THE QUE GROUP WOULD LIKE TO THANK THE

THE QUE GROUP WOULD LIKE TO THANK THE 2013 SPONSORS

Export Compliance Paul Stewart Chief Technology Officer/Export Compliance Officer Worthington Aviation Parts, Inc. Worthington Maintenance Repair and Overhaul Center

q Who am I … – Paul Stewart, Chief Technology Officer and Export Compliance Officer for Worthington Aviation since 2004. Former employee of Component Control from 1998 to 2004, leaving as the Vice President of Quantum Product. QUE Group Board Member since 2009 and former QUE Group Liaison at Component Control. – Worthington Aviation specializes in Regional Turboprop, Commercial and Corporate aircraft. Established in 1998, Worthington has locations in Eagan MN. USA, Pompano Beach FL. USA, Tulsa Ok. USA, Brisbane Australia and Prague Czech Republic. http: //lnkd. in/9 GYE 8 S

q In This Session … – Gain knowledge of common export classifications. – Learn the elements of a basic compliance program – Understand where functions are within Quantum to support your program – See how customizations can refine Quantum to better support your internal needs

• What are the elements of an export? • • • Export Control Classification Universal Harmonized Code (UHC) End User Information Country of Destination Country of Manufacturer

Export Control Classification is a category code assigned to a commodity to determine if an export license is required to ship the goods. You are responsible for determining this classification As the exporter of record!

The Harmonized Code – UHC – is used to determine duties, taxes and other tariffs in international trade when passing through customs. It does NOT determine licensing requirements! Establish in 1988 by the World Customs Organization, more than 200 countries recognize these codes. As of 2010, 98 percent of international trade used the Harmonized system

BUT I’VE NEVER WORRIED ABOUT THIS BEFORE. WHAT’S THE BIG DEAL? We Are In A Global Market Laws Change. Rules Change. The Debarred Lists Change. Customers Change. So you must always be diligent.

My products and services are mass-marketed around the world. They are not subject to U. S. Export Controls. Truth: Whether or not a product is mass-marketed around the world does not determine whether it is subject to U. S. export controls (though it may play a role in determining how tight a control will be placed on such a product). U. S. embargoes, for instance, often capture things as "simple" as toys and office equipment. .

My product or service does not have a military use, so it's not subject to U. S. export controls. Truth: Everything can be (and is) subject to export controls. Even e-mails, telephone calls, and release of technologies (software, data, diagrams, etc) to non-exempt foreign nationals can be subject to U. S. export controls.

COMMERCIAL PRODUCT IS GOVERNED BY THE DEPARTMENT OF COMMERCE

EAR (Export Administration Regulations) This is the governing law for categorizing your product and determining if a license requirement exists. The Department of Commerce uses Export Control Classification Numbers – or ECCNs to categorize products. These are alphanumeric codes.

THE COST OF NON COMPLIANCE EAR (Commercial Product) Criminal: $50 K to $1 million or 5 times value of export, whichever is greater, per violation, 10 years imprisonment Civil: revocation of exporting privilege, fines $10 K to $120 K per violation Bass-Pro - $510 K for shipping guns without a license Dr. Thomas Butler, Texas Tech – 2 years in prison for making fraudulent claims & unauthorized exports (biological agent)

Category 1 (Materials, Chemicals, Microorganisms, and Toxins ) 1 C 992. l – This most commonly relates to fire extinguishers, explosive cartridges associated with fire extinguishing systems.

Category 1 (Materials, Chemicals, Microorganisms, and Toxins ) 1 A 001. a – This most commonly relates to non organic flexible seals and gaskets and fuel bladders.

Category 1 (Materials, Chemicals, Microorganisms, and Toxins) 1 C 999. a – This most commonly relates to hardened steel ball bearings 3 mm or larger

Category 6 (Sensors and Lasers) 6 A 998 – This most commonly relates to Weather Radar, Transponders, TCAS Computers

Category 7 (Navigation and Avionics ) 7 A 994 – This most commonly relates to Data Processor Units, TCAS Computers, Air Data Computers, etc.

