Pages

Monday, August 11, 2014

ITAR Freight Forwarders

When I was a kid, my father used to provide me with a wealth of important “life lessons,” doled out in simple one-liners that I could carry with me as I grew older. One of my favorites was “If you’re going to run with the pack, make sure you’re the leader.” Another that has served me well throughout life was “Always use the right tool for the job.” The same can be said when it comes to choosing the correct freight forwarder to manage the transport of your ITAR controlled goods. It’s important that you use the right forwarder for the job. As the manufacturer or source of USML goods, you have undoubtedly spent countless hours developing your corporate compliance program; ensuring that every aspect of your operation – from upper management, to sales, to shipping and receiving – is aware of the regulations and well trained. We all know, however, that your responsibility for those goods does not end there. Once your product leaves your dock, you are still responsible for the transport of those goods to the foreign consignee or end user. For this reason, it’s crucial to your compliance program to ensure that the forwarder you choose is also fully aware of the complex requirements of the ITAR. Just as your organization undoubtedly interviewed and hired a corporate ECO (Export Compliance Officer), an interview process of sorts should be undertaken in order to choose your freight forwarder. Be sure to conduct this “interview” at their facility. After all, you go to great lengths to ensure that your building is secure – shouldn’t the first step be to ensure that your potential forwarder’s building is also secure? Be direct – ask to see what security measures are in place to protect your product. If a forwarder refuses to allow you to visit their facility, be very wary about moving forward with them unless they can provide a legitimate reason for refusal. Once you are satisfied that your goods will be secure in the interim from your facility to the port or airport of departure, request to sit with the operational personnel who will be processing your shipments. Be very direct with your questions and take notes. These can be maintained in your records for due diligence purposes.

Here are some sample questions to get you started:

