ITAR for Defense Industry Executives

ITAR FOR DEFENSE INDUSTRY EXECUTIVES
© Williams Mullen 2013
June 12, 2013
Thomas McVey
Williams Mullen
Washington, DC
(202) 293-8118
tmcvey@williamsmullen.com

Thomas B. McVey
Williams Mullen
Thomas McVey practices in the area of the federal
regulation of international business transactions.
He advises clients on the Export Administration
Regulations, the International Traffic In Arms
Regulations, Sanctions Programs administered by
the Office of Foreign Assets Control, the Foreign
Corrupt Practices Act, anti-boycott laws and CFIUS.
2 © Williams Mullen 2013

Note Regarding Export Control Reform
Certain provisions of the U.S. export control laws are in the process of being amended
under the Export Control Reform. Many of these amendments will become effective on
October 15, 2013. While we will be discussing certain of these amendments in this
presentation, we will not be discussing every amendment, and many of the final
regulations have not yet been issued as of the date of this webinar. Provisions in these
final regulations could vary from the material in this presentation. Viewers reviewing this
presentation after June12, 2013 are advised to check if amendments have become
effective that apply to them. For questions regarding possible amendments please contact
Thomas McVey at tmcvey@williamsmullen.com.

U.S. Export Control Laws
• ITAR - International Traffic In Arms
Regulations
• Export Administration Regulations
• U.S. Sanctions Laws

International Traffic In Arms
Regulations (ITAR)
• Enabling statute: Arms Export Control Act
• Regulations - International Traffic In Arms Regulations (“ITAR”)
(22 C.F.R. Chapter 1, Subchapter M, parts 120-130)
• Department of State – Directorate of Defense Trade Controls
• List of Controlled Products - U.S. Munitions List
• Controls Military Items – Broad scope encompassing many
items originally developed for military use

Defense Articles - U.S. Munitions List (USML)
• Category 1: Firearms, weapons
• Category 2: Guns and armaments
• Category 3: Ammunition, ordinance
• Category 4: Launch vehicles, missiles,
rockets
• Category 5: Explosives, incendiary
agents
• Category 6: Naval vessels
• Category 7: Military vehicles
• Category 8: Aircraft and equipment
• Category 9: Military training services,
equipment
• Category 10: Protective personnel
equipment and shelters
• Category 11: Military electronics
• Category 12: Optical and guidance
control equipment
• Category 13: Auxiliary equipment (cameras,
encryption, camouflage)
• Category 14: Toxicological, chemical,
biological agents, protective equipment
• Category 15: Space systems and
equipment
• Category 16: Nuclear weapons, technology
• Category 17: Classified technical data and
services
• Category 18: Directed energy weapons
• Category 19: Reserved
• Category 20: Oceanographic equipment
• Category 21: Other items designed or
adapted for military use

ITAR Also Controls
Technical Data and Software
Technical Data:
Information which is
required for the design,
development, production,
manufacture, assembly,
operation, repair, testing,
maintenance or
modification of defense
articles, and other items.
( see 22 CFR §120.10)

Technical Data and Software (Cont’d)
Blueprints
Training Manuals Data
Models

Methods For Exporting
Technical Data and Software
•Send or take it abroad (e.g., send
disk in the mail)
•Go abroad and talk about it
•Electronic transmissions, e-mail,
phone call, fax to foreign party
•Foreign national comes to U.S.
and has access to it

Defense Services
• Furnishing of assistance to
foreign persons related to
Defense Articles;
examples:
– Consulting
– Engineering
– Technical Services
– Military training
– Other services
– Furnishing technical data
• Requires Technical
Assistance Agreement
(TAA)

Examples of USML Items
• Electronic equipment which is
designed, modified or configured
for military application
• Drone aircraft
• Navigation systems for military
vessels
• Command, control and
communications systems including
radios (transceivers) and
identification equipment
• Military training services and
equipment
• Underwater sound equipment
• Flight control products, software
and technologies
1/
• Certain satellites and ground
control equipment, including parts,
technologies and software
• Classified products, technical data
and software
• Anti-gravity and pressure suits,
atmosphere diving suits
• Body armor (certain Types only)
• Naval vessels and related
equipment, parts, technologies and
software
• Protective personnel equipment
and shelters
• Auxiliary military equipment
This listing represents items on the USML as of June 12, 2013. Certain of
these items may be amended and/or transferred to the Commerce Control
List under the Export Control Reform Initiative.
1/