RULE OF THUMB If it is electronic, and goes in the cockpit, it is likely a Category 6 or 7 item and will have the most restrictions on it for exports.

Category 9 (Propulsion Systems, Space Vehicles and Related Equipment) 9 A 991 – This most commonly relates to Gas Turbine Engines and Aircraft Parts and Components Not Elsewhere Specified.

EAR 99 (Items subject to the EAR that are not elsewhere specified) EAR 99 – This most commonly relates to non aviation specific items consumables.

MILITARY PRODUCT IS GOVERNED BY THE DEPARTMENT OF STATE

ITAR (INTERNATIONAL TRAFFIC in ARMS REGULATIONS) This is the governing law for categorizing your product and determining if a license requirement exists For Military Product. The Department of State uses ITAR Codes to Classify product. These are roman numerals.

THE COST OF NON COMPLIANCE • ITAR (Military Product) – Criminal: Up to $1 million per violation & 10 years imprisonment – Civil: seizure & forfeiture of article, revocation of exporting privilege, up to $500 K fine per violation • ITT – $30 M for exporting night vision materials without license • Raytheon fined $25 M • Boeing fined $4. 2 M • Lockheed Martin fined $13 M • Dr. J. Reece Roth, University of Tennessee & Atmospheric Glow Technologies, Inc.

Category VIII Ground support equipment, Aircraft spare parts, and Engine spares to include Airframe spare parts and landing gear spares

Category XI Electronic equipment such as radar, radio, command control systems, computer systems and cryptographic equipment

A product cannot be controlled by both DOS and DOC. Only one government entity will control the license determinations of a product. If you ever need to know who controls a product, you can submit a Commodity Jurisdiction request, or “CJ”.

THE EXPORTER OF RECORD IS RESPONSIBLE FOR OBTAINING A LICENSE. THAT INCLUDES DETERMINING WHAT THE CLASSIFICATION OF THE PRODUCT IS. IF YOU SHIP U. S. MADE GOODS ANYWHERE IN THE WORLD, OR YOU SHIP PRODUCT OUT OF THE UNITED STATES YOU ARE THE EXPORTER OF RECORD.

Many changes are being implemented this fall through the President’s Export Reform Initiative. John Bushnell’s presentation from July 24 th can be downloaded on the QUE Group website. That session covered the export classification changes and new exemptions and rules that impact the Aviation Industry

So now what? GET ON BOARD With A Export Compliance Program. What are things an export compliance program consist of?

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

Monitor who you do business with. Customer Screening and Due Diligence

The End Use Certificate is a way for you to do your “Due Diligence” on the customer. All new customers should complete one of these and return it back to you as part of the account setup. Customer Screening and Due Diligence

Our website has a special page that provides answers To common questions. This is also where you can find Our end use certificate. Customer Screening and Due Diligence

You can find a link to this page at the bottom Of every page on the website. Customer Screening and Due Diligence

In the company records, we use field check box to indicate if the EUC has been filed. Our EUC is good for three years. Customer Screening and Due Diligence

We also use the Document Imaging Module to attached the signed EUC to the company record. Customer Screening and Due Diligence

At Worthington, when a new company is created, an Automated Notice is sent to the originator, and our accounting team. The notice has a report containing similar named companies. This can be done with Event Manager, or Third Party Crystal Report Tools. Customer Screening and Due Diligence

NOTE: You can also use the new “Add Unverified” capabilities in Company Management to force the review of new company records. This is very handy for controlling the verification of data, then once verified, the company record can be “activated” Customer Screening and Due Diligence

Our Accounting Team screens the new Company Names, Address and Persons For any potential flags using e. Customs Services. Once they are screened they are put on a watch list and we are alerted If their status changes. Customer Screening and Due Diligence

