ITAR Exemption Codes

Here’s a list of ITAR exemptions that may apply to your product. Please note the date of this article when using the table.

DDTC ITAR Exemption Codes

Code Description
123.4A1 22 CFR 123.4 (a) (1) Temporary import of U. S. – origin defense items for servicing, inspection, testing, calibration, repair, overhaul, reconditioning, or one-to-one replacement of defective items.
123.4A2 22 CFR 123.4 (a) (2) Temporary import of U.S. – origin defense item to be enhanced, upgraded, or incorporated into another item which the permanent export has been authorized by Directorate of Defense Controls.
123.4A3 22 CFR 123.4 (a) (3) Temporary import of U.S. – origin defense items for demonstration or marketing.
123.4A4 22 CFR 123.4 (a) (4) Temporary import of U.S. – origin defense items which have been rejected for permanent import by Treasury.
123.4A5 22 CFR 123.4 (a) (5) Temporary import of U.S. – origin defense items approved for import under Foreign Military Sales Program.
123.4B 22 CFR 123.4 (b) Temporary import but not subsequent export of item incorporated into another article.
123.6 22 CFR 123.6 From the United States to foreign trade zone or Customs bonded warehouse.
123.9E 22 CFR 123.9 (e) Re-export or retransfer of U.S. – origin items incorporated into foreign defense article to a government of a NATO country or the governments of Australia or Japan.
123.11B 22 CFR 123.11 (b) Vessel or aircraft does not enter territorial waters or airspace if no defense articles are carried as cargo.
123.12 22 CFR 123.12 Shipments between U.S. possessions.
123.13 22 CFR 123.13 Defense article on domestic air shipment via foreign country.
123.16B1 22 CFR 123.16 (b) (1) Defense articles in support of agreements.
123.16B2 22 CFR 123.16 (b) (2) Components or spare parts less than $500.
123.16B3 22 CFR 123.16 (b) (3) Packing cases for defense articles.
123.16B4 22 CFR 123.16 (b) (4) Models and mock-ups.
123.16B5 22 CFR 123.16 (b) (5) Temporary export for public exhibition, trade show, air show or related event if that article was previously licensed for public exhibition.
123.16B9 22 CFR 123.16 (b) (9) Temporary export of unclassified component, part, tool or test equipment to affiliate or facility owned or controlled by the U.S. person.
123.17A 22 CFR 123.17 (a) Components and parts for Category I (a) firearms not exceeding $100 wholesale.
123.17B 22 CFR 123.17 (b) Non-automatic Category I (a) firearms manufactured in or before 1898 or replica.
123.17C 22 CFR 123.17 (c) Temporary export of no more than three non-automatic Category I (a) firearms and no more than 1,000 cartridges.
123.17D 22 CFR 123.17 (d) Firearms for foreign persons brought in under 27 CFR 178.115 (d).
123.17E 22 CFR 123.17 (e) Not more than 1,000 cartridges of ammunition for non-automatic firearms for personal use.
123.17F 22 CFR 123.17 (f) Temporary export of one set of “Body Armor” for personal use without a license from the United States by an individual (U.S. person). Companies cannot use this exemption.
123.17G 22 CFR 123.17 (g) Temporary export of one set of “Body Armor” for personal use without a license going to Afghanistan and to Iraq. Companies cannot use this exemption.
123.18A1 22 CFR 123.18 (a) (1) Non-automatic firearms for servicemen’s clubs for members of U.S. Armed Forces.
123.18A2 22 CFR 123.18 (a) (2) Non-automatic firearms for personal use by member of U.S. Armed Forces or civilian employee of Department of Defense.
123.18A3 22 CFR 123.18 (a) (3) Non-automatic firearms for personal use by U.S. Government employees.
123.18B 22 CFR 123.18 (b) Not more than 1,000 cartridges of ammunition for personal use by U.S. Government employees.
123.19 22 CFR 123.19 Canadian and Mexican border shipments.
124.2A 22 CFR 124.2 (a) Training in basic operation and maintenance of defense articles authorized for export to the same recipient.
124.2B 22 CFR 124.2 (b) Defense services performed by U.S. persons drafted into military force of a foreign nation.
124.2C 22 CFR 124.2 (c) Maintenance training or performance training to NATO countries, Australia, Japan, and Sweden.
124.3A 22 CFR 124.3 (a) Unclassified technical data within scope of an approved manufacturing license or technical assistance agreement.
124.3B 22 CFR 124.3 (b) Classified technical data in furtherance of an approved manufacturing license or technical assistance agreement.
125.2B 22 CFR 125.2 (b) Technical data for foreign filing of patent application not exceeding its domestic patent filing.
125.4B1 22 CFR 125.4 (b) (1) Technical data pursuant to official written request or directive of Department of Defense.
