U S Export Controls How to Comply with

U. S. Export Controls How to Comply with Commercial, Dual-Use, and Defense Article Regulations and U. S. Trade Sanctions Licensing and Commodity Jurisdiction Overview May 11, 2016 Copyright Holland & Hart LLP 2016. All Rights Reserved.

Disclaimer This presentation, related materials and subsequent discussion are provided for educational purposes only. They do not constitute legal advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the speaker. This presentation is not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel. 2 Copyright Holland & Hart LLP 2014. All Rights Reserved.

PRIMARY EXPORT CONTROL LICENSING AGENCIES Department of State Directorate of Defense Trade Controls (DDTC) Department of Commerce Bureau of Industry and Security (BIS) International Traffic in Arms Regulations (ITAR) (22 CFR Parts 120 -130) • U. S. Munitions List (USML) • Jurisdiction over: – Defense articles (under ECR, primarily those military items having a significant military or intelligence capability) – Defense services Export Administration Regulations (EAR) (15 CFR Parts 730 -774) • Commerce Control List (CCL) • Jurisdiction over: – Dual-use items – Purely commercial items – Less-sensitive military items (i. e. , the “ 600 series” as a result of ECR) 3 Copyright Holland & Hart LLP 2014. All Rights Reserved.

PRIMARY EXPORT CONTROL LICENSING AGENCIES Department of Treasury Office of Foreign Assets Control (OFAC) • Jurisdiction over: –Transactions involving sanctions & embargos • Two categories of sanctions: • Comprehensive country wide sanctions and more targeted regime, entity or individual based sanctions – Specially Designated Nationals (“SDNs”) 4 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION What is Commodity Jurisdiction? ¨ Process to determine which agency has jurisdiction of your technology (item, tech data or service). ¨ The “CJ” process is the only official U. S. Government mechanism to determine jurisdiction. 5 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION Where do you start? ¨ Look to your product, data or service Ø ITAR (State Department) – controls all items listed on the USML Ø EAR (Commerce Department) – controls everything else (i. e. , commercial or “dual -use” items listed on the CCL) 6 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION How is Commodity Jurisdiction determined? ¨ Start with the USML (22 CFR Part 121) Ø determine if your item, technical data or service is listed Ø review all 21 categories, including “Articles, Technical Data, and Defense Services Not Otherwise Enumerated” 7 Copyright Holland & Hart LLP 2014. All Rights Reserved.

JURISDICTION UNDER EXPORT CONTROL REFORM USML Order of Review ♦ Always begin with the ITAR (121. 1(b)): Ø USML Ø Application of specially designed (121. 1(d)) Use the USML Order of Review Decision tool: http: //pmddtc. state. gov/licensing/dt_Orderof. Review. htm Use the DDTC Specially Designed Decision tool: http: //pmddtc. state. gov/licensing/dt_Specially. Designed. htm 8 Copyright Holland & Hart LLP 2014. All Rights Reserved.

JURISDICTION UNDER EXPORT CONTROL REFORM CCL Order of Review ♦ If item is not on USML, turn to EAR (Supplement 4 to Part 774) Ø CCL Ø Review the general characteristics of the item to determine category Ø 600 Series Ø Application of Specially Designed (772. 1) Use the CCL Order of Review Decision tool: http: //www. bis. doc. gov/index. php/export-control-classificationinteractive-tool Use the BIS Specially Designed Decision tool: http: //www. bis. doc. gov/index. php/specially-designed-tool 9 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION Quiz – ITAR or EAR? ¨ customized hand guard for an AR-15 rifle ¨ night vision weapon clip-on sight w/Generation 2+ image intensifier tube ¨ spacecraft consulting Services ¨ visual and infrared camera 10 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION Who can submit a CJ? ¨ Exporter or Manufacturer can submit a CJ to the State Department… but be careful Ø CJ determinations are binding, but can be “reconsidered” Ø Insufficient information will result in “Return Without Action” Ø Can be used for a USML reconsideration Ø Should treat the item as under ITAR control until a determination is received Ø False statements made in CJs can be criminal! 11 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION Questions to be addressed in a CJ: ¨ Was the item originally designed for a commercial or military purpose? ¨ Where did initial development $ come from? ¨ Was the underlying technology originally developed for commercial or military purpose? ¨ Does the item contain parts, components, or assemblies that were originally specifically designed, developed, or modified for a military application? 12 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION How to apply? § § Electronic • Web-based application (not D-Trade system) • Electronic CJ Request Form DS-4076 is required • Supplemental documents are uploaded with the completed DS-4076 form Hardcopy • § No longer accepted for CJ Requests DDTC Registration NOT Required 13 Copyright Holland & Hart LLP 2014. All Rights Reserved.

