanitarian organizations are given access to all parts of the country consistent with international humanitarian law;
3. the Sri Lankan government has consented to a field office of the United Nations High Commissioner for Human Rights with sufficient access to monitor and to report allegations of human rights abused in Sri Lanka.

Human Rights Watch, a humanitarian organization, released a report last August giving great details of documented cases of attacks on displaced civilians, extrajudicial executions, “disappearances” and abductions, and failure to take action against the allied Karuna group’s forced enlistment of child soldiers.

More information:

DDTC Policy

Human Rights Watch report (PDF)

— Danielle McClellan

9. Compliance with U.S. ITAR Can Cause Legal Problems for Canadian Companies

Some Canadian companies in the defense industry are finding themselves in a catch-22 situation. If they comply with the U.S. ITARs and restrict access on employees with certain nationalities, then the employees are taking the company to the provincial human rights tribunal. If they do not comply with the U.S ITARs, they cannot obtain U.S business and they may be committing an offence under U.S. law (if there is a connection to a U.S. based company).

In July 2007, General Motors Defense (GMD) settled a case that was filed by some of its non-North American workers with the Ontario Human Rights Commission on the basis that they were subjected to discrimination based on nationality. GMD was a division of General Motors of Canada Limited (“GMCL”), which manufactured military vehicles for various governments, including that of the United States prior to selling its operation to General Dynamics Land Systems Canada Corporation.

In order to produce these vehicles, GMD received material and data that was exported from the United States. The ITARs state that no person who holds a citizenship other than Canadian or American can have access to certain information, unless a security clearance has been obtained from the U.S. State Department. Six unionized employees who are Canadian citizens or landed immigrants who also hold citizenships from countries other than Canada or the United States filed complaints with the Ontario Human Rights Commission. The complainants alleged that GMCL called them and other workers to a meeting, where it told them that they were being sent home with pay for reasons relating to their citizenship. The complainants say that GMCL did not apply for security clearances on their behalf. The unionized employees were later returned to work but subjected to new restrictions in terms of access to information required to do their job, or provided alternative assignments.

The terms of settlement with the Ontario Human Rights Commission included monetary remedies and an undertaking that the successor to GMD would continue with its practice of making all reasonable efforts to secure such lawful permission as may be obtained to minimize any differential treatment for such employees.

There are similar cases before the Quebec Human Rights Commission. Pierre Marios, a member of the Quebec Human Rights Commission wrote to Prime Minister Harper and Quebec Premier Jean Charest in July 2007 stating his opinion that the effect of the U.S. ITARs were unacceptable and discriminatory.

As a result of these problems, Foreign Affairs Minister Maxime Bernier will raise the issue of Canadian dual citizens and the effect of the ITARs with U.S. Secretary of State Rice when they meet today.

Source: Trade Lawyers Blog

— Cyndee Todgham Cherniak, Esq

10. Update on Canada’s Trade Sanctions Against Burma (and 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 (Press Release: Canada Takes Economic Sanction Against Burma).

In short, the Special Economic Measures Act (Burma) Regulations impose sever economic sanctions, including:

• a ban on all goods exported from Canada to Burma, excepting only humanitarian goods;
• a ban on all goods imported from Burma into Canada;
• a freeze on assets in Canada of any designated Burmese nationals connected with the Burmese State;
• a prohibition on the provision of Canadian financial services to and from Burma;
  a prohibition on the export of any technical data to Burma;
  a ban on new investment in Burma by Canadian persons and companies;
  a prohibition on Canadian registered ships or aircraft from docking or landing in Burma; and
  a prohibition on Burmese registered ships or aircraft from docking or landing in Canada or passing through Canada.

See the list of the designated Burmese nationals connected with the Burmese States whose assets are to be frozen.

On November 14, 2007, Trade Lawyers Blog reported that “Canada Announces Very Tough Trade Sanctions Against All Things Connected to Burma.” Canada has economic sanctions in place against countries other than Burma - but the Burmese sanctions are some of the most severe. Canada imposes some form of economic sanction against the following countries and non-countries:

• Belarus
• Burma
• Cote d’Ivoire
• North Korea
• the Democratic Republic of the Congo
• Iran
• Iraq
• Lebanon
• Liberia
• Rwanda
• Sierra Leone
• Sudan
• Terrorists

Source: Trade Lawyers Blog

— Cyndee Todgham Cherniak, Esq

11. State Department Revises ITAR Voluntary Disclosure Rules

60-Day Deadline Imposed

On December 13, the U.S. Department of State announced changes to the Voluntary Disclosure provisions of the International Traffic in Arms Regulations (ITAR), effective immediately. The amended regulations now impose a requirement that a complete voluntary disclosure be submitted within 60 calendar days of initial notification to State of the discovery of a violation, which must be supplied immediately after the discovery.

