The two primary sets of export control laws are the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), which together govern the export of both defense-related and commercial products.  ITAR contains the United States Munitions List (USML) of restricted articles and services.  Any manufacturer or exporter of articles or services found on the USML is required to register with the U.S. State Department’s Directorate of Defense Trade Controls, which helps to validate entities engaged in the defense trade. EAR, meanwhile, contains the Commerce Control List (CCL) of regulated commercial items, including “dual-use” items that have commercial, military or proliferation applications.  The CCL regulates a broad array of commodities, software and technologies including, but not limited to, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages, and technical information.  Each prospective exporter is responsible for determining whether an export license is required under EAR, based on the good or services classification on the CCL, its destination country, the end-user, and its end-use.

In export control parlance, “export” includes not only the shipment of products abroad, but also technical data which is deemed an export by its mere disclosure or transfer to a foreign national, even if within U.S. borders.  With so many foreign nationals employed in the U.S. high-tech industry, it is easy to see how violations may occur.  Even visits to U.S. manufacturing facilities by foreign investors or customers could constitute a violation.  Electronic storage and transfer, particularly for software and technical data, are also problematic, since transfer over the Internet or travel to a foreign country may run afoul of export control laws.  It is worth noting that Customs and Immigration Services can examine or seize any person’s possessions when entering the U.S. from abroad without cause.  Thus, the seizure of a laptop at the border could result in violation if, for example, a sales presentation on the device is found to contain sensitive information.

Export control laws provide for substantial penalties, both civil and criminal.  Failure to comply with ITAR can result in civil fines as high as $500,000 per violation, while criminal penalties include fines of up to $1,000,000 and 10 years imprisonment per violation.  Under EAR, maximum civil fines can reach $250,000 per violation, while criminal penalties can be as high as $1,000,000 and 20 years imprisonment per violation.  Given the ease with which violations can occur, inadvertent violations by unaware companies and their officers can have drastic consequences.

One case highlighting violations of ITAR concerns a professor at the University of Tennessee.  The university was involved with the U.S. Air Force in a contract to research the flight control of Unmanned Aerial Vehicles.  While research done purely for publication is exempt from ITAR registration, this particular research was conducted in partnership with a for-profit spin-off of the university, a common arrangement these days.  The participation of a Chinese national graduate student in the research and the later visit to China by the professor drew the attention of the Federal Bureau of Investigation.  Providing sensitive technology to a foreigner constitutes export, and a violation had occurred because no license was first obtained.  Search warrants issued permitting agents to search the professor’s belongings as well as the university research facility to seize evidence.  The professor and company, including its president, were indicted for federal crimes.

In the field of patent law, the practice of outsourcing has developed into a multi-billion dollar annual business with foreign countries, particularly India.  Inventors, businesses, and even some patent law firms use overseas companies to conduct novelty searches and to assist in drafting and prosecuting U.S. patent applications.  A report released at the end of 2008 indicated that revenue from patent work performed by legal professionals in India was about $46 million in 2007 and could more than quadruple to $206 million by the end of 2012.  The U.S. Patent and Trademark Office (USPTO), having “become aware” of the outsourcing of patent prosecution, published a reminder in the Federal Register in  July of 2008 to comply with export control laws.  The USPTO’s patent web portal now requires certification of compliance before users may log into the system.

Sensitive information is also exported whenever an applicant seeks foreign patent protection.  Jurisdiction is granted to the USPTO under both EAR and ITAR to conduct security reviews and issue foreign filing licenses, which permit the export of technical data for the limited purpose of filing and prosecuting foreign patent applications. See, 37 CFR 5.11(b).  A foreign filing license can be granted after filing a U.S. patent application, and if no Secrecy Order has been imposed within the first six months a license is granted automatically.  This affords the U.S. government sufficient time for national security review of the technology.  Similarly, if a Patent Cooperation Treaty (PCT) application is filed at the U.S. Receiving Office, a security review will be conducted and the application will not be forwarded to a foreign patent office for consideration until the foreign filing license is granted.  See, PCT 1832.  As a result, it is important to monitor PCT applications to make certain a foreign filing is granted before the expiration of time to enter the national stage in foreign countries.  If a patent application covering technology conceived in the U.S. is to be initially filed directly with a foreign patent office, the applicant must first petition the USPTO and receive a foreign filing license prior to filing.  Failure to obtain a foreign filing license may not only invoke export control laws, but may bar U.S. patent protection on the technology.

Foreign filing licenses are very limited waivers of export control laws and their scope is restricted to the subject matter substantially the same as that disclosed to the USPTO for obtainment of the license.  As a consequence, no new matter may be added during prosecution of the foreign patent application unless a new license is first granted for the additional subject matter.  In addition, the license is specifically limited to the filing of foreign patents-it remains the applicant’s responsibility to comply with export control laws for any other use.  For example, reporting the filing of a U.S. patent application to a foreign owner may require a license.

With increased foreign interaction there is greater potential for conduct that constitutes export under the law, whether by hiring foreign nationals, traveling abroad with a laptop, or even giving a sales presentation to potential foreign customers.  Such actions may have drastic consequences.  And while outsourcing has become somewhat of a national trend, outsourcing patent work may also be a violation.  Disclosing sensitive technology to any foreigner, even if within the United States, may violate federal law and the responsibility falls upon the exporter to conform with ITAR and EAR.  Counsel experienced in export control matters can help avoid inadvertent violation and the possibility of criminal and civil sanctions.  In addition to its full-service Intellectual Property/SciTech Group, Burns & Levinson LLP has experience in dealing with export control laws and can help protect your intellectual property in the U.S. and around the world.

by Jacob N. (Jesse) Erlich (jerlich@burnslev.com) and Stephen Ball (sball@burnslev.com)
Burns & Levinson LLP
125 Summer Street
Boston, MA 02110
617.345.3000

Jarred A. Fishman

In an increasingly complicated and transnational business world, there is now greater importance than ever before placed on the ability of the export compliance regime to act in a positive ethical manner. This paper will seek to develop several themes. First I will discuss an organizational overview and history. I will then discuss the external compliance environment in which my corporation exists, including our current stated compliance standards. Following that brief introduction, I will endeavor to explain the main ethical problem in compliance which we are grappling with amongst our several business units. I will then identify potential and actual ethical situations, as well as identifying the actors who are involved. We will then move on to evaluate my corporation’s current ethical trade compliance situation through an inside perspective and discuss the strengths and weaknesses which I have been able to note following the lessons learned in this course. Amongst them I will discuss the current ethical environment within the organization- including the current ethical policy established in both a formal and informal construct. This will include a discussion of management support from those who are “involved actors” as participants in our ethical situations. Finally, in the conclusion I will attempt to discuss and identify possible alternatives which exist to improve our current compliance situation. This will include more auditing, greater responsibility for mid level managers, and increased training programs. I will make a recommendation to change the status quo in certain ways to facilitate increasingly effective ethical compliance, and make a recommendation which will enable the organization to improve its ethical stance for workers involved with trade compliance. All of these discussion points will be backstopped with an amalgam of the actors involved in ethical performance, as well as the recommended policies and procedures required for integration and utilization of the most effective ethical compliance system.

