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Myths & Realities Of Trade Compliance National Contract Management Association World Congress

Myths & Realities Of Trade Compliance National Contract Management Association World Congress April 12, 2006

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Myths & Realities Of Trade Compliance National Contract Management Association World Congress

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  1. Myths & Realities Of Trade Compliance National Contract Management Association World Congress April 12, 2006 This information is provided as a general summary of requirements that may be applicable to international sales. While the information may assist in the identification of matters to consider, it should not be construed as a comprehensive representation of all applicable controls or be used as conclusive guidance for any specific transaction. Coordination with appropriate legal counsel or government assistance office is advised. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  2. Business Unit Challenges • Physical access / disclosure • Visitors, suppliers/vendors, subcontractors, customers • Oral, visual, documentary disclosure • Meetings, teleconferences, phone / fax / email, • public affairs, publications / presentations, exhibits • Physical shipment / receipt • Shipping; express carriers • Travel • Business/personal; transport of data, tools, equipment • Multi-site / team issues NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  3. Overcoming the Challenges • Organizational commitment (top down) • Designated individual / team – with authority to act • Training / awareness • Site / team / process representatives • Integrate trade compliance into processes • (vs. a separate step) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  4. Overcoming the Challenges • Self-assessment / audit – implement corrective action • Feedback – all directions • Be involved outside your organization • Ask questions • Never assume you’ve covered all options NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  5. I Don’t Have to Worry About That! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  6. I Don’t Have to Worry About That! "You" "Any person, including a natural person, including a citizen of the United States or any foreign country; any firm; any government, government agency, government department, or government commission; any labor union; any fraternal or social organization; and any other association or organization whether or not organized for profit." EAR, Part 772, Definition of Terms NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  7. I Don’t Have to Worry About That! “U.S. Person” “U.S. person means a person (as defined in section 120.14 of this part) who is lawful permanent resident as defined by 8 USC 1101(a)(20) or who is a protected individual as defined by 8 USC 1324b(a)(3). It also means any corporation, business association, partnership, society, trust, or any other entity, organization or group that is incorporated to do business in the United States. It also includes any governmental (federal, state or local) entity. It does not include any foreign person as defined in section 120.16 of this part.” ITAR 120.15 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  8. I Don’t Have to Worry About That! • Organizational commitment • Program / Project Leadership • Customer Cooperation • Training • Sustained Awareness Program • Note: • An individual (U.S. person), e.g. a consultant, must • register with ODTC and obtain a license if participating • in defense trade (exporting / brokering). Also consider • issues involving non-U.S. person registration. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  9. We’re Dealing With the U.S. Representative! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  10. We’re Dealing With the U.S. Representative! • Who is a non-U.S. Person? • Any person who: • is not a U.S. citizen • is not a lawful permanent resident of the U.S. • Foreign companies or other entities not incorporated to do • business in the U.S. • Foreign governments; agencies or subdivisions of foreign • governments (e.g. embassies, diplomatic missions) • International organizations (e.g. NATO, ISO) • U.S. persons representing a foreign interest NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  11. We’re Dealing With the U.S. Representative! • Who is a non-U.S. Person? • U.S. persons representing a foreign interest • U.S. Citizen • Working for U.S. company with foreign parent • (potential security issue) • Working for non-U.S. company • (security and export issue) • Working for / representing other foreign entity • (security and export issue) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  12. We’re Dealing With the U.S. Representative! • Tailored training to subcontracts / procurement staff • Relationship with Industrial Security function • Visitor control (how do you identify individuals RFI?) • Incorporate denied party screening beyond the trade • process • Consider use of integrated tool to facilitate screening • of every transaction; establish consolidated / screened • listing • Recognize OFAC impact on domestic transactions • Tailored training to Business Development and Finance • staffs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  13. We’re Dealing With the U.S. Representative! • How are you handling international offices of a U.S. entity? • Are all employees U.S. persons? • Controls on temporary assignment of U.S. employees • to non-U.S. office? • Do you employ non-U.S. persons? • Controls on access to your operations / information? • Controls on access to your intranet? