SOUTHCOM Total, $75,068M, 5% Global Military Spending 2011 AFRICOM Total, $45,001M, 3% CENTCOM Total, $131,904M, 8% PACOM Total, $262,861M, 16% NORTHCOM Total, $762,562M, 46% EUCOM Total, $367,893M, 22% Excludes • • • • • • China Russia North Korea Iran Cuba Syria Top 5: • India • Saudi Arabia • France • UK • Turkey Top 5: • EU • India • GCC • Turkey • Korea • Largest single long term defense equipment and services market • Market behavior: - Increasingly integrated decision making - Internally harmonized military requirements - Transnational defense and security policy - Centralizing procurement authority • Recommended penetration strategy: - Create an intra-EU operating presence to become a “local” supplier - Consider teaming with EU multinationals 20-year trend closing this market to U.S. bidders will continue • Market structure - Saudi Arabia “leads” - UAE, Qatar, Kuwait, Bahrain, Oman “follow” • Broad characteristics - Stable demand - Open to U.S. companies - Role of alliances evolving with changing aspirations (employment, infrastructure development, economic diversification) • Policies and Principles • The U.S. Foreign Military Sales Participants - The Security Cooperation Team - Homeland Security Special Case • Processes - Licensing: International Traffic in Arms Regulation and Export Administration Regulation - Contracting: FMS and DCS - Congressional Oversight o Javits Report o AECA 36(b) and 36(c) Notification • Offsets • Foreign Corrupt Practices Act “The U.S. Government views the sale, export, and re-transfer of defense articles and defense services as an integral part of safeguarding U.S. national security and furthering U.S. foreign policy objectives.” U.S. Department of State Directorate of Defense Trade Controls Security Cooperation IS about: • Implementing U.S. Foreign Policy • Strengthening National Security - Building Coalitions - Burden Sharing - Forward Basing - Supporting the Combatant Commanders Security Cooperation IS LESS about: • Industrial Policy • Employment • Economic Development 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. Subchapters: I Foreign And National Security Policy Objectives And Restraints II Foreign Military Sales Authorizations II A Foreign Military Construction Sales< II B Sales To United States Companies For Incorporation Into End Items II C Exchange Of Training And Relate Support III Military Export Controls III A End-Use Monitoring Of Defense Articles And Defense Services IV General, Administrative, And Miscellaneous Provisions V Special Defense Acquisition Fund VI Leases Of Defense Articles And Loan Authority For Cooperative Research And Development Purposes VII Control Of Missiles And Missile Equipment Or Technology VIII Chemical Or Biological Weapons Proliferation IX Transfer Of Certain CFE Treaty - Limited Equipment To NATO Members X Nuclear Nonproliferation Controls Secretary of State Under Secretary for Political Affairs Under Secretary for Arms Control / International Security Affairs Regional Assistant Secretaries Assistant Secretary PoliticalMilitary Affairs Secretary of Defense Under Secretary of Defense for Policy Assistant Secretary of DefenseInternational Security Affairs Defense Security Cooperation Agency “The Secretary of State provides continuous supervision and general direction for SA [Security Assistance], including determining whether what SA programs a given country will have, as well as their scope and content. The Secretary of Defense implements programs to transfer defense articles and services on a government-to-government basis.” Defense Security Cooperation Agency • • CSTC-A Combined Security Transition Command– Afghanistan NTM-A NATO Training MissionAfghanistan } Joint Staff Combatant Commands CSTC-A NTM-A Policy Assistant Secretaries of Defense US Forces Iraq Under Secretary of Defense for Acquisition, Technology, and Logistics Office of the Defense RepresentativePakistan Typical Industry Points of Contact Military Services Defense Security Cooperation Agency Defense Technology and Security Administration US Embassies Security Cooperation Organizations Office of the Secretary of Defense Comptroller US Agency for International Development Office of Management and Budget State Department US Congress Commerce Department US Industry U.S. Country Team • Office of Defense Cooperation • Commercial Service • Defense Attaché • Counselor for Political Affairs • Counselor for Political Military Affairs • Counselor for Economic Affairs Defense Department Military Services • US Army Security Assistance Command (USASAC) • Air Force International Affairs (SAF-IA) • Navy International Programs Office (Navy IPO) Combatant Commands • • • • Defense Technology and Security Administration • Licensing Directorate • International Security Directorate Commerce Department • Export Advocacy Center • Bureau of Industry and Security (Licensing) State Department • Bureau of Political Military Affairs J3 Director Operations J4 Director Logistics J5 Director Strategic Plans & Policy J7 Director Operational Plans and Joint Force Development • J8 Director Force Structure, Resources and Assessment • Office of International Security Operations (PM/ISO) • Directorate of Defense Trade Controls (DDTC) (Licensing) State Department International Traffic in Arms Regulations Commerce Department Export Administration Regulations Executive Order 11958, as amended, delegated this AEC statutory authority to the Secretary of State. The International Traffic in Arms Regulation (ITAR) implements this authority. The Bureau of Industry and Security develops, implements and interprets U.S. export control policy for dual-use commodities, software, and technology through Export Administration Regulations codified at Title 15 of the