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What Ohio Exporters Should Know About U.S. Export Controls Ohio Global Summit Columbus, Ohio August 26, 2009

Attorney Advertising. Disclaimer. The information provided is believed to be accurate as of the date of the presentation, but is subject to change without notice.. This presentation is designed for informational purposes only and is not intended to be, nor should it be deemed, specific legal advice

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What Ohio Exporters Should Know About U.S. Export Controls Ohio Global Summit Columbus, Ohio August 26, 2009

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    1. Attorney Advertising What Ohio Exporters Should Know About U.S. Export Controls Ohio Global Summit Columbus, Ohio August 26, 2009

    2. Attorney Advertising Disclaimer

    3. Attorney Advertising Objectives Introduce/review U.S. export controls basics for Ohio exporting companies, non-profit entities, entrepreneurs, others exporting U.S.-origin commodities, software or technology Encourage planning, compliance, and preventative strategies

    4. Attorney Advertising Government Agencies U.S. Bureau of Industry and Security (BIS) U.S. Census Bureau U.S. Customs and Border Protection (CBP) Office of Foreign Assets Control (OFAC) U.S. Immigration and Customs Enforcement (ICE) Directorate of Defense Trade Controls (DDTC)

    5. Attorney Advertising Export Compliance Part of Overall Compliance Program Upper Management “Buy-in” Risk Management Tool Cost Savings

    6. Attorney Advertising Export Compliance (cont’d) Basic Questions: What is to be exported? Where is the destination? Who is the end-user? What is the end-use?

    7. Attorney Advertising U.S. Department of Commerce Bureau of Industry and Security

    8. Attorney Advertising Commercial Export Controls BIS implements and enforces Export Administration Regulations (EAR) – 15 CFR §§730- 774 Govern export and re-export of commercial goods, services, and technologies “Dual-use” items – commercial and military purpose

    9. Attorney Advertising Commercial Export Controls (cont’d) Some General Prohibitions – 15 CFR §736 Export and reexport of controlled U.S.-origin items to prohibited country without export license or license exception Denial Order Prohibited End Users or End Uses Embargoed countries – who does U.S. have trouble with? Humanitarian aid requires license Proceeding with transaction knowing it violates EAR, order, license or license exception

    10. Attorney Advertising Export Administration Regulations Govern “dual use” items, software and technologies What is an export? actual shipment or transmission of items subject to the EAR out the U.S.; release or disclosure, including verbal and visual inspection of technology, software or technical information

    11. Attorney Advertising Reasons for Control AT – Anti-terrorism CB – Chemical and Biological Weapons CC – Crime Control MT – Missile Technology NS – National Security NP – Nuclear Nonproliferation UN – United Nations Embargo

    12. Attorney Advertising EAR (cont’d) Where is the export destined? Commerce Control List and Country Chart – is license required for destination because of specific control? 15 CFR 738 “X” ? look for license exceptions No “x” ? no license unless shipping to end-user or for end-use requiring license

    13. Attorney Advertising Commerce Control List 10 Categories 0 – Nuclear Materials, Facilities and Equipment and Misc. 1 – Materials, Chemical, “Microoganisms,” and Toxins 2 – Materials Processing 3 – Electronics 4 – Computers 5 – Telecommunications and Information Security 6 – Lasers and Sensors 7 – Navigation and Avionics 8 – Marine 9 – Propulsion Systems, Space Vehicles and Related Equipment

    14. Attorney Advertising Commerce Control List (Cont’d) 5 Product Groups A Systems, Equipment and Components B Test, Inspection and Production Equipment C Material D Software E Technology

    15. Attorney Advertising EAR (cont’d) Entity List – proliferators License required for exports and re-exports Last updated – July 21, 2009 Canada, China, Egypt, Germany, HK, India, Iran, Ireland, Israel, Kuwait, Lebanon, Malaysia Pakistan, Russia, Singapore, S. Korea, Syria, UAE, and UK Supp. No. 4 to Part 744