There are many parties responsible for ethical behavior in trade compliance situations. We utilize a corporate hub and spoke method in our trade and export compliance group, and so it is easiest to install an ethical environment on top of the existing structure which already exists. In our line of work within the global aerospace industry we need to balance our need for profit and sales with our responsibilities for ethical business practices. Following the scandals of the Boeing Company in the 1990s which led to millions of dollars in fines for ethical and export control violations, my company endeavored to invigorate our ethics training and our system for compliance. With even larger and more expensive military programs on the line, among them a potential $90 billion contract for the Future Combat Systems program, a sweeping effort to redesign the F/A-18 Hornet fighter jet, the F-15 Eagle fighter-bomber, the C-17 Globemaster transport plane, the Joint Strike Fighter and F-22 Raptor- one can easily see what a risky role non compliance to business ethics can play. It can literally cost billions of dollars in lost revenue, lead to loss of market share and also tarnish a reputation that took 60 years to build. For this reason our corporate vision statement is “we always remember who we are working for.”

How does my company differentiate between morals and ethics? As a starting point to discuss ethics in the workplace, it is important to define the difference between ethics and morals. My own morals are my internal beliefs about what is right and wrong. Each person determines for himself or herself the moral position or stance to take based on his or her internal beliefs. We may believe that others are either moral or amoral depending on the choices they make–based on our own belief system and how similar or dissimilar these actions are to our own. This is what we learned in our first few weeks. Morals do not absolutely dictate actions. It is how we act on these feelings/morals that become ethics in a corporate scenario. Basically, morals become ethics when we act on them. Our biggest challenge from an ethical perspective in my company is trying to balance our national security interests with our demand and necessity for making corporate profit on behalf of our shareholders. This is an underlying problem which has existed for decades. It leads many of us to suffer from cognitive dissonance in small doses- which occur when there is a discrepancy between our moral beliefs and the ethical actions dictated by our employer. We must be the guardian of our country and our military, at the same time we equip other military forces and sell our technology around the globe. If an adjustment to bridge the discrepancy between personal beliefs and organizational mandates does not happen, generally one of two mental states will come into play. I don’t want to make this sound overly emotional when dealing with the aerospace industry, it is more a question of balancing ethical obligations and responsibilities. This is the chief current ethical situation we are dealing with and has effects in both the formal and informal construct.

There are many actors contributing to the establishment of personal values and morals and there are many factors that influence the establishment of a person’s personal values. Some of the more obvious factors are: national or regional or ethnic culture; religious views; family values; company culture and norm (much will be discussed on this sole issue but I wanted to highlight in broad detail the other attenuating circumstances); personal identity, personality and finally the mental health status of the individual. Generally, something is an “ethical” business issue when business practices involve a moral/ethical determination by management (the corporation, company or individual business unit) that dictates an employee’s ethical actions. This is regardless of whether the actions may or may not be counter to what an employee would normally do based on his or her own belief system. There are two primary causal factors to consider: Issues based on a formal business policy and issues based on informal business practices or lack of formal policy by managers or co-workers who we interact with. These are the lessons we have learned in seminar one. Alignment in ethics and morality leads to a fusion of reward, when not in alignment the cognitive dissonance and infrastructure weaknesses will predominate and cause ethical lapses leading to onerous violations and penalties.

Ethics and the law- Laws as a framework. Laws that govern countries and entities within countries have evolved from the historical expectations of acceptable behavior, religious teachings and governing body’s rules about normative behavior within a society. These rules provide a framework and boundaries in which individuals and companies can exist. Once that bedrock foundation has been laid, the laws coalesce to reflect the community and are then agreed to: they tend to be reflective and therefore correlated to the ethics within that society. The law is published for all to see and to conform to. If they do not, the violations will lead to criminal penalties- both for the individual and for the corporation which is not reaching its goals of ethical maintenance. Laws are a formal mechanism to monitor and control: However, laws are written as absolutes, therefore they are not as general as an individual’s ethics might be. Laws cannot keep up with change: laws often lag years behind what society deems acceptable ethical and moral values. This is another internal problem we have in the corporation. Technologically we advance more rapidly than the government is able and therefore outstrip available guidance. This may be a severe weakness if not using ethically based decision making. In some cultures the laws never change. In others, the laws are constantly evolving to meet current acceptable behavior standards. This is the case with trade compliance regulations. The challenge, central to this course, is to keep ethical behavior requirements of an organization aligned with the changing laws and regulations. The international trade regulations are instigated by various government bodies such as the EAR, the ITAR, the Australia Group, the Wassenaar Arrangement in order to dictate what are acceptable and unacceptable actions in moving goods across national boundaries. The regulations strive to take into account the current moral and ethical standards that now exist within a world body.

To further complicate the issue, the rules and regulations of countries may be at odds with one another. For example, in some countries, bribes are not only acceptable, they are expected. We have a lot of problems in dealing with FCPA issues in the Far East and Middle East. Why should any company worry about establishing an ethics programs in regard to how they run their business? I have read several articles as a part of this course and have settled on some of the most logical reasons as to why all corporations need to have a functioning and utilitarian ethics program. For the self interest of the company, the shareholders investment, and as a mitigating factor when subjected to governmental oversight and audits- all are important criterion. All are valid reasons as to why corporations must ensure proper ethical behavior and a well maintained ethics program. “The very exercise of developing a code is in itself worthwhile; it forces a large number of people…to think through in a fresh way their mission and the important obligations they as a group and as individuals have with respect to society as a whole.” (DeGeorge, Richard T. Military Ethics: A Code of Ethics for Officers. Washington: National Defense University Press, 1987.) Furthermore, an ethics program needs to exist in order to: define acceptable behaviors; to promote high standards of practice; to provide a benchmark for members to use for self evaluation; to establish a framework for professional behavior and responsibilities; and as a vehicle for occupational identity;” As mentioned briefly above, the usage of an ethics program may also alleviate and mitigate actions of the corporation. Many have attributed the popularity of codes of ethics to U.S. Federal Sentencing Guidelines that reward companies for having compliance policies, including codes of ethics, in place. “There has been a dramatic increase in the ethical expectations of businesses and professions over the past ten years. Increasingly, customers, clients and employees are deliberately seeking out those who define the basic ground rules of their operations on a day to day….” [International Ethical Business Registry.] A professional society is a voluntary, cooperative organization, and those who must conform to its rules are also those who benefit from the conformity of others. Each has a stake in maintaining general compliance.” [Stuart Altmann, Chair, Ethics Committee, Animal Behavior Society] “A profession’s ethical standards must be compatible with our common morality, but they go beyond our common morality. (Vivian Weil) Aside from the overall monetary benefits which accrue to my company by instilling and following an ethics program, allowing our employees to avoid cognitive dissonance may be an important factor as well.