1. Are your operational personnel trained in the ITAR, and if so, where did they receive their training? How frequently do they receive this type of training?
2. Do you conduct in house training of this nature?
3. Do you have a copy of the ITAR on hand? (If they say yes, ask to see it and ensure that it is a current printing.)
4. What is the destination Control Statement for ITAR controlled goods, and why is it relevant to you – the forwarder? (This is a mistake I frequently see when auditing export documentation. 22 CFR 123.9(b) stipulates that the destination control statement must appear on both the invoice and the bill of lading. Most pre-printed bills of lading and air waybills are pre-printed with the Commerce Department’s EAR destination control statement. Therefore, If your forwarder is not physically placing the proper destination control statement on the transport document, you are in violation of 22 CFR 123.9 (b) – make sure they understand the difference between the two destination control statements.)
5. Do you have licensed customs brokers in house? (Although this may not be a “deal breaker,” having customs brokers on staff will make life much easier if you are dealing with DSP-73′s, DSP-61’s or repair items.)
6. Are you familiar with the most common licenses and what they represent? (They should be able to tell you the difference between a DSP-5, DSP-73, DSP-61, know what forms are used to amend those licenses, and know what must be lodged with CBP as opposed to requiring endorsement by CBP.
7. Are you familiar with the most common exemptions? (Repair exemption, tradeshow exemption, models & mock-ups, Canadian exemptions, etc) If you want to really test their knowledge, ask them this – “In what circumstance can I not use the repair exemption 22 CFR 123.4(a) (1)?” If they are well trained they will be able to tell you that if your goods are of foreign manufacture, and need to be returned to the US for repair, this exemption cannot be used.
8. In regards to 22 CFR 123.4(a) (1), ask them what the proper procedure is for utilizing this exemption. The freight forwarder plays a crucial role here, as the exemption must be noted on the entry document upon importation, and on exportation, both the exemption and the US Customs entry number must be indicated on the air waybill or bill of lading.
9. How do you determine whether or not something is SME (Significant Military Equipment)? A large number of exporters rely on their freight forwarder to process the EEI (Electronic Export Information) through AES (Automated Export System). Most forwarders will ask you to complete a shipper’s letter of instruction, which they utilize to complete the AES entry. The standard format of this form, however, does not have a block to indicate SME. If you are providing your freight forwarder with the proper category and sub-category for your item, i.e., Category XII (b), they should be able to tell you how they would come to the conclusion that this is indeed SME. As the AES specifically asks the question – “Is this Significant Military Equipment?” it’s crucial that they know how to determine this, and can demonstrate that to you.
10. What steps do you take to ensure that your partners overseas understand the implications of diversion? Another problem you face is making sure that everyone understands that your license is very specific. Intermediate consignees and end users (who are frequently unfamiliar with US regulations) often have more than one facility – perhaps an overflow warehouse or separate processing plant at a nearby location. Occasionally, the consignee will request that goods be delivered to such a facility. It is important that your freight forwarder takes the necessary precautions to ensure that their partners are aware that goods may only be delivered to the licensed address.
11. Will specific personnel be assigned to our account? Again – not a “deal breaker,” but we all feel more comfortable if we are working with the same people and not being bounced around from one person to the next.
12. What documentation do you normally provide to your exporters upon completion of a shipment? I am continually amazed by the number of exporters who tell me their freight forwarders do not provide them with copies of the AES transmission, bill of lading or air waybill, entry document, etc. Make sure they are willing and able to provide you with all the necessary documentation for your record-keeping responsibilities.
13. Have you handled ITAR goods in the past? If so, how long have you been handling goods of this nature? It’s important to get a sense of their experience. Everyone starts somewhere, but make sure they have some experience and are able to provide the service you need.
14. Can you provide references or letters of recommendation from other ITAR customers? This may be one of the most important questions you ask. If they are able to provide you with references, check them!
Once you have completed this grueling task of interviewing your potential freight forwarder, go through it a couple more times. Although most freight forwarders would love to be the only forwarder named on your license, (locking you into using their services) this ties your hands tremendously. Naming two or three freight forwarders on your license does not mean you have to utilize all of them. Use the one you are most comfortable with. However, having two or three freight forwarders named on your license will provide you with a built in “plan B,” in the event that something happens. Personnel changes happen. Mergers and acquisitions happen. What if you only have one forwarder listed on all your licenses and that forwarder is purchased by another company? If you are under contract delivery deadlines and suddenly have to stop shipping for a few weeks while you wait for amendments to be approved, the financial implications can be immense. When you find a freight forwarder who meets your criteria, work hard to develop and maintain a solid relationship with them. They are your last defense and the final link in your export compliance program. It is important that you work together in a collaborative effort to sustain your goals. Remember – “Always use the right tool for the job.” Thanks Dad, I’ll keep that in mind…

About the Author:
As the Director of Compliance & Business Development at HNM Global Logistics, Deborah Dorsett is responsible for the areas of trade compliance, compliance consulting, internal compliance audits and performance reviews, employee training and niche industry marketing and business development. One of the founding members of HNM Global Logistics, Deborah brings with her an impressive 26 year career in the Transportation and Logistics industry. She has held management positions in warehousing, operations, logistics, trade compliance, marketing & business development with numerous manufacturers and logistics companies in the U.S. Dorsett’s core niche is within the defense industry, where she has played a key role in logistics and trade compliance with such companies as Boeing, NASA, Northrop Grumman, Raytheon and DRS Technologies as well as program support for contracts with the U.S. Marine Corp., U.S. Army, U.S. Navy and various foreign Ministries of Defense.

