Archive for the ‘Deemed Export’ Category

Company Pays $100,000 for One Transfer of ITAR Technical Data to PRC Citizen Employee

2016/08/09

By: Danielle McClellan

Microwave Engineering Corporation (Microwave) of Andover, MA has pled guilty to one charge of an unauthorized export of a defense article to a foreign person and will pay $100,000 to settle the matter. The company designs and manufactures high-power, broadband passive components, antennas, and waveguides for radio frequency microwave and communication systems. The majority of Microwave’s business comes from orders for custom-designed parts and providing research and development services. Microwave’s products are used in both military and commercial applications and are often integrated into other systems.

The company has submitted over 120 authorizations with DDTC since 2007 and maintained a Technology Control Plan (TCP) which was approved by the Defense Security Service. Between September 2009 and September 2011 Microwave employed a foreign person (citizen of the People’s Republic of China) as a Research Scientist. The employee did obtain an H-1B visa in conjunction with the employment. Microwave’s Export Control Officer explained to the employee’s supervisor that the employee “could only work on general research concepts and could not work on anything related to specific product design or production.” By May 2010 the employee was moved to a segregated work space.

While the employee was employed with Microwave the then president, Dr. Rudolf Cheung, and another engineer repeatedly provided the employee with ITAR-controlled technical data (USML Category XI(b))  without obtaining authorization. Between December 2009 and June 2010 the employee received technical data related to five research and manufacturing projects. Of the five projects, only one actually resulted in a purchase order and finally a developed component in November 2011. Authorization was never obtained from DDTC for this project and the transfer of ITAR-controlled technical data to the employee related to the project was a violation. The Export Control Officer for Microwave became aware of the transfer of technical data for the project in May 2010 and worked to limit the unauthorized transfers.

On January 20, 2012, Microwave disclosed to DDTC the illegal transfer of technical data which also happened to be the day that Dr. Cheung pled guilty to an unrelated criminal violation of the AECA. The Department of State released the following as mitigating factors in the charging letter:

  • Respondent’s submission of a voluntary disclosure under ITAR § 127.12
  • Acknowledging both the charged violation and other potential violations;
  • The exceptional cooperation of the company during the Department’s review of the disclosed conduct; and
  • The reduced likelihood of future violations due to demonstrated improvements in Respondent’s internal compliance program.

The Department also considered countervailing factors.  Most notably:

  • Deficiencies in Respondent’s export compliance program prior to the charged violation;
  • The involvement of a foreign person from the People’s Republic of China, a proscribed destination under ITAR § 126.1 and by statute (Suspension of Certain Programs and Activities, Pub. L. No. 101-246, title IX, § 902,104 Stat. 83 (1990) (amended 1992));
  • The amount of time between discovery of the issues and notification of the Department; and
  • The potential harm to national security.

Charging Letter: http://pmddtc.state.gov/compliance/consent_agreements/pdf/MEC-PCL.pdf

Consent Agreement: http://pmddtc.state.gov/compliance/consent_agreements/pdf/MEC_CA.pdf


Exporter Liability for Freight Forwarder Issues

2014/10/03

By: Stephen Wagner

You are a small company that exports a wide variety of merchandise all over the world. Years ago, to save money, you contracted out all of your logistics functions to a third-party company which also serves as your warehouse and freight forwarder for export shipments. They take care of all the details of exports for you: licenses, government filings, paperwork…

Today, however, you had a visit from Homeland Security Investigations and the agents said that YOU may have broken the law with regard to certain shipments that were improperly exported. You have a very detailed Services Agreement with your logistics provider and they are responsible for everything. You don’t understand how your company could now be liable for something that your freight forwarder has done!

The question of who is responsible for export compliance, and who may be liable for violations, is very simple and yet may be very complex at the same time. Typically, the “exporter” is responsible for export compliance, but figuring out who exactly is the “exporter” depends on the roles that the various parties in a transaction may play and who may have accepted the mantel of the “exporter” under a contract or agreement.

