International Trade Law News

This evening the U.S. House of Representatives held 40 minutes of debate on H.R. 5916, the Security Assistance and Arms Export Control Reform Act of 2008. Following the debate, a vote on the bill was postponed until tomorrow.

If enacted, H.R. 5916, which was introduced by House Foreign Affairs Committee Chairman Howard Berman (D-CA) less than two weeks ago, would make a number of significant changes to arms export control procedures.

For example, Subtitle A of Title I of the bill, referred to as the Defense Trade Controls Performance Improvement Act of 2008, would require the Department of State's Directorate of Defense Trade Controls (DDTC) to institute specified performance goals to improve the review and processing of applications for export licenses (particularly for major allies such as Israel, South Korea, Japan, Australia, New Zealand, and members of NATO).

These performance goals include:

• The processing time for review of each application for a license to export items on the United States Munitions List shall be not more than 60 days from the date of receipt of the application.

• The processing time for review of each application for a commodity jurisdiction determination shall be not more than 60 days from the date of receipt of the application.

In order to meet these goals, the bill would require DDTC to have three staff members dedicated to requests on commodity jurisdiction and one licensing officer for every 1,250 license applications.

The Congressional Budget Office (CBO) has estimated that DDTC would need an additional 55 employees to meet the requirements of the bill: 35 licensing officers, five staff members to review commodity jurisdiction, four staff members to oversee and review processing goals, one person to review regulations and the U.S. Munitions List, and 10 staff members for compliance and enforcement of export controls. The CBO estimates that DDTC would require additional appropriations of $6 million in 2009 and $31 million during the period 2009-2013 period.

To help pay for this increased staff, section 107 of the bill would authorize the State Department to spend up to $10 million in civil penalties collected each year over the 2008-2012 period for DDTC expenses.

In what would be a dramatic change to the commodity jurisdiction (CJ) process, the bill states "that the complete confidentiality surrounding several hundred commodity jurisdiction determinations made each year" by DDTC "is not necessary to protect legitimate proprietary interests of persons or their prices and customers, is not in the best security and foreign policy interests of the United States, is inconsistent with the need to ensure a level playing field for United States exporters, and detracts from United States efforts to promote greater transparency and responsibility by other countries in their export control systems."

Therefore, the bill would require DDTC to publish CJ determinations on DDTC's website within 30 days after the CJ is made. Specifically, the bill would require the following CJ information to be posted:

1. the name of the manufacturer of the item;
2. a brief general description of the item;
3. the model or part number of the item; and
4. the USML category under which the item has been designated.

The bill specifies that the name of the person or business organization that sought the CJ will not be published if the person or business organization is not the manufacturer of the item and the names of the customers, the price of the item, and any proprietary information relating to the item indicated by the person or business organization that sought the CJ will also not be published.

The complete text of H.R. 5916 can be found here. The report accompanying the bill, 110-626, can be found here.

Labels: Congress, DDTC, Export Controls, ITAR

The State Department's Directorate of Defense Trade Controls (DDTC) has released the license processing time statistics for April 2008:

Cases Received: 7,728
Cases Closed: 7,438
Cases Open At End of Month: 3,720
Average Processing Time: 15 Days

By contrast, in April 2007 DDTC received 6,290 cases and the average processing time was 32 days.

The good news for defense exporters is that during the past year DDTC's average license processing times have been cut in half even though nearly 23% more applications were submitted.

As for the average processing times, DDTC notes that for electronic cases (i.e., those being filed via D-Trade), the processing times are based on the date the case was signed by the applicant until the date of final action. DDTC also indicated that the methodology for calculating the average processing times for hardcopy cases has changed. The processing times for April 2008 were determined by the date the case entered DDTC until the time the case is signed out of DDTC. Previously, the processing time for hardcopy cases was based on the application date until the date of final action.

Labels: DDTC, ITAR

The Directorate of Defense Trade Controls (DDTC) today posted on its website three agreements-related documents.

The first document, Guidance for an Agreement Rebaseline, is provided to assist industry in the preparation and submission of an agreement “rebaseline”. An agreement rebaseline is used as a tool to “clean-up” a currently approved agreement. The rebaseline allows an agreement to be brought into compliance with current guidance and policies, integrates numerous cumbersome amendments and/or consolidates provisos levied during the lifecycle of the agreement. The document notes that an agreements officer may initiate a rebaseline after auditing the DDTC agreement file. The document also states that industry is encouraged to review their currently approved agreements and proactively request an agreement rebaseline. DDTC also posted some Frequently Asked Questions on Rebaselining Agreements. The FAQs relate to the criteria used by DDTC in assessing the need for an agreement rebaseline, whether currently approved DSP licenses remain valid under the new agreement and will the agreement rebaseline require staffing.

Finally, DDTC also posted some FAQs on issues associated with Updated Licenses "in Furtherance of" Agreements, which covers document requirements, letters of explanation and other pertinent issues associated with applying for licenses "in furtherance of" agreements.