COMMODITY JURISDICTION Where can I find more information regarding CJs? ¨ State Department – Directorate of Defense Trade Controls (DDTC) website: http: //pmddtc. state. gov/commodity_jurisdiction/index. html Remember: only the State Department can make a commodity jurisdiction. The Commerce Department can only issue classification determinations. 14 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR EXPORT AUTHORIZATIONS Okay, suppose your CJ determination indicates your article, technical data, or service is subject to the ITAR? u Think - License or Other Authorization! Ø Virtually all exports from the U. S. will require a license or other authorization Ø You may need a license or authorization even if you don’t ship from the U. S. Ø Your company must register with the DDTC 15 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR EXPORT AUTHORIZATIONS Controlled technical data and defense services may only be transferred pursuant to State Department authorization. u Types of State Department Authorizations Ø License (hardware, software, technical data) Ø Agreements (technical data and defense services) q Technical Assistance Agreement q Manufacturing License Agreement 16 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR LICENSES Types of State Department Export Licenses § DSP-5 (permanent; unclassified) § DSP-73 (temporary export; unclassified) § DSP-61 (temporary import; unclassified) § DSP-85 (permanent export, temporary export and temporary import; classified) 17 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR DEFENSE SERVICE AGREEMENTS § 120. 22 Technical Assistance Agreement An agreement (e. g. , contract) for the performance of a defense service(s) or the disclosure of technical data, as opposed to an agreement granting a right or license to manufacture defense articles. Assembly of defense articles is included under this section, provided production rights or manufacturing know-how are not conveyed. 18 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR DEFENSE SERVICE AGREEMENTS § 120. 21 Manufacturing License Agreement An agreement (e. g. , contract) whereby a U. S. person grants a foreign person an authorization to manufacture defense articles abroad and which involves or contemplates: a) the export of technical data or defense articles or the performance of defense services; or b) the use by the foreign person of technical data or defense articles previously exported by the U. S. person. 19 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR DEFENSE SERVICE AGREEMENTS TAAs & MLAs u Provisos Ø Conditions placed on the authorization Ø May restrict types of data exchanged Ø Usually require exporter to maintain a “library of released technical data” Ø Usually require any hardware to be separately licensed for export from the U. S. or reexport from the foreign signatory’s country 20 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR DEFENSE SERVICE AGREEMENTS TAAs & MLAs u Advantages Ø “Blanket” authorization Ø Valid for up to 10 years Ø Allows for free exchange of technical information, subject to agreement terms u Disadvantages Ø Scope limited to original terms Ø Lead time required – 3 -4 months Ø Amendment required for changed circumstances (new parties, new data or services) 21 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR LICENSES & AGREEMENTS How to apply? § Electronic • § Hardcopy • § D-Trade system No longer accepted for most licenses or agreements DDTC Registration Required • license applications generally may only be submitted by registered entities • registration requires U. S. incorporation or authorization to engage in business in the U. S. 22 Copyright Holland & Hart LLP 2014. All Rights Reserved.

ITAR LICENSING Common License Application Errors § Country name on application doesn’t match support documents § No P. O. attached to application submission § Value on application doesn’t match P. O. § Continually making late applications and evoking national security reasons for immediate case action § Parties not properly identified (consignees (foreign, intermediary), foreign end user) § Including defense services on license application (must submit a TAA or MLA) § Failure to provide an original Empowered Official certification letter § Failure to provide a DSP-83 (Non-transfer and use assurances) for SME 23 Copyright Holland & Hart LLP 2014. All Rights Reserved.

U. S. STATE DEPARTMENT REGULATIONS (ITAR) So now you have an agreement in place, who can work on the project? u Defense services agreements allow the parties (and employees of the parties in the named countries) access to the controlled hardware, data or services Ø Ø additional third-parties (from the countries listed in the agreement) must sign confidentiality agreements access by third-parties from non-signatory countries require agreement amendment 24 Copyright Holland & Hart LLP 2014. All Rights Reserved.

EAR LICENSING Okay, suppose your CJ determination indicates your article, technical data, or service is subject to the EAR? • Turn to the CCL Ø Ø Most items in the United States are subject to EAR A relatively small percentage of total U. S. exports and reexports require an export license from BIS 25 Copyright Holland & Hart LLP 2014. All Rights Reserved.