    16. Attorney Advertising EAR (cont’d) Specially Designated Nationals and Blocked Persons (SDN) List – assets are blocked OFAC – terrorists and narco-trafickers Constantly updated – August 11, 2009

    17. Attorney Advertising EAR (cont’d) The Unverified List – updated September 2008 BIS could not complete end-use or end-user check This is a “red flag” - Duty to inquire HK, Malaysia, Pakistan, Russia, Singapore, UAE, and Yemen

    18. Attorney Advertising EAR (cont’d) Denied Persons List – updated August 11 , 2009 CANNOT deal with those on list Export privileges have been denied

    19. Attorney Advertising Red Flags 13 Red Flag Indicators Customer/address is similar to one on Denied Persons List Reluctance to give information about end-use Willingness to pay cash for expensive items Shipping route is unusual for product and destination

    20. Attorney Advertising U.S. Department of State Directorate of Defense Trade Controls

    21. Attorney Advertising Defense Trade Controls International Traffic in Arms Regulations – (ITAR) – 22 CFR 120, et seq. Govern “defense articles” and “defense services”

    22. Attorney Advertising Key ITAR Terms Defense article – item or technical data designated in the U.S. Munitions List (USML) “Technical data” in any physical form, models, mockups or other items that reveal technical data Basic marketing information giving general descriptions are NOT technical data Defense services – includes “technical data” and providing “technical assistance"

    23. Attorney Advertising Key ITAR Terms (cont’d) Defense Service – 120.9 1. Providing assistance to foreign persons (in U.S. or abroad) in the: design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles 2. Furnishing to foreign persons technical data controlled under the USML

    24. Attorney Advertising Key ITAR Terms (cont’d) Technical data – 120.10 1. Information required for design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. Blueprints, drawings, photos/videos, plans, instructions or documentation 2. Classified information relating to defense articles and defense services Does NOT include scientific, math or engineering principles taught in schools, information in the public domain, or basic marketing

    25. Attorney Advertising ITAR Registration – Part 122 “Any person” engaging in the U.S. in: manufacture or export of defense articles; or furnishing defense services 9/25/08 – New Rule: Annual renewal 3 tier registration system

    26. Attorney Advertising Agreements Subject to DDTC Approval Manufacturing License Agreement (MLA) Technical Assistance Agreement (TAA) Warehouse and Distribution Agreements DDTC approval and required language

    27. Attorney Advertising Other Agreements Commercial agent – brokering reg (22 CFR Part 129) NDA – joint research with universities “Fundamental research” – 15 CFR 734.8 Key: Public release

    28. Attorney Advertising Other Export Compliance Concerns

    29. Attorney Advertising Office of Foreign Assets Control (OFAC) What does it do? Administers and enforces sanction programs against foreign countries, terrorists, narco-traffickers, and WMD proliferators Focuses on money – front companies, banks, drug traffickers

    30. Attorney Advertising OFAC (cont’d) Country Sanctions Programs - Cuba, Iran, N. Korea, Sudan, Syria Also: Balkans, Belarus, Burma (Myanmar), Cote d’Ivorie, Democratic Republic of the Congo, Iraq, Zimbabwe Destination of Diversion Concern: UAE

    31. Attorney Advertising Country Sanctions Programs (cont’d) Iranian Transactions Regulations Cannot export, reexport, sell, or supply, directly or indirectly, from the U.S. or by a U.S. person (wherever located) to Iran, including brokering services “Brokering” includes sales of foreign goods or arranging third-country payment Cannot ship with knowledge or reason to know items, technology or services are intended specifically for supply, transshipment or reexport to Iran Exceptions: licensed by OFAC; de minimis content rule (non-ITAR)

    32. Attorney Advertising OFAC (cont’d) June 2008 - Final rule issued Maximum penalty greater of $250,000 or twice amount of transaction

    33. Attorney Advertising “Deemed Export” Rule – 15 CFR 734.2 Technology subject to the EAR is “deemed” to be exported when it is released to a foreign national within the U.S. “Technology” is specific information needed to develop, produce or use a controlled product ITAR – “technical data”

