Export Compliance: Getting Started Document Introduction: What is Export Compliance?
The United States regulates the export of certain technologies, technical information, and technical services in order to keep it from falling into the hands of individuals and countries that are hostile to or technologically competitive with the United States.
Most exports are obviously exports, because they are commercially shipped to international destinations and must pass through U.S. Customs. Other exports are not intuitively obvious.
For example, taking your laptop overseas without a license can be an export violation. If the laptop contains any export-controlled technical information, then you must obtain an export license, even if the technology is not transferred to a “foreign person” (which is defined in the International Traffic in Arms Regulation (ITAR) to include individuals, businesses and governments).
There is also a type of export that is referred to as a “deemed export.” This occurs when you transfer export-controlled technology, technical information, or technical services to a foreign person while they are in the United States.
Export compliance is the process of complying with United States export regulations. The two primary sets of export regulations are the International Traffic in Arms Regulations (ITAR) (22 C.F.R Parts 120-130) and the Export Administration Regulations (EAR). The Department of State, Directorate of Defense Trade Controls (DDTC) administers the ITAR and The Department of Commerce, Bureau of Industry and Security (BIS) administers the EAR.
An export license may be required if the technology you are exporting appears on the U.S. Munitions List (a part of ITAR) or if it appears in the Commerce Control List (a part of the EAR). The DDTC/ITAR also has licenses in the form of an agreement if you are providing technical assistance services to foreign persons (Technical Assistance Agreement or TAA), or if you are executing an agreement that includes a license for a foreign person to manufacture your technology overseas (Manufacturing License Agreement or MLA).
TAAs and MLAs must be reviewed and approved by the DDTC before you can execute any agreements with the foreign customer. After the DDTC approves your export-licensing agreement, license applicants will typically also execute an agreement that governs the transaction with the foreign customer, including without limitation a description of the technical information or defense services that the U.S. person will provide to the foreign customer(s), terms and conditions, and/or a license to manufacture the applicants product(s), plus the agreed price(s) of the defense services, technical information and/or products that are exported.
The Department of the Treasury, Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions programs that you must comply with when you export. Complying with their sanctions requires a screening of various lists to determine if there are any sanctions and restriction of exports to your prospective foreign customers and/or any intermediate consignees.
You may also need to undergo a review by the Treasury Department’s interagency Committee on Foreign Investment in the United States (CFIUS) if you sell an interest in your company to a foreign person.
A key element of an export-compliance program is an Export Compliance Manual. The DDTC requires all registrants to have and maintain an Export Compliance Manual. The BIS does not require a compliance manual, but it is best to include in your manual information and required procedures for the EAR, OFAC and CFIUS in addition to the ITAR.
This Manual, in addition to complying with a DDTC requirement, will also prove very valuable as a transition guide if you have to hire a new export-compliance representative. Whitcomb, Selinsky attorneys can write a detailed Export-Compliance Manual tailored to your company’s organization and the amount and type of products that your company exports.
International Traffic in Arms Regulations (ITAR)
ITAR is …
ITAR governs the…
- International Traffic in Arms Regulations (ITAR) (22 C.F.R Parts 120-130)
ITAR is managed by…
- The sale, export, temporary import, and re-transfer of defense articles and defense services
- The 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). The DDTC is charged with controlling the export and temporary import of defense articles, technical information and defense services covered by the United States Munitions List (USML).
The ITAR regulations are export controls
1. The Arms Export Control Act authorizes the President of the United States to control United States exports.
2. The President issued Executive Order 11958 which delegates responsibility to the DoS, which works closely with the Department of Defense (DoD)
3. The DoS publishes the ITAR Regulations and determines what defense articles, technical services and technical information are export-controlled
4. The DDTC manages an interagency licensing-review process that includes the DoD, Defense Technology and Security Administration (DTSA). This and other agencies that support the interagency licensing reviews work together to ensure that approved licenses are in the United States’ best interests, that prospective licenses do not pose a significant risk of unauthorized exports to a third party, and that the prospective license is consistent with the President’s strategic and foreign policy goals.
The Department of State
- 22 U.S.C. 2778 of the Arms Export Control Act (AECA) provides the authority to control the export of defense articles and services and charges the President to exercise this authority. Executive Order 11958, as amended, delegated this statutory authority to the Secretary of State.
- The Directorate of Defense Trade Controls (DDTC), in accordance with the 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).
- The AECA, among these other requirements and authorities, provides for the promulgation of implementing regulations, the ITAR.
The Department of Defense
- DDTC works closely with the Department of Defense (DoD) through the Defense Technology Security Agency (DTSA).
- The DTSA administers the development and implementation of DoD technology security policies on international transfers of defense-related goods, technical information and defense services.