Labels: DDTC, Export Controls

The National Council on International Trade Development (www.ncitd.org) has announced that its next monthly international trade compliance meeting on April 10, 2008 in Washington, DC will feature the following speakers:

Kevin Maloney
Director, Office of Defense Trade Controls Licensing
Directorate of Defense Trade Controls, U.S. Department of State

Christopher Malone
Special Agent
Immigration and Customs Enforcement
U.S. Department of Homeland Security

Kimberly Marsho
Director, Trade Relations
Office of International Affairs and Trade Relations
U.S. Customs and Border Protection

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: Customs, DDTC

The Center for Strategic and International Studies is holding a program on State Department export control reform efforts on February 26, 2008 in Washington, DC.

The program will feature an opening address by John Rood, Under Secretary of State for Arms Control and International Security, followed by a question and answer period with Frank Ruggiero, Assistant Secretary of State for Defense Trade and Regional Security and Beth McCormick, Deputy Under Secretary of Defense for Technology Security Policy and National Disclosure Policy and Director of the Defense Technology Security Administration.

For more information or to register see the following link on the CSIS website.

Speaking of State Department export controls, the CSIS issued a report today entitled "Smart Power Through Space", which examines ways for the U.S. to frame its space activities and provides recommendations for the next administration on the space sector. One of the report's recommendations relates to space-related export controls. Specifically, the recommendation states:

Recommendation 5: The United States must reassess the application of the International Trade in Arms Regulations (ITAR) as it is applied to space. Not only have these requirements harmed our domestic technological and manufacturing base, but they have had a drastic negative effect on both the hard and soft power utilization of space. Currently, ITAR dramatically increases the transactional costs of cooperation with the United States and therefore introduces a strong systemic global bias toward isolation. This encourages other nations to independently develop indigenous dual-use infrastructure and technology, potentially increasing their hard power capabilities, while reducing our ability to monitor new developments first hand.

Labels: DDTC, Export Controls

In an article entitled "High-tech lobby notches victory", today's The Politico, provides a behind-the-scenes look at the efforts leading to last week's Export Controls Directives issued by President Bush. The article notes that:

The directives, announced by the State and Commerce departments, were the result of a yearlong campaign waged by a coalition of powerful business interest groups that lobbied the White House.

And though the reforms are relatively minor, they represent the biggest victory for business on export control in decades of concerted lobbying.

With that notch in the win column, industry groups — the National Association of Manufacturers, Aerospace Industries Association and the U.S. Chamber of Commerce among them — are now looking to claim credit.

The article notes that a lot of the credit for the directives goes to David McCormick, who served as Undersecretary of Commerce for Industry and Security and as Deputy National Security Advisor to the President for International Economic Affairs, before assuming his current post at Treasury.

National Association of Manufacturers President Gordan England is quoted as as saying that McCormick "had the right background and position to deal with reform, and Bush tasked him with moving it through." The article also notes that Engler has suggested that McCormick "deserves a 'bureaucrat of the year' award for his effort in pushing through the reforms . . ."

Finally, the article correctly asks how useful these directives will actually be in reforming the dual-use and military export controls and licensing process. The article quotes Congressman Brad Sherman (D-CA), who serves as the Chairman of the House Foreign Affair's Subcommittee on Terrorism, Nonproliferation and Trade and held an export controls oversight hearing last July, as saying that:

"It looks like the administration has finally taken some steps in the right direction and that it takes the issue of export controls seriously . . . however, many of these initiatives are not actually policies to be implemented; they are really just instructions to solve this or that specific problem."

Labels: BIS, DDTC, Export Controls

Two individuals were arrested last weekend in Saipan, the capital of the U.S. Commonwealth of the Northern Mariana Islands, for attempting to export certain controlled products and defense articles to the People’s Republic of China.

According to the indictment, Peter Zhu, purportedly with Shanghai Meuro Electronics Company, Ltd., in the Peoples’ Republic of China, requested to buy several products which require an export license from an undercover Immigration and Customs Enforcement agent. Specifically, Zhu requested to purchase amplifiers used in digital radios which are broadband, three-stage devices designed for use in commercial digital radios and wireless local area networks. Zhu also requested to purchase monolithic high-electron-mobility-transistor (HEMT) amplifiers which are included in Category XI(a) of the U.S. Munitions List and therefore subject to the International Traffic in Arms Regulations (ITAR).

The indictment further states that Ding Zhengxing and Su Yang became involved in the negotiations for the delivery of the devices. Zhengxing and Yang traveled to Saipan on or about January 25, 2008, to take possession of the amplifiers and were arrested. They were indicted for conspiracy to illegally export defense articles, aiding and abetting the illegal export of defense articles and conspiracy to launder monetary instruments.

At a federal removal hearing yesterday in Saipan, a federal judge ordered Zhengxing and Yang transferred to El Paso, Texas for trial.

Labels: DDTC, Export Controls

Last week the State Department's Directorate of Defense Trade Controls (DDTC) unveiled a new look to its Web site. In addition to adding a "site map" on the left side of each page and most pages have been updated. These changes enhance the ability for users to find information and navigate the site.

While the changes to the design of the DDTC's Web site are welcome, there are still a few problems with the site. For example, it is not possible to return to the Home Page from any of the other pages. While there appears to be a link to the "DDTC Homepage" at the upper left hand corner of each page, the link does not yet work.

