A|D|S DOING BUSINESS IN THE USA SEMINAR SERIES SECURITY
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A|D|S DOING BUSINESS IN THE USA SEMINAR SERIES STRATEGIES FOR SUCCESS IN DEFENCE & HOMELAND SECURITY Living with ITAR (Issues Associated with Operating a Non-U.S. Owned Defense Business in the U.S.) Jerome J. Zaucha K&L Gates LLP Washington, DC 20006 Overview of ITAR Scope of ITAR To What Does ITAR Apply? U.S. Defense Articles Defense article means any item or technical data designated in Sec. 121.1 of ITAR (the U.S. Munitions List). The Arms Export Control Act (22 U.S.C. 2778(a) and 2794(7)) provides that the President shall designate the articles and services deemed to be defense articles and defense services for purposes of ITAR. Examples: All specifically designed or modified components, parts, accessories, attachments, and associated equipment for (i) vessels specifically designed or modified for military purposes (Category VI(f) of the USML); (ii) aircraft specifically designed, modified, or equipped for military purposes (Category VIII(h) of the USML). Overview of ITAR Scope of ITAR To What Does ITAR Apply? U.S. Defense Articles According to Section 120.3 of ITAR: An article or service may be designated or determined in the future to be a defense article or defense service if it: Is specifically designed, developed, configured, adapted, or modified for a military application, [and (i) Does not have predominant civil applications, and (ii) Does not have performance equivalent (defined by form, fit and function) to those of an article or service used for civil applications] or Is specifically designed, developed, configured, adapted, or modified for a military application[, and has significant military or intelligence applicability such that control under this subchapter is necessary]. The intended use of the article or service after its export (i.e., for a military or civilian purpose) is not relevant in determining whether the article or service is subject to the controls of this subchapter. Overview of ITAR Scope of ITAR To What Does ITAR Apply? ITAR-Controlled Technical Data Information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. This includes information in the form of blueprints, drawings, photographs, plans, instructions or documentation; Classified information relating to defense articles and defense services; Information covered by an invention secrecy order; Software directly related to defense articles; This definition does not include information concerning general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities or information in the public domain. It also does not include basic marketing information on function or purpose or general system descriptions of defense articles. Overview of ITAR Scope of ITAR To What Does ITAR Apply? ITAR-Controlled Technical Data Public domain means information which is published and which is generally accessible or available to the public: Through sales at newsstands and bookstores; Through subscriptions which are available without restriction to any individual who desires to obtain or purchase the published information; Through second class mailing privileges granted by the U.S. Government; At libraries open to the public or from which the public can obtain documents; Through patents available at any patent office; Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the United States; Overview of ITAR Scope of ITAR To What Does ITAR Apply? ITAR-Controlled Technical Data Through public release (i.e., unlimited distribution) in any form (e.g., not necessarily in published form) after approval by the cognizant U.S. government department or agency; Through fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community. Fundamental research is defined to mean basic and applied research in science and engineering where the resulting information is ordinarily published and shared broadly within the scientific community, as distinguished from research the results of which are restricted for proprietary reasons or specific U.S. Government access and dissemination controls. University research will not be considered fundamental research if: - The University or its researchers accept other restrictions on publication of scientific and technical information resulting from the project or activity, or - The research is funded by the U.S. Government and specific access and dissemination controls protecting information resulting from the research are applicable. Overview of ITAR Scope of ITAR To What Does ITAR Apply? U.S. Defense Services The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles; The furnishing to foreign persons of any ITAR-controlled technical data, whether in the United States or abroad; Military training; or Furnishing such assistance is considered a defense service even if provided solely based on public domain information. Items based on or incorporating U.S. defense articles, ITARcontrolled technical data, and/or defense services Overview of ITAR Scope of ITAR To Whom Can ITAR Apply? U.S. persons U.S. person means a person who is a lawful permanent resident as defined by 8 