Code of Federal Regulations Parts 730 through 774. (Dual-use items subject to BIS regulatory jurisdiction have predominantly commercial uses, but also have military applications.) Parts: 120 Purpose and Definitions 121 The United States Munitions List 122 Registration of Manufacturers and Exporters 123 Licenses for the Export of Defense Articles 124 Agreements, Off-Shore Procurement and Other Defense Services 125 Licenses for the Export of Technical Data and Classified Defense Articles 126 General Policies and Provisions 127 Violations and Penalties 128 Administrative Procedures 129 Registration and Licensing of Brokers 130 Political Contributions, Fees and Commissions Key Regulatory Areas • High Performance Computers • Encryption • Deemed Exports • Antiboycott Regulations • Regional Considerations • Multilateral Export Regimes • Technical Advisory Committees • Wassenaar Arrangement Is a License Required? Is this an Export ? YES ITAR – International Traffic in Arms Regulation EAR – Export Administration Regulation USML - U.S. Munitions List CCL – Commerce Control List Action Steps: Defense Article or Service? On the CCL (“dual use”)? YES YES ITAR: State Department Directorate of Defense Trade Controls State Department • DTrade website (for nearly all applications) http://www.pmddtc.state .gov/DTRADE/index.ht ml EAR: Commerce Department Bureau of Industry and Security Commerce Department • Simplified Network Application Process Redesign (SNAP-R) website http://www.bis.doc.gov/s nap/index.htm Secure qualified export compliance counsel, and Register with online licensing sites as required Sending or taking a defense article out of the United States; transferring registration, control or ownership to a foreign person of any aircraft, vessel, or satellite covered by the U.S. Munitions List, whether in the United States or abroad; Disclosing or transferring any defense article to an embassy, any agency or subdivision of a foreign government (e.g., diplomatic missions) in the U.S.; or (disclosing or transferring technical data to a foreign person, whether in the United States or abroad; or performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad. Caution! Examples of unintended exports: • Technical data posted to a web site • Technical data attached to an email Out of the Country? YES It’s an Export To a Foreign Person? YES Foreign Person Any natural person who is not a U.S. citizen, or an alien who is lawfully admitted for permanent residence, or certain persons admitted temporarily. Any foreign corporation, business association, partnership, trust, society or any other entity or group that is not incorporated or organized to do business in the United States. International organizations, foreign governments and any agency or subdivision of foreign governments (e.g diplomatic missions). U.S. Person A natural person who is a U.S. citizen, or is an alien who is lawfully admitted for permanent residence, or certain persons admitted temporarily. Any corporation, business association, partnership, society, trust or any other entity, organization or group that is incorporated to do business in the United States. Any U.S. governmental (federal, state or local) entity. Defense Article or Service (a) 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 (b) Is specifically designed, developed, configured, adapted, or modified for a military application, and has significant military or intelligence applicability such that control under § 120.3 is necessary. Caution! Definitions can be confusing, so get expert compliance advice Public Domain 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; through public release in any 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. Caution! “Leaked” information that has not been approved by the U.S. government for public release is not necessarily in the public domain. FMS DCS Nature of Relationship US prime contracts with US Government; US Government contracts with customer government US prime contracts with customer government US Government Approvals USG approvals are identical; minor differences in export license process Contract Negotiation USG negotiates, but applies relatively inflexible FAR terms and conditions Contractor negotiates within export license authority Contract Administration USG administers Customer administers Pricing Estimated Fixed or other pricing agreements permitted Support USG usually proposes comprehensive package More tailoring possible Program price Often benefits from larger procurement quantities; FMS case management fees added; Non-recurring charges required by may be waived May benefit from more pricing flexibility; some contractors add risk premiums; no FMS case management fees; Non-recurring charges not required Through Life Logistics Support Provided through USG system Contractor responsibility Defense Institute of Security Assistance Management DISAM Phase (Duration) Event Preliminary (Indefinite) • Customer determines requirements • Customer obtains specific systems information Definition (Indefinite) • Customer and U.S. exchange technical information Request (Indefinite) • • • • Customer prepares and submits an LOR for price and availability (P&A) data Customer prepares and submits LOR for an LOA Development of Offer (Policy for the response to LOR by LOA is 120 days for 80% of LORs) (Congressional review if required is from 15-50 days.) • • • • • • Implementing agency (IA) receives the LOR IA develops an LOA data (LOAD) DSCA-CWD writes LOA DoS/DSCA/Congress review LOA DSCA countersigns LOA IA issues LOA to customer Acceptance of the Offer (Policy is 60 days to accept a LOA) • • • • • Customer signs LOA Customer sends signed copy of LOA and initial deposit to Defense Finance Accounting