- In addition to conducting export license review and authorization with DDTC, DTSA also issues instructions for requesting exemptions through designated authorities.
(1) Sending or taking a defense article or technical information out of the United States in any manner;
(2) Transferring control of any U.S. Munitions List item to a foreign person, regardless of where the transfer took place;
(3) Oral/visual disclosure or transfer of any defense article to a foreign person;
(4) Oral/visual disclosure or transfer of technical data to a foreign person; and
(5) Performing a defense service on behalf of or for the benefit of, a foreign person.Defense service:
(1) Assistance (including training) to foreign persons to develop/use defense articles
(2) The furnishing to foreign persons of any technical data
(3) Military training of any foreign units and forces including formal or informal instruction, training exercise, and military advice. Defense article:
Items listed on the United States Munitions List.Is my product a Defense Article?
Example: CATEGORY I—FIREARMS, CLOSE ASSAULT WEAPONS AND COMBAT SHOTGUNS
(f) Riflescopes manufactured to military specifications (See category XII(c) for controls on night sighting devices). The Path to Exporting Defense Articles
3. Compliance. Registration
All manufacturers, exporters, and brokers
of defense articles, related technical data and defense services as defined on the United States Munitions List (Part 121 of the ITAR) are required to register with the Directorate of Defense Trade Controls (DDTC). Registration provides information on who is involved in certain manufacturing, exporting and brokering activities. Registration does not confer export rights or privileges, but it is a precondition for the issuance of any license or other approval for export. Registration code
Once an entity has properly registered with DDTC, a unique registration code will be assigned to the registrant. The code is proprietary to the registrant and should be handled as such. Validity period
The period of validity for new and renewal registrations is twelve months from the date of issuance. Timelines
The average review time for a registration request is 45-60 days. Submission must be made electronically, and the request should be submitted at least 60 days prior to the expiration date. Manufacturers/Exporters
- Per ITAR §122.1, any person who engages in the United States in the business of either manufacturing, exporting, or temporarily importing defense articles or technical data, or furnishing defense services to foreign persons is required to register with DDTC. Manufacturers who do not engage in exporting must nevertheless register.
- Note: U.S. distributors and other U.S. persons exporting parts and components and other defense articles and services outside of the United States, or to foreign persons in the United States, are considered to be exporters.
A complete registration package consists of:
- Per ITAR §129.3, any person identified under ITAR §129.2(a) who engages in brokering activities identified under ITAR §129.2(b) is required to register with the DDTC unless exempt under ITAR §129.3(b). Registration is generally a precondition for the issuance of licenses, and approval for brokering activities required under Part 129, or the use of exemptions.
- Note: Brokers may not obtain export licenses. U.S. Brokers that need to obtain export licenses must also be registered as an exporter.
- Note: U.S. distributors and other U.S. persons that broker defense articles or defense services must register as a broker. Foreign (i.e., non-U.S.) distributors and other foreign persons that are located in the United States or are owned or controlled by U.S. persons who broker defense articles or defense services must register as a broker.
- An “unsigned” DS-2032 Statement of Registration
- A completed “signed” DS-2032 submitted as an attachment. “Signed” refers to the completed, printed, signed, scanned DS2032.
- Additional applicable supporting documentation including: 1) Articles of incorporation, business license, articles of organization or partnership agreement; 2) Electronic payment confirmation; 3) Annual Brokering report, if applicable.
Affirmative Duty to Notify of Changes in Registration Information
- The first tier is an annual flat fee of $2,250.00. The first tier includes: 1) First time registrants (Manufacturer, Exporters and stand-alone Brokers); 2) Annual registration renewals for stand-alone Brokers (U.S. and foreign owned or controlled by U.S. persons); and, 3) Registrants who did not submit any license applications or request for authorization during the twelve month period, ending 90 days prior to the expiration of the current registration.
- The second tier is a set fee of $2,750 for registrants renewing their registration who have submitted and received a favorable authorization on ten or fewer license applications or request for authorization during a twelve month period, ending 90 days prior to the expiration of their current registration.
- The third tier is a calculated fee for registrants who have submitted and received favorable authorization on more than ten license applications or request for authorization during the twelve month period, ending 90 days prior to the expiration of the current registration. For these registrants, the fee calculation is $2,750 plus $250 times the total number of applications over ten. To ensure fairness to those registrants who may fall within the third tier who may have many applications but all of a low value, there is a provision for a reduced fee if the fee calculated above is greater than 3 percent of the total value of all applications. In such cases, the fee will be 3 percent of the total value of all applications or $2,750, whichever is greater.