Monday, February 3, 2014

Denied & Sanctioned Parties

U.S. government agencies as well as International organizations and foreign government agencies publish lists of entities and companies that are denied or restricted from doing business with. In the event a company, entity or person on one of such lists appears to match a potential party in an export transaction, additional due diligence is required before proceeding. Typically, depending on which list the match was found, a match would indicate the either of the following situations:
  • A strict export prohibition;
  • A specific license requirement for exporting to or making a business with the sanctioned entity; or
  •  The presence of a "red flag" in this transaction with the sanctioned entity.
According to agencies which publish the denied and/or sanctioned party lists, prior to taking any further actions, companies and organizations are to consult the requirements of the specific list on which the company, entity or person is identified by reviewing the webpage of the agency responsible for the list. Violation of the regulations would cause criminal and administrative penalties against the companies and organizations. Moreover, violators may be subject to denial of their export privileges, which essentially means the company is prohibited from participating in any future transaction. It is also noteworthy that the company business reputation would be severely damaged resulting from a bad publicity of a non-compliance.
In the U.S., government agencies generally add the entities, individuals and companies to the restricted party lists for several reasons. They commonly define such reasons as in the following:
  • A foreign party, such as an individual, business, research institution, or government organization, for engaging in activities contrary to U.S. national security and/or foreign policy interests.
  •  A list of individuals and entities that have been denied export privileges. Any dealings with a party on this list that would violate the terms of its denial order are prohibited.
  •  Some foreign entities are prohibited from receiving some or all items subject to the U.S. Export Administration Regulations (EAR) unless the exporter secures a license. Those persons/entities present a greater risk of diversion to weapons of mass destruction (WMD) programs, terrorism, narcotic trafficking, financial criminal activities, or other activities contrary to U.S. national security or foreign policy interests.
  • In certain cases, a government agency has been unable to verify the end-user in prior transactions. Typically, the presence of a party on this list in a transaction is a “Red Flag” that should be resolved before proceeding with the transaction.
Many companies and organizations enjoy using applicable license exceptions in their transactions when the export license requirement exists. However, in most instances, license exceptions that are otherwise available for the export, reexport or transfer (in-country) to a party cannot be used if the party is listed in the denied party lists. Rather, such transactions require a prior export license and are usually subject to a policy of denial.


About the Author:

Marina Truhan
International trade compliance expert with a focus on export compliance, denied party screening, export classification, EAR, ITAR, deemed export and encryption items. 
For details on denied and sanctioned party screening process and how to automate this process, you can consult Intredex Export Compliance services. Intredex assists companies with services such as restricted and denied party screening, export classification, eccn, and with achieving the EAR (Export Administration Regulations) and ITAR compliance with developing procedures for export transactions in alignment with the U.S. Government laws and regulations.

Tuesday, July 30, 2013

Export Control Reform Overview

In 21st century the U.S  is the part of the new world order where multipolarity is the foreign policy of geopolitical players in international arena, so the United States requires new proactive approaches and strategies to deal with constantly arising security threats. The reality is that current national security structure is not appropriate and qualified in solving contemporary national security problems and might be in fact harmful if reorganizations of national security apparatus would be ignored or delayed. According to the United States Commission on National Security/ 21st Century “…most troublesome is the lack of an overarching strategic framework… clear goals and priorities are rarely set and  budgets are prepared and appropriated as they were during the Cold War..”
Along with the process of reorganization of national security structure to meet the emerging threats of the new century, the President directed in depth review and reformation of the U.S. export control system in order to address the challenges of contemporary economic and technological environment. Indeed the confusion exist due to difficulty in identification which list  the U.S. Munitions List (USML) or Commerce Control List (CCL), administered by the Department of State and Commerce respectively holds  jurisdiction over the certain item controlled. The ECR initiative is a long process which started in year 2009 by the presidential decision to review all seven agencies directly involved in export control process.  By implementing all three Phases of reformation the administrations tries to create a single control list,  licensing agency as well as unified information technology system, and enforcement coordination center. As of now in October 15, 2013 certain proposed rules will take an effect and the changes to ITAR controls are scheduled to be implemented by categories  starting with Category VIII – Aircraft and Associated Equipment and Category XIX – Gas Turbine Engines and Associated Equipment. Furthermore, one of the most significant changes is the addition in CCL of the new “600 series” which will be controlling former USML items. The establishment of a new series ought to bring simplification of export control system through eliminating restrictions on exporting items by transferring them from laws and regulations that govern military products and services under the International Trafficking in Arms Regulations (ITAR) to the laws of dual use items controlled by the Export Administration Regulations (EAR).