I would like to turn discuss the impact of ethics on an organization. In demonstrating an understanding of forces within an organization that shapes its actions- we find that there are forces within an organization such as my own that shape existing values, ethics and norms. Organizational culture evolves over time as forces influence the way the organization conducts itself. Most researchers agree that an organization’s culture originates as a result of the personality of the founder. Within my company the corporate ethos was formed before and during the Second World War. Thus national security, wellbeing of the country, shareholder investment and the value of “buying American” assumes great importance for my company. The cultural norms of my organization, including ethical issues, are established based on the beliefs, values and business practices of the original management. Through personal direction, the founders infused the entire organization with their values. After the values of the original management, one of the biggest forces impacting the ethics of trade compliance is profit motive. Organizations are driven to make sales to increase their revenue and profit picture. This focus on profit often over shadows other concerns. The competitive environment in which the organization exists also impacts the business practices that an organization employs. Closely related to the profit motive is greed. Personal greed or gain is a major factor that must be considered. In my case, this is not as big of a problem as with some other professions. Again we turn to the ethical founders of the company- who put national wealth over personal wealth. We are devout capitalists, but I think the corporate ethical viewpoint over the decades has maintained a “team” approach and that we do this not for the money, but the enjoyment of the work. This is one of the strengths of the ethical compliance system which we have developed. When personal gain or competition between workers is foremost in determining actions, it can overshadow ethical considerations. Ethical dilemmas often exist because of the “pull” between doing what will bring the greatest personal gain and what is ethically “correct”. Dual ethical standards exist in organizations for several reasons. Dual standards are not right or legal, but they often exist. An example of dual standards is when the must successful salesman is allowed to act in a manner that a new employee will not be permitted to accomplish. Sometimes “dual standards” are the result of a lack of rules and policies, lack of training, or dual reporting. It is not uncommon for two departments to express different views on what are acceptable practices. What is acceptable ethical behavior in one department may be against the ethical rules in a different department. The same is true when it comes to complying with export regulations with a frequent customer and circumventing rules as needed for the organization’s largest customers. Organizations often have formal policies and procedures manuals that don’t reflect the way business is actually conducted. This may be due to the fact that manuals are hard to keep current, but in many instances, the policies in the manual simply don’t fit the current way in which business is conducted. Our formal policies include mandatory new employee orientation programs, mandatory computer based annual refresher training in ethics, and mandatory role playing scenarios in group teams. One of my recommendations is to increase these exponentially. However, there is always a gap, and so informal procedures are used to ensure the orderly flow of business. Informal policies and procedures tend to be the reality of the flow of business. Informal practices are generally person-specific–meaning that workers figure out their own ways of getting the job done. Obviously, this is where personal ethics and choice come into play. Another related disjoint situation is having formal written policies and procedures in place and then not following them for various reasons. For example, not having adequate trade administration and compliance guidance in writing, which allows individuals to do as they please solely based on what someone else tells them. Clear written “how to” guidance provides employees a framework to follow. We try to utilize both formal and informal styles within our training regime. It is also important to keep those policies and procedures current and that they accurately reflect what’s actually done in the workplace. Broad guidance from senior management followed by more detailed instructions at lower organizational levels has proven to be one way of building comprehensive compliance and ethics programs. Our internal control plans reflect this reality.

Without question, senior management’s involvement and leadership are important factors in determining the ethics of an organization. As mentioned earlier, the organization’s founder impacts the ethical values of an organization. In much the same way, all managers influence the ethical climate of the areas they manage. Senior managers, specifically, are not only role models and shapers of the organization’s values, but they have a responsibility to be active managers of all of those beneath them with respect to ethical performance. A manager can influence ethical behavior positively and negatively. This is because a manager has various types of power over a worker. Power defined: “A capacity that A has to influence the behavior of B so that B acts in accordance with A’s wishes” (Robbins, p.396) There are several primary types of power which we discussed during this course: Expert Power is where workers assume their manager is an expert on the processes and workings of the department. Legitimate Power is when the manager demands workers to follow his or her dictates because he or she is the assigned boss–the formal person in charge. Reward Power is also known as “carrot power.” The rewards can be anything valued by the employee, not just monetary rewards. Preferred work schedules, duty assignments, time off, special pay or a myriad of other rewards can be used by a manager to insure workers do as he or she desires. We offer various hourly schedules as part of reward power. Coercive Power Negative sanctions are always an option for a manager seeking to obtain the behavior wanted from a worker. Workers fear being fired or otherwise negatively impacted for poor performance or output. Therefore, workers do as they are told. We try not to use this type of ethical construct- it is better to work collaboratively and it only leads to whistle blowing and other problems if a manager relies on coercive power. Referent Power in our company is one of the strongest sources of power a manager can possess. Workers look to and respect the manager and will do anything for the manager. This is common in my company and leads to internal ethical formulas which help to ensure compliance. This respect can sometimes cause workers to not follow policy because of who they are dealing with. Peer Pressure impacts some workers more than others. One of the ways it manifests itself is as part of our organizational culture. Our organizational culture denotes the normal behaviors within our organization. Supplier Power occurs when a supplier happens to be your sole source of supply, and their business practices can impact your compliance effort. Since your supplier has power over how their product is handled, you may lose your ability to insure trade compliance. Buyer Power is when you have a customer who represents enough of your sales that loosing that customer would create a severe hardship on your organization, then that customer has the power to dictate to you the terms of sales. This can include shipping and compliance issues. This is the reverse of supplier power, except that in both cases the power does not reside with you. Competition- The necessity to react to competitive pressure has a huge impact on trade compliance practices. The fear may be real or imagined. If, however, competitors are willing to circumvent the rules for the sake of getting the sale, then the fear is real. This still does not mean that you should lower your compliance standards because of the threat that these competitors represent. With the tightening compliance environment, competitors who circumvent the law will be held accountable. Audits- Having an unannounced government audit of your compliance effort is perhaps the worst-case scenario to some organizations. This is one of my recommendations to enhancing our ethical compliance regime: to direct that more audits take place from both internal and external audit programs. By implementing more audits of greater duration we should see maximum results.

