Senate Passes Comprehensive Iran Sanctions, Accountability and Divestment Act

In a surprise move, the Senate this evening passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act (S. 2799) on a voice vote after very little debate.

The vote occurred only a day after Senators John McCain (R-AZ), Evan Bayh (D-IN), Jon Kyl (R-AZ), Joe Lieberman (I-CT), Chuck Schumer (D-NY), Robert Casey (D-PA), Johnny Isakson (R-GA), Ben Cardin (D-MD), and David Vitter (R-LA) sent a letter to President Obama warning that his own year-end deadline for diplomacy with Iran expired and urging the President to make use of existing authorities under U.S. law to pursue "parallel and complementary" measures to increase pressure against Iran.

The Senate bill must now be reconciled with the Iran Refined Petroleum Sanctions Act of 2009 (H.R. 2194), which passed the House by a wide margin in December.

While the bills include many similar concepts, the Senate bill contains several additional provisions, including some export control-related provisions, that are not included in the House bill that will have to be reconciled in a conference committee. In addition, Senator McCain reportedly wants to amend the bill to impose sanctions targeted at Iranian Government officials who have committed human rights abuses or acts of violence against civilians that engage in peaceful political activity.

As we previously reported, both versions of the Iran sanctions bills have been criticized in a variety of circles, including the U.S. business community, groups that oppose the imposition of sanctions that would adversely impact average Iranians and would hamper the President's ability to conduct foreign affairs by requiring the imposition of mandatory additional sanctions. In addition, the bills have been criticized for their extraterritorial application of sanctions.

In addition to the gasoline and refinery equipment sales provisions in the House bill, S. 2799 would, among other things:

1. Restore the prohibitions on imports of carpets and certain food products from Iran that were lifted in 2000;

2. Would make U.S. parent companies liable for the acts of their non-U.S. subsidiaries that engage in transactions with Iran;

3. Would prohibit the U.S. Government from entering into contