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Export Controls - BIS

Mari McClafferty, Import/Export Logistics Compliance Manager

Trade Compliance Workshop

EARExport Administation

Regulations

TRADE COMPLIANCE

Agenda for Today

• Basic overview of BIS US export controls

• Top 10 to comply with U.S. Export Administration Regulations (EAR)

• Discuss EAR Compliance, Challenges and Licensing Procedures

• Promote an Understanding of the Importance of Compliance with US Export Controls

TRADE COMPLIANCE

THREE BASIC TYPES OF EXPORT CONTROLS COVERING TRADE SANCTIONS AND ECONOMIC EMBARGO

1. The International Traffic in Arms Regulations (ITAR)a) ITAR Regulations cover Munitions and other Military Application Technologies,

Export Review and Issuance of Specific Licensing. 2. The Export Administration Regulations (EAR).3. Important elements to be aware of are “Dual Use Technologies” i.e. items that are

have a Primary Commercial Application, but also have the potential for Military use.4. The Office of Foreign Assets Control (OFAC),

a) OFAC is responsible for enforcing Economic Sanctions or Restrictions, and Travel Embargoes for controlling Terrorism, Drug Trafficking and Other Illicit Activities.

b) OFAC Prohibits Payments, Providing Services or Anything of Value to Nationals of Sanctioned Countries.

c) Note: individual foreign nationals and U.S. citizens may be sanctioned or embargoed, i.e. Denied Parties or Denied Persons.

EAR & ITAR

TRADE COMPLIANCE

EAR

EAR: Administered by the US Department of Commerce, BIS

- Controls the export of items listed under the CCL - Commerce Control List - Includes Dual Use items- BIS is a division of the Department of Commerce - Code of Federal Regulations: 15 CFR parts 730-774

Commerce Control List

CATEGORIES

0 Miscellaneous & Nuclear Materials1 Materials, Chemicals, Microorganisms, and Toxins2 Materials Processing3 Electronics4 Computers5 Part 1-Telecommunication5 Part 2-Information Security6 Sensors & Lasers7 Navigation & Avionics8 Marine9 Aerospace

TRADE COMPLIANCE

ECCN Classification Matrix

Create a matrix of dual use products

EAR

Company Products ECCN CCATS HS CODE COO

Product name

Industrial Measuring Machine - Model Contura 2B006 G069081 2/9/09 9031.80.808 USA

TRADE COMPLIANCE

The U.S. asserts jurisdiction based upon nationality of the actor, location of the actor, and origin of the goods

U.S. persons U.S. territory U.S. origin People Places Products

EAR

TRADE COMPLIANCE

For Export Control Purposes, a ”U.S. person” is…

• U.S. citizens (passport holders) and permanent residents (green card holders), wherever located

• Companies organized under the laws of the U.S., including foreign branch offices

• Any person in the United States

EAR

TRADE COMPLIANCE

What items are subject to the regulations?

• All items in the United States, regardless of origin

• All items of U.S. origin, wherever located

• Foreign-made items that incorporate more than de minimis amounts of controlled U.S. content (parts, components, materials, subassemblies, etc.)

• Foreign-made items that are the direct product of certain U.S. origin technology or software

• Some narrow exceptions

EAR

TRADE COMPLIANCE

WHAT IS AN EXPORT

Any item or information sent outside of the USA to a foreign destination is considered an export.

Including foreign made items in the USA, and USA origin items in another country. Such as items previously exported from the USA and information of US origin such as data, drawings, blueprints.

An Export can occur in several ways including: 1. Actual physical shipment of items outside of the USA or another country2. Electronic or verbal transmission of data outside of the USA or another count3. Release or disclosure of information/data, to a foreign national either within or

outside of the USA - DEEMED EXPORT

The mere act of showing an item or discussing controlled information with a foreign national is considered an export and may require an export license.

EAR

TRADE COMPLIANCE

Other cases of extraterritorial application

• Exports and reexports of items subject to the regulations

• Certain activities of U.S. persons• Including U.S. expatriate employees –i.e., living outside of the U.S.

and employed by non-U.S. companies

• “Deemed” exports/reexports

EAR

TRADE COMPLIANCE – Export Controls

1. Compliance means observing Governmental Regulations and Corporate policies. Strive for 100% Regulatory compliance at all times.

2. Due to the constantly changing nature of trade regulations, adopt the use of automated compliance controls to ensure that all necessary government requirements and policies are met: PEOPLE, PLACES, PRODUCTS.

3. By training your colleagues you hope to ensure that personnel are aware of, and take steps to comply with all relevant policies. It is especially important that you understand and avoid unintentional violations.

WHAT ARE SOME COMMON COMPLIANCE ERRORS?

EAR

TRADE COMPLIANCE

AVOID COMMON COMPLIANCE ERRORS

Routed Transactions – No POA on file

Shipping to a Freight Forwarder

Using Export Templates without understanding the compliance data

ECCN for all products is EAR99 = NLR ( no license required)

Misc non inventory items are not screened like regular business

Not knowing your customer or end user or how they are vetted

Getting a license without following the conditions

Shipper is ultimately responsible for AES filing not your Freight Forwarder

EAR

TRADE COMPLIANCE

TOP 10 - Export Management Compliance Program (EMCP)

1) Senior Management Commitment2) On Going Risk Assessment3) Formal & Effective Written Processes4) Ongoing Training5) Pre/Post Export Security and Screening thru the export life cycle6) Recordkeeping Requirements7) Internal & External Monitoring and Audits8) Report Export Violations9) Corrective Actions in Response to Export Violations

10) Don’t let the CEO or yourself go to jail.