- A material change is a change in information contained in the DS-2032 Statement of Registration (“DS-2032”). Examples of material changes include ineligibility changes, changes to name, address, or senior officers; the establishment, acquisition or divestment of a U.S. or foreign parent, subsidiary, or affiliate; a merger; or, the addition or deletion of USML categories.
- Material Changes = 5-day Notification to DDTC.
- Generally, any person or company who intends to export or to temporarily import a defense article, defense service, or technical data must obtain prior approval from DDTC. The appropriate license form(s) or unsigned export-licensing agreement must be submitted to the DDTC for approval. In order for the DDTC and interagency reviewing organizations to consider a license, you first must be registered with DDTC.
- Submit requests for licenses through the DDTC online portal “Dtrade” (a fully electronic system) or,
- Through DDTC online portal “ELLIE” (to amend licenses).
DDTC advises registered exporters and manufacturers to have procedures in place that ensure export compliance.
Export information and procedures should be set forth in an export-compliance manual that articulates the company’s policies on and commitment to comply with defense trade laws and regulations. Such a manual should also include the identification and duties of empowered officials and responsible persons, and procedures on record keeping and internal auditing.
The Department of Commerce, Bureau of Industry and Security (BIS) administers the Export Administration Regulations which govern export of dual-use items. These items may be sold commercially, but are also sensitive technologies whose export the Government believes it needs to regulate. An example is encryption software; a license may be required to export of this software to certain countries. The EAR regulations are very complicated with respect to some products and encryption software is a good example.
There is no registration requirement associated with BIS/EAR and there are many exemptions that may apply. There are also some regulations that say you only have to notify BIS in writing, rather than obtain a license for some exports. Nonetheless, the empowered official and other employees that work on export compliance must understand whether and how the EAR applies to their products. The Export Compliance Manual must explain the EAR, and manager and employee training should at least make employees aware that some dual-use commercial products may require a license per the EAR.
Typical topics that are covered in an Export Compliance Manual:
Export-Compliance Manuals: The Key to Successful Compliance
EXPORT COMPLIANCE MANAGER
SHIPPING AND RECEIVING
HUMAN RESOURCES MANAGER
EXPORT CONTROL REFERENCE INFORMATION
U.S. MUNITIONS LIST CATEGORIES
EXPORT ADMINISTRATION REGULATIONS
APPENDIX A: ORGANIZATIONAL CHART
APPENDIX B: REGISTRATION LETTER Implementation Plan
If you want to become ITAR compliant:
- Register with DDTC;
- Obtain training for the Empowered Official and any other export-compliance employees;
- Prepare an Export Compliance Manual that is tailored to your company, facilities products and foreign customers;
- Empowered Official prepares training materials and trains managers and employees (annually);
- Apply for export licenses or agreements as necessary; and
- Conduct internal audits to ensure that all managers and employees understand and are following the export procedures set forth in the Export Compliance Manual.
ITAR Compliance ROM Estimate
Step 1 — Registration: Approximately 25 hours*
- Providing the U.S. Government with necessary information on who is involved in certain manufacturing, exporting and brokering 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.
- There is an annual registration fee
- Registration is valid for 12-months
- DDTC review of a registration application takes approximately 45-60 days.
Step 2 — Licensing: Approximately 20-40 hours*
- Any person or company who intends to export or to temporarily import a defense article, defense service, or technical data must obtain prior approval from DDTC. The appropriate license form must be submitted for the purpose of seeking approval. In order for a license to be considered, you first must be registered.
- ITAR license applications must be submitted through “DTrade” an electronic defense export licensing system. DDTC is prepared to receive and adjudicate defense export authorization requests properly submitted by any U.S. entity that is a DDTC registrant.
- The ability to digitally sign information is required.
Step 3 — Compliance: 100 hours*
- To ensure compliance with U.S. export law and regulations, the Directorate of Defense Trade Controls requires exporters and manufacturers to have compliance programs.
- These programs should include an export-compliance manual that articulates the company’s policy on and commitment to comply with defense trade laws and regulations, and that outlines the procedures for dealing with licensing and compliance matters. Such a manual should also include the identification and duties of empowered and responsible persons, and procedures on record keeping and internal auditing.
- Training programs are also required.
If you export defense articles as defined by ITAR or dual-use products regulated by the EAR, and you do not have a compliance program in place, please give us a call and we can answer your questions about exporting controlled products and instituting a compliance program. We specifically tailor our Export Compliance Manuals to the circumstances of your company’s company, facilities, products and the countries that you export to. Such a manual can prove invaluable; if you can prove that you have a robust compliance program in place, including an Export Compliance Manual, you may avoid a fine or other other negative consequences if you have a first-time export violation.
* The estimates of attorney time to complete each phase of compliance described above the requirements for the initial steps to become ITAR compliant. Once compliance is achieved it must be maintained and there are annual requirements.