About the Author:
Marina Truhan

International trade compliance expert with a focus on export compliance, denied party screening, export classification, EAR, ITAR, deemed export and encryption items.
For additional details on changes to EAR and ITAR and how this important change may affect your organization you can consult Intredex Export Compliance services. Intredex assists companies with services such as restricted and denied party screening, product export classification, and with achieving the EAR (Export Administration Regulations) and ITAR compliance with developing procedures for export transactions in alignment with the U.S. Government laws and regulations.

EAR and ITAR Amendment Regarding Aircrafts, Gas Turbine Engines and Related Items

On April 16, 2013, the Bureau of Industry and Security of the Department of Commerce and the Directorate of Defense Trade Controls (DDTC), Department of State, have published several affirmed amendments to the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). The regulation described the steps of implementation of Export Control Reform initiative with the emphasis on necessity in including a structure and certain provisions control munitions items such as aircraft, gas turbine engines, and related items which are no longer regarded as under the jurisdiction of the USML of the Department of State and transferred to CCL – the Department of Commerce. Final rule will take an effect on October 15, 2013, so there is plenty of time to identify, be familiar with and get used to all changes associated with implementation of the rule in particular and ECR initiative in general. According to the Federal Register/ Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulations revisions were made in Supplement No. 1 to part 774, Category 9. For the conveniences of interested parties, changes regarding some of the created ECCNs are highlighted below, note that they are mostly in summarized format:
• Particular aircrafts and related articles as well as gas turbine engines and related articles were moved under the jurisdiction of BIS and listed under the new series 600 ECCNs:
1. Addition of new ECCNs 9A610 and 9A619 between ECCNs 9A120 and 9A980:
- 9A610 – Military aircraft and related commodities.
- 9A619 – Military gas turbine engines and related commodities.
2. Addition of new ECCNs 9B610 and 9B619 between ECCNs 9B117 and 9B990:
- 9B610 – Test, inspection, and production ‘‘equipment’’ and related commodities ‘‘specially designed’’ for the ‘‘development’’ or ‘‘production’’ of commodities enumerated in ECCN 9A610 or USML Category VIII.
- 9B619 – Test, inspection, and production ‘‘equipment’’ and related commodities ‘‘specially designed’’ for the ‘‘development’’ or ‘‘production’’ of commodities enumerated in ECCN 9A619 or USML Category XIX.
3. Addition of new ECCNs 9C610 and 9C619 between ECCNs 9C110 and the product group header that reads ‘‘D. Software’’:
- 9C610 – Materials ‘‘specially designed’’ for commodities controlled by 9A610 not elsewhere specified in the CCL or the USML.
- 9C619 – Materials ‘‘specially designed’’ for commodities controlled by 9A619 not elsewhere specified in the CCL or on the USML.
4. Addition of new ECCNs 9D610 and 9D619 between ECCNs 9D105 and 9D990:
- 9D610 – Software ‘‘specially designed’’ for the ‘‘development,’’ ‘‘production,’’ operation, or maintenance of military aircraft and related commodities controlled by 9A610, equipment controlled by 9B610, or materials controlled by 9C610.
- 9D619 – Software ‘‘specially designed’’ for the ‘‘development,’’ ‘‘production,’’ operation or maintenance of military gas turbine engines and related commodities controlled by 9A619, equipment controlled by 9B619, or materials controlled by 9C619.
5. Addition of new ECCNs 9E610 and 9E619 between ECCNs 9E102 and 9E990:
- 9E610 – Technology ‘‘required’’ for the ‘‘development,’’ ‘‘production,’’ operation, installation, maintenance, repair, overhaul, or refurbishing of military aircraft and related
commodities controlled by 9A610, equipment controlled by 9B610, materials controlled by 9C610, or software controlled by 9D610.
- 9E619 – ‘‘Technology’’ ‘‘required’’ for the ‘‘development,’’ ‘‘production,’’ operation, installation, maintenance, repair, overhaul, or refurbishment of military gas turbine engines and related commodities controlled by 9A619, equipment controlled by 9B619, materials controlled by 9C619, or software controlled by 9D619.

For additional details on changes to EAR and ITAR and how this important change may affect your organization you can consult Intredex Export Compliance services. Intredex assists companies with services such as denied party screening, product export classification, achieving the EAR (Export Administration Regulations) and ITAR compliance with developing procedures for export transactions in alignment with the U.S. Government laws and regulations.