Service-Indianapolis Center (DFAS-IN) Customer sends signed copy of LOA to IA DISAM, Chapter 5 Javits Report Annual, 1 February report to Congress regarding expected arms sales for the current calendar year (subject to specified U.S. Dollar thresholds) Arms Export Control Act Notification 36(b) FMS or 36(c) Commercial Threshold Days Most customer countries • Major defense equipment $14M • Defense articles or services $50M • Design and construction services $200M Informal- 20 Formal- 30 NATO member states, NATO, Japan, Australia, South Korea, Israel, or New Zealand • Major defense equipment $25M • Defense articles and services $100M • Design and construction services $300M Informal- 20 Formal- 15 Remember to Build Congressional Notification Into Your Program Plan “… the practice by which the award of defense contracts by foreign governments or companies is conditioned upon commitments from the defense contractor to provide some form of compensation to the purchaser.” Commerce Department Bureau of Industry and Security Definition Common Forms • Direct: Transactions directly related to the articles or services exported under the sales agreement. • Indirect: Transactions unrelated to the articles or services exported • Multiplier: A factor applied to the actual value of certain offset transactions to calculate the credit value earned. • Co-production/Licensed Production: Foreign manufacture all or part of U.S.origin defense articles. • Investment: Investment in the customer country. • Countertrade: Procurement of items from the customer country. • Technology Transfer: Technology concession to the customer country. • The primary purpose is to create a favorable political climate for a major procurement. • The offset authority should always be treated like a customer. • Commitments and credits may be denominated in currency, but are not “cash.” • Cost-to-credit ratios vary widely by market and offset project type • Offset programs are expensive to implement: - Competitive environment may allow offset costs to be priced - Pricing approaches may differ between FMS and DCS contracting methods Caution! Beware potentially corrupt transactions masquerading as offset projects. “The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. ("FCPA"), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.” http://www.justice.gov/criminal/fraud/fcpa/ • • • • • • • • • • • • Third Party refuses to certify compliance with anti-bribery or FCPA requirements Third Party refuses to complete agent/ consultant/third party questionnaire regarding relationship with or interests involving foreign government officials Third Party does not appear to be qualified to perform the duties for which it is engaged to assist your company Third Party is related to a government official Country has a reputation for corruption and bribery The industry has a history of FCPA and anticorruption problems Breakup of a company or association with one or more foreign companies is unexplained or inadequately explained Requests for commissions to be paid in a third party country, to a third party, or in cash or untraceable funds Heavy reliance by party on political or government contacts as opposed to knowledgeable staff and investment of time to promote the Company’s interests Refusal or inability to develop or implement a market strategy A desire to keep third party representation secret Relationship problems with other foreign companies “Identification of ‘Red Flags’ for Possible Violations of Key U.S. Laws for Companies Operating Overseas,” Corporate Compliance Insights, September 9, 2009, by Sharie Brown, partner at DLA Piper (US) LLP Anti-Bribery Provisions • Prohibit making a bribe or promising to give anything of value in an attempt to influence the action or inaction of a foreign official is strictly prohibited • This includes payments to consultants, agents, or any other intermediary or representative when the party making the payment knows or has reason to believe that some part of the payment will be used to bribe or influence a foreign official • Severe penalties may be imposed for violations of the FCPA, both against individuals and companies Books and Records Provisions • Two Sets of Requirements: - Accuracy of books and records - Internal accounting controls • Apply to publicly traded companies and their employees and agents • Enforced by the SEC Published Source: “Understanding the FCPA,” Mark Rush, K&L Gates LLP, Henry W. Oliver Building, 535 Smithfield Street, Pittsburgh, PA 15222 Action Steps: Secure qualified FCPA compliance counsel, and Model compliance while training your team regularly “If you aren’t working on sales or the things that enhance the profitability of this company, then you are working on the wrong things.” Inscribed above the main employee exist at Wal-Mart Headquarters in Bentonville, Arkansas. Rule One – Do everything that could or should be done to win. Rule Six – For each significant customer, know what he thinks, how he thinks, what sort of information is best supplied to him, understand his past, present and future, understand where he is going and what our proposal means to his probable future. Rule Seven – Every key decision maker needs a champion to lead the way and do his work for him. Rule Ten – Staff marketing strong enough to stand up to senior executives, program managers, engineering and others who command respect… Totally self-motivated and self-reliant. Rule Eleven – Engineering should engineer, manufacturing should manufacture, marketing should sell Rule Twenty-one – Ultimately present a proposal with a competitive price from which you are the logical winner. GUNNSIGHTS: Taking Aim on Selling in the High Stakes Industry of International Aerospace “The Best Listener Wins”