The EAR defines an exporter as the “person in the United States who has the authority of a principal party in interest to determine and control the sending of items out of the United States” (15 C.F.R. § 772.1). That is why the EAR talks about U.S. Principal Parties in Interest (USPPI) and Foreign Principal Parties in Interest (FPPI). The ITAR does not formally define the term “exporter,” but imposes license and other compliance requirements on “any person who intends to export … a defense article” (22 C.F.R. § 123.1(a)). The FTR adopts the term “USPPI” as the “exporter” of merchandise (15 C.F.R. §30.1(c)). For our purposes here, we will just use the term “exporter.”

In traditional export transactions – and most situations except for “ex works” sales (Incoterms 2012) – the seller of the goods is the exporter. However, both the USPPI/exporter and the FPPI can authorize an agent in the United States to represent them in export transactions; this is where most logistics providers and freight forwarders most often enter the picture.

These agents – which can only act with a proper power of attorney from the exporter – can take over many export responsibilities for the exporter. An authorized agent can enter electronic export information (EEI) into AES and can request and obtain licenses for export. In “routed transactions” the agent can even serve as the “exporter” for export compliance purposes.

However, in all cases except certain routed transactions, using such authorized agents does not relieve an exporter of its legal responsibilities for export compliance or its potential liabilities in the case of most export violations.

The exporter of merchandise from the United States (the USPPI/FPPI) ultimately bears the responsibility for:

  • providing the agent with accurate EEI for the merchandise being exported;
  • determining the commodity jurisdiction of the merchandise;
  • determining the export classification (under the CCL and USML) of the goods;
  • determining license requirements (BIS/DDTC/OFAC); and
  • keeping all required export records.

Even a detailed Services Agreement that may shift all of these duties onto a freight forwarder does not mean that the exporter is not still responsible and liable for these obligations under U.S. export laws. In our experience, federal export enforcement officials truly frown on exporters that try to make their freight forwarder solely responsible for export compliance. This practice usually results in higher sanctions for exporters when violations are found.

Given that you can never relieve yourself of export compliance responsibilities and liabilities, what should exporters do to effectively manage their third-party freight forwarders and mitigate their compliance risks?

  1. Own your company’s export compliance. Your company – and not your agent – should be responsible for jurisdiction, classification and license determinations, as well as for consignee/end-user screening. Also, you should know exactly who has powers of attorney to act on your behalf in export transactions.
  2. Accurately convey information regarding each shipment. Using an old-school Shipper’s Letter of Instruction (SLI) (or providing the equivalent information in another form) for each export transaction helps ensure that your freight forwarder has the most recent, accurate, and complete information for export shipments.
  3. Ensure you receive export documentation, then audit transactions. You must ensure that you receive copies of shipping documents, AES entry summaries and supporting documents (licenses, special certifications, etc.) for every export shipment. Then, you must periodically audit the shipment information against your invoices, purchase orders and the SLI to make sure that exports are being correctly handled.
  4. Do your due diligence, and keep it up. From the moment you select your freight forwarder, until the day the relationship ends, you should be in constant contact with your agent to understand their business, assess their general compliance posture and ensure that they are taking export compliance as seriously as you are.

While an exporter can never totally relieve itself of liability for the acts and omissions of its authorized agent in export transactions, following the steps above should greatly mitigate any potential risks and liabilities that your company may face in the event that there are problems.


BIS Publishes Advisory Letter Concerning Screening Requirements for Posting Time-Limited EAR99 Software on Public Website

2013/12/31

By: Brooke Driver

At the end of October, BIS posted a response to an email advisory opinion request sent last March that answered the question “Are free trial periods subject to the EAR?” Specifically, the unidentified inquirer wanted to find out if he/she could skip screening for prohibited parties and embargoed destinations during a 30-day trial period of EAR99 classified software that would be publicly available for download from their website. The individual would then perform the necessary screening after the trial period, when the customer is required to purchase an unlock code to continue using the software.

BIS responded that, technically, the product is subject to the EAR during the 30-day trial period, because the software is only available for free download during a limited time period, and is therefore not publicly available under Section 734.7 of the EAR. Commerce was quick to add, however, that just because the software, in this situation, is subject to the EAR, this does not mean that it is in violation of the regulations. As long as the download is completely free and anonymous and the software distributer has no reason to believe that a prohibited person or entity in an embargoed country will download the product, it is not in violation of the EAR.