Items on USML ― Computers and
Software Current USML:
• Computers or software designed
or modified for military use, or for
use with any USML item (XI(a)(6))
• Experimental or developmental
electronic equipment designed or
modified for military use (Category
XI(a)(7))
After Export Control Reform:
• Certain of these items will be
transferred to Commerce Control
List

Intelligence and Security
Example: Electronic Equipment – Category XI(b):
> 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 or equipment
designed or modified to counteract electronic surveillance or
monitoring.
> A system meeting this definition is controlled under this subchapter
even in instances where any individual pieces of equipment
constituting the system may be subject to the controls of another
U.S. Government agency.

Items on USML ― Parts and
Components
Current USML:
• Many parts, components, accessories specifically designed for a USML
item are also on USML
After Export Control Reform:
• Certain parts and components will be transferred to CCL or decontrolled
• Certain “specially designed” parts and components remain on USML

Services on the USML
• Intelligence and security
services often covered
under ITAR
• Military advice to foreign
persons is covered under
ITAR (§120.9)
• Military training for foreign
persons (§120.9)
• Training in use of USML
items (subject to certain
exemptions)

Government Sponsored Research
Funding
• SBIR, DOD university research funding and other defense
research funding
• Resulting products, technical data, software and services are often
on U.S. Munitions List

USML Category XVII: Classified
Information > Classified Information is on
the USML
> Category XVII: “Classified
Technical Data and
Services”
> Major issue for government
contracts firms
> Another “Catch-All” category

Commodity Jurisdiction Requests
• Procedure for DDTC to
determine if item is on U.S.
Munitions List
• Binding, written response
• Can also be used to
request removal of item
from USML
• Form DS - 4076

Requirements If Item Is On USML
• Physical articles:
– Cannot export unless
obtain export license (e.g.
DSP-5)
• Technical Data and
Software:
– Cannot send or take out
of U.S. without export
license
– Cannot transfer to foreign
party in U.S. without
export license

Requirements If Item Is On USML (cont.)
• Services:
– Cannot perform defense
services for foreign
persons overseas or in
the United States without
license (TAA)
• Imports:
– Items on USML and U.S.
Munitions Import List
subject to import
restrictions

Other Requirements - Registration
• Parties that manufacture or export items on the USML
or perform defense services are required to register
with DDTC
• This is even if the company does not export any
products
DDTC Registrations
12000
10000
8000
6000
4000
2000
0
Exporters Manufacturers Total

Recordkeeping Requirements
• Mandatory requirement
to maintain records of
ITAR - related activities
for 5 year period
• Covers paper, electronic
and other media
• Retention period can be
extended in certain
instances

Brokering Registration and Licensing
• Parties that facilitate export or import of ITAR items
are subject to ITAR Brokering Regulations (22
CFR Part 129).
• 22 CFR §129.2(a): Broker means any person who
acts as an agent for others in negotiating or
arranging contracts, purchases, sales or transfers
of defense articles or defense services in return for
a fee, commission, or other consideration.
• Registration, licensing, reporting and other
requirements

Denied Party Screening
• Prohibited Party Lists:
• Specially Designated Nationals List (OFAC)
• Denied Persons List (BIS)
• Unverified List (BIS)
• Entity List (BIS)
• DDTC Debarred Party List (DDTC)
• Nonproliferation Sanctions List (DDTC)

Export Administration
Regulations
• Enabling Statute: Export Administration Act
(expired), International Emergency Economic Powers
Act
• Regulations: Export Administration Regulations
(EAR)
• Department of Commerce – Bureau of Industry and
Security
• List of Controlled Products – Commerce Control List
• Controls “Dual-Use” Items