Labels: DDTC

The President issued a directive yesterday calling for more efficient procedures at the U.S. Department of State for export licensing of military equipment, services and data. The directive is designed to limit the period of time the government is permitted to make license determinations for items on the U.S. Munitions List to 60 days. Although the directive indicates that additional funding will be allocated for defense export licensing, it is unclear how much financial support will be made available for this purpose. Under the directive, the Secretary of State is also required to update U.S. controls on defense exports involving dual and third country nationals from NATO and other allied countries. The likely affect of this reform is a reduction in the number of goods that will require a license.

The President’s directive also calls for an electronic licensing system that permits all agencies access to defense related licenses. With respect to the resolution of jurisdictional issues arising from the licensing of defense articles, the President directs the creation of a formal interagency dispute mechanism, “the Commodity Jurisdiction process”, made up of the Departments of State and Commerce, and assigns oversight jurisdiction to the National Security Council. In the same breadth, the President’s directive reflects a continued commitment to prevent the diversion of defense articles to unauthorized users.

Update: The State Department's fact sheet on the effect of the President's directive as it applies to defense trade issues can be found here. The Bureau of Industry and Security's fact sheet on the President's directive as it applies to dual-use export controls can be found here.

Labels: BIS, DDTC, Export Controls

The State Department has announced in the Federal Register that the Bureau of Political-Military Affairs' Defense Trade Advisory Group (DTAG) is now accepting membership applications for two-year terms. Applications must be received by September 24, 2007 in order to be considered.

DTAG members are appointed by the Assistant Secretary of State for Political-Military Affairs on the basis of individual substantive and technical expertise and qualifications. DTAG members are drawn from a cross-section of U.S. defense industry, association, academic personnel, including appropriate technical and military experts.

Labels: DDTC

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation, and Trade held a hearing today entitled, "Exports Controls: Are We Protecting Security and Facilitating Exports?"

In his opening statement, House Foreign Affairs Chairman Tom Lantos (D-CA) came out with his guns blazing. Most of his ammunition was directed at the State Department's Directorate of Defense Trade Controls (DDTC). For example, Chairman Lantos said that DDTC:

. . . has been awash in unprocessed applications for licenses to ship military equipment overseas – a whopping 10,000 of them at one point last fall. The State Department is beset by so-called managers who, in fact, area unable to manage this process. Their recommendation: Throw more money at it. I certainly support increasing the resources at the State Department for this crucial job. It is absurd in the extreme that State has only 37 licensing officers to process nearly 70,000 applications, while Commerce boasts over 70 officers for a comparatively-paltry workload of 23,000 licenses. But increased resources alone will not fix the problem of mismanagement. Simply put, the management of arms licensing needs sustained attention and commitment by the senior leadership of the State Department to fix the problems – attention that has been lacking for several Administrations. The Committee on Foreign Affairs will do its part in finding solutions, with or without the Administration’s help. This hearing is an important part of that process.

Below are links to and some highlights of the prepared testimony of the hearing witnesses:

Christopher A. Padilla, Assistant Secretary for Export Administration, Bureau of Industry and Security, U.S. Department of Commerce:

• In Fiscal Year 2006, BIS processed 18,941 export licenses valued at $36 billion, a 13% increase over Fiscal Year 2005 and the highest number of applications reviewed by BIS in over a decade.
• In Fiscal Year 2006, average processing time for dual-use licenses – including full interagency review – was 33 days. Through June 30 of the current fiscal year, the average licensing processing time dropped to 29 days, a decrease from 40 days in FY 2001.
• Said that any new dual-use export control system must have the following three defining features: (1) must become more end-user focused; (2) must be further improved to ensure America’s exporters are able to apply for and receive licenses in a timely, transparent, and efficient way; and (3) must limit the export of sensitive products while still ensuring that controls do not unduly restrict the vast majority of legitimate, civilian high-tech trade.

Stephen D. Mull, Acting Assistant Secretary, Bureau of Political-Military Affairs, U.S. Department of State:

• In FY 2007, [DDTC] expects to license up to $100 billion in authorized exports. On a year-to-year basis, the number of application received have increased 8%, with total licenses completed by [DDTC] anticipated to rise from 66,000 in FY 2005 up to an estimated 80,000 in FY 2007.
• At the beginning of FY07 DDTC had over 10,000 pending applications, but by January 2007 the number was reduced to approximately 5,200. DDTC currently has approximately 7,200 pending applications, with 567 over 60 days old. The complexity of license applications and Technical Assistance Agreements (TAA) is increasing. In FY 2006, more than 7,000 TAAs were received and the value of defense services provided with such agreements is roughly equal to or greater than the value of hardware exports.
• DDTC is initiating the following changes "to manage export control risk": (1) Deputy Assistant Secretary for Defense Trade Control will institute a mandatory DAS-level review of any Operation Iraqi Freedom or Operating Enduring Freedom case that is pending for greater than seven days; (2) will shortly commence with the concurrent review of TAA applications with DOD, which we expect to expedite the review of such items; (3) ill initiate a policy change that will permit employees of foreign companies who are nationals from NATO or EU countries, Japan, Australia and New Zealand to be considered authorized under an approved license or TAA.
  