Moving Control of Certain Military Ground Vehicles from USML to CCL

On July 8, BIS published revisions to the Export Administration Regulations. Changes were regarding various categories of vehicles including Military Vehicles; Vessels of War; Submersible Vessels, Oceanographic Equipment as well as Relate, Auxiliary and Miscellaneous Items that are no longer considered to be under the jurisdiction of the USML of the Department of State and moved to CCL – the Department of Commerce. Furthermore, the revision identifies new ECCN’s of “600 series” created by movement of certain items within the Commerce Control List. The final rule will take an effect on January 6, 2014, so there is plenty of time to identify, comprehend and get used to all changes associated with implementation of the rule in particular and ECR initiative in general.
According to the Federal Register / Vol. 78, No. 130 / Monday, July 8, 2013 / Rules and Regulations, following revisions were made in Category 0—Nuclear Materials, Facilities, and Equipment [and Miscellaneous Items], Category 8—Marine and Category 9 —Aerospace and Propulsion of the  Supplement No. 1 to part 774 of the CCL. For the convenience of interested parties, changes related to some of the modified and created ECCNs are listed below, note that they are mostly in summarized format:
1.ECCN  0A018 -  Items on the Wassenaar Munitions List is amended by adding a sentence to the end of the Related Controls paragraph in the List of Items Controlled section and removing and reserving paragraph .a in the Items paragraph of the List of Items Controlled section.
2. Addition of  ECCNs 0A606 and 0A617 between ECCNs 0A521 and 0A918:
0A606-  Ground vehicles and related commodities, as follows (see List of Items Controlled): License Requirements;
- 0A617 – Miscellaneous ‘‘equipment,’’ materials, and related commodities (see List of Items Controlled).
3. (ECCN) 0A918 – Miscellaneous Military Equipment Not on the Wassenaar Munitions List (see List of Items Controlled)  is amended by:
- changing the License Exceptions section;
- changing the List of Items Controlled section
4. Addition of  ECCNs  0B606 and 0B617 between ECCNs 0B521 and 0B986:
0B606 – Test, inspection, and production ‘‘equipment’’ and related commodities, not enumerated on the USML, ‘‘specially designed’’  for  the ‘‘development,’’ ‘‘production’’ repair, overhaul, or refurbishing of commodities enumerated in ECCN 0A606 or USML Category VII (see List of Items Controlled).
0B617-  Test, inspection, and production ‘‘equipment’’ and related commodities ‘‘specially designed’’ for the ‘‘development,’’ ‘‘production,’’ repair, overhaul, or refurbishing of commodities enumerated in ECCN 0A617 or USML Category XIII, and ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ and ‘‘attachments’’ ‘‘specially designed’’ therefor (see List of Items Controlled).
5. Addition of  ECCNs 0C606 and 0C617 after ECCN 0C521:
0C606 -  Materials ‘‘specially designed’’ for  commodities controlled by ECCN 0A606 not elsewhere specified in the USML (see List of Items Controlled).
0C617 -  Miscellaneous Materials ‘‘Specially Designed’’ for Military Use (see List of Items Controlled).
6. Addition of new ECCNs 0D606 and 0D617 after 0D521:
0D606 ‘‘Software’’ ‘‘specially designed’’ for the ‘‘development,’’ ‘‘production,’’ operation, or maintenance of ground vehicles and related commodities controlled by 0A606, 0B606, or 0C606 (see List of Items Controlled).
- 0D617 ‘‘Software’’ ‘‘specially designed’’ for the ‘‘development,’’ ‘‘production,’’ operation, or maintenance of commodities controlled by 0A617, ‘‘equipment’’ controlled by 0B617, or materials controlled by 0C617 (see List of Items Controlled).
7.  ECCN 0E018 – ‘‘Technology’’ for the ‘‘development,’’ ‘‘production,’’ or ‘‘use’’ of items controlled by 0A018  is amended by adding a note at the end of the entry
8.  Addition of new ECCNs 0E606 and 0E617 between ECCNs 0E521 and 0E918:
0E606 -  ‘‘Technology’’ ‘‘required’’ for the ‘‘development,’’ ‘‘production,’’ operation, installation, maintenance, repair, overhaul, or refurbishing of ground vehicles and related commodities in 0A606, 0B606, 0C606, or software in 0D606 (see List of Items Controlled).
0E617  – ‘‘Technology’’ ‘‘required’’ for the ‘‘development,’’ ‘‘production,’’ operation, installation, maintenance, repair, overhaul, or refurbishing of commodities controlled by ECCN 0A617, ‘‘equipment controlled by 0B617, or materials controlled by 0C617, or ‘‘software’’ controlled by ECCN 0D617 (see List of Items Controlled).