Commerce Control List – Examples
of Products Covered
- encryption - computers, networking
- aerospace devices
- lasers -high performance
- chemicals materials
- power generation - telecom equipment
- police equipment - high strength fibers
- electronics - nuclear industry products
- sensors - high performance pumps,
- electronics generators, processing
- machine tools equipment
- fingerprint/biometrics
- others

Commerce Control List
Computers Telecom
Lasers Machine Tools

Requirements for all exports
(even if product is not on CCL):
• Know Your Customer Requirements – 15 CFR Part
732, Supplement No. 3
• Denied persons list – 15 CFR Part 764
• Recordkeeping requirements – 15 CFR Part 762
• Shipment documentation – 15 CFR Part 758
• Prohibited End-Use Controls – 15 CFR Part 744

U.S. Sanctions Programs
• Office of Foreign Assets Control (Department of the
Treasury)
• Prohibition against dealing with targeted list of countries
• Prohibition against dealing with targeted list of entities
and parties

Sanctions Programs - Summary
OFAC Country Programs
• Balkans
• Belarus
• Burma
• Cote D’Ivoire (Ivory Coast)
• Cuba
• Dem. Republic of the Congo
• Iran
• Iraq
• Lebanon
• Liberia (Taylor Regime)
• Libya
• Magnitsky Sanctions
• North Korea
• Somalia
• Sudan
• Syria
• Yemen
• Zimbabwe
OFAC Non-Country-Specific
Programs
•Counter-terrorism Sanctions Program
•Non-Proliferation Sanctions Program
•Narcotics Trafficking Sanctions
Program
•Diamond Trading Sanctions Program
•Persons Undermining the Sovereignty
of Lebanon or Its Democratic Processes
and Institutions
•Transitional Criminal Organizations

U.S. Sanctions Programs – SDN’s
• Prohibition against dealing with Specially Designated
Nationals anywhere in the world
– 3,000 Parties
– 15 CFR Chapter 5, App. A-C

Consolidated Screening List

Penalties for Violations
• Criminal Sanctions – up to 20 years imprisonment
• Fines: Up to $1,000,000 per violation
• Press release
• Debarment
• For criminal cases Justice Department can
prosecute:
– Company
– Officers and Directors
– Employees in their individual capacities

Major Export Compliance Cases
• BAE Systems plc - $400,000,000 criminal
penalties; $79,000,000 civil penalties
• ITT Corporation - $128,000,000 combined civil and
criminal penalties for ITAR violations related to
night-vision products and technology
• Analytical Methods, Inc. - $500,000
• Interturbine Aviation Logistics GmbH - $1,000,000
• Qioptiq S.a.r.l. - $25,000,000
• The Boeing Company - $3,000,000
• Orbit/FR Incorporated - $300,000

SENTENCING OF COMPANY FOR EFFORTS TO TRADE WITH IRAN
For Immediate Release: July 31, 2008
Contact - BIS Public Affairs 202-482-2721
U.S. Department of Justice
United States Attorney's Office
District of Columbia
(202) 514-2007
Raleigh, North Carolina - United States Attorney George E.B. Holding announced today that on Monday July 28, 2008, Allied Telesis
Labs, Inc. (ATL), was sentenced in United States District Court in Elizabeth City to a $500,000 criminal fine and was placed on probation
for two years for violating United States law regarding conducting business with Iran.
ATL was successfully engaged in the design of telecommunication equipment and systems including high capacity Multiservice Access
Platforms (iMAPs) and related items capable of routing a large volume of messages/information/data. ATL’s guilty plea acknowledged
that the corporation conspired with another to trade with the Islamic Republic of Iran in violation of the law. Specifically, ATL and its
related corporate entities conspired to land and execute a $95,000,000 contract with the Iranian Information Technology Company
(IRITCO) to rebuild and upgrade the telecommunications systems of approximately 20 Iranian cities, including Tehran. The iMAPS
developed here in the Triangle were to be a central component of this system. Preparation for the execution of the contract went as far as
the manufacture of approximately $2 million worth of iMAPS at ATKK facilities in Singapore. The contract negotiations eventually
collapsed, the telecommunications system was not installed and the iMAPs were sold elsewhere at a loss.
Mr. Holding noted the importance of the case: “Every American is aware of the sensitive nature of the United States’ relationship
with Iran. That relationship is a central focus of our foreign policy and the work of our Government. The International Emergency
Economic Powers Act allows the President to regulate the conduct of business internationally under certain circumstances, a step
which was taken with regard to Iran. When the President imposes these types of authorized restrictions, it is incumbent on all
citizens, including our corporate citizens, to adhere to those regulations and to follow the strict letter of the law. Only then can we
be confident that our country speaks with one voice in our relationships with our international friends and foes. The plea of guilty
and the sentence in this case should act as a reminder to our business community of the seriousness with which the Department of
Justice takes this issue.”
The case was investigated by the United States Department of Commerce. Assistant United States Attorney John Bowler
represented the United States in federal court.