EAR LICENSING Commerce Control List (CCL) – Supplement No. 1 to Part 774 of the EAR) • A key in determining whether an export license is needed from the Department of Commerce is knowing whether the item you intend to export has a specific Export Control Classification Number (ECCN) • The ECCN is an alpha-numeric code, e. g. , 3 A 001, that describes the item and indicates licensing requirements • All ECCNs are listed in the CCL • The CCL is divided into ten categories, and items are described and classified according to their technical or performance specifications 26 Copyright Holland & Hart LLP 2014. All Rights Reserved.

EAR LICENSING EAR 99 § § Items subject to the EAR that are not listed on the CCL are designated as EAR 99 items generally consist of low-technology consumer goods and under most circumstances, do not require a license for export Majority of U. S. origin goods are classified as EAR 99 If you plan to export an EAR 99 item to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain a license 27 Copyright Holland & Hart LLP 2014. All Rights Reserved.

EAR LICENSES How to apply? § Electronic • SNAP-R • § You will need a SNAP-R account Hardcopy • No longer accepted 28 Copyright Holland & Hart LLP 2014. All Rights Reserved.

U. S. EXPORT CONTROL LAWS And if that’s not enough – don’t forget The “Deemed Export” Rule u Technology exported when divulged to a non. U. S. person, even if that person is in the U. S. and has no intention of leaving u May limit what your employees can disclose 29 Copyright Holland & Hart LLP 2014. All Rights Reserved.

U. S. EXPORT CONTROL LAWS What about U. S. citizens working abroad foreign companies? u u U. S. citizens are “U. S. Persons” under the ITAR, but when employed by non-U. S. companies – they are treated as “Foreign Persons” Note that U. S. citizen employees abroad would be covered under a defense services agreement 30 Copyright Holland & Hart LLP 2014. All Rights Reserved.

U. S. EXPORT CONTROL LAWS Caution: It is illegal to discriminate based on national origin. u u u Candidates cannot be eliminated from consideration merely because a license is required ITAR authorization can be a job requirement, but the job scope must require access to ITAR articles, data, or services Employers should make conditional offers to avoid potential discrimination actions 31 Copyright Holland & Hart LLP 2014. All Rights Reserved.

U. S. EXPORT CONTROL LAWS Public Domain /Publicly Available • • Published and generally accessible to the public through unlimited and unrestricted distribution The EAR and the ITAR do not require licenses to export such publicly available or public domain information, regardless of content. 32 Copyright Holland & Hart LLP 2014. All Rights Reserved.

Cases Professor John Reece Roth (2008) • Roth obtained an U. S. Air Force (USAF) contract to develop plasma actuators to control the flight of small, subsonic, unmanned, military drone aircraft. • Provided ITAR-controlled technology and defense services to University of Tennessee Chinese and Iranian graduate students. • Convicted of violating Arms Export Control Act • Sentenced to 48 months in prison 33 Copyright Holland & Hart LLP 2014. All Rights Reserved.

Cases Barracuda Networks, Inc. (2015) • Barracuda Networks and its U. K. subsidiary allegedly sold internet security products, webfiltering products, and related software subscriptions from 2009 to 2012 to Syria, Iran and Sudan without required export licenses. • Agreed to pay $1. 5 million in fines to U. S. Department of Commerce, and $38, 930 to the U. S. Department of Treasury. 34 Copyright Holland & Hart LLP 2014. All Rights Reserved.

EXPORT LICENSES Do I need an export license? • Classify the goods or technology involved. (i. e. , subject to ITAR, EAR, or other controls) • Determine if a license is needed for the particular technology, particular end-use and particular end-user. • Determine whether any license exclusions or exemptions are available. (e. g. , public domain) • Determine whether any sanctions or embargoes apply or whether any prohibited parties or destinations are involved. • Determine whethere any “red flags” or other warning signs of possible diversion of the goods or technology. 35 Copyright Holland & Hart LLP 2014. All Rights Reserved.

Consequences of Noncompliance Penalties can include: u Civil fines Ø IEEPA - up to $250 K per violation OR twice the amount of the transaction (whichever is greater) u Criminal fines Ø IEEPA - up to $1 million per violation u Loss of export privileges u Imprisonment Ø IEEPA - up to 20 years imprisonment 36 Copyright Holland & Hart LLP 2014. All Rights Reserved.

Questions? 37 Copyright Holland & Hart LLP 2014. All Rights Reserved.