125.4B2 22 CFR 125.4 (b) (2) Technical data in furtherance of agreement approved under 22 CFR Part 124.
125.4B3 22 CFR 125.4 (b) (3) Technical data in furtherance of contract between exporter and U.S. Government agency that does not disclose design, development, production, or manufacture details of defense article.
125.4B4 22 CFR 125.4 (b) (4) Copies of technical data previously authorized for export to same recipient.
125.4B5 22 CFR 125.4 (b) (5) Technical data regarding basic operations, maintenance, and training to same recipient of lawfully exported defense article.
125.4B6 22 CFR 125.4 (b) (6) Technical data related to firearms not in excess of .50 caliber and ammunition not in excess of .50 caliber, not including design, development, production, or manufacturing details.
125.4B7 22 CFR 125.4 (b) (7) Technical data being returned to original source of import.
125.4B8 22 CFR 125.4 (b) (8) Technical data directly related to classified information which has been previously authorized for export to same recipient, not including design, development, production, or manufacturing details.
125.4B9 22 CFR 125.4 (b) (9) Technical data sent by U.S. corporation to a U.S. person employed by that corporation overseas or to a U.S. Government agency.
125.4B10 22 CFR 125.4 (b) (10) Unclassified technical data in U.S. by U.S. institution of higher learning to full-time foreign employee.
125.4B11 22 CFR 125.4 (b) (11) Exporter granted written exemption from Directorate of Defense Trade Controls for technical data pursuant to arrangement with Department of Defense, Department of Energy, or NASA.
125.4B12 22 CFR 125.4 (b) (12) Technical data exempt under 22 CFR 126.
125.4B13 22 CFR 125.4 (b) (13) Technical data for public release by cognizant U.S. Government agency or Directorate for Freedom of Information and Security Review.
125.4C 22 CFR 125.4 (c) Defense services and unclassified technical data to nationals of NATO countries, Australia, Japan, and Sweden for responding to written request from Department of Defense for quote or bid proposal.
125.5A 22 CFR 125.5 (a) Unclassified technical data during classified plant visit authorized by Directorate of Defense Trade Controls; approved government-to-government program; or U.S. Government agency having classification jurisdiction over classified defense article or classified technical data.
125.5B 22 CFR 125.5 (b) Classified technical data during plant visit approved by appropriate U.S. Government agency.
125.5C 22 CFR 125.5 (c) Unclassified technical data during plant visit approved by the Directorate of Defense Trade Controls.
126.3 22 CFR 126.3 Exceptional or undue hardship.
126.4A 22 CFR 126.4 (a) Temporary import or temporary export of defense article, technical data, or defense service by or for agency of U.S. Government.
126.4C 22 CFR 126.4 (c) Temporary import, temporary export, or permanent export of defense article, technical data, or defense service for end-use by U.S. Government agency in foreign country.
126.5A 22 CFR 126.5 (a) Temporary import and return to Canada of unclassified defense articles originating from Canada.
126.5B 22 CFR 126.5 (b) Permanent or temporary export of certain defense articles, related technical data, and defense services for end-use in Canada.
126.5C 22 CFR 126.5 (c) Defense service or technical data to Canada.
126.6A 22 CFR 126.6 (a) Defense article or technical data sold, leased, or loaned by Department of Defense to a foreign country or international organization.
126.6B 22 CFR 126.6 (b) Foreign military aircraft or naval vessel.
126.6C 22 CFR 126.6 (c) Defense article, technical data, or defense service sold, leased, or loaned by Department of Defense under Foreign Military Sales Program.
126.16E1 United States and Australian combined military or counter-terrorism operations
126.16E2 United States and Australian cooperative security and defense research, development, production, and support programs
126.16E3 Mutually determined specific security and defense projects where the Government of Australia is the end-user
126.16E4 U.S. Government end-use
126.17E1 United States and United Kingdom combined military or counter-terrorism operations
126.17E2 United States and United Kingdom cooperative security and defense research, development, production, and support programs
126.17E3 Mutually determined specific security and defense projects where the Government of the United Kingdom is the end-user
126.17E4 U.S. Government end-use

What is a Defense Service?