Challenging Ethical Situations may lead to various pressures which may become too strong to successfully ward away. One of these is the pressure to Make the Sale. The pressure to make the sale can seriously impact the compliance integrity of an organization. Senior management may be pressing for a particular sale because of its importance to the ongoing financial health or survival of the organization. Beyond the organization-specific implications, it can also harm the national security of the country. There are often different ethical standards of performance that exist when dealing with other organizations. Other organizations in the supply chain may have very different organizational cultures and methods based on their history, or perhaps differences based on the country in which they reside. That is because compliance policy is generally set to meet stringent, inflexible government regulations. Regardless of different ethical compliance standards in your supply chain and outside of your organization, you must comply with the policies set down by your organization. Greed and Personal Gain/Loss Personal needs can greatly impact our ethical choices and performance. As was stated earlier, the reasons for people’s actions need to be considered. Pressure to perform to meet organizational output criteria or performance measures can also cause non-compliance to occur. An individual may believe his or her job is on the line if the shipment does not go out.

I would like to now discuss new ethical standards in order to demonstrate knowledge and appreciation for the challenges of dealing with Resistance to Change. We need to analyze and assess the relationship and function of the various existing formal and informal policies that supports the organization’s current ethical actions and to understand why ethical practices should remain constant over time. By knowing the obstacles that may inhibit the development and implementation of an ethical approach to trade compliance, a person will be much more likely to be able to carry out their part in making a better and more effective compliance program. Obstacles to trade compliance factors impacting establishment and implementation of new ethical standards can come about through a personal attitude which becomes of central importance and can reduce resistance to change in the organization. Uncertainty of expectations in a new compliance environment can also affect our companies, this can be through a perceived lack of support by management and peers and a tendency for self-blinding which is ignoring red flag indicators and other warning signs. This may be due to fear of confrontation with your boss or an attitude that you are not in a position to adequately judge whether a process can work correctly. A mention of the Program De Jure is required. This is when there is a lack of long-term commitment by the organization, management or co-workers to long term solutions. This results in mixed messages regarding compliance across the organization and willful versus unwitting actions bumping up against each other.

During our course we learned about individual motivation and how it may affect regulatory and ethical compliance within the work force. We need to quickly discuss these issues of motivation: laziness, failure to appreciate hard work by management, an unskilled labor force, vindictive behavior, wanting to please, and making an error on the side of caution. As a businessperson, we have the ultimate responsibility for our own actions. If you are a supervisor or manager, you need to provide the means that allow your people to act ethically. This is how an organization supports the ethical actions of its employees. We also need to analyze the spirit and intent of the law, as well as the role of negligence and dishonesty in the corporation. Knowing what is ethical, in our own mind, is essential. However, far more difficult than knowing what is right is often times doing what is right. The first step in doing what’s right is checking to verify if the action or activity is right before moving ahead or implementing a decision. It is important
based on what we have learned for all employees to take ethical tests for their actions. It isn’t simply the corporation. It isn’t just the business owner. It isn’t only my manager. It is every employee. Ultimately, each of us is responsible for our own actions, including acting in an ethical fashion. The first crucial aspect of business ethics is respect. It is an attitude that must be applied to people, organizational resources and our environment. Respect includes behavior such as: treating everyone with dignity and courtesy. Using company supplies, equipment, time, and money appropriately, efficiently, and for business use only. Protecting and improving my work environment, and abiding by laws, rules and regulations that exist to protect our world and our way of life. The second major aspect is responsibility. We have a responsibility to our customers, our co-workers. Included are behaviors such as: providing timely, high-quality goods and services. Meeting all performance expectations and adding value. The final major point is results. Essential in attaining results is an understanding that the way results are attained – the “means” – are every bit as important if not more important than the ultimate goals – the “ends. Assigning blame is a destructive action that causes defensiveness and shapes an environment in which co-workers become afraid to apply innovation, creativity and risk taking. One simply but effective method for taming blame in a group is to identify a code word. This word can then be used by everyone to tactfully point out when someone has slipped into blaming mode and needs to switch to problem solving. Taking action to solve the basic issue will show you are more interested in determining the root of problems, not simply blaming people. Lying is often the gut-level defensive reaction to perceived danger. When you feel the desire to hide the truth, take time to jot down what you will get out of a trusting relationship versus the short-term gain you might get out of evading the truth. Lying begins a dangerous cycle that breaks down trust and encourages additional lying. The long-term impact on you and the business is never worth the short-term possible benefit. If you agree to confidentiality, honor
your agreement.

Progressing beyond the motivation of personal gain, there are other motivating factors to be considered when examining ethical situations within the realm of international trade. Laziness means simply that no one will ever know that less than full effort was taken. Lack of appreciation or lack of acknowledgment of the additional effort it may take is yet another factor. If no one cares or seems to notice the compliance effort the motivation to perform is seriously undermined. This often happens when management takes for granted the due diligence and extra efforts required of clerical personnel to maintain full compliance. Closely related to the previous factor, is an organization’s failure to appreciate compliance personnel by keeping the compliance function as a lower level activity–meaning clerical. Following the attacks of 9/11, it is now a highly responsible and demanding task to keep the organization in compliance.

The job level needs to change to afford a higher level of prestige to those who hold the position to reflect this higher responsibility. The motivational issues related to this change in status are huge. At the professional level, not only are the skills present, but also the experience and ability to manage compliance can be requisite to hiring. Vindictive behavior may also be a motivation. In this case, lack of adherence to organizational compliance policy may be the result of revenge of an employee for some supposed previous action by a co-worker or superior. A worker that has a grudge against the company, a co-worker, or a manger may be motivated to disregard policy. I have tried to formulate affirmative policies to lessen this kind of vulnerability within my company. The behavior of wanting to please can cause an employee to avoid the full compliance procedure in order to please or satisfy another employee. This may even result in the compliance effort being ignored completely. This could be demonstrated in an employee saying “I’ll make sure it goes out this afternoon and then do the paperwork later.” To err on the side of caution is also a behavior tied to motivation. It requires more effort to question if something is done thoroughly. If an employee errs on the side of caution, it may be due to lack of training or support or from past negative sanctions against employees who made a mistake. Obviously being too cautious can harm the company by causing lost sales, bottlenecks and confusion. It is not enough that regulations are followed as written. Not understanding the full meaning of regulations can result in a violation or fine. The concept of a “best effort” to comply involves ethical choices. I tend to disagree with this seminar lesson as we tend to err on the side of caution to protect our rights to export.

Circumventing or ignoring the regulations for personal gain, to prevent personal loss, or for a personal agenda reflects general dishonesty as a motivating factor. There are two aspects to consider: 1) Commission and 2) Omission. Commission refers to the choice to be dishonest and actions that follow that intent. In other words, someone intentionally ignores the compliance rules and regulations, putting their own needs ahead of proper actions. There is no amount of training that will prevent this from happening. The person knows what to do, but has chosen not to comply. Omission is a lack of effort or action–for any reason, including not knowing for sure the action to be taken–results in a dishonest result that could have been avoided with reasonable effort. In export compliance related issues, with respect specifically to violations, the licensing authorities view this in two ways. The term “due diligence” is used to describe the reasonable and adequate conscientious effort that should be put forth to be sure and confident that you comply with all aspects of the trade transaction, including applicable legal requirements. The exact definition of reasonable is open to interpretation. It is a gray area on the gradient scale of ethics. The key is to be sure efforts to comply are documented–what you did in your due diligence effort. Whether your effort would be considered reasonable and adequate as compared to other similar efforts or events becomes the litmus test. This ties in closely with ethical and organizational values. If a person’s values are to always do their best, in effect, that person will strive to do their due diligence to a high degree of confidence. Negligence is a term used to describe a complete lack of attention or careless disregard for complying with the regulatory requirements. This implies a lack of adherence to the organization’s code of ethics. Being negligent in handling export-licensing requests is a very serious offense because it is deemed purposeful, meaning it is done or not done purposely by the individual who should know better.