Ann Calvaresi-Barr, Director of Acquisition and Sourcing Management at the U.S. Government Accountability Office (GAO):

• State and Commerce have yet to clearly determine which department controls the export of certain sensitive items. No one has held State or Commerce accountable for making clear and transparent decisions about export control jurisdiction.
  
• Lack of clarity on exemption use has limited the government’s ability to ensure that unlicensed exports comply with export laws and regulations. At times, State has provided conflicting information to exporters on the proper use of the Canadian exemption, which has resulted in some exporters using the exemption while others applied for licenses to export the same item.
  
• State and Commerce can provide little assurance about the overall effectiveness of their respective export control systems. In managing their systems, neither department has conducted systematic assessments that would provide a basis for determining what corrective actions may be needed to ensure they are fulfilling their missions.
  
• DDTC's streamlining initiatives have generally not been successful and processing times have increased in recent years—from a median of 13 days in 2002 to 26 days in 2006. Also, at the end of 2006, State's backlog of applications reached its highest level of more than 10,000 open cases.
• Anticipated efficiencies of D-Trade have not been realized. GAO's analysis of processing times for permanent export licenses does not show a significant difference between D-Trade and paper processing for fiscal years 2004 through 2006.
  

John W. Douglass, President and CEO, Aerospace Industries Association of America:

• Discussed Coalition for Security and Competitiveness' proposals for development of a modern export control system that is efficient, predictable, transparent and an enabling component of America’s broader national security strategy.
  

• Seeking export control system that can deliver decisions on 95 percent of all license applications in 30 days, not the current 55+ days it often takes.

• Said that Coalition is in beginning stages of discussing and identifying key elements of a “model modern system” to compare with the existing system. The Coalition intends to put forward proposals for a "next generation" system next year for consideration by and discussion with Congress as well as the 2008 Presidential campaigns.
  

Will Lowell, Managing Director Lowell Defense Trade, LLC and Former Director, Directorate of Defense Trade Controls, U.S. Department of State:

• Described three interrelated problems challenging U.S. arms export control system today: (1) Failure to Assess and Reorient Controls against Terrorist Threats; (2) Systemic Vulnerabilities and Risks to U.S. Technology; (3) Declining Levels of Service for U.S. Industry

• Advocated proposal for Congress to work with senior management at DDTC on plan to: (1) clear backlog of license applications within next 120 days; (2) Identify permanent funding sources (e.g., budgetary or license fees) to prevent recurrence of any backlog and assure predictable time lines for U.S. business community; (3) Establish timetable and reporting channel to Congress for a post-9/11 inter-agency review of gaps to be closed or enhancements needed in U.S. export control regulations and policies; and (4) Include plan and timetable for eliminating system vulnerabilities and weaknesses that triggered GAO’s “high risk” designation.

The testimony of Beth M. McCormick, Acting Director Defense Technology Security Administration, U.S. Department of Defense was not available prior to the hearing.

Labels: BIS, Congress, DDTC, Export Controls

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation, and Trade will hold a hearing tomorrow on export controls. The hearing, entitled, "Exports Controls: Are We Protecting Security and Facilitating Exports?" will include the following witnesses:

Labels: BIS, DDTC, Export Controls

On July 17, 2007, the Commerce Department's Bureau of Industry and Security (BIS) published the following three important final rules and notices in the Federal Register:

Antiboycott Penalty Guidelines:

The first document published by BIS in the July 17, 2007 edition of the Federal Register was a final rule setting forth BIS policy concerning voluntary self-disclosures of the antiboycott provisions of the Export Administration Regulations (EAR) and the factors that BIS will consider when deciding whether to pursue administrative charges and impose penalties for violations of the antiboycott provisions.

Specifically, the final rule creates a new section 764.8 of the EAR (15 CFR § 764.8) setting forth the procedures for voluntary self disclosure of violations of the antiboycott provisions. For example, section 764.8 requires, among other things, that voluntary self-disclosures be in writing and that they be received by BIS's Office of Antiboycott Compliance before the agency learns of the same or substantially similar information from ‘‘another source’’ and has commenced an investigation or inquiry in connection with that information. Significantly, the final rule specifies that violations revealed by exporters to BIS in telephone or e-mail requests for advice concerning the antiboycott provisions are "not information received from another source". The final rule states that a voluntary self-disclosure of a violation of the antiboycott provisions of the EAR will be considered to be a "Great Weight" mitigating factor in the settlement of administrative enforcement cases.

The final rule also creates a new supplement No. 2 to part 764 that describes how BIS responds to violations of the antiboycott provisions and how BIS makes penalty determinations in the settlement of antiboycott administrative enforcement cases. The rule also specifies the various factors that BIS considers to be important when settling antiboycott administrative enforcement cases.

The final antiboycott guidelines rule takes effect on August 16, 2007.

Guidance on Licensing Jurisdiction of Microelectronic Circuits:

BIS also published a final rule in the July 17, 2007 Federal Register adding language to ECCN 3A001 advising that the following are subject to the licensing jurisdiction of the Department of State, Directorate of Defense Trade Controls (DDTC):

Radiation hardened microelectronic circuits controlled by Category XV(d) of the United States Munitions List (USML) and all specifically designed or modified systems or subsystems, components, parts, accessories, attachments, and associated equipment controlled by Category XV(e) of theUSML.