22 CFR §120.9 defines a Defense Service as furnishing of assistance including training, to foreign persons in the U.S. or abroad. A defense service encompasses the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles. Additionally includes military training of foreign units and forces which may involve public domain data or commercial hardware.

ITAR Recordkeeping

If you’re a responsible ITAR exporter, record keeping is far and away your best tool to avoid fines and penalties from an audit.  The goal of good record keeping is simple: Fulfill your legal obligation as an exporter and ensure success and minimal impact on your business in the event of an audit.

Earlier this month I took a straw poll from our mailing list and asked the question: “How do you fulfill your record keeping requirement?”  The answers received were informative and in some cases surprising:

The Good

  • From the companies that responded the vast majority have a system in place and are making a conscientious effort to maintain records (whew!).
  • Most of the respondents keep a paper or digital file in order to store pieces of information that relate to their shipments.
    • This includes purchase orders, shipping documents, delivery receipts, notes, etc.
    • Having a single location where you can find all pertinent shipment information is very important in an audit.
  • Of those keeping files most include a checklist identifying steps they’ve taken for due diligence.
    • Checklists are easy to do and show that you’re taking a systematic approach to compliance.
  • For those tracking physical shipments most included a central repository for tracking information for easy access later.
    • Similar to paper files, being able to quickly assess your licenses and shipment data tells an auditor that you are competent and making an effort.

The OK, but Not Great

  • Excel spreadsheet was the word of the day!  Approximately 75% of those tracking shipments use a spreadsheet program.
    • Spreadsheets are good for tracking data, but they’re difficult to share if you have multiple people tracking shipments.
    • Consider the following line from Title 22, section 122.5 of the Code of Federal Regulations and ask yourself how it’s being addressed by your spreadsheet program:
      • This information must be stored in such a manner that none of it may be altered once it is initially recorded without recording all changes, who made them, and when they were made.
  • The majority of respondents did not address documentation for issues like training, hiring, foreign nationals and the like.
    • Record keeping encompasses more than shipping products.  In the event of an audit you will want to be able to produce records detailing all of your compliance efforts.
  • Most of documentation and procedures were focused on the item being exported and its destination.
    • Make sure to include a record of all the entities that interact with your exports – freight forwarders, receiving agents, shipping companies, etc.

The Bad

  • Almost everyone considered the purchase or sale of their product as the start of their export compliance timeline and final shipment the end.
    • Documentation can (and should) include pre-sales investigation and customer communication as well as post-delivery follow up.
  • Accessibility will be an issue for many in the event of an audit due to organization.
    • The amount of time needed to compile a shipment history is an indicator of preparedness in the event of an audit.
  • A few of our respondents placed the burden of record keeping on their freight forwarders and Customs brokers.
    • As an exporter, you are ultimately responsible for your shipments.

ITAR Certification

After registering with the DDTC, ITAR certification is a self-certification process. That means that there is not an official “certification” requirement spelled out in the regulations. As an exporter you are expected to maintain compliance with and knowledge of ITAR regulations. A formal export compliance policy and ongoing training are both highly recommended by DDTC officials and will help you achieve this goal. Both will be included if your procedures are audited for any reason.

ITAR Export Exemptions

Authorizations to transfer defense articles and provide defense services can help meet the legitimate needs of friendly countries. However, the U.S. strictly regulates exports and re-exports of defense items and technologies to protect its national interests and peace and security of the broader international community. There are 60 exemptions established in the International Traffic and Arms Regulations (ITAR) (CFR 120-130) that permit the permanent or temporary export or temporary import of defense articles and technical data by U.S. persons in lieu of obtaining a U.S. license from the U.S. Department of State Directorate of Defense Trade Controls. An exemption is an authorization that covers various situations with specific requirements.

What does an exemption cover?

The exemption would permit permanent and temporary exports and temporary imports of technical data and defense articles without use of a license. The exemption would permit the performance of defense services associated with the defense articles subject to the exemption. Those defense articles on the U.S. Munitions List (USML) eligible for the exemption would be similar to those eligible to the Canadian exemption. The Canadian exemption significantly relaxes DDTC requirements for exports to Canada of ITAR-controlled “defense articles”, “defense services”, and technical data. Canadian companies that register with the Canadian Controlled Goods Directorate are generally eligible to use the ITAR Canadian exemption. This greatly facilitates business between the United States and Canada. The exemption would also permit temporary import to the United States of defense articles with advance approval to re export back to the country.