Compliance Strategy
• Classification – review all of your company’s products
to see if they are listed on:
– U.S. Munitions List
– Commerce Control List
– End Use Based Controls (15 CFR Part 744)
• Application – Apply as required for:
– DDTC export licenses (DSP-5, etc.)
– BIS export licenses
– TAA’s, MLA’s
– Warehouse Distribution Agreements
– Re-export authority
• Compliance Program – internal company compliance
procedures

Export Compliance Program
• Designated company official in charge of compliance
• Classification of company’s products, software, technical data and
services
• Written policies and procedures for dealing with ITAR and EAR
issues
• Procedure for foreign nationals
• Training
• Recordkeeping
• Prohibited list checking and OFAC sanctions review
• Procedure for dealing with suspected violations
• Auditing
• Updating program

Export Control Reform Initiative
20456961.1

Initial Export Reform Goals
1. Rationalize and coordinate the Commerce Control List and
U.S. Munitions List
2. Three-tiered licensing system
3. United enforcement effort
4. Unified licensing IT system

Unified Export Enforcement Effort
• Export Enforcement Coordination Center – Government-wide
Enforcement Initiative For Export Control Violations
• Established under Executive Order 13558 – November 9, 2010
• Departments of State, Treasury, Justice, Commerce Energy,
Homeland Security and U.S. intelligence agencies

Unified Licensing IT System
• Will use DoD’s USXPorts System for all internal export licensing
processing
• Departments of Commerce, State and Defense will use same
system
• Effective fall/winter 2012

Rationalize USML and CCL
• Review and revise U.S. Munitions List
• Emphasize product specifications rather than design intent
• Transfer certain items to Commerce Department and CCL Series
600
• Emphasis for CCL Series 600 on parts and components

Commerce Control List Series 600
• Items will still require export licenses for all destinations except
Canada
• May be eligible for Strategic Trade Authorization exception (to
government end-users only)
• Will be subject to de minimis rules for incorporating U.S. parts and
components into foreign made items
• Reduced controls on services
• “Specially designed” – effort to remove routine components (bolts,
washers, screws, etc.) from controls

Status of Amendments
April 16, 2013 Implementing Regulations
• Authorize framework for reform and Series 600
• Definition of “Specially Designed”
• Transition Rules
• Become effective October 15, 2013
April 16, 2013 Finalize Categories VIII and XIX
• Finalize USML Category VIII (Aircraft)
• Add Category XIX (Gas Turbine Engines)
• Effective October 15, 2013
Expected Later 2013
• Final versions of remainder of USML Categories
• Individual Categories published on periodic basis over rest of year
• Each Category becomes effective 180 days after publication date
• Reform becomes effective on rolling basis until mid-2014

Congressional Review
• “Informal Notification” to Congress for each USML Category – 30
day “informal consultations”
• 38(f) Notification to Congress for each USML Category – Congress
has 30 days to object.
• After Congressional review of revised USML Categories,
Categories are issued in final form
• Transfer of commercial satellites to CCL has been authorized
under separate legislation

Specially Designed
(ITAR § 120.41)
Two Pronged Determination – “Catch and Release”
A. Catch – Except for items in B below, a commodity or software is
“specially designed” if:
(1) As a result of development, it has properties peculiarly
responsible for achieving or exceeding the controlled
performance levels, characteristics or functions described in the
relevant USML paragraph; or
(2) It is a part, component, accessory, attachment or software for
use in or with a defense article.

