Wednesday, February 13, 2013

Understanding Export Compliance by Technology, Not Intended Purpose

Several years ago I became aware of a situation where a defense contractor’s export compliance officer was approached by a business development manager about an opportunity. The business manager stated that the company was pursuing a contract with a foreign country to sell them an export regulated material. Though the material was clearly designed for military use, the business manager rationalized that the application was for civil and not military use. She rationalized that since the transaction would not be for defense application, the company should not need to seek an export license.

Though there is guidance for what and how to export, many export issues are unique and may not be fully understood, until the export compliance officer asks the right questions and gets the full story. It’s not the intent of the transaction, but the technology, product or item being transferred.

Recently a company was fined for violating an export law by shipping a controlled chemical. In another case, a company was charged with providing technical drawings to a foreign country. A few years ago a US citizen brought his laptop containing export controlled information to a foreign country. Though he had no intention of sharing the information, he still had no license to export it.

While on travel Chinese officials accessed his computer and downloaded technical information. The employee faced charges even though he did not willingly provide the data. He had brought the computer and technical information to China without approval.

Lack of understanding in the above cases did not provide a good defense. The lesson is that though the US Government values international business, US companies must understand export laws and operate within them.

In the above cases, the individuals involved could have prevented violations had they understood how to identify technical data under export controls. Such information is available in the International Traffic in Arms Regulation (ITAR). The ITAR contains the United States Munitions List (USML). The USML is a listing and explanation of export controlled defense items and services.
Also, those involved in the above offenses may not have understood the definition of export. A familiar export example is providing a product or service to a foreign entity for a fee. Usually the exporter understands that a license and other permissions are necessary.

However, export examples are more expansive. Just like in the example of the employee inadvertently providing information while on travel, exports do not have to involve a formal sale. Exports can be performed by shipping items, oral and written communications, messenger service and etc. It also includes bringing a technical item or service to another country, providing information on a paper, through multi-media presentations or an interview. Something as mundane as a non US person viewing controlled information on an unattended computer screen constitutes an export. In all situations, US Persons should protect and control the defense products and services according to the ITAR.

The ITAR states, “Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register...”. This wording does not leave much room for any other interpretation. All US persons or organizations involved with making Defense articles or providing defense services must register with the State Department’s Directorate of Defense Trade Controls (DDTC).

Additionally, the Defense Federal Acquisitions Regulation (DFAR) states, “It is the contractor’s responsibility to comply with all applicable laws and regulations regarding export-controlled items.” It is in the company’s best interest to understand export laws and how it applies to the organization’s mission. The responsibility to identify export controlled information and provide proper protection falls exclusively on the organization. The company should provide due diligence and know when and how to seek export approval.

Some defense contractors may not immediately understand these responsibilities. The primary resource for guidance concerning the export of defense goods and services is the ITAR. The ITAR walks a defense contractor through their responsibilities including:

Which defense contractors should register with the DDTC?

Which defense commodities require export licenses?

Which defense services require export licenses?

What are corporate and government export responsibilities?

What constitutes an export?

How does one apply for a license or technical assistance agreement?

Remember the earlier example of my business manager? Fortunately I was able to reference the controlled item in the ITAR while consulting our business development manager. I was able to demonstrate that the item had a dual use application. One use was civil and the other was military. In such situations, the State Department has jurisdiction. We were able to request and receive proper authorization to export the item.

Each export situations is unique. Always refer to the source (ITAR) and consider employing knowledgeable export compliance officers, attorney’s or consultants experienced in export of defense articles and services.

Jeffrey W. Bennett, ISP is the owner of Red Bike Publishing Red Bike Publishing . Jeff is an accomplished writer of non-fiction books, novels and periodicals. He also owns Red bike Publishing. Published books include: "Get Rich in a Niche-Insider's Guide to Self Publishing in a Specialized Industry" and "Commitment-A Novel". Jeff is an expert in security and has written many security books including: "Insider's Guide to Security Clearances" and "DoD Security Clearances and Contracts Guidebook", "ISP Certification-The Industrial Security Professional Exam Manual", and NISPOM/FSO Training" See Red Bike Publishing for print copies of: Army Leadership, The Ranger Handbook, The Army Physical Readiness Manual, Drill and Ceremonies, The ITAR,and The NISPOM

No comments: