Export Control Agency

Enforcement and

Agency Visits

August 7, 2017

Olga Torres, Managing Member

Torres Law, PLLC

Agenda

• Overview of Export Agencies

• Enforcement After ECR

• Enforcement Penalties, Trends & Cases

• Outreach Visits

• Visit Preparation

Export Control Agency Overview

Export Agency Enforcement • BIS: Office of Export Enforcement (“OEE”)

– Works with DOJ and BIS’ Chief Counsel to prosecute criminal and

administrative cases

• DDTC

– No formal enforcement branch similar to BIS’ OEE

– Office of Defense Trade Controls Compliance (“DTCC”)

adjudicates administrative enforcement cases

• ICE: Homeland Security Investigations (“HSI”)

– Enforces domestic and international criminal violations of the EAR

and ITAR

• OFAC

– No formal enforcement branch

– Coordinates with various other agencies, including FBI, CBP, HSI,

OEE and others

Challenges of Export

Enforcement

ECR: A Mixed-Bag for

Enforcement

oClearer, more positive

lists usually simplify the

jurisdiction determination

process

oBetter coordination

between different export

agencies (E2C2)

oConsolidated screening

list

oNew definition of

“specially designed”

oIncreased responsibility

without equivalent

increase in resources

oMultiple regulatory

revisions to keep up with

E2C2 • As part of ECR, the Obama administration established

the Export Enforcement Coordination Center, also called

E2C2.

• Promotes collaboration between the different government

agencies

• Housed within ICE’s Homeland Security Investigations (HSI).

• Representation from eight U.S. departments and 15 federal

agencies

• About 52% of cases handled by E2C2 were found to have

existing cases or information residing with another agency.

DDTC & ECR

• Since 2013, disclosures to DDTC have decreased each

year. A driving factor of this decrease has been the

removal of thousands of items from DDTC jurisdiction.

BIS & ECR • While DDTC’s jurisdiction has

decreased, BIS has seen an

increased workload since the

beginning of the ECR initiative.

• “Preliminary findings indicate that

BIS staff levels are not in line with

growth in export license applications

and enforcement activities. Despite

the extraordinary commitment and

tireless effort of our employees, we

have reached the tipping point.”

Penny Pritzker, former

Secretary of Commerce

ECR & Enforcement

• Even if your items have shifted from control under the

ITAR to EAR-control, you should not assume that BIS is

more lenient, or forgiving than the DDTC.

• Historically, BIS is more likely than DDTC to penalize

exporters, even in voluntary self-disclosure (“VSD”)

situations. Although BIS offers significant mitigation from

VSDs, disclosures can take months to resolve and are

more likely than DDTC disclosures to result in a

monetary fine.

Penalties for Export Violations

BIS & DDTC Civil Enforcement

VSDs

DOJ Guidance

• On October 2, 2016 the

Department of Justice published

its Guidance Regarding

Voluntary Self-Disclosures

– The Guidance states that a top

priority of the DOJ will be to

pursue “willful export control

and sanctions violations by

corporate entities and their

employees”

– Explicitly implements the 2015

“Yates Memo,” which

emphasizes enforcement

against corporate individuals

Mitigating/Aggravating

Increased Cooperation Between

Agencies

• ZTE Settlement (BIS/OFAC/DOJ)

– March 7, 2017

– Chinese telecom company sold

equipment containing American

technology/hardware to sanctioned

countries (Iran & North Korea)

– BIS Settlement: $661 million ($300

million suspended during 7-year

probation)

– OFAC Settlement: $100,871,266

– DOJ Fines & Forfeiture:

$460,488,798

Government Visits

We now know how the enforcement

agencies generally operate, but what if they

show up at your business…

OEE Visits • Visit v. Inquiry

– When you ask OEE to your office it’s a

visit

– When OEE arrives at your door it’s an

inquiry

• Selection Criteria

– Recent focus on companies that have not

previously submitted applications for

actual or “deemed” export licenses

• Document Requests

– OEE may make requests for documents,

including internal audits or freight

forwarder, shipper and ultimate consignee

records

• 743 OEE outreach visits in FY 2016

Negative Consequences

• “Knowledge” component

– Sometimes the fact that a

company has received an

OEE outreach visit can be

used as evidence of

knowledge of the

unlawfulness of activity

subject to an administrative

or criminal case

• Discovery of violations

– Not always clear how BIS

addresses violations

discovered during OEE visits

EMCD Visits

• BIS’ Office of Exporter Services

Export Management and Compliance

Division (“EMCD”) has also conducted

visits for the past 1-2 years

• Selection Criteria:

1. EMCD initiates reviews of Automated

Export System (“AES”) records to

confirm compliance with export

requirements

2. EMCD meets with parties with AES filing

errors and “others of interest,” without

giving an explanation of what would

make an exporter “of interest”

• 40 EMCD visits in FY 2016

DDTC Company Visit Program

(CVP”) • Two Types of visits:

– CVP-Compliance (“CVP-C”)

– CVP-Outreach (“CVP-O”)

• Visits to entities registered with DDTC – Defense article manufacturers

– Exporters of defense articles and defense

services

– Brokers under ITAR §129

– Foreign Military Sales (FMS) freight

forwarders

• Administered by Defense Trade

Controls Compliance (“DTCC”)

CVP-Compliance Visits

• CVP-C visits are designed for

oversight activities, especially as a

manner of monitoring Consent

Agreements.

• Also review compliance programs in

the context of:

– Adjudication of voluntary self-disclosure,

– Adjudication of directed disclosure, or

– Other compliance matters.

• More in-depth look at company’s

compliance program than CVP-

Outreach visits.

CVP-Outreach Visits

• CVP-O visits provide

opportunity for:

– Discussing challenges,

– Learning how industry is adapting

to Export Control Reform and

other compliance changes, and

– Offering suggestions or best

practices.

• CVP-O visits are unrelated to

specific compliance matters.

Visit Summary 2015-2016

CVP Selection Criteria

• A variety of factors are taken into account when DDTC

selects a company to be visited, including:

1. Type and sensitivity of technology

2. Nature of business

3. Volume of licensed/regulated activity

4. Experience conducting ITAR activities

5. Geographic location (and other DDTC travel requirements)

6. Recommendations from DTCP and DTCL

7. Follow-up to a disclosure of an ITAR violation (for CVP-C)

8. Monitoring of a consent agreement (for CVP-C)

DTAG Recommendations

• Defense Trade Advisory Group (“DTAG”)

– Approached by DDTC to provide recommendations re:

CVP

– Summary:

• Rename/Distinguish CVP-O

• Consider “In-Reach” instead

• Market benefits received by visited companies

• Include Licensing and Policy

• Offer collaborative events at DDTC or via web

• Enhance predictability and transparency (e.g., schedule,

risk)

Visit Preparation: Pre-Visit

Visit Preparation: During Visit

Visit Preparation: Post-Visit

General Compliance Tips

General Compliance Tips

Questions?

Olga Torres, Managing Member

Torres Law, PLLC

Dallas, Philadelphia

olga@torrestradelaw.com

www.torrestradelaw.com

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