On the same date, DDTC published a Federal Register notice amending the text of the USML Category XV(d) to clarify the coverage of and to alter one of the five performance characteristics that define radiation-hardened microelectronic circuits that are subject to the licensing jurisdiction of the International Traffic in Arms Regulations (ITAR).

CCL Review:

On July 17, 2007 BIS published a notice in the Federal Register announcing that it is conducting a "systematic review" of the Commerce Control List (CCL) and is seeking comments from the public on the following topics:

1. The overall structure of the CCL, including suggestions for how the structure of the CCL may be changed to better advance U.S. national security, foreign policy, and economic interests;
2. Types of items that should be listed on the CCL and the appropriate levels of controls to be placed on those items, taking into account technology levels, markets, and foreign availability;
3. Any updates to the CCL item descriptions that would enable the descriptions to better reflect the intent of the multinational controls and to eliminate any overly broad descriptions that inadvertently capture non-critical items that are not controlled by other countries; and
4. Coordination and harmonization of controls on items covered by the multilateral regimes, such as the Wassenaar Arrangement.
   

This is an excellent opportunity for companies and industries that produce and export controlled products to advise BIS of their concerns with specific Export Classification Control Numbers (ECCNs) and other CCL concerns. Comments on the CCL must be submitted to BIS by September 17, 2007.

Labels: BIS, Boycotts, DDTC

The Directorate of Defense Trade Controls (DDTC) announced this past week that the upgrade to D-Trade2/Version 5.0, previously schedule for late June, has now been postponed until late July. DDTC will announce as soon as possible the specific dates that the upgrade will take place.

Labels: DDTC

The Directorate of Defense Trade Controls (DDTC) published in today's Federal Register a list of 11 persons that have been statutorily debarred since the beginning of 2006 as a result of violating or conspiring to violate the Arms Export Control Act.

Persons subject to statutory debarment are prohibited from participating directly or indirectly in activities regulated by the ITAR, including the exportation or importation of defense articles, related technical data or defense services. The debarment period runs for a period of at least three years, although the individual can apply to DDTC for reinstatement beginning one year after the date of the debarment.

A complete list of individuals and companies that are currently statutorily debarred can be found on DDTC's website at the following link: www.pmddtc.state.gov/debar059.htm (Note: At this writing the list has not been updated to reflect the 11 persons named in today's notice).

Labels: DDTC, ITAR

The Times of India newspaper reports that, in response to a request from the Government of India, the U.S. will send a team of Department of Justice officials to India with classified information on Cirrus Electronics. Cirrus Electronics was indicted by the U.S. Government in April 2007 on charges of illegally exporting electronic components to government entities in India without obtaining export licenses from the Bureau of Industry and Security (BIS) and the Directorate of Defense Trade Controls. BIS recently issued a Temporary Denial Order on Cirrus Electronics, its overseas affiliates and officers.

Labels: BIS, DDTC, Export Controls

The Directorate of Defense Trade Controls announced today that it will soon be upgrading to D-Trade2:

On Wednesday, June 27th at 5pm EST, we will shut down D-Trade in order to upgrade to D-Trade2/Version 5.0. D-Trade2/Version 5.0 will be operational and online 9am Monday, July 2nd. Please note that both external and internal operations involving D-Trade will be affected by this promotion.

Beginning the week of May 21, we will post additional information on the DDTC Web site on how operations will be handled during this period, along with highlights of new and improved features available in D-Trade2/Version 5.0. Please hold your questions/concerns regarding the temporary shutdown until we post detailed guidance.

Labels: DDTC

The State Department published in Monday's Federal Register the annual list of countries that are not cooperating fully with U.S. antiterrorism efforts. This year's list includes Cuba, Iran, North Korea, Syria, Venezuela, which is unchanged from last year.

This annual certification is required by section 40A of the Arms Export Control Act (AECA) (22 U.S.C. 2781), which prohibits exports of defense articles and services to countries that are not fully cooperating with U.S. antiterrorism efforts. The statute also requires the President to determine and certify to Congress by May 15th of each year the countries that are not cooperating fully with United States antiterrorism efforts. Executive Order 11958 delegated the functions of the president under this provision of law to the Secretary of State.

Labels: DDTC, Sanctions

Labels: Canada, DDTC, ITAR

By a vote of 397-28, the U.S. House of Representatives today passed H.R. 1585, the National Defense Authorization Act for Fiscal Year 2008. Section 1049 of the bill prohibits the Department of Defense from selling any parts for F-14 fighter aircraft (of Top Gun fame), except for those in a museum or preserved for historical purposes. It also prohibits the U.S. Government from issuing any export licenses for any F-14 aircraft parts to a non-U.S. person or entity.

This provision, which was originally introduced earlier this year as the Stop Arming Iran Act by Senator Ron Wyden (D-OR) (S. 387) and Representative Gabrielle Giffords (D-AZ) (H.R. 1441), is aimed at preventing Iran from obtaining spare parts for F-14s. While F-14 Tomcats were retired by the U.S. military in 2006, it estimated that Iran, which acquired 79 F-14s from the U.S. in the 1970s, still has several of the aircraft left in service.