EAR

EFFECTIVE COMPLIANCE MANAGERS

Act this way…Lead by example

Communicate the importance of compliance to the organization

Commit sufficient resources

Train employees in their compliance responsibilities

Instill in all employees the commitment to do the right thing

Encourage employees to exercise due diligence and speak up if

something seems wrong

Foster a compliance culture free from retribution or retaliation

Commit to compliance at all levels of the organization

Monitor compliance activity and enforce compliance standards

RISK ASSESSMENT

MAP GLOBAL EXPORT ACTIVITY

Are you shipping to any of the US Sanctioned Countries?

IranSyriaSudanNorth KoreaYemenRussiaUkraine, Crimea, SevastopolVenezuelaCuba

Note: Humanitarian/Medical Exceptions – Oil for Food Program

WRITTEN PROCESSES

SWIM LANES – VISIO

HOW DO EXPORTS TOUCH CROSS FUNCTIONAL COMPANY GROUPS?

DECISION TREES

FORMS KEEP THINGS ORDERLY – COMPLETE INFORMATION

COMPANY QUALITY DATABASE

KISS – KEEP IT SIMPLE!

AUDIT

VALIDATE

REVISE

TRAINING

Automate training to cover all audiences.

Track who has taken the training.

Check questions to validate learning comprehension.

Export control requirements are imposed by many governmentsThat number will grow because UNSC Resolution 1540 requires an export and re-export control system in every country to control weapons of mass destruction and related inputs

Export control rules are not intuitiveOne size does not fit all, but each size can and must address a given business“Practical” cannot become a code word for cutting corners and not having an “effective” program

You can be practical, save expenses, and be effective!

SCREENING

• EXPORT CHAIN OF CUSTODY

• DENIED PARTIES LISTS

• KNOW YOUR CUSTOMER

• LETTER OF ASSURANCE

• END USER CERTIFICATE

• VALIDATED END USERS

• WHO ARE ALL THE PARTIES TO THE TRANSACTION?

• TRANSSHIPMENT

• HAND CARRIES

RECORDKEEPING

Retain documents and records pertaining to an export transaction Purchase Orders Invoices (Commercial and Billing) Packing lists Bill of Lading AES Summary Correspondence (including requests for quote) Letters of Credit Export Licenses and Proof of Delivery

Time Period: 5 years from the date of export or reexport or from license validity.Other government agencies may have retention requirements beyond 5 years

Companies should maintain detailed records of the training programs offered and employee participation in them

Training records should generally be maintained in personnel files to ensure that training is appropriately reflected.

AUDIT

A “best practices” audit program has six essential features: Experienced audit personnel Internal business unit assessments Internal corporate audits External audits Reporting audit results to the business

unit and Board of Directors (or committee thereof) Effective follow-up procedures, including implementation of

procedures and close-out of corrective actions

REPORTING VIOLATIONSUS Federal Sentencing Guidelines

Organization must:Put in place and advertise a system that allows employees and agents anonymously to report and seek guidance regarding potential or actual violations without fear of retaliation.Promote and enforce the compliance program via:

Incentives to perform, andAppropriate disciplinary measures for:

Engaging in criminal conduct, andFailing to take reasonable steps to prevent and detect criminal conduct

If criminal conduct is detected, take reasonable steps to prevent similar conduct including modifications to your program.

CORRECTIVE ACTION

Analysis of control checks, particularly screening practices and internal controls for compliance

Comparison of actual operational practices to written procedures Review of management commitment Review of current policies and procedures, including all written

guidelines Review of training and education programs Review of the order processing system Analysis of the export authorization process Analysis of the implementation of licenses, including adherence to

and tracking of license conditions/provisos

This CAN happen to YOU!

ANYONE HAVE ANY STORIES?

WHAT IS SAID IN THE SEMINAR STAYS IN THE SEMINAR

TRADE COMPLIANCE

EMCP Due Diligence & Lasting Framework

Automate wherever possible, but still verify.

Denied parties list consolidation.

Identify risks.

Database to track classification determinations by part no.

Document your processes and update with revisions.

Build a website or wiki to educate cross functional internal groups.

Succession planning and training.

Use compliance violation examples as teaching examples.

EAR

TRADE COMPLIANCE

Checklist for Compliance

Read and understand your corporate policy on export and customs.Ask before you export. (LOA – Letter of Assurance)Ensure that controlled articles and technology are classified

properly.Follow-up to the conditions on all licenses. End-User

Certificates.Keep good records.Utilize existing in-house technology (ERP System) to

identify restricted transactions including restricted parties, embargoed countries, restricted use. Contact the Export Compliance Manager with any

questions.

EAR

TRADE COMPLIANCE REPORT CARD FOR SR. MANAGEMENT

Future

Current status Trends

Challenges Outlook

TRADE COMPLIANCE

Thank you!

Mari McClafferty, Import/Export Logistics Compliance ManangerMaple Grove, MN Office: 763-744-2491Email: Mari.McClafferty@Zeiss.com

Resources:Bureau of Industry and Security: EARhttp://www.bis.doc.gov/ Export Counselors hot line: DC 202-482-4811

CA 949-660-0144

EAR