Specially Designed (cont.)
B. Release – A part, component, accessory, attachment, or software is
not controlled by a USML “catch-all” or technical data control
paragraph if it:
(1) Is subject to the EAR pursuant to a commodity jurisdiction
determination;
(2) Is, regardless of form or fit, a fastener (e.g., screws, bolts, nuts, nut
plates, studs, inserts, clips, rivets, pins), washer, spacer, insulator,
grommet, bushing, spring, wire, or solder;
(3) Has the same function, performance capabilities, and the same or
‘‘equivalent’’ form and fit as a commodity or software used in a
commodity that: (i) is or was in production (i.e., not in development);
and (ii) is not enumerated on the USML;
(4) Was or is being developed with knowledge that it would be for use in
both defense articles on the USML and also commodities not on the
USML; or
(5) Was or is being developed as a general purpose commodity or
software, i.e., with no knowledge for use in a particular commodity or
type of commodity.

Specially Designed
• The above text regarding “Specially Designed” has been
edited for this PowerPoint presentation.
• To apply this definition for actual classification
determinations refer to the exact text of the definition as
follows:
– ITAR: 22 C.F.R. § 120.41
– EAR: 15 C.F.R. § 772.1

Transition Rules
• Licenses (DSP-5’s) issued by DDTC prior to the effective date where
all of the items on license have transferred to the CCL will remain
valid until expired, returned by the license holder, or for period of two
years from the effective date of the final rule – whichever occurs first.
• Licenses (DSP-5’s) where some items covered on license have been
transferred to BIS and some remain under jurisdiction of DDTC will
remain valid until their expiration.
• TAA’s and other agreements containing transitioning and non-transitioning
items issued prior to the effective date will remain valid
until they have expired (unless they require an amendment), or for a
two year period from the effective date, whichever occurs first.

Transition Rules
(Con’t.)
• Agreements containing solely transitioning items issued prior to the
effective date will remain valid for two years from the effective date,
unless revoked, suspended or terminated. After this two year period
all activities must be conducted under BIS authorization.
• Previously issued CJ Determinations for items determined to be
subject to the EAR shall remain valid. Previously issued CJ
Determinations for items that have been transitioned to the CCL will
be superseded by the newly revised lists.
• Any limitation, proviso or other requirement will remain in effect.

Steps for Companies to Prepare for Export Reform
Companies should prepare a management plan to manage export
reform changes over the next twelve months:
• Review classifications of company’s products/services to see if jurisdiction and
classifications have changed; review new USML Categories and companion CCL
Series 600 entries.
• For parts, components, accessories, apply the “Specially Designed” test for relevant
items
• If required, apply for commodity jurisdiction or commodity classification requests
from DDTC and BIS
• If classifications have changed, determine impact on your compliance requirements:
» Use of Strategic Trade Authorization or other BIS exceptions?
» Use of de minimis rule?
» Decontrol of regulation of services and use of TAA’s?
» Impact on DDTC registration status?
• Plan licenses, TAA’s during transition period in accordance with DDTC Transition
Plan and BIS General Order No. 5
• Amend company’s export compliance procedures to reflect changes in the law and
changes in company’s export requirements
• Conduct training of relevant company employees on changes in company’s export
obligations
• Coordinate with subcontractors, suppliers and other program partners

Export Control Newsletter:
Contact Tom McVey: tmcvey@williamsmullen.com
Thomas B. McVey
1666 K Street, NW
Suite 1200
Washington, DC 20006
202.293.8118
tmcvey@williamsmullen.com
www.williamsmullen.com
21762626

ITAR for Defense Industry Executives

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to ITAR for Defense Industry Executives

Similar to ITAR for Defense Industry Executives (20)

More from Douglas Burdett

More from Douglas Burdett (20)

Recently uploaded

Recently uploaded (20)

ITAR for Defense Industry Executives