New ITAR Exemption: Dual Nationals and Third-Country Nationals Employed by End-Users

The US Department of State has amended the International Traffic in Arms Regulations (ITAR) to create a new exemption for intra-company transfers that involve dual or third-country nationals.

This is in response to last year’s proposed rule to eliminate the separate licensing requirement for dual national and third-country nationals employed by licensed end-users. The comments in response to that rule cited conflicts with foreign human rights laws and an unnecessary administrative burden. The proposed rule is therefore being implemented with minor modifications.

Per the Federal Register notice, “Prior to making transfers to certain dual national and third-country national employees under this policy, approved end-users must screen employees, make an affirmative decision to allow access, and maintain records of screening procedures to prevent diversion of ITAR-controlled technology for purposes other than those authorized by the applicable export license or other authorization.”

The rule is effective August 15, 2011.

Full text of the Federal Register notice is available here


An export license, issued by the U.S. government, is required to transfer of technology, software, and equipment to non-U.S. persons.  As part of an export license, the government attaches riders and conditions that all parties to the license must satisfy.  An Internal Control Plan (ICP) communicates how the requesting company and other parties to a license intend to comply with the requirements of the export license.  An ICP will be developed for each company for each new or updated export license.

The process of implementing an export license begins after submittal of a Letter of Explanation for an export license to the U.S. Government with supporting documentation.  The approved license must be included in the Internal Control Plan (ICP) along with a description on how the stipulations will be met.

The GR&L office informs the requesting Company that an export license application has been submitted to the U.S. government.  The Company then informs the business community and partners that an export license application has been submitted.

The U.S. government will send the draft riders and condition for licensing to the requesting Company allowing 48 hours to assess the riders and conditions with a response.  All parties affected by the license should review the government’s proposed constraints.

The U.S. government will review the response to the proposed riders and conditions received.  Finalize and send the notification that the license is completed and send the final license language.

Apprise all parties interested in the export license when the completed license is received. When the export license is approved by the U.S. government it will contain specific riders and conditions and how the Company will comply with these limitations.

Ensure the ICP is reviewed, approved and signed by the management. After obtaining all necessary signatures, the ICP is filled with supporting documents for the export license.

The specific content of export license must be understood by each person involved with the export items controlled by the license. Partners will review the details of the ICP to ensure that the content of the license is fully understood.

Partner will confirm they are identified on an export license and are aware of the details within the license and how the ICP that articulates parties to the license will comply with the requirements of the license.

Upon receipt of the notification the partners in a license received the export license and ICP the Company will make a copy of this acknowledgment. Keep the copy for records and send copy to the U.S. government including receipt of the notification of the partners review acknowledgement and supporting documentation

The Company export compliance program has the authority to determine when ICP is complete. When satisfied all obligations are met, then advise the working community and all partners interested in or required to use that the export license the ICP is complete.

Author: Global Compliance Consulting

ITAR Self-Enforcement: How Much Do We Tell the Government?

An important issue facing defense contractors today is exactly how much information should be shared with the Government about internal deficiencies with an import/export compliance program.  Empowered Officials (EOs) and corporate executives are often uneasy about opening doors through which enforcement agencies may pass and ultimately cause irreparable harm to the company, its reputation, and its financial viability.

It is important to understand that a designated EO has a legal duty to ensure compliance with the ITAR and to report violations made known to him/her.  The EO is often in the very uncomfortable position of having to take action that may potentially subject the employer to adverse action.  It therefore becomes a matter of style, art, negotiation, and persuasion for the EO to find a formula for success that is legally compliant and ensures a higher likelihood of getting violations recognized and dismissed without penalty.

No formula for success is more important that ensuring that the company has an ITAR compliance program, minimally consisting of a compliance manual, training, recordkeeping, and properly trained employees responsible for activities under the ITAR.  The EO should make every effort to interact with DDTC on all ITAR matters in order to establish well-defined business relationships and recognition of the company’s “presence” among those companies who make the extra effort to stay cutting edge in ITAR practices.