BIS Adapts Some ITAR-Like Policies for Deemed Reexports of Technical Data and Source Code

2013/12/04

By: Brooke Driver

BIS has released an updated guidance document regarding deemed reexports of technology, technical data and source code controlled under the EAR. BIS said that this revision addresses the unintentional consequence of the shift of many military items from the ITAR to the EAR. Commerce is making this change, because it discovered that the EAR requires a license in certain situations where the ITAR allows for deemed reexports under the exemptions in 124.16 or 126.18.

In order to make the EAR as generous as the ITAR is to reexporters, BIS has decided to give reexporters three options for deemed reexports:

1)     Follow the longstanding BIS “legacy” guidance regarding deemed reexports; OR

2)    Make license-free deemed reexports consistent with ITAR 124.16; OR

3)     Make license-free deemed reexports consistent with ITAR 126.18.

While ITAR reexporters may be familiar with the ITAR 124.16 and 126.18 exemptions, EAR reexporters likely are unfamiliar with those ITAR exemptions. ITAR and EAR reexporters alike should take a look at the detailed BIS guidance on deemed reexports at:

http://www.bis.doc.gov/index.php/policy-guidance/deemed-exports/deemed-reexport-guidance1

While, of course, three options are more complex than one, the increased options offer reexporters more flexibility. In fact, it is not hard to imagine a scenario where a reexporter may use all of the options, depending on the nationality and technology involved.


3M Attenti Company Pays $230,000 Fine: Voluntary Disclosure and Deemed Export Violation

2012/03/05

By: John Black

Does the Company Have a Potential Product for Export Administrators?

3M Attenti Ltd., an Israeli company, agreed to pay $230,000 to settle charges of 21 violations of the Export Administration Regulations.  This case arose as a result of 3M Attenti’s voluntary disclosure about its illegal shipment of people-monitoring equipment, software and technology to China and violation of the deemed export rule.  The violation of the deemed export rule involved the transfer of technology controlled in ECCN 3E980 to an employee who is an Israeli national.  Since the technology requires an export license for Israel, the company should have gotten a license before it released the technology to an Israeli national in the United States.

The violations included 20 charges of illegal exports of people-monitoring hardware, software, and technology to China.  People-monitoring technology includes things like the electronic monitoring bracelets you have to wear if you are a famous actress and get caught drinking and driving too often.  The US Government controls this technology because of concerns of how it may be used by law enforcement in certain countries—it’s not that the US Government does not want the Chinese Government to keep tabs on its drunk actresses, but the USG certainly does not want these things to be used to monitor the movement of dissidents or to violate human rights.

Besides being used for law enforcement purposes, these devices can be used in elder to for wander management and fall detection.

I once got in trouble for suggesting using a Taser on a sales and marketing person who intentionally committed a violation that caused his company to get penalized.  If that bothered you, I suggest you skip ahead to the next article.

For everybody other than that one guy, do you see the obvious export compliance program applications for these products?  Just think if you take your existing visitor program and enhance it with one of these bracelets for “wander management.”  You authorize a visitor into your facility, you program his bracelet for the areas he may access, and you have him wear the bracelet.  If he ends up wandering into your military R&D area, your wander management system could alert you immediately or maybe sound a loud alarm, maybe one of those old fashioned air raid warning alarms.  Or, if you are looking for best practices wander management, when the visitor goes into an authorized area, the bracelet delivers a slightly less than lethal electric shock (see past articles on Tasing). To be humane, you could have settings so that if he gets within 10 feet of an unauthorized area, he gets a slightly weaker electric shock.

And think about how this can help with that pesky engineer or sales guy who just doesn’t want to do the right thing when it comes to compliance.  2012 could be beginning of a new era.