U.S. Customs and Border Protection agents have found F-14 spare parts being shipped to Iran by brokers who bought the items from Department of Defense auctions. Several persons have been convicted for exporting F-14 spare parts to Iran.

Labels: Congress, DDTC, Sanctions; Iran

Labels: DDTC, ITAR

The Directorate of Defense Trade Controls has published a notice on its website explaining the State Department’s policy with respect to exports by or involving ITT Night Vision Division following the debarment announced on April 11, 2007.

Labels: DDTC

On May 4, 2007, ITT Corporation filed its first quarter 2007 quarterly report (Form 10-Q) with the Securities and Exchange Commission. Among other things, the 10-Q notes that an ITT shareholder has requested ITT's Board of Directors to take actions against the ITT employees that were responsible for engaging in the activities that led to the criminal penalties that were levied on the company. The relevant language in the 10-Q states as follows:

On March 27, 2007, ITT Corporation reached a settlement relating to an investigation of its ITT Night Vision’s compliance with International Traffic in Arms Regulations (ITAR). As part of the settlement, ITT Corporation pleaded guilty in the United States District Court for the Western District of Virginia to one ITAR violation relating to the improper handling of sensitive documents and one ITAR violation involving making misleading statements. The Company will pay a total of $50.0 [million] in fines, forfeitures and penalties, including a payment of $30.0 [million] made in the first quarter of 2007. This liability was fully accrued at December 31, 2006. The Government has agreed to defer action regarding a third count of ITAR violations, pending the Company’s implementation of a remedial action plan. The Company has also agreed to invest $50.0 [million] over the next five years in research and development and capital improvements for its Night Vision products. As a result of the guilty plea, ITT Corporation became subject to automatic statutory “debarment” from future export licenses. However, because the debarment will be applicable to only a portion of the Company’s Night Vision business, it is expected that the net effect of the debarment will restrict less than 5% of total Night Vision sales for a period of not less than one year. The Company can seek restatement of export privileges after one year. The Company anticipates negotiating administrative agreements with the Departments of State and Defense during the second quarter of 2007. Management believes that this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

On April 17, 2007, the Company’s Board of Directors received a letter on behalf of a shareholder requesting that the Board take appropriate action against the employees responsible for the actions described in the Company’s agreements with the United States Attorney’s Office for the Western District of Virginia, which were disclosed on Form 8-K filed on March 30, 2007. The request is being evaluated.

Labels: DDTC, Export Controls

The Directorate of Defense Trade Controls (DDTC) announced today that effective April 30, 2007, it will no longer accepts the “carbon paper” or “downloadable” versions of the following forms: DSP-5 (permanent export of defense articles), DSP-61 (temporary import of defense articles), and DSP-73 (temporary export of defense articles). Only the electronic versions of these forms may be used and they must be submitted to DDTC via D-Trade, DDTC's electronic licensing system. Any “carbon paper” or “downloadable” form postmarked or hand delivered after April 30, 2007 will be returned to the applicant.

For license amendments, the DSP-119 form may still be used until replaced by the DSP-6, DSP-62, and DSP-74.

DDTC stated that this policy does not affect the following applications, certificates and agreements: DSP-85 (Application/License for Permanent/Temporary Export or Temporary Import of Classified Defense Articles and Classified Technical Data), DSP-53 (International Import Certificate), General Correspondences (GCs), Agreements and Agreement Amendments (AGs, TAAs, MAs, DAs), and Brokering Requests (BAs).

Labels: DDTC

The Directorate of Defense Trade Controls announced today that it is co-sponsoring with Johns Hopkins University an Export Controls Symposium for academic research institutions. The Symposium will be held on May 23-24, 2007 at the National Academy of Sciences in Washington, DC.

The Symposium is geared to university researchers and research administrators who want to better understand federal regulations that apply to sharing information with foreign parties. Representatives from the U.S. Departments of State, Commerce and Defense are scheduled to provide information and answer questions about export control issues for universities. The Symposium's agenda and registration information can be found here.

Labels: DDTC, Export Controls

For those that like to plan ahead, the Directorate of Defense Trade Controls (DDTC) published an announcement in today's Federal Register that the Defense Trade Advisory Group (DTAG) will meet from 9 a.m. to 12 noon on September 20, 2007 at the State Department in Washington, DC.

In addition, DDTC recently posted an announcement on its website that a "Federal Register notice will be published in late summer welcoming the submittal of applications for membership in the DTAG."

The DTAG, which meets once or twice per year, was established in 1992 and is is intended to provide the State Department's Bureau of Political-Military Affairs with a formal channel for consultation with U.S. private sector defense exporters and defense trade specialists on issues involving the export of defense articles and services.

Minutes from previous DTAG meetings and DTAG's annual reports can be found here.

Labels: DDTC

The State Department's Directorate of Defense Trade Controls (DDTC) published in today's Federal Register a three year statutory debarment of ITT Corporation's Night Vision Division resulting from the company's recent criminal guilty plea and penalty for violating the Arms Export Control Act and the ITAR. As a result, ITT's Night Vision Division is prohibited from exporting defense articles, related technical data or providing defense services until March 28, 2010 unless reinstated earlier by DDTC.