Body Armor Amendment §123.17 found in the publication of the Federal Register Notices Page 39212, Vol. 74, No. 150 is an example of an exemption.

Can any country take advantage of an exemption?

The United States expects that agreements can be reached with the United Kingdom and Australia first, because their systems are closest to meeting the standards of the U.S. for congruent and reciprocal systems of export control, industrial security law enforcement and intelligence and reciprocal access to defense markets, and early success here is most probable. But the exemption would be available to any ally that is willing to “level up.” Globalization can set high standards for countries to meet in security. The U. S. is willing to share more technologies with countries that put in place and actually implement such higher standards on export controls and other areas.

Are there benefits to an exemption?

An exemption can create a powerful incentive for other allied governments to improve their export control system. Many allied governments will be strongly motivated to improve their systems if this allows improved access to U.S. markets.

What defense articles or technical data are excluded?

ITAR exemptions are targeted to specific unclassified items and services. Generally, it is not contemplated that exemptions would apply to exports of items controlled under the Military Technology Control Regime, Significant Military Equipment, transactions requiring Congressional Notification, or offshore procurement of sensitive or classified items or technologies. Dealing with ineligible persons or proscribed destinations is also excluded.

Defense Trade Securities Initiatives

The Defense Trade Security Initiatives (DTSI) is comprised of 17 reforms that are designed to streamline the processing of munitions export licenses. These initiatives include, amongst other things, granting International Traffic in Arms Regulations (ITAR) exemptions for unclassified exports to certain foreign governments and companies, and a range of flexible, new licensing vehicles for NATO member countries, Japan, and Australia.

Section III of the DTSI deals with enhancing existing International Traffic in Arms Regulations (ITAR) exemptions as shown below:

  • Extension of ITAR Exemption to Qualified Countries

    • This initiative applies to allied countries that adopt and demonstrate export controls
      and technology stems that are comparable to those in the U.S.
  • Exemption for Export Licensing of Maintenance Services and Training

    • This initiative expands the ITAR exemption to authorize U.S. companies, without licensing requirements, to provide basic maintenance and/or maintenance training for inventories allied equipment.
  • Exemption for Export of Technical Data in Response to Department of Defense Requests for Proposals

    • This initiative expands the ITAR exemption to allow U.S. firms, without licensing requirements, to provide basic maintenance and/or maintenance training for inventory allied equipment.
  • Improving Department of Defense’s Use of ITAR Exemptions

    • This initiative authorizes Department of Defense to use the numerous exemptions to licensing requirements that the Department of Defense can utilize in connection with exports of defense articles, technical data, and defense services.

Is my article exempt or not?

Take your time to review the attached DDTC Exemption Number link. This table will provide the exporter the specific ITAR citation exemption number needed for the export shipment from the requirement for a license or other written authorization. If in need of further assistance in determining the correct code, contact the DDTC in writing or request advice from individual licensing officers familiar with the commodities being exported.

Penalties for Violations

Per ITAR CFR 22 Section 127.3, Penalties and Violations, any person who willfully violates any provision of section 38 or section 39 of the AECA, or any undertaking specifically required by par 124 of the ITAR or in a registration, license application, or report required by section 38 or section 39 of the AECA or by any rule or regulation issued under either section, makes any untrue statement of a material fact or omits a material fact required to be stated or necessary to make the statements not misleading, shall upon conviction be subject to fine or imprisonment, or both.

In summary, if used correctly, ITAR licensing exemptions can be an important tool in facilitating exports of defense articles, technology, or services. Given strict DDTC licensing requirements, however, it is critical that you are properly interpreting and applying these highly complex exemptions or risk harsh enforcement and penalties.

Export License Requirements

The U.S. Government views the sale, export, and re-transfer of defense articles and defense services as an integral part of safeguarding U.S. national security and furthering U.S. foreign policy objectives. The Directorate of Defense Trade Controls (DDTC), in accordance with 22 U.S.C. 2778-2780 of the Arms Export Control Act (AECA) and the International Traffic in Arms  Regulations (ITAR) (22 CFR Parts 120-130), is charged with controlling the export and temporary import of defense articles and defense services covered by the United States Munitions List (USML).

An export license, issued by the U.S. Government, is required for transfer of certain technology, software, and equipment to non-U.S. persons or entities, whether this transfer takes place inside or outside the United States. Any person who intends to export a defense article must obtain the approval of the Defense Trade Controls prior to the export or temporary import, unless the export or temporary import qualifies for an exemption.

Do Defense Export Controls Apply to Me?