DDTC fully recognizes that the written letter of the law under the ITAR is often extremely ambiguous and subject to multiple interpretations.  Consistent responses and actions from DDTC licensing officers are virtually impossible given the very nature of individual interpretation.  Guidance is often difficult and usually non-binding.  The level of frustration experienced by the company and the EO are often readily shared by those within DDTC.

The best course of action is to simply ask as many questions as you can.  The DDTC Response Team is available by email and telephone and will readily and openly discuss your concerns and help resolve your problems.  If they are unable to recommend a course of action, the EO may submit a written Request for Advisory Opinion which will result in a written position letter from DDTC, which although still non-binding, more than demonstrates a good faith attempt to decide on a proper course of action should a violation still occur.  When mistakes are made, and they likely will be made, submitting a voluntary disclosure and working closely with DDTC in its final resolution provides the best means of ensuring fair consideration for future possible violations by demonstrating a willingness to remain transparent as to the company’s daily operations.

Upon identifying such activities, it is imperative to timely report these as voluntary disclosures and to work closely with the DDTC staff to ensure their closure without consequences.  These reports require careful narrative in order to be sufficiently persuasive.  Discuss at length each report with the enforcement officer assigned to the particular case to ensure that they have all the information required as well as to quell any concerns they might have about your ability to control the situation.  Doing so will help establish a well-founded corporate reputation as a company that fully understands their duties under the ITAR.

The level, quantity and frequency of voluntary disclosures are not ongoing conditions for a company that takes steps to move in the right direction.  There will always be an initial flurry of activity while a company goes through its growth spurts in becoming a higher level ITAR player.  The expectation and typically the result is that these quickly diminish as the company improves its practices and becomes much more self-aware of its obligations and how best to handle them.

Mark Boileau, ITAR Empowered Official, Avon Protection Systems

Export Control Laws

Globalization, terrorism and threats of proliferation have led to an increase in the enforcement of U.S. export control laws by the federal government.  These laws provide for severe civil and criminal penalties for the unauthorized disclosure of sensitive technology to foreign citizens.  Technology-related clients of all sizes are increasingly finding themselves in violation of such laws due to, among other things, immigration, widespread foreign travel, outsourcing, and even applying for foreign patent protection.  Any transaction between regulated technology and a foreign national may invoke export control laws.  Compliance is the responsibility of the exporter and it is necessary to be aware of the dangers of disclosing sensitive technology in order to avoid inadvertent violation since some of the penalties are criminal in nature and lack of intent is not a defense.

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 ( and Stephen Ball (
Burns & Levinson LLP
125 Summer Street
Boston, MA 02110

ITAR Policy: Camera Phones

A reader recently asked me:

There has been a question of cell phones with cameras in them. Is there a policy or a standard practice we can incorporate? Should we have all guests and employees leave them in their cars or store them in specified places?

Off the top of my head, there are three issues of concern with a question like this:

  1. Employees: The exporter (or whoever is holding the controlled goods) needs to be aware of the rules regarding the export of technical information and relay that to their employees.  Essentially, make them aware that they’re not allowed to snap pictures and send them overseas to sales contacts, technical personnel, etc. without going through your office’s documented compliance procedure.  You can do this by collecting and storing electronic devices, or with a brief employee seminar and possibly a sign-off sheet indicating that they’ve been informed.
  2. Foreign National Visitors: Foreign national visitors should not be allowed the use of cell phones or other photographic or recording equipment while touring a facility.  More importantly, foreign national visitors shouldn’t even be exposed to export restricted items, much less have the opportunity to photograph them.
  3. Other Visitors: If you have sensitive goods that are subject to export controls, a guest check-in procedure should be part of your compliance program.  You can either take this opportunity to confiscate cell phones, or simply make guests aware that photography is prohibited.  Since they’ll need to be escorted by one of your employees, just make sure the employee is aware that the guests aren’t allowed to take pictures.  Remember that even though your guests may be US citizens, it’s best to err on the side of caution by not exposing them to export restricted material.