In determining the scope of the debarment, DDTC found that ITT had taken "appropriate steps" to mitigate any law enforcement concerns and therefore decided to debar only the ITT-Night Vision Division, the ITT entity responsible for the export control violations.

In addition, DDTC found that "based on the underlying nature of the violations" the debarment period will be for a period of three years. However, DDTC will consider ITT's reinstatement request in one year. However, any request for reinstatement will only take place following a thorough review of the circumstances surrounding the conviction and a finding that appropriate steps have been taken to mitigate any law enforcement concerns.

U.S. manufacturers and exporters of defense articles and services should be aware that debarred persons are generally ineligible to participate in any activity regulated under the ITAR. As a result, ITT Night Vision's Division is prohibited from participating directly or indirectly in activities regulated by the ITAR, including any brokering activities, and in any export from or temporary import into the United States of defense articles, related technical data or defense services.

Labels: DDTC, Export Controls

The National Council on International Trade Development (www.ncitd.org) has announced an excellent group of speakers at its next monthly trade compliance meeting. NCITD's April 12, 2007 meeting in Washington, DC will feature the following speakers:

• Susan M. Clark, Director of the Office of Defense Trade Controls Licensing, U.S. Department of State;
• Wendy Peebles, Chief of Automated Export System, Foreign Trade Division, U.S. Census Bureau; and
• Matthew S. Borman, Deputy Assistant Secretary for Export Administration, Bureau of Industry and Security, U.S. Department of Commerce
  

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: AES, BIS, DDTC

The State Department's Directorate of Defense Trade Controls (DDTC) today published a final rule in the Federal Register amending the International Traffic in Arms Regulations (ITAR) authorizing DDTC to issue licenses for the import or export of non-lethal defense articles and defense services to and from Vietnam.

The new policy does not permit the export or other transfer to Vietnam of: (a) Lethal end items, (b) components of lethal end items, unless those components are non-lethal, safety-of-use spare parts for lethal end items, (c) non-lethal crowd control defense articles and defense services, and (d) night vision devices to end-users with a role in ground security.

Labels: DDTC, Export Controls

The fallout from ITT's $100 million penalty continues:

The Westchester County, New York-based Journal News recently reported that "the criminal punishment meted out to ITT Corp. this week over its flouting of federal export laws also recognizes the defense contractor's status as the leading manufacturer of an important piece of military hardware."

Sunday's Roanake Times contains an editorial entitled "ITT lost sight of its mission: A defense contractor that develops ways to see better in the dark was blinded by profits". The editorial states that:

The manner in which employees of ITT Corp. delivered secret military technology into foreign hands was not simply careless and reckless, it was criminal and could endanger the lives of U.S. soldiers.

On Wednesday, the Roanoke-based ITT Night Vision entered guilty pleas in federal court to two felonies and agreed to pay a $100 million fine. This was a plea entered into by the corporation. U.S. Attorney John Brownlee promised that this won't end the five-year investigation, nor should it.

Companies don't often wade into illegal waters without some managers and employees who knowingly and willfully break the law. If that's true here, they, too, should be held accountable.

The plea agreement details a pattern over many years in which managers knew they weren't permitted to share U.S. military secrets with foreign countries without State Department permission, but they continued to do so. When the State Department began to get wise, the company obstructed the investigation and continued to deliver advanced and secret technology to Singapore, China and Japan.

ITT's focus on enhancing profits endangered soldiers and Marines. The firm had a government contract to revolutionize the night vision goggle field. It married the best of night vision and thermal imaging and developed a light interference filter to withstand the damage of laser weapons. No other military has such advanced goggles, and the U.S. wanted to keep it that way.

The company's plea agreement requires $100 million in fines and restitution, half of which it will spend over the next five years developing new night vision technology. Some might wonder why the government would coddle a defense contractor that gave away state secrets. Most likely because it has little choice.

The product ITT developed is highly specialized. In requiring ITT to share new technology with its U.S. competitors, the government will be placed in a better bargaining position for future contracts.

Further, in requiring ITT to spend $50 million to develop a superior goggle, the company will make restitution to soldiers on the battlefield.

ITT's Form 8-K Report filed with the SEC late last week notes that "as a result of the guilty pleas, ITT Corporation became subject to automatic statutory 'debarment' from future export licenses. It is expected that the net effect of the debarment will be to restrict certain exports of Night Vision equipment (representing less than 5% of its total Night Vision sales) to specific parties for a period of not less than one year." The 8-K also indicates that a copy of the Consent Agreement with the United States Department of State regarding export restrictions will be filed when it is entered into." The Report also includes a copy of the Criminal Information, Plea Agreement, Deferred Prosecution Agreement and Order of Forfeiture filed in the case.

Separately, ITT's Engineered Valves Group recently entered into a Settlement Agreement with the Commerce Department's Bureau of Industry and Security (BIS) whereby ITT agreed to pay a $26,400 civil penalty for exporting controlled valves to China, Israel, Saudi Arabia and Taiwan without the required Commerce Department licenses.