Existing practices are derived from historically entrenched practices. If there is an employee who has been managing the trade compliance practices for many years, he or she may reluctant to add steps in the procedure that will insure a higher degree of certainty of trade compliance. This demonstrates the motivating factor of historically entrenched practices. Pressures impacting business decisions can take many forms. This attitude toward compliance is very dangerous. It may circumvent the best compliance program. Every transaction has its own set of pressures that influence the decisions made. Yet caution must be exercised to make sure that compliance is achieved. National security interests: Many people don’t realize that one individual can seriously impact the national security of a country. Failure to establish and maintain high ethical or compliance standards by one employee puts the whole organization at risk. This often is the case when an item is “dual-use,” meaning it can be used for commercial or military application. A worker’s ethical lapse might result in his or her willingness to bend a rule or policy to ship something believed to not be a critical or threatening issue, but may end up a serious infraction. National security is an extremely important consideration that cannot be understated and can have a tremendous impact on the outcome of an ethical or compliance problem. The US Government takes such impact most seriously as the future of our country and the lives of military members may be at stake.

We need to now quickly discuss ethical situations in compliance in order to critically evaluate the forces in the business environment which cause ethical dilemma. This will identify the possible participants that may cause an ethical issue to exist. What at first glance appears to be a simple task–establishing an ethical stance for your compliance effort–becomes more complicated as issues related to implementation are considered. It becomes obvious that some of the organization will resist your ethical position, if for no other reason than it is different from what they are used to. Changing the status quo by itself is disruptive and some individuals will resist change no matter how good it is for the organization. Full Organization Involvement To ensure that your compliance efforts meet the organization’s ethical standards, the scope of the effort must be considered first. Will the program involve everyone in your organization? Should it be limited to just those individuals who are directly involved in compliance and those who impact compliance? Everyone in the organization can impact ethical compliance. How should it be addressed to bring about a culture that supports compliance? The answers to the questions raised may be different for different organizations as they try to develop an ethical stance that will work in their unique situation. What is critical, however, is all of the issues should be explored–across the entire organization–and a comprehensive plan be developed that considers the issues your organization has found to be critical to your success. Training is a key element in any compliance program and particularly in the area of ethics. In the area of trade compliance initial and ongoing training are essential. The demanding and dynamic international trade environment requires organizations and individuals to have a baseline knowledge and then stay up-to-speed on what’s going on. There needs to be some periodic personal interaction and hands-on learning. Generally a combination of computer based and face-to-face training have proven to provide significant benefits. Simply stating compliance measures and policies is not enough. In order for the organization to feel confident the compliance effort meets the ethical standards it has established, there must be a monitoring and control process to validate the program’s results. There are numerous ways monitoring and control mechanisms can help insure the success of the program. One of the simplest monitoring mechanisms is keeping records of completed ethics role-playing workshops or test scores for ethics quizzes that are administered periodically.

My overall recommendation is to increase this monitoring and control process as well as beef up the recordkeeping sections of ethical compliance. This means that more resources must be devoted to the establishment of internal control programs throughout all aspects of the business unit. Well-documented thorough training is a key element in any comprehensive trade compliance program. I would like to make more use of the best methods for insuring ethical export compliance which is the use of role-playing workshops in a regular, periodic fashion throughout the organization to refresh principles and practices and to discuss new ideas and concerns. These could be both of an export control and overall ethical parameter. Until a worker applies the ethical policies in real world situations that relate to their role in the organization, their confidence level in how they would handle similar situations in the organization’s workplace is going to be a priori on the low end of the scale. Upon completion of hands-on role-playing training sessions, an organization can feel that it has done its due diligence. Another related beneficial tool is case studies based on actual situations. Much like role-playing, case studies are intended to take advantage of lessons learned from past actual events and apply them to future circumstances. The idea is to think through, discuss and consider courses of action in a benign situation to make it easier to deal with when you actually face a similar challenge. Role-plays and case studies allow you to consider the possibilities and options in an unemotional less-threatening academic environment and not in the midst of a potentially stressful and demanding real-world situation. Whatever your organization does, ensure complete records are kept.

Another method of controlling the compliance effort is to involve workers periodically in “round table” events in which they are empowered to make changes in routines that insure compliance. Whenever workers have had input into a process, they are more likely to adhere to the policies that they help set. By involving workers, the ethical standards established are much more likely to fit the problem sets they experience in the trenches of their daily work. What is the best way for my company to reward ethical compliance is the final major discussion for this seminar paper. This is a huge question that can cause quite a debate within an organization. Not only does it ask the question of should there be a reward for compliance, but, if so, what type of reward. This topic is much bigger than can be discussed fully here. However, regardless of whether there is a separately defined reward for compliance or not, ethical compliance should be part of an overall regimen of performance evaluation. The more visible ethical compliance is in a person’s performance evaluation, the more emphasis it demands from the individual. If compliance can bring about reward, then the opposite should also exist–negative sanctions.

Monitoring and control of ethical compliance means to begin to know the importance of all employee’s actions to support the compliance effort within the company. This allows all to begin comprehending the importance of each individual’s actions to keep the country safe from terrorism. There are many different aspects I have learned from this seminar so far. Probably the most important and salient one is the all encompassing “how to structure and ethical approach conducive to export compliance”. That seems to sum up what I want to create and continue for my corporation. Now that we know the building blocks of what makes up the difference between ethics and morality, how we harness the power of our innovation is going to be critical in creating a well functioning and effective ethical compliance regime. That is the task I have set for myself- and the tools this course has provided should stand me in good stead in obtaining these objectives.

A few that stood out for me:

• Excellence Engineering Electronics – Restricted Technology to China
• ITT Corporation – $100 Million Penalty for Illegal Exports of Military Night Vision Technology to China, Singapore, U.K.
• United Calibration Corporation in California – Technology with Nuclear Applications to Iran
• Infocom Corporation – Terrorist Transactions, Computer Exports to Libya and Syria

Read through the list carefully – some of these guys knew what they were doing was wrong, but I bet more than one was just conducting day to day business.