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  14. We’re Dealing With the U.S. Representative! • Have you asked whether the entity is registered? • Manufacturer of defense articles? • Broker? • Are they aware of the ITAR / EAR and related controls? • Part of your supplier assessment? • Included in the reps & certs process? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  15. We’ve Empowered Our Team! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  16. We’ve Empowered Our Team! • Are all Team Members using the same export license? • If not, has everyone represented the effort in the same way? • Jurisdiction • Classification • Interpretation • Implementation • If U.S. companies other than yours are on the same license, how are you controlling third-party risk? • If multiple sites of the same company are involved, how are you managing interpretation and implementation? • Do your subcontractors, suppliers, carriers, etc., realize that they are working with export-controlled materials / information? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  17. We’ve Empowered Our Team! • Coordination with: Business Development • Contracts • Project Management • Subcontracts / Procurement • Document Control (marking) • Finance • Product Support • Traffic / Shipping • Legal • Internal Control Plan • Technology Control Plan • Training NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  18. We Have an Export License! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  19. We Have an Export License! • Do your planned activities comply with any limitation, proviso, • or other conditions and restrictions contained in the license, • exemption, or exception approval? • How are you interpreting the limitations? • Have the limitations, provisos, or other conditions and • restrictions been communicated to those performing the effort? • (How are you addressing subcontractor activity?) • (Have you included transportation entities in your scope?) • Have you documented their understanding? • Are your deliverables marked correctly? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  20. We Have an Export License! • Internal Control Plan: Train • Document • Monitor / Self-assessment • Audit • Involvement with Program / Project Team • Involvement with participating functions NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  21. We Don’t Have an Export License! • ITAR 125.4(b)(1) provides that technical data may be “disclosed pursuant to an official written request or directive from the U.S. Department of Defense”. • Are there any special procedures? • Is there a requirement for submission of a TAA • prior to issuance of the official written directive? • Is a TAA required at all given that the disclosures • are directed? • Note also the limitations on ITAR 125.4(c) (DTSI Initiatives), 125.5 (Plant visits), 126.4(a) and 126.4(c) (Shipments by or for U.S. Government agencies). NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  22. We Don’t Have an Export License! • Foreign Military Sales (FMS) • ITAR exemption available only while Letter of Offer • and Acceptance (LOA) (and contract) is valid (and • only during term of government contract awarded to • implement LOA) • Does not cover: • Pre-LOA / pre-contract business development • Post-LOA / post-contract product support & • services • Products/services not identified in the LOA & • implementing contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  23. But It’s Not Defense Technical Data! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  24. But It’s Not Defense Technical Data! • Technical data means, for purposes of this subchapter: • Information, other than software as defined in Sec. 120.10(4), which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. This includes information in the form of blueprints, drawings, photographs, plans, instructions and documentation; • Classified information relating to defense articles and defense services; • Information covered by an invention secrecy order; • Software as defined in Sec. 121.8(f) of this subchapter directly related to defense articles; • This definition does not include information concerning general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities or information in the public domain as defined in Sec. 120.11. It also does not include basic marketing information on function or purpose or general system descriptions of defense articles. ITAR 120.10 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  25. But It’s Not Defense Technical Data! Related Definitions "Technology" -- Specific information necessary for the "development", "production", or "use" of a product. The information takes the form of "technical data" or "technical assistance". "Technical assistance" -- May take forms such as instruction, skills training, working knowledge, consulting services; may involve transfer of “technical data”. "Technical data" -- May take forms such as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals and instructions written or recorded on other media or devices such as disk, tape, read-only memories. EAR 772 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  26. But It’s Not Defense Technical Data! • Trade Compliance vs. ITAR Compliance • Market Research (performance specs) / E-mail / Internet • Company Intranet • Policies / Procedures • Training • Sustained Awareness Program NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  27. It’s Unclassified. I Can Give It to Anyone! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  28. It’s Unclassified. I Can Give It to Anyone! • “Unclassified” is not equivalent to “Public Domain” • “Unclassified” may still be controlled • “Need to know” • Technical Data • Proprietary Information / Data • If “Public Domain”, how is it going to be conveyed? • Is the manner of delivery within the scope of the • “Public Domain” exemption / “Publicly Available” • exception? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  29. It’s Unclassified. I Can Give It to Anyone! • Functional coordination with Industrial Security • Training • Sustained Awareness Program • Note: • The Cold War may be over, but interest in • your trade secrets, • proprietary processes, know-how and lessons learned; • and your customer’s • intentions, capabilities, or vulnerabilities • is higher than ever. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  30. He’s Got His Laptop With Him! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  31. He’s Got His Laptop With Him! Has the export been documented? Does the laptop have encryption software? Is the level of encryption authorized for export? Is the level of encryption authorized for import / use? How is the laptop going to be used? Presentations – technical data? Work – technical data? E-mail – technical data? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  32. He’s Got His Laptop With Him! • Be involved in the travel approval process • Foreign travel brief / guidelines • Coordination with Customs to register hardware • Training • Sustained Awareness Program NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  33. We’ve Addressed the Trade Controls in the Terms and Conditions! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  34. We’ve Addressed the Trade Controls in the Terms and Conditions! Does the effort involve exports only? Both exports & imports? Do the terms address controls of all countries involved? Do you know what the non-U.S. controls are? (e.g., Import; Export; Security; Employment; Residency; Conduct; Representation; Taxes; Payment to you; Payments to others; Funds transfer) How have you addressed withdrawal of approval by any or all governments? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  35. We’ve Addressed the Trade Controls in the Terms and Conditions! • Recognize that more than one country’s laws are • involved • Policy / Procedure guidance • Address other controls, e.g. FCPA, Anti-boycott • Sublicensing guidelines; subcontractor limitations • Tailored training • Note: • For SETA services / purchase items for direct turnover • to USG - Evaluate Broker registration / licensing requirements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  36. That’s an Interpretation I’ll Defend! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  37. That’s an Interpretation I’ll Defend! Can you afford not to be certain you are in compliance? Legal fees; Sanctions; Fines; Penalties; Schedule impact Was it -- A mistake? A failure to pursue questioning of concerns? A willful violation? Was the 'violation' voluntarily disclosed? Record keeping - can the transaction be reconstructed? - if an exception was used, is it documented? Don't self-blind The cost of compliance is generally less than cost of non-compliance. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  38. That’s an Interpretation I’ll Defend! • The cost of compliance is generally less • than cost of non-compliance. • Management perspective / leadership • Corporate Export Office coordination / support • Commodity Jurisdiction / classification • Catalog Products / Services by jurisdiction / • classification • Voluntary disclosure guidelines NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  39. I Can’t Be Bothered With That Nonsense! …or I can’t be concerned with such mundane administrative matters! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  40. I Can’t Be Bothered With That Nonsense! "Knowledge" "Knowledge of a circumstance (the term may be a variant, such as "know," "reason to know," or "reason to believe") includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregardof facts known to a person and is also inferred from a person's willful avoidance of facts." EAR, Part 772, Definition of Terms NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  41. I Can’t Be Bothered With That Nonsense! • The cost of compliance is generally less • than cost of non-compliance. • Management commitment / leadership • Training • Sustained Awareness Program • Periodic audit / evaluation – is it effective? • Corrective action – stated or implemented? • Involve yourself in the process…be visible! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

  42. When In Doubt - Seek Assistance Out! • If you are not sure what to do - • If it doesn’t look, smell, feel….right - • If you think there was a violation - • If you know there was a violation - • Check it out immediately!! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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