ITAR Freight Forwarders

When I was a kid, my father used to provide me with a wealth of important “life lessons,” doled out in simple one-liners that I could carry with me as I grew older. One of my favorites was “If you’re going to run with the pack, make sure you’re the leader.” Another that has served me well throughout life was “Always use the right tool for the job.”

The same can be said when it comes to choosing the correct freight forwarder to manage the transport of your ITAR controlled goods. It’s important that you use the right forwarder for the job. As the manufacturer or source of USML goods, you have undoubtedly spent countless hours developing your corporate compliance program; ensuring that every aspect of your operation – from upper management, to sales, to shipping and receiving – is aware of the regulations and well trained.

We all know, however, that your responsibility for those goods does not end there. Once your product leaves your dock, you are still responsible for the transport of those goods to the foreign consignee or end user. For this reason, it’s crucial to your compliance program to ensure that the forwarder you choose is also fully aware of the complex requirements of the ITAR.

Just as your organization undoubtedly interviewed and hired a corporate ECO (Export Compliance Officer), an interview process of sorts should be undertaken in order to choose your freight forwarder. Be sure to conduct this “interview” at their facility. After all, you go to great lengths to ensure that your building is secure – shouldn’t the first step be to ensure that your potential forwarder’s building is also secure? Be direct – ask to see what security measures are in place to protect your product. If a forwarder refuses to allow you to visit their facility, be very wary about moving forward with them unless they can provide a legitimate reason for refusal.

Once you are satisfied that your goods will be secure in the interim from your facility to the port or airport of departure, request to sit with the operational personnel who will be processing your shipments. Be very direct with your questions and take notes. These can be maintained in your records for due diligence purposes. Here are some sample questions to get you started:

1. Are your operational personnel trained in the ITAR, and if so, where did they receive their training? How frequently do they receive this type of training?

2. Do you conduct in house training of this nature?

3. Do you have a copy of the ITAR on hand? (If they say yes, ask to see it and ensure that it is a current printing.)

4. What is the destination Control Statement for ITAR controlled goods, and why is it relevant to you – the forwarder? (This is a mistake I frequently see when auditing export documentation. 22 CFR 123.9(b) stipulates that the destination control statement must appear on both the invoice and the bill of lading. Most pre-printed bills of lading and air waybills are pre-printed with the Commerce Department’s EAR destination control statement. Therefore, If your forwarder is not physically placing the proper destination control statement on the transport document, you are in violation of 22 CFR 123.9 (b) – make sure they understand the difference between the two destination control statements.)

5. Do you have licensed customs brokers in house? (Although this may not be a “deal breaker,” having customs brokers on staff will make life much easier if you are dealing with DSP-73′s or repair items.)

6. Are you familiar with the most common licenses and what they represent? (They should be able to tell you the difference between a DSP-5, DSP-73, DSP-61 and know what a DSP-119 is used for)

7. Are you familiar with the most common exemptions? (Repair exemption, tradeshow exemption, models & mock-ups, Canadian exemptions, etc) If you want to really test their knowledge, ask them this – “In what circumstance can I not use the repair exemption 22 CFR 123.4(a) (1)?” If they are well trained they will be able to tell you that if your goods are of foreign manufacture, and need to be returned to the US for repair, this exemption cannot be used.

8. While you are on the subject of 22 CFR 123.4(a) (1), ask them what the proper procedure is for utilizing this exemption. The freight forwarder plays a crucial role here, as the exemption must be noted on both the entry document upon importation, and on exportation, both the exemption and the US Customs entry number must be indicated on the air waybill or bill of lading.

9. How do you determine whether or not something is SME (Significant Military Equipment)? A large number of exporters rely on their freight forwarder to process the AES (Automated Export System) transmission. Most forwarders will ask you to complete a shipper’s letter of instruction, which they utilize to complete the AES entry. The standard format of this form, however, does not have a block to indicate SME. If you are providing your freight forwarder with the proper category and sub-category for your item, i.e., Category XII (b), they should be able to tell you how they would come to the conclusion that this is indeed SME. As the AES specifically asks the question – “Is this Significant Military Equipment?” it’s crucial that they know how to determine this, and can demonstrate that to you.

