CAN YOU SAY YES?
DDTC wants to know about your compliance program.
By Odyssey E. Gray, III & Jenny Hahn
Senior Licensing Associate & President
The Defense Directorate of Trade Controls (“DDTC”) has completed its IT Modernization with the implementation of the Defense Export Control and Compliance System (“DECCS”) in February 2020.
Users will see that DDTC updated the DS-2032 Registration form in several aspects, moving information blocks around and asking questions about the U.S. Person status of named entities and individuals and their eligibility status under the ITAR 120.3 based on the statutes listed in ITAR 120.27.
DDTC has also added a new question to the DS-2032 form concerning the applicant’s written ITAR compliance program/plan.
“Does Applicant have written policies and procedures for compliance with the ITAR (including but not limited to §122.5)”
This is a simple YES or NO response.
DDTC seeks to compile information regarding its registrants’ compliance program status to support its outreach and training efforts and alert registrants to the importance of having a written ITAR compliance plan/program in place.
This question is a clear indicator that DDTC is aware that many companies do not have compliance plans and programs in place and is placing an emphasis on learning which registrants fall in that category.
After 30 years of assisting clients, we have learned that many export violations occur because the company did not invest in developing and documenting their export policies and procedures. Tribal knowledge of the rules is akin to the childhood telephone can game with the outcome the same,
company employees understanding of the export regulations, that is not entirely accurate. Don’t leave your company export program to chance.
Invest now in developing a compliance plan/program and procedures that will aid in the prevention of export violations and ultimately enhance your company’s bottom line by minimizing costs associated with voluntary disclosures and financial penalties.
Don’t be one of those companies that checks “NO” to this important question.
FD Associates can assist your company with the development of compliance plans, manuals and procedures, tailored to the specific needs of small and medium sized companies.
Do You Know Where Your Export Controlled Technical Data Is?
By Jenny Hahn
FD Associates, Inc.
In today’s global environment, the transfer of export controlled technical data, your company’s IP or customer technical data occurs in an instant. Export controlled technical data is regularly transferred electronically by email or other means to domestic and international customers, partners, vendors, legal counsel and consultants. To ensure compliance with U.S. export regulations, the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) are met, it is important to understand what happens to the export controlled technical data when it is received by the domestic or international party. Who will have access to the export controlled technical data? Where will it be stored? If the export controlled technical data will be shared with other persons employed by the recipient or external to the recipient.
A recent case we encountered highlights just how far the questions need to go. In this situation, a U.S. company was exporting export controlled technical data to a foreign company. In doing its due diligence, it asked the foreign company where the export controlled technical data would be stored, and whether there were any external IT companies supporting the foreign company (i.e. administering its servers or supply chain partners that would receive the export controlled technical data). The U.S. company learned that backup of the foreign company servers would be at the foreign company’s parent location in another country. This backup of U.S. origin export controlled technical data in a separate country is a reexport under the ITAR and EAR, for which export authorization is or maybe required. If this question had not been asked during the license development process, the U.S. company would have released export controlled technical data to the foreign company and the foreign company would have caused an unwitting export violation.
How often do you ask this simple question of your domestic and foreign customers, partners, vendors, legal counsel or consultants?
Knowing where the export controlled technical data will reside once released from your company is a critical component of your export compliance program and due diligence.
Most companies require the implementation of a Non-Disclosure Agreement (NDA) before releasing export controlled technical data or company IP to another party. The primary reason for the NDA is not trade compliance related but for protection of company trade secrets. Those NDAs often permit the recipient to release the technical data to parties integral to the recipient to facilitate their cooperation with your company. Many NDAs do not include export compliance language articulating the need to comply with the ITAR or EAR prior to the transfer of the protected export controlled technical data to
another party. While an NDA can give the receiving company the permission to release the export controlled technical data to other parties, it is not an ITAR or EAR approval and it cannot override either the ITAR or EAR requirements for authorization for the release/retransfer/reexport of export controlled technical data to a foreign person or foreign company in the form of a license, or license exemption/exception.
When executing an NDA with a domestic or foreign party or evaluating the export regulatory considerations associated with an export of technical data to a foreign party, whether by license, license exemption/exception, be sure to perform your due diligence. This includes researching the party that you are doing business with, verifying whether there is any foreign ownership of that entity, asking if the U.S. company has foreign person employees, inquiring where the export controlled technical data is going to be stored, asking whether there are any IT service providers who will have access to the server and confirming whether backup of the company servers is done by a third party or by the same company in a different country.
Due Diligence also includes knowing where the servers are physically located. With the rampant use of the cloud to cut equipment costs, it is important to know that not all cloud providers can commit to hosting solutions that comply with the ITAR or EAR requirements (Not to mention DFARS requirements if the data is generated related to a U.S. government contract). Today both the ITAR and the EAR do not consider transfer to the cloud an export if suitable encryption is used in transit and in rest, and no access information is provided to foreign persons to unlock the data. If encryption is not used and the export-controlled data is placed in a cloud environment unsecured, that export controlled data may only be stored in a cloud environment hosted in the United States and managed by U.S. persons, to avoid violations of the ITAR or EAR.
A red flag regarding possible use of the cloud by customers, partners, vendors, legal counsel, consultants and others is the use of non-company email accounts like gmail, yahoo, aol, hotmail, msn etc. The use of such email service provider suggests the recipient does not have a traditional network infrastructure and is using the cloud to store any export controlled technical data sent to them. Companies like Google and Yahoo have servers located around the world and storage of the emails can take place at any of them.
Prior to any release of export controlled technical data, your company should determine what path that export controlled technical data will travel when it leaves your company and is received by the domestic or international customer, partner, vendor, legal counsel or consultant for storage and access.
Only when your company fully appreciates the electronics transfers made by others of your company IP, can your company be fully compliant with the ITAR and EAR.
This article does not address the separate Defense Federal Acquisition Regulations Cybersecurity obligations, DFARS 252.204-7000 and 252.204.7012 and the NIST SP 800-171. Refer to our article by Keil Ritterpusch on this subject.