Labels: DDTC, Export Controls

The U.S. Government today imposed a $100 million criminal penalty on ITT Corporation (ITT) for "knowingly and willfully" illegally exporting military night vision goggle systems and related technical data to the People's Republic of China, Singapore, the United Kingdom and Japan and willfully omitting statement of material facts in arms export reports. The $100 million is one of the largest penalties ever paid in a criminal case. ITT Corporation will also be the first major defense contractor convicted of a criminal violation of the Arms Export Control Act.

According to count one of the Information, between March 2001 and August 2001, ITT exported or caused to be exported defense-related technical data to the People’s Republic of China, Singapore, and the United Kingdom without having first obtained a license or written authorization from the U.S. Department of State's Directorate of Defense Trade Controls. The technical data included information about a laser counter measure known as a “light interference filter” for military night vision goggle systems. These night vision goggles are designated as defense articles on the U.S. Munitions List, and companies are required to have a State Department license or written authorization before exporting them.

Count two of the Information charged that between April 2000 and October 2004, ITT left out material facts from Arms Exports Required Reports. The omission of these material facts made the reports misleading. The U.S. Government alleged that ITT was aware that it was violating its export licenses for night vision goggles but failed to take significant corrective action to stop the ongoing violations until shortly before it informed the Department of State about the violations.

ITT Corporation today entered into a Plea Agreement with the U.S. whereby ITT will plead guilty to counts one and two of the Information as described above. As part of the Plea Agreement, ITT will enter into a deferred prosecution agreement with the U.S. "whereby the U.S. will defer prosecution of counts three and four for five years." [Note: the reference to count four is contained in the Justice Department's Press Release. However, the final version of the Information contained only three counts]. In return, ITT must accept full responsibility for its illegal actions and must successfully implement an extensive Remedial Action Plan.

As part of the $100 million penalty, ITT Corporation will pay a $2 million criminal fine, a $50 million deferred prosecution penalty, and will forfeit $28 million to the United States as the proceeds of its illegal actions. ITT Corporation will also pay a $20 million monetary penalty to the Department of State.

Payment of the $50 million deferred prosecution penalty will be suspended for five years, subject to certain conditions. ITT Corporation can reduce this penalty on a dollar-for-dollar basis by investing $50 million toward the acceleration, development and fielding of the next generation in advanced night vision technology.

In addition, as part of its obligations under the Plea Agreement, ITT also agreed to implement a Remedial Action Plan that includes specific provisions relating to compliance management, compliance education and training, mandatory reporting of violations, internal compliance investigations and audits. The Remedial Action Plan also requires the CEOs of each ITT business unit and the CEO of ITT Corporation to sign an annual export compliance certification.

According to the Statement of Facts issued today in connection with the Plea Agreement, the U.S. Government's criminal investigation of ITT began on August 1, 2001, when Special Agents of the U.S. Department of Defense, Defense Criminal Investigative Service (DCIS) were made aware that a classified government document designated "Secret" "NOFORN had been illegally sent to an unauthorized facility in the United Kingdom by employees of ITT Night Vision, a division of ITT, located in Roanoke, Virginia. As a result of a referral from the DCIS and U.S. Customs in 2002, the U.S. Attorney for the Western District of Virginia assigned a federal prosecutor to the criminal investigation. During the course of the criminal investigation, the government uncovered at ITT a pattern of violations of U.S. export control laws spanning from the 1980s to 2006.

The Statement of Facts, which is a must read, is particularly disturbing since it reveals a culture of noncompliance, both by in-house ITT compliance personnel and the company's outside counsel with respect to the $8 million civil Consent Agreement that ITT reached in October 2004 with the State Department's Directorate of Defense Trade Controls (DDTC) for engaging in the unauthorized export of night vision products, technical data and defense services.

John Brownlee, the U.S. Attorney for the Western District of Virginia, today issued a statement that was particularly damaging to the company and to the company's outside counsel. Brownlee said that ITT "fought the government's investigation" and attempted "to essentially run out the clock on the statute of limitations." He said ITT's posture changed in 2005 when new CEO, Steven R. Loranger, hired new outside counsel and instructed the company to cooperate with the investigation. Mr. Brownlee said that "Mr. Loranger's cooperation and strong leadership may have saved ITT from permanent ruin."

In a press release issued today, Steven R. Loranger, chairman, president and chief executive officer of ITT said that "While this settlement relates to the actions of a few individuals in one of our 15 business units, we regret very much that these serious violations occurred. I want to reinforce, however, that the heart of our night vision goggles – the tube – is secure. No technical information regarding the tube was ever compromised." Loranger added, "Our renewed commitment to a culture of integrity and compliance applies to the entire company. ITT has a long track record as a trusted employer, supplier and partner, and we are firmly committed to ensuring that this will not happen again. These violations have made it clear that we had gaps in our compliance programs. The steps we are taking now will address these issues in a comprehensive way."

Specifically, ITT said that it is already begun implementing stricter new compliance measures such as:

• Insuring that all personnel understand and follow applicable regulations governing the export of critical technology
• Naming a new compliance officer
• Instituting a required ethics and compliance training program for all employees worldwide
• Developi