10. What steps do you take to ensure that your partners overseas understand the implications of diversion? Another problem you face is making sure that everyone understands that your license is very specific. Intermediate consignees and end users (who are frequently unfamiliar with US regulations) often have more than one facility – perhaps an overflow warehouse or separate processing plant a few blocks away. Occasionally, the consignee will request that goods be delivered to such a facility. It is important that your freight forwarder takes the necessary precautions to ensure that their partners are aware that goods may only be delivered to the licensed address.

11. Will specific personnel be assigned to our account? Again – not a “deal breaker,” but we all feel more comfortable if we are working with the same people and not being bounced around from one person to the next.

12. What documentation do you normally provide to your exporters upon completion of a shipment? I am continually amazed by the number of exporters who tell me their freight forwarders do not provide them with copies of the AES transmission, bill of lading or air waybill, entry document, etc. Make sure they are willing and able to provide you with all the necessary documentation for your record-keeping responsibilities.

13. Have you handled ITAR goods in the past? If so, how long have you been handling goods of this nature? It’s important to get a sense of their experience. Everyone starts somewhere, but make sure they have some experience and are able to provide the service you need.

14. Can you provide references or letters of recommendation from other ITAR customers? This may be one of the most important questions you ask. If they are able to provide you with references, check them!

Once you have completed this grueling task of interviewing your potential freight forwarder, go through it a couple more times. Although most freight forwarders would love to be the only forwarder named on your license, (locking you into using their services) this ties your hands tremendously. Naming two or three freight forwarders on your license does not mean you have to utilize all of them. Use the one you are most comfortable with. However, having two or three freight forwarders named on your license will provide you with a built in “plan B,” in the event that something happens. Personnel changes happen. Mergers and acquisitions happen. What if you only have one forwarder listed on all your licenses and that forwarder is purchased by another company? If you are under contract delivery deadlines and suddenly have to stop shipping for a few weeks while you wait for a DSP-119 to be approved, the financial implications can be immense.

When you find a freight forwarder who meets your criteria, work hard to develop and maintain a solid relationship with them. They are your last defense and the final link in your export compliance program. It is important that you work together in a collaborative effort to sustain your goals. Remember – “Always use the right tool for the job.” Thanks Dad, I’ll keep that in mind…

Contributed by Deborah Dorsett
Forward Logistics Group

Ethical Trade Compliance

Methods for Improving Ethical Trade Compliance of an Organization

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.

DSP-73 Export License

What is a DSP-73 Export License?

Other than the DSP-5 Export License, the DSP-73 is the type of license I hear referenced most often in the export compliance community.

The purpose of a DSP-73 license is to allow for the temporary (not permanent) export of controlled goods regulated by the Department of State. This means that the items exported will be returning to the United States at some point in the future.

Articles exported under a DSP-73 license are subject to two primary criteria:

  1. The items being exported must return to the United States within a period of four years, and
  2. No transfer of title may take place during the period of export.

The first is pretty straightforward, but the second means that the US exporting party will still be responsible for the item returning to the US and for its use abroad. You can’t ship something overseas on a temporary export (DSP-73) license and sell it or give it away to a foreign national.

When would I use this?

I most often see the DSP-73 license come into play for overseas repairs. This means that a controlled item currently held in the US breaks and needs to be shipped out so it can be repaired. They’re sometimes used for shipping traveling exhibits, demonstrations and sometimes product samples. For technical data, the Technical Assistance Agreement is more flexible.

Note: If you’re using the DSP-73 temporary export license for overseas repairs, be aware that there is an exemption for repairs under 22 CFR 123.4(a)(1) which is much easier to utilize – provided the USML goods are of US manufacture. Foreign made goods, however, should definitely be sent for repair under the DSP-73.

Any procedures I should be aware of?