    34. Attorney Advertising “Deemed Export” Rule (cont’d) When does release/transfer/disclosure occur? When technology/technical data is made available to a foreign national: For visual inspection – reading technical specifications, blueprints, drawings, plans; Oral exchange; or By practice or application under guidance of those with knowledge – think training

    35. Attorney Advertising “Deemed Export” Rule - continued “foreign national” – a person other than a U.S. citizen, U.S. permanent resident (“green card” holder) or “protected individual” (e.g., political refugee or asylee) H-1B workers - largest group potentially needing deemed export license

    36. Attorney Advertising “Deemed Export” Rule - continued Export license required if: Not EAR99; License exception is not available; U.S. party intends to transfer controlled technology in the U.S.; and Transfer of technology to foreign national’s home country would require export license – Pakistani national with legal permanent residency status in Canada

    37. Attorney Advertising Deemed Export Violation May 2008 BIS Order CA firm settled deemed export charge - $31,500 Max. penalty of $250,000/violation export of technology for production of aircraft parts to Iranian national employee

    38. Attorney Advertising Intersection of Immigration and Export Control Laws Must balance between competing laws Applies to job postings and employees Job requirements can provide exception May require a license

    39. Attorney Advertising Anti-Boycott Regulations Cannot support boycott of Israel Caveat: Not limited to Middle East China, India, Indonesia, Malaysia, Taiwan Office of Antiboycott Compliance

    40. Attorney Advertising Anti-Boycott Regulations – (continued) Applies to U.S. individuals and companies located in U.S. and foreign affiliates – “U.S. persons” Must report receipt of boycott requests Quarterly - BIS 621/6051

    41. Attorney Advertising Anti-Boycott Regulations (cont’d) Examples: Goods of Israeli origin not acceptable. (PO from Bahrain) Does your company have a plant in Israel; has it sold to Israel; does it own shares in an Israeli firm; has it provided services to an Israeli firm; granted IP rights to an Israeli firm? (POA from Lebanese company)

    42. Attorney Advertising Foreign Corrupt Practices Act (FCPA) Criminal statute - Anti-bribery and Record-keeping provisions (15 U.S.C. §§78dd-1, et seq.) In general applies to: publicly-traded (domestic and foreign) and private parties; companies and individuals including foreign nationals in the U.S. and U.S. persons abroad and U.S. and foreign agents Need written compliance policy, training, include confirmation by foreign agents, etc.

    43. Attorney Advertising Foreign Corrupt Practices Act (cont’d) Very generally, prohibits parties from: making or offering to make corrupt payments of value (money, gifts, etc.) to foreign officials or political parties for the purpose of obtaining or retaining business – corrupt intent Q: What about officials of state-owned companies? Can form basis for civil RICO case

    44. Attorney Advertising Foreign Corrupt Practices Act (cont’d) Main Exception – “Facilitating Payment” aka “grease” payment Payment made to facilitate or expedite “routine government action” - utility service; load/unload cargo; inspections

    45. Attorney Advertising Successor Liability for Export Violations Due diligence is needed Successor liability imposed asset or stock purchase regardless of indemnity provisions

    46. Attorney Advertising Successor Liability for Export Violations Some due diligence items - compliance program - export documents - personnel deemed exports

    47. Attorney Advertising Successor Liability for Export Violations Discovery of violations voluntary-self-disclosure negotiate price, indemnity, other terms short honeymoon walk-away

    48. Attorney Advertising It’s all about compliance

    49. Attorney Advertising Export Compliance Questions What is to be exported? Where is its destination? Who is the end-user? What is the end-use?

    50. Attorney Advertising Benefits of Compliance “Effective compliance” = “great weight” mitigation Burden on company to show effective compliance program: - risk analysis performed - written compliance program - senior management - training - screening of parties/transactions - process to report violations

    51. Attorney Advertising Contact Jon P. Yormick Managing Attorney Yormick & Associates jon@yormicklaw.com Toll Free: +1.866.967.6425 Mobile: +1.216.269.5138 Fifth Third Center – Suite 1300 600 Superior Ave., E. Cleveland, Ohio USA

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