The Visual Compliance export control software screens many U. S. government lists, including: Department of Commerce Denied Persons [BIS] Department of Commerce Entity List [BIS] Department of Commerce "Unverified" List [BIS] Department of Treasury Specially Designated Nationals and Blocked Persons, including Cuba and Merchant Vessels, Iran, Iraq and Merchant Vessels, Sudan Blocked Vessels [OFAC] Department of Treasury Specially Designated Terrorist Organizations and Individuals Department of Treasury Specially Designated Narcotic Traffickers and Narcotics Kingpins Department of Treasury Foreign Narcotics Kingpins Department of Treasury Palestinian Legislative Council List (PLC) Department of State Designated Terrorist Organizations Department of State Terrorist Exclusion List (TEL) U. S. Federal Register General Orders Department of State Arms Export Control Act Debarred Parties Department of State International Traffic In Arms Regulations Munitions Export Control Orders Department of State Nonproliferation Orders Department of State Missile Proliferators Department of State Chemical and Biological Weapons Concerns Department of State Lethal Military Equipment Sanctions Foreign Persons Designated Under the Weapons of Mass Destruction Trade Control Regulations Customer Screening and Due Diligence

ALL Companies and People are screened to ensure They are not on the Denied Parties list and/or their country Is not embargoed. Customer Screening and Due Diligence

If a company is found to have violations or restrictions, we Place warnings on the company for all transactions. Customer Screening and Due Diligence

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

The Part Master Record, Additional Info Tab, holds the pertinent Export Classification information. Product Classification and Control

Worthington has used the Screen Designer Module to simplify This for users, and made it mandatory for every part entered. Product Classification and Control

A summary index has been provided to help identify commonly Used codes. These are NOT all possible codes. Product Classification and Control

. . And, drop down menus have been added for easy input of Classification Codes Product Classification and Control

The ECO checkbox is there to indicate the classification has been Reviewed by the Export Compliance Office, and date-time stamps When it was reviewed. Product Classification and Control

Additionally, we want to track the source of the classification information, so we added a drop down selection box. Product Classification and Control

If a part is added to an international order, any order, and it has not been reviewed by the ECO, an automated Email notice is send to the ECO To alert them of the needed review the part record. Product Classification and Control

Notices like this can be generated by the Event Manager Module, or a third party Crystal Reporting tool. Product Classification and Control

Just like the Company Records, NEW Part Numbers can also be controlled. You can use the “Add Unverified” functionality to force review of the part record. Product Classification and Control

However, simply identifying them is not enough. Using the Part Warnings, we place warnings on all ITAR controlled product. Product Classification and Control

We also use special colored tags to visually identify ITAR controlled parts. . Product Classification and Control

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

An Export License Is required from the Department of State, or the Department of Commerce in order to send controlled product outside of the US borders. LICENSE APPLICATIONS AND ENFORCEMENT

A Re-Export License Is required to sell or Move controlled goods From one foreign party To another. LICENSE APPLICATIONS AND ENFORCEMENT

Written authorization is Required before you engage in ANY negotiation or pricing activity of brokered goods. LICENSE APPLICATIONS AND ENFORCEMENT

Brokering is when you Arrange, negotiate or facilitate the sale of goods which are purchased from a Foreign company and shipped to the Foreign end user. LICENSE APPLICATIONS AND ENFORCEMENT

How do I know if I need a license? If it is military product you need a license. If you want arrange a sale of foreign military product, you need approval BEFORE you can begin any discussions with the customer. LICENSE APPLICATIONS AND ENFORCEMENT

To help you determine if you need a license… All employees Are required to Watch the introduction Video on Export Compliance Awareness LICENSE APPLICATIONS AND ENFORCEMENT

For sales and support service employees, transaction risk assessment flow charts are available to help you determine compliance procedures. LICENSE APPLICATIONS AND ENFORCEMENT

Additionally, restricted country “cheat sheets” are distributed as desktop aids. LICENSE APPLICATIONS AND ENFORCEMENT

Export License information is held against the company record. LICENSE APPLICATIONS AND ENFORCEMENT

This utility keeps track of expiration dates, Approved amounts and the remaining amount On the licenses. LICENSE APPLICATIONS AND ENFORCEMENT