DSP-73 export licenses need to be endorsed by a Customs port director on both export and import. This is normally accomplished on the back of the actual license. Do be careful with shipments being continually exported and returned. It sounds silly, but since the original license is required and the paper is passed around constantly I’ve seen them actually wear out! This doesn’t sound like a big deal until you have to call the Department of State to get another copy…

Here are a couple of scenarios to be aware of when presenting the DSP-73 temporary export license to Customs & Border Patrol for endorsement on exit and entry:

  1. The license is specific in quantity. Let’s say you have 10 “widgets” under line item 1 on your license and you are shipping all 10 out, but they are packed in 2 boxes. Your transport document (air waybill, bill of lading) will reflect a quantity of 2. Your shipping invoice will reflect a quantity of 10. We often see CBP officers referring to the transport document and recording the quantity from there. This creates an enormous problem upon re-entry, as you will be attempting to return 10 widgets and your license will have been endorsed to show only 2 have been exported. As part of your compliance program, ensure that the license endorsement is reviewed PRIOR to leaving the CBP office to ensure the endorsement is correct.
  2. CBP officers occasionally forget to notate whether their endorsement signifies an exit or an entry. Though the CBP officer should be referencing either the AES ITN/XTN (for exports) or the Customs entry number (for imports) they often simply place the airway bill number in the reference block and neglect to note whether the shipment was an export or an import. Again, using the 10 widget scenario, let’s say you exported 5, and they were noted as an export on the endorsement. Then you imported those same 5 but the endorsement didn’t clarify that it was an import. A month later you try to export all ten. If the second endorsement simply shows 5 widgets and an airway bill number, CBP can assume this was an export until you produce evidence to the contrary. This shouldn’t be too difficult, but it can cause unforeseen delays and expenses that can be easily avoided by ensuring the endorsement is properly recorded PRIOR to leaving the Customs office.

Lastly, don’t forget that once the license is expired or its terms are fulfilled it must be returned to the Directorate of Defense Trade Controls.

Export Enforcement Actions in 2007

Below is a link to the US Department of Justice’s Fact Sheet: Major U.S. Export Enforcement Actions in the Past Year. Please pass it along to anyone who doesn’t believe that people ever get in trouble for export violations.

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.

What is a Technical Assistance Agreement (TAA)?

Not too long ago, I helped to develop a compliance program for a well know defense contractor who’s business was the US sale of communications systems for commercial and military aircraft. Their primary issue was not licensing for the export of their products, but rather that their sales and marketing departments were in the US while their research and development facilities were in the UK.

Essentially every email, phone call, and fax related to their product or the customer’s requirements was subject to the export licensing requirements of technical data!

When I talked to the CEO of the company, he looked me dead in the eye and said “If we have to wait 60 days before we can send an email to [overseas R&D partner], we’ll have to shut down.”

Fortunately for us, there’s a procedure designed just for this purpose called a Technical Assistance Agreement or TAA. With a Technical Assistance Agreement, you’re not applying for a license to export of X number of physical products to another country. Instead, you can apply for permission to discuss and share regulated technical data with an overseas contact. Generally, a TAA would address these three issues:

  • Who do you want to send technical data to?
  • Why do you want to send it?
  • What type of information will you be sharing?

Properly written, a Technical Assistance Agreement can exempt the communication of technical data to an overseas partner. They’re harder and take longer for approval from the DoS, but once they’ve been approved are more flexible than licensing.

A description of a Technical Assistance Agreement from Part 120 of the ITAR:

§ 120.22 Technical assistance agreement.
An agreement (e.g., contract) for the performance of a defense service(s) or the disclosure of technical data, as opposed to an agreement granting a right or license to manufacture defense articles. Assembly of defense articles is included under this section, provided production rights or manufacturing knowhow are not conveyed. Should such rights be transferred, § 120.21 is applicable. (See part 124 of this subchapter).

You can read more about Technical Assistance Agreements in part 124 of the ITAR.

As always, if you’re developing a compliance program that includes Technical Assistance Agreements, please consider our Sample Export Compliance Manual as a template for your own program!