  1. Find out if what you want to export is on the United States Munitions List (USML).
  2. Not sure if the item to be exported is on the USML then file a Commodity Jurisdiction request.
  3. If what you want to export is on the USML, then you must be registered with the DDTC.
  4. After you are registered with the DDTC you may apply for your export license.

Registration

  1. The company requiring an export license must be registered with the DDTC with a signature of the company’s Empowered Official on the application before submitting a DSP 5.
  2. It is important to note that any manufacturers, exporters, and brokers of defense articles, defense services, or related technical data be registered with the Department of Defense Trade Controls.
  3. Registration is primarily a means to provide the U.S. Government with necessary information on who is involved in certain manufacturing and exporting activities. Registration does not confer any export rights or privileges, but is a precondition for the issuance of any license or other approval for export.
  4. Registrants, in accordance with the Arms Export Control Act (AECA), are charged a fee.

What is a DSP 5?

  1. A Permanent Export License (DSP 5) is for the permanent export of unclassified articles or items found on the United States Munitions List (USML) which is defined in the International Traffic in Arms Regulations (ITAR).

Submission

When submitting your DSP 5 license, the Directorate of Defense Trade Controls may require all pertinent documentary information regarding the potential transaction as follows:

  1. Complete the DSP 5 application form which may require pertinent information regarding the export transaction.
  2. Attachments and supporting technical data or brochures will need to be submitted either in electronic format or seven collated copies.
  3. If the request is limited to renewal of a previous license or for export spare parts, only two sets of attachments and a copy of the previous license should be submitted.
  4. An application for a license under this part for the permanent export of defense articles sold commercially must be accompanied by a copy of a purchase order, letter of intent or other appropriate documentation.
  5. A statement concerning the payment of political contributions, fees and commissions must accompany a permanent export application if the export involves defense articles or defense services valued in an amount of $ 500,000 or more and is being sold commercially to or for the use of the armed forces of a foreign country or international organization.
  6. The DSP 5 does not allow for the export of manufacturing information or technical assistance.
  7. It is the responsibility of the company to inform employees of the scope and purpose of the DSP 5.

Process Steps

  1. Is your company registered with approval of the DDTC? If not, obtain a registration package through http://www.pmddtc.state.gov/registration/package.html.
  2. Does your company have a security certificate from the DDTC to submit a license? If not, obtain a security certificate through http://www.pmddtc.state.gov/dtrade/ documents/DTrade_DSP_5_Instructions.pdf.
  3. Submit the documentation needed for a DSP 5 license with a digital signature from the Empowered Official who then submits to DTC.
  4. D Trade tracks the progress of the submitted license.
  5. D Trade supplies a decision on the DSP 5 application.
  6. Upon approval provisions are reviewed. If not approved the next course of action is decided.

Information Required on a DSP 5 License Application

  1. Legal company name, address, and telephone number.
  2. Company DDTC registration number (if available).
  3. Company name, address, and telephone of end user.
  4. Name(s), addresses(s), and telephone number(s) of foreign consignees, brokers, and agents. Any company or person who will be involved with the article before arriving to the end user.
  5. List the freight forwarder responsible for the export.
  6. Exporting company must have a letter of intent or purchase order from end user showing end user name, address, telephone number, items for purchase, quantity, cost, and end use.
  7. If this is not supplied, the license will be Returned Without Action (RWA).
  8. Return with the license a document that explains end use of end use if there are no documents or brochures available.
  9. Provide descriptive information and brochures.
  10. If there are precedent licenses relating to this export then supply the license numbers.

Processing Time

  1. Up to two months depending on staffing allocations.

Final Notes

  1. When your company is no longer in the business of manufacturing, exporting or brokering defense articles or defense services, you must notify DDTC in writing at least 30 days prior to the expiration of your registration code.
  2. The letter should include a certification made by a senior officer listed on the most current DS-2032 Statement of Registration that your registration code will lapse and that your company will no longer be in the business of manufacturing, exporting or brokering defense articles or defense services.
  3. The correspondence must include the following statement: “Under penalty according to Federal Law (22 CFR 127.2; 22 USC 2778; 18 USC 1001) I (insert name of person signing letter), as authorized by (name of registered entity) warrant the truth of the statements made herein.”

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

INTERNAL COMPLIANCE PLAN (ICP)

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 (jerlich@burnslev.com) and Stephen Ball (sball@burnslev.com)
Burns & Levinson LLP
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Boston, MA 02110
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