We can restrict a company to export license Transactions only if we choose to. LICENSE APPLICATIONS AND ENFORCEMENT

The export license number is recorded In the Sales Order Header. LICENSE APPLICATIONS AND ENFORCEMENT

When selling under the export license, the sales Person identifies which license is being used in The Sales Order Header. LICENSE APPLICATIONS AND ENFORCEMENT

You can also identify licenses at each line Item level. LICENSE APPLICATIONS AND ENFORCEMENT

You can pick from all licenses in the system. This is great when using a freight forwarder. BUT – if its ITAR, all parties to the transaction Must be on the license! LICENSE APPLICATIONS AND ENFORCEMENT

Using the Forms Designer Module, Worthington has built in Alerts on the Pick Ticket Document to show warehouse staff pertinent export license information. LICENSE APPLICATIONS AND ENFORCEMENT

There also functions build into the Shipping Order Module that allow you to put Export Hold on shipments Pending a review, or license approval LICENSE APPLICATIONS AND ENFORCEMENT

When purchasing items requiring a license, the Purchasing Team alerts the warehouse. LICENSE APPLICATIONS AND ENFORCEMENT

Again, Custom Forms allow us to clearly alert the Warehouse and Quality Teams the classification Of the items.

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

We record issues, interactions and the like In Quantum’s Contact Management Module

Each entry is date time stamped and we can Easily run reports or search for specific entries. This method of documentation exceeds the Government recommendations for compliance LICENSE APPLICATIONS AND ENFORCEMENT

Each entry is date time stamped and we can Easily run reports or search for specific entries. This method of documentation exceeds the Government recommendations for compliance LICENSE APPLICATIONS AND ENFORCEMENT

If you use Shipping Management, status codes (like export hold) can create, and open contacts for you, and then close them when the shipment status is changed. This help define, and drive a clear process for compliance issues LICENSE APPLICATIONS AND ENFORCEMENT

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

End Use and Destination Options are available. This helps you record, and control where the product is ultimately going, and what it will be used for. Sales Order Other Features

End Use and Destination Options are available. This helps you record, and control where the product is ultimately going, and what it will be used for. Repair Order Other Features

End Use and Destination Options are available. This helps you record, and control where the product is ultimately going, and what it will be used for. Purchase Order Other Features

The Shipping Order Pulls in several of the export elements required. The export classification is a reference for the type of product you are selling. Watch out for those DUAL USE items! Shipping Order Details

Dual Use items are products that can be used in both a commercial and military function. Dual Use items are identified and controlled through the Wassenaar Arrangement, made up of 41 countries. DUAL USE

For more information On Dual Use items, visit the Wassenaar Arrangement website. www. wassenaar. org If you are unfamiliar with the DUAL USE RULES, or think it does not apply to you, this is a must read! DUAL USE

What’s In An Export Compliance Program? Customer Screening and Due Diligence Product Classifications and Control License Applications and Enforcement Documentation and Record Keeping Other Export Related Elements Education

q Where to Find More Information www. wassenaar. org www. pnddtc. state. gov The Bureau of Industries and Securities (BIS) website has great Free training. http: //www. bis. doc. gov/seminarsandtraining/seminar-training. htm The Society For International Affairs is a great resource http: //www. siaed. org/ The National Export Initiative provide free training And links to other training resources. http: //www. export. gov ASA Has a special training workshops centered on Exports that Will be available at the ASA tradeshow.

q Key Points to Take Home … – Your responsibilities as an exporter – The areas in Quantum that will help you enforce your policies – The basics of export control – Where to go for additional information.

q Your Turn! ? Questions? How to contact me: Paul Stewart pstewart@worthingtonav. com Please remember to complete your conference evaluation

q Disclaimer The Content provided is expected to be for the sole use of paying members and not to be disseminated outside of its intended audience, or sold without prior consent of both the QUE Group and the originator of the document or presentation. For Questions regarding the QUE Group, please visit www. quegroup. org