• Require mandatory AES filing of Shipper’s Export Declarations (“SEDs”);

• Establish a system in which the Census Bureau would grant licenses to individuals (i.e., U.S. citizens and U.S. permanent residents) and corporations to file information via AES-such a licensing system may include a review of the applicant’s fitness and character, written examination, and participation in a periodic continuing education program;

• Implement a process in which AES licenses would be denied, suspended or revoked if the Census Bureau has reason to believe that an applicant or licensee has violated or will violate U.S. export laws and regulations;

• Require AES to perform export screening, and issue Fatal Error notices to filers if “hits” are identified on the various restricted parties lists and there is no related export authorization;

• Ensure that AES would issue automatic notifications of potential export license requirements under the Export Administration Regulations (EAR) or International Traffic in Arms Regulations (ITAR) for codes (i.e., HTSUS or other codes) that are entered by the filer;

• Require AES to issue “compliance alerts” to filers when: (1) the HTSUS code is inconsistent with the Export Control Classification Number (ECCN) or U.S. Munitions List category; (2) the use of a license exception under the EAR is not applicable to the country of ultimate destination, intermediate consignee, or ultimate consignee; or, (3) the filer has not specified a license number or license exemption for a commodity that is covered by a U.S. Munitions List category; and,

• Exempt AES filings from public disclosure; however, the Census Bureau may share confidential AES data with: (1) other U.S. federal government agencies; and, (2) certain foreign governments on a case-by-case basis in order to enforce U.S. export laws, combat terrorism, and combat the proliferation of weapons of mass destruction.

It is interesting to note that the data elements that the bill requires AES to capture (i.e., identification of parties to the transaction, commodity classification, license authorization, certification by filer) are currently mandated by AES, in addition to the value and quantity of the commodities, commodity weights, and identification of whether the goods are of foreign or domestic origin. In addition, the bill’s requirement that AES issue compliance alerts to filers when the entered HTSUS code is inconsistent with ECCNs or USML categories is curious, given the fact that there is no correlation between the HTSUS, the Commerce Control List, and the U.S. Munitions List.

Another point of interest is the fact that the bill’s provision relating to the potential sharing of confidential AES data with certain foreign governments appears to be the same disputed issue that has delayed the Census Bureau’s issuance of its final rule on mandatory AES filing. See “Foreign Trade Regulations: Mandatory Automated Export System Filing for All Shipments Requiring Shipper’s Export Declaration Information,” 70 Federal Register 2005 (February 17, 2005). As the Federal Register notice’s title suggests, the pending Foreign Trade Regulations mandate AES filing of SEDs. Further, in its Federal Register notice dated October 22, 2003, the Census Bureau stated that it had previously considered the establishment of an “AES Filer Licensing and Permit Program”; however, the agency opted not to move forward with the plan for the time being. See 68 Federal Register 60301 (October 22, 2003).

Finally, as noted above, the bill requires AES to perform basic export screening of transactions, and to reject filings that appear to involve an individual or entity designated on the various restricted parties lists. Accordingly, any future regulations to implement this provision would hopefully address such issues as Option 4 AES filings (in which AES filings are transmitted post-shipment for approved exporters), as well as the expedited handling and resolution of “false hits” against the restricted parties lists.
H.R. 5828 was referred to the House Committee on Foreign Affairs on April 17, 2008.

Contributed by:
Melissa A. Miller Proctor, Attorney
Sandler, Travis & Rosenberg and Glad & Ferguson, P.C.
www.strtrade.com

With respect to the penalties that may be imposed by the Commerce Department’s Bureau of Industry and Security (BIS) for violations of the Export Administration Regulations (EAR), it is important to recognize that the underlying statutory authority of the EAR (the Export Administration Act) expired in 2001. Since that time, various Executive Orders issued under the International Emergency Economic Powers Act (IEEPA) have kept the EAR in force. Therefore, the current civil and criminal penalties imposed for violations of the EAR are those provided in IEEPA.

In the past few years, the IEEPA penalty regime has undergone a significant evolution. Prior to March 2006, civil and criminal fines for violations of the Export Administration Regulations (EAR) were set at a maximum of $11,000 per violation and/or up to 10 years’ imprisonment. On March 9, 2006, the President signed the USA Patriot Act Improvement and Reauthorization Act of 2005 into law, which increased civil and criminal penalties to $50,000 per violation and up to 20 years’ imprisonment. Most recently, on October 16, 2007, President Bush signed the IEEPA Enhancement Act (P.L. 110-96), which amended Section 206 of the IEEPA by dramatically increasing the civil and criminal penalties. The new penalties apply to violations under the EAR, including the Antiboycott Regulations. They are also applied to most of the economic sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control. Under the IEEPA Enhancement Act –

• Civil fines were increased to $250,000 per violation or twice the amount of the underlying transaction; and,
• Criminal penalties were increased to a maximum of $1,000,000 per violation and/or 20 years’ imprisonment.

The increased civil penalties under the IEEPA Enhancement Act have retroactive effect. The new civil penalties apply to violations where an enforcement action is pending or commenced on or after the date of enactment—even though the underlying violation may have occurred prior to that time. The new criminal penalties apply only in enforcement actions commenced after the date of enactment

Other government agencies are following suit. In February 2005, the Census Bureau published in the Federal Register its Notice of Proposed Rulemaking (NPRM), which put forth a number of significant changes to the FTSR, including the renaming of the regulations as the “Foreign Trade Regulations.” Most importantly, the NPRM proposes to significantly increase the penalty provisions associated with the filing of Shipper’s Export Declarations (SEDs). The NPRM’s penalty provisions would increase civil penalties for violations of the Foreign Trade Regulations from $1,000 to a maximum of $10,000 per violation, as well as increase criminal penalties to a maximum $10,000 and/or five years imprisonment per violation. The NPRM has been the subject of serious discussions between the Census Bureau and U.S. Customs and Border Protection since it was issued in 2005; however, it is anticipated that the NPRM will be finalized and will become effective within the next few months.

The Penalties that may be assessed by the State Department’s Directorate of Defense Trade Controls (DDTC) remain unchanged, yet equally severe. For example, penalties for violations of the ITAR include:

• Criminal fines of a maximum of $1,000,000 per violation;
• Imprisonment of up to ten years; and,
• Civil penalties of up to $500,000 per violation.

Notwithstanding the foregoing, export violations may also be subject to increased or additional sanctions imposed under other federal statutes, and additional non-monetary sanctions may assessed as well, such as the denial or suspension of export privileges.

In view of the potentially severe consequences of export noncompliance, it behooves U.S. companies to closely examine their current export compliance policies and procedures. The existence of an effective internal compliance program will not only aid companies in preventing export violations, but will also enable them to identify potential problems and take the necessary remedial action. In addition, internal compliance programs may also serve as a partial shield when violations do occur. That is, properly implemented export compliance programs (or, export management systems as they have also been termed) may be considered a mitigating factor in export enforcement actions by the U.S. government. In fact, the BIS has recently announced that export management systems that incorporate certain key elements may be afforded “great weight mitigation”—up to a 25% reduction of penalties in some cases.