(Don’t tell HR.)

http://efoia.bis.doc.gov/exportcontrolviolations/e2247.pdf)


Tennessee Trafficking- Tisk, Tisk

2011/05/03

By: Anna Barone

Following an extensive investigation by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HIS) and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), four former officers of Sabre Defense Industries, LLC (SDI-US) plead guilty to the following charges:

  • Conspiracy to defraud the United States
  • Conspiracy to commit mail fraud and wire fraud
  • Making false statements on export and import documents
  • Conspiracy to violate the AECA

Specifically, they admitted to:

  • Illegally importing and exporting regulated firearms and firearm components and technology to and from the United States from Sabre Defense Industries, LLC and from their personal residences.
  • Exporting firearm components from the U.S. to an international location without first obtaining a license or written authorization from the DDTC of the U.S. Department of State.
  • Importing silencers into U.S. from international sources without having first obtained the required license and authorization from ATF.
  • Falsifying shipping records, conceal unlicensed firearms components in false bottoms of shipping cartons, and mislabel and undervalue shipments of firearm components, since 2003, to avoid scrutiny by U.S. Customs and Border Protection control officers.
  • Concealing illegal import and export activities by maintaining two sets of business books to record the company’s accounts and balances, and its export and import activities.

U.S. Attorney Jerry Martin says, “The illegal import, export and transfer of firearms and related components poses a great risk to America and our allies.   Those who engage in such irresponsible and illegal activity will come to realize the commitment of our law enforcement partners to safeguarding America and the high priority given to this issue by the Department of Justice.”

Sentencing is set for August 1, 2011 at 10 a.m.

Additional information available:

http://www.ice.gov/news/releases/1103/110329nashville.htm


New Certification Requirement in Immigration I-129 Form Begins February 20, 2011

2011/02/18

By: John Black

As many of you know a new Form I-129 requirement forces companies requesting a work visa to certify that they do not have any technology that requires an export license for the potential employee, or that they either have an export license or procedures to prevent access to export license-required technology.

It is funny how many companies are getting so excited about the requirement to certify this.  The EAR and ITAR export licensing requirements have been in place forever.  If this certification requirement creates a problem for a company, I might guess that a company was not complying with the EAR and ITAR requirements related to releasing controlled technology to foreign national employees.  But, of course, it’s only a guess.  But, I would advise companies to be careful about complaining loudly about this certification requirement unless they know they have been doing a good job complying with the EAR and ITAR for their foreign national employees.

The temporarily good news is that the US Government announced that employers are not required to fill out Section 6 of the form (“Certification Regarding the Release of Controlled Technology or Technical Data to Foreign Persons in the United States”) until February 20, 2011.

Additional information available at: http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextiod=ef1ee46afc5fc210VgnVCM10000082ca60aRCRD&vgnextchannel=e7801c2c9be44210VgnVCM100000082ca60aRCRD


New Work Visa Application Requirement Reminds Applicant Company of Export Control Requirements

2011/01/11

By: Danielle McClellan

As of November 23, 2010 the US Citizenship and Immigration Services (USCIS) will now require all new employees of H-1B (professional), L-1 (intracompany transferee), and O-1 (extraordinary ability) non-immigrant foreign national workers to confirm that they have reviewed the EAR and the ITAR. They will also have to confirm that a license is not required from the Department of Commerce or the Department of State to release technology or technical data to them, meaning they must have some understanding of the regulations.

This new certification was created to put a dent in the number of violations of the “Deemed Export” rule. Employers have always been liable for export control violations. This new certification exposes the rule even more by forcing the applicant company to go on record. Deemed Exports can occur in a number of ways, anything from a foreign national employee accessing restricted technology through a company intranet to observing the technology while working in a manufacturing plant…the possibilities are endless.

This new visa application requirement reminds employers that they have to pay close attention to their controlled technology and be prepared to show why certain technologies are or are not subject to export controls in the event of an audit. Employers will now need to classify their own technology and technical data and also those generated by third parties. This means that employers may have to obtain export classification information from third parties or guidance from the government ruling…a very time consuming task.

Information available at: http://global-immigration-news.totallyexpat.com/united-states-new-form-i-129-will-require-certification/


DDTC Announces “No Unclassified Paper TAA, MLA or WDA Applications as of September 1”

2010/06/09

By: John Black

Effective September 1, 2010 DDTC-Licensing will no longer accept unclassified paper submissions of Technical Assistance Agreements, Manufacturing License Agreements, and Warehouse Distribution Agreements (to include major amendments). After this date all submissions must be made electronically via D-Trade 2 utilizing the DSP-5 form.

For information on submitting agreements electronically please reference the “Guidelines for Preparing Electronic Agreements”.


Aerospace Company Penalized for Release of Technical Data to Foreign Employee

2008/07/05

2008/07/05

By: Danielle McClellan

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

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

More information:

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