For additional details on changes to EAR and ITAR and how this important change may affect your organization you can consult Intredex Export Compliance services. Intredex assists companies with services such as denied party screening, product export classification, achieving the EAR (Export Administration Regulations) and ITAR compliance with developing procedures for export transactions in alignment with the U.S. Government laws and regulations.

Transfer of Control for Certain War Vessels to CCL

Resulting from the recent export control reform perhaps one of the most extensive update was moving several USML controlled Surface vessels of war, Submersible vessels, Oceanographic Equipment as well as Related items, Auxiliary vessels and Miscellaneous items and associated accessories, parts, and commodities to EAR Commerce Control List. Even though the BIS and DDTC agencies are going to do and actually start to share more detailed analysis of the final rule, at first glance I noticed the below listed changes in Cat 8 and Cat 9 of the EAR CCL. Note that the final rule will go into an effect on January 6, 2014, and it is crucial for the companies and organizations to be prepared for the changes by perhaps revisiting and revising their both EAR and ITAR compliance programs: - 8A018 - Items on the Wassenaar Arrangement Munitions List is changed. - Inclusion of new ECCNs 8A609 and 8A620 between ECCNs 8A018 and 8A918: - 8A609 - Surface vessels of war and related commodities. - 8A620 - Submersible vessels, oceanographic and associated commodities. - New ECCNs 8B609 and 8B620 are added immediately after ECCN 8B001: - 8B609 - Inspection, testing and production Equipment and related commodities for the commodities enumerated in ECCN 8A609 or USML Category VI (except for Cat VI(f)(7)). - 8B620 - Inspection, testing and production Equipment and related commodities of commodities enumerated in ECCN 8A620. - Inclusion of a new ECCN 8C609 - Materials for the items controlled by 8A609 not elsewhere specified in the USML, directly following ECCN 8C001. - Addition of new ECCNs 8D609 and 8D620 between ECCN 8D002 and 8D992: - 8D609 - Software for items commodities controlled by 8A609, 8B609, or 8C609. - 8D620 - 'Software for commodities controlled by 8A620 or 8B620. - Inclusion of new ECCNs 8E609 and 8E620 between ECCN 8E002 and 8E992: - 8E609 - Technology for the items controlled by 8A609, 8B609, or 8C609, or software controlled by 8D609. - 8E620 - Technology related to commodities controlled by 8A620 or 8B620, or software controlled by 8D620. - 9A018 - Equipment on the Wassenaar Arrangement Munitions List is modified. - 9A619 - Military gas turbine engines and related commodities, the Note at the end of paragraph.a in the Items paragraph of the List of Items Controlled section is changed. - 9D018 - Software for the use of equipment controlled by 9A018 is changed. - 9E018 - Technology for the equipment controlled by 9A018 is modified.


About the Author:

Marina TRUHAN

International trade compliance expert with a focus on export compliance, denied party screening, export classification, EAR, ITAR, deemed export and encryption items.
For additional details on changes to EAR and ITAR and how this important change may affect your organization you can consult Intredex Export Compliance services. Intredex assists companies with services such as restricted and denied party screening, export classification, eccn, and with achieving the EAR (Export Administration Regulations) and ITAR compliance with developing procedures for export transactions in alignment with the U.S. Government laws and regulations.