U.S.C. 1101(a)(20) or who is a protected individual as defined by 8 U.S.C. 1324b(a)(3). It also means any corporation, business association, partnership, society, trust, or any other entity, organization or group that is incorporated to do business in the United States. It also includes any governmental (federal, state or local) entity. It does not include any foreign person as defined in Section 120.16 of ITAR. Other persons subject to U.S. jurisdiction Persons in possession of items subject to ITAR Overview of ITAR Overview of ITAR Requirements ITAR Registration U.S. manufacturer and/or exporter of defense articles, ITARcontrolled technical data, and/or defense services Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register with the Directorate of Defense Trade Controls. For the purpose of ITAR, engaging in the business of manufacturing or exporting defense articles or furnishing defense services requires only one occasion of manufacturing or exporting a defense article or furnishing a defense service. Overview of ITAR Overview of ITAR Requirements ITAR Registration Authorized/Empowered official - U.S. citizen/green card holder Empowered Official means a U.S. person who: Is directly employed by the applicant or a subsidiary in a position having authority for policy or management within the applicant organization; and Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant; and Understands the provisions and requirements of the various export control statutes and regulations, and the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and ITAR; and Has the independent authority to: - Enquire into any aspect of a proposed export or temporary import by the applicant, and - Verify the legality of the transaction and the accuracy of the information to be submitted; and - Refuse to sign any license application or other request for approval without prejudice or other adverse recourse. Overview of ITAR Overview of ITAR Requirements ITAR Licenses/Authorizations DSP-5 – All hardware exports and certain technical data exports Warehouse/Distribution Agreement An agreement (e.g., a contract) to establish a warehouse or distribution point abroad for defense articles exported from the United States for subsequent distribution to entities in an approved sales territory (see part 124 of ITAR). A DSP-5 is still required for export under the Agreement. Overview of ITAR Overview of ITAR Requirements ITAR Licenses/Authorizations Technical Assistance Agreement An agreement (e.g., contract) for the performance of a defense service(s) or the disclosure of technical data, as opposed to an agreement granting a right or license to manufacture defense articles. Assembly of defense articles is included under this section, provided production rights or manufacturing know-how are not conveyed. Should such rights be transferred, Section 120.21 is applicable. (See part 124 of ITAR). (Caveat – if manufacturing know-how is to be conveyed, DDTC generally now requires an MLA regardless of whether there is any licensing of manufacturing rights.) Manufacturing License Agreement An agreement (e.g., contract) whereby a U.S. person grants a foreign person an authorization to manufacture defense articles abroad and which involves or contemplates: (a) The export of technical data (as defined in Section 120.10) or defense articles or the performance of a defense service; or (b) The use by the foreign person of technical data or defense articles previously exported by the U.S. person. (See part 124 of ITAR). Overview of ITAR Overview of ITAR Requirements Brokering Broker, for purposes of ITAR, means any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration. Brokering activities means acting as a broker as defined above, and includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import or a defense article or defense service, irrespective of its origin. For example, this includes, but is not limited to, activities by U.S. persons who are located inside or outside of the United States or foreign persons subject to U.S. jurisdiction involving defense articles or defense services of U.S. or foreign origin which are located inside or outside of the United States. ITAR Challenges for Non-U.S. Owned Defense Businesses ITAR Compliance Requirements - presumption by DDTC of compliance risks Potential Restrictions on Management Activities by the Non-U.S. Parent and Non-U.S. Person Managers Potential Adverse Impacts on Company-Wide "Synergy" in R&D and Business Development Potential Extension of U.S. Restrictions to Non-U.S. Developed Technology/Products Best Practices Solutions Appropriate Expectations/Purposes for Operations Staffing Protocols Technology Control Plans/Compliance Program Proactive/Prophylactic Technology Assistance and Manufacturing License Agreements Associated U.S. Legal Requirements FCPA ITAR reporting requirements relating to fees/commissions ITAR consequences for FCPA violations U.S. Government Contracts Law Export control law compliance requirements Additional contractual requirements Questions? Jerome J. Zaucha K&L Gates LLP Washington, DC – 202.778.9013 jerome.zaucha@klgates.com