When designing an export compliance program, or even when assessing the effectiveness of an existing one, companies should carefully review their products and the scope of their activities in order to create a tailor-made system that will accommodate their current needs, as well as their future growth. Companies may also wish to enlist the assistance of outside compliance experts in designing and implementing an effective program. Of course, the key elements of any export management system should generally include: performing an in-depth risk analysis of the company’s export activities; providing adequate export compliance training for compliance personnel; implementing a thorough and consistent screening procedure; properly maintaining export records; performing periodic internal audits; obtaining the support of senior management; properly identifying and handling “red flags” in proposed transactions; establishing mechanisms for identifying, reporting and correcting potential violations; and, documenting the export compliance policies and procedures in writing.

As the demand for U.S. products rise and the U.S. government’s export enforcement tools continue to grow even more severe, the savvy company wishing to take full advantage of the current business climate should carefully examine its own compliance posture—assessing and reassessing the effectiveness of its policies and procedures, and gauging its ability to prevent, respond and react to potential export violations. The stakes have never been higher.

Contributed By:
Melissa A. Miller Proctor
Sandler, Travis and Rosenberg and Glad & Ferguson, P.C.

Legends and Markings

If you have been in the business of exporting for any length of time, no doubt you have noticed that folks don’t pay much attention to marking their documents. Now I have seen a marked increase in the Company Proprietary legend, but the words Export Controlled seem to evade the Header and Footer comment box. While noting that the information contained in the export legally belongs to the company you work for, not correctly marking it with the proper export legend can invite unwanted trouble to your front door.

One instance I was involved in over my tenure as an Empowered Official caused me weeks of anguish. Despite my efforts, the company I was working for at the time was not all that good at paying attention to proper legend etiquette. Well, a drawing of a product listed on the United States Munitions List was sent to a vendor incorporated in the U.S. Unfortunately, no one asked if that vendor had a manufacturing facility abroad. You guessed it, they did! So the innocent forwarding of an ITAR-controlled drawing sent between two U.S.-incorporated companies ended up on a fax machine overseas.

During a casual conversation with the U.S. facility, they happened to mention the faxing incident and my red flag indicator went straight up. I asked the obvious question, “Do you have an export authorization to send our drawing to your foreign manufacturer?” You guess it again, the answer was, “Huh?” Yes, I spent the next several weeks on the phone with their corporate lawyers and my corporate lawyers gently coaxing them into a “voluntary” disclosure.

You may have asked yourself how does this relate to putting the proper restrictive legend on a document. Well, the other company tried to draw mine into the disclosure based on the fact that the drawing was not properly marked as ITAR-controlled. We responded by confirming this fact and that we would be stepping up our compliance in this area, but as a registered defense contractor in the United States, they had to abide by all the same laws and regulations under the Arms Export Control Act as we did. While marking a fax, email or document may not be the law, it is smart business practice.

No, we did not commit an export violation, but how much angst, time and money do you think would have been saved by simply adding the words ITAR-CONTROLLED?

I have also had the experience of seeing documentation marked incorrectly with an ITAR restriction and the information therein was controlled by the EAR. The comment heard around the world is, better safe than sorry. Not necessarily so, I say! If you claim that the data is controlled by the Department of State and then turn around and export the article it relates to under the jurisdiction of the EAR with a corresponding Export Commodity Classification Number (ECCN), this is obviously contradictory.

Should you have a case (purely hypothetical) whereby you are involved in a Voluntary Disclosure with the State Department and among your mitigating factors includes the fact that you classified the data as commercial and your drawing contains a restriction on the part of the ITAR (again, to be safe), this tends to make you look a little less bright than you should be.

If what you are exporting is under the jurisdiction of the ITAR or the EAR, the moral of the story is proper due diligence and proper legends.

Sue K. MacDonald-Nans
SRCTec, Inc.

The debate on the pro’s and con’s of voluntary disclosures has been argued for years. During my tenure in Corporate America, for every outside firm I consulted on whether or not to make a voluntary disclosure, the split was nearly unanimous—for every firm that said yes, there was a firm that would argue the opposite. In fact, I could have spent my entire career doing just voluntary disclosures! The issue for practitioners, was always whether the situation warranted a disclosure or not. If we look at the “letter of the law”, we could make the following analogy—how many times have you seen someone on the road speeding next to you during rush hour? Daily! The speed limit is statutory—so we obviously have a clear violation of the law. But, say that “speeder” is you, are you going to disclose this voluntarily, by driving to the nearest police station and declaring, “Sir/Madam, on marker 251, I was speeding 15 mph over the limit, and I am here to pay the violation”? I don’t think so! (My apologies to anyone out there who may in fact do this).

Thus, the issue, is always both a joint business and legal decision, that must be weighed, using numerous factors, such as the seriousness of the violation, the time of the violation, the degree of risk involved in disclosing or not disclosing, and the law(s) that may have been violated. (See 15 CFR, Suppl. No.1, Part 766 for general factors BIS takes into consideration). The BIS, U.S. Customs and the EAR clearly state that a voluntary self-disclosure is a mitigating factor in determining what administrative sanctions, if any, will be sought. Yet, both BIS and U.S. Customs (CBP, herein), have clearly made the point that when a company self-discloses, it is within the government’s discretion as to the weight they will give such disclosures! Thus, it is often difficult to discern on whether or not the government will use an “objective” or “subjective” perspective in the amount of mitigating factors they will place on your disclosure. Are you willing to take that risk? Again, it’s both a business and legal decision which could often lead practitioners to sleepless nights. Keep in mind, it will NOT prevent transactions from being referred to the Department of Justice—in which case, you will now have both a civil and criminal investigation!

Obviously, there are some very clear black & white cases, which must be disclosed—these are the easy ones, at least when it comes to making the decision to disclose. An example would be exporting a controlled item, say for Anti-Terrorism purposes, to a country that clearly requires an export license. The failure to disclose, and if discovered, are just too great to ignore. But, exporting an item, and showing “No License Required” (NLR) on the Shipper’s Export Declaration (SED), when in fact a license exception, say “CIV” (for civilian end-use), was available is a different story—do you want the attention of BIS for something that is not so serious? Again, think of the speeding over the limit. Or, say, you discover that instead of declaring $500 for the value on an import shipment, the value shown was $499? The Customs regulations are quite clear on valuation, but what is the chance that CBP will discover this “under-valuation”? Probably slim-to-none! The same scenario can be played out with import quantities declared on an import entry—again, the practitioner needs to weigh the risks involved on whether or not to disclose to authorities.