The voluntary disclosure regulations, found at 22 C.F.R. § 127.12, are designed to encourage disclosure to the Directorate of Defense Trade Controls (DDTC) of any violations of the export control provisions of, or any authorizations issued under the authority of, the Arms Export Control Act. Specifically, the regulations provide that a disclosure may be considered a mitigating factor in determining whether and to what degree administrative penalties may be imposed for the violation. In practice, many companies have found the voluntary disclosure program to be an effective tool, and have taken advantage of the opportunity to benefit from penalty mitigation in exchange for explaining to DDTC their prior violations and how they will be prevented from recurring.

As the focus on compliance has increased in recent years, so has the number of disclosures submitted to DDTC and the time involved in managing the program. In order to expedite the process, and to eliminate perceived abuses by exporters, DDTC has amended the regulations to require full disclosure within the 60 calendar day period following initial notification. A failure to complete full disclosure to DDTC’s satisfaction within the 60-day period may result in a determination by DDTC not to consider the notification as a mitigating factor in its assessment of the appropriate penalties. An allowance has been made for the request of an extension of the period where a full investigation and reporting of the violation cannot be completed within the 60 days.

The specific amendments to the ITAR regulations are as follows:

• A new section, 127.12(c)(1)(i) - Where the initial notification to DDTC is not a full disclosure of the violation, the full disclosure must be submitted to DDTC within 60 calendar days of the initial notification. If full disclosure is not completed within the 60 days, DDTC “will not deem the notification to qualify as a voluntary disclosure.”
• A new section, 127.12(c)(1)(ii) - Where full disclosure cannot be completed within 60 calendar days of the original notification, an empowered official or senior officer may request an extension of the 60- day period. Such request must be in writing and must specify what information ordinarily required in a disclosure cannot be immediately provided and the reasons why.
• A new section, 127.12(c)(1)(iii) - Before approving a request for extension under Section 127.12(c)(ii), DDTC may require a certification in writing from the requester that the full disclosure will be completed within a specified time period.
• A new section, 127.12(c)(1)(iv) - Failure to complete a disclosure within a “reasonable time” may result in a determination by DDTC not to consider the notification as a mitigating factor. This section also authorizes the DDTC, in its discretion, to direct the discloser to furnish DDTC all relevant information surrounding the violation.

DDTC has also amended the regulations to clarify and expand upon the information required to be included in any voluntary disclosure. The amended disclosure content regulations are found in Sections 127.12(c)(2) and (3), and are as follows:

• Section 127.12(c)(2)(iii) - Formerly required the provision of information on individuals and entities “involved in the activities giving rise to the violation,” and is now expanded to include “all persons known or suspected to be involved in the activities giving rise to the violation.” The term persons as used here includes natural and corporate persons. In addition, whereas previously the regulations required the provision only of the addresses of those involved, they now require the provision of “any known information” regarding those named, to include mailing, shipping, and e-mail addresses, telephone and facsimile numbers.
• Section 127.12(c)(2)(vi) - Expands the former requirement to provide a description of corrective actions already undertaken in response to the violation to a requirement to provide a description of corrective actions that clearly identify new compliance measures implemented to address the specific violation, a reporting of disciplinary action taken, and an explanation of how the corrective and disciplinary actions will deter a recurrence of the particular violation.
• Section 127.12(c)(3) - Expands the factors to be addressed in a voluntary disclosure to include “whether the violations are systemic; and the details of compliance measures, processes and programs, including training, that were in place to prevent such violations, if any.”

Finally, DDTC has amended the certification requirements for voluntary disclosures, Section 127.12 (e), to ensure that the highest levels of management take responsibility for compliance with the ITAR. Whereas previously voluntary disclosure certifications were required to be signed by the empowered official, DDTC may now require the certification of a senior officer of the company where it deems the violation to have been major, or the disclosure reveals systemic patterns of violations or the absence of an effective compliance program. DDTC has not indicated whether preliminary notifications of voluntary disclosures submitted prior to the effective date of the new regulations are to be considered retroactively subject to the regulations. This regulatory revision obviously increases the time pressure on companies that use the DDTC voluntary disclosure provisions. Even with the increased pressure to complete the investigation surrounding a violation and submit the final report, the benefits of voluntary disclosure will likely continue to outweigh the risk of administrative penalties for the subject violations.

Source: Pillsbury Law

— Thomas M. deButts & Michael J. Noonan, pillsburylaw.com

 

---

See more newsletters