Commentators have stated, that it is nearly impossible to reduce to zero the frequency of violations, both under the EAR and Customs regulations, especially for those companies that engage in very large numbers of import and export transactions subject to complex regulatory requirements. Rather, by having comprehensive import/export compliance programs and measures in place, and using good faith efforts to comply with the law, when a self-disclosure is required, “great weight” should be given to the violator. The issue remains, should a company the size of General Electric be given more leniency when it comes to a violation and administrative sanctions, over that of a “ma and pa” operation, whereby GE may have thousands of import/export transactions, resulting in 1 or 2 violation, but the “ma/pa” operator has only a handful? CBP and BIS have made it clear that it would be inappropriate to adopt such favorism, but rather, at the government’s discretion, CBP or BIS may use the self-disclosure and other factors as mitigating potential penalties and possibly place “great weight” (again, at their discretion) on both the disclosure and a company’s compliance programs.

In conclusion, every trade compliance officer and legal practitioner within a company faced with such situations must perform a “risk assessment” on the degree of the violation, the decision whether or not to disclose, and the corrective actions that should be put in place to avoid repeat violations—whether or not you file a voluntary self-disclosure. I must state that I am not condoning not disclosing violations, but rather, those faced with such a situation, weigh the pro’s and con’s of self-disclosures.

Contributed by http://www.globaltradelaw.net

In the world of export compliance, corporate practitioners are constantly faced with issues from deemed exports to foreign nationals, to export licenses for high technology items. But, bananas? You don’t need to be an expert to realize that under 15 CFR, you’re not going to find an ECCN classifying bananas (other than EAR99). So, who would ever think that growing and selling bananas could lead to a multi-million dollar penalty for violating the Export Administration Regulations and OFAC (Treasury Regulations)?

Well, that’s exactly what happened this past couple weeks, when the Department of Justice issued a $25 MUSD—yes, that’s a 25 million dollar penalty! – against Chiquita Brands International, for violating the above regulations. The case began back in 1997, when Chiquita began paying the United Self Defense Forces of Columbia (“AUC”) and Revolutionary Armed Forces of Columbia (“FARC”) payments for “protection” against attacks on its employees and fields where the bananas were grown. Although Chiquita may have had good reason to do so (motivated by their good faith for the safety of their employees), the payments continued for approximately another 7 years, totaling some $1.7MUSD in payments.

Both organizations that received these payments were listed on both U.S. and E.U. regulations as being terrorist organizations. The EAR and OFAC impose restrictions on exports (including financial assistance) to entities and individuals listed a s “Specially Designated Global Terrorists” (SDGTs), “Specially Designated Terrorists” (SDTs), or Foreign Terrorist Organizations (FTOs), under 15 CFT Part 744. Without a license, there are no exception that overcome these prohibitions. In addition to 15 CFR restrictions, there are additional regulations under both 31 CFR Parts 594 thru 597 that govern terrorist sanctions. Restrictions under 31 CFR 595 specifically prohibits “funding to or for the benefit of an SDT”.

To make this area of compliance even more confusing is the fact that an SDT or similar terrorist organization may request the assistance of a U.S. law firm for legal counsel, which court decisions have agreed, that OFAC may not require licenses for provision of legal services, but, may require a license for the law firm, before the law firm may accept payment for its services (31 CFR 595, 746 F.2d 865 (D.C.Cir.1984)).

In the case of Chiquita, one must be sympathetic with the reasons for making such payments—protection of its employees in an area within Colombia that has a strong presence of such terrorist organizations. Again, the decision ultimately is a business decision, on whether or not to continue operating a business or unit that may require violating the law (in this case, Chiquita has since sold that business unit). But, the case does raise another issue, which has been hotly debated for years—Chiquita voluntarily approached the Justice Department in 2003, which eventually led to a nearly 4 year civil and criminal investigation not only against the company, but also against some of its officers and directors within the scope of the investigation.

4 years is a long time for any compliance attorney or officer to undergo such an investigation, not to mention the internal costs to a company, attorney fees (which one can assume were in the millions), and eventually, a $25MUSD penalty—all of this after a voluntary disclosure and plea agreement. Oh yes, let’s not forget front page news coverage of “guilty for sponsoring terrorists”—I think Chiquita’s public relations department have their hands full today! So, where does that leave us as to the pro’s and con’s of voluntary disclosures? Well, you will have to just wait till next month’s newsletter, where this topic will be discussed. But, as of today (3/22/2007), the Chicago Tribune, printed an article on how, now, the Colombian Attorney General, Mr. Mario Iguaran, is not only asking for the information provided to the DOJ, but, Colombia is possibly looking at prosecuting, on a criminal level, the officials/directors in Chiquita, on this subject. Needless to say, extradition treaties exist between the USA and Colombia. In the interim, I’ll take hot fudge with my banana split!

By: Christos Linardakis, attorney
http://www.globaltradelaw.net

What I know about commodity jurisdictions

• If you have to ask, your export will probably be considered a military export.
• PMDTC officers tend to err on the side of caution and apply rule 1 liberally.
• The process is not a quick one.
• It is extremely difficult to make changes to a commodity jurisdiction ruling.

In my opinion

You should make every effort to determine your item’s classification on your own. This does not mean you should make stuff up and hopefully slip by, but you know your product better than anyone – including the licensing officer reviewing the CJ. If you take this route, be sure your decisions are responsible and that you carefully document the decisions you made and how you justified them.

If you do have to apply for a commodity jurisdiction, include all of the information requested by the PMDTC as well as a clear, concise overview of the product. If you send in 4000 pages of technical information without a summary, your commodity jurisdiction (which will forever affect the course of your export procedure) might not make any sense

From the PMDTC Web Site

The purpose of a commodity jurisdiction (CJ) request is to determine whether an item or service is covered by the U.S. Munitions List (USML) and therefore subject to export controls administered by the U.S. Department of State pursuant to the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR). If after reviewing the USML and other relevant parts of the ITAR, in particular ITAR §120.3 and §120.4, you are unsure of the export jurisdiction of an item or service, you should request a CJ determination.

Here’s a link to the Commodity Jurisdiction Guidelines from the PMDTC (as of the publication date of this article).

A common failure in many controlled export businesses is to forget to inform all of their employees about the regulations they’re subject to. And trust me, if you don’t make a point to tell them they won’t ask until it’s too late!

Consider having each managing member of your company sign an ITAR Acknowledgement form as part of your human resources routine. This will make sure everyone can be held accountable in case of the unforseen.

Feel free to cut and paste from the below for your ITAR Human Resources form:

Name:
Date:
Program:
Program Description:

I hereby acknowledge that I understand the International Traffic in Arms regulations as they relate to the export of technical data for this program.

I have read the Department of State license provisions relevant to this program and agree to abide by them.

I recognize that as a managing member for this project, it is my responsibility to inform those employees under my supervision of their role in the export of data and products for this program and the regulations that they must adhere to.

In the event that there is a question regarding export policy I will refer it to the regulatory compliance office (phone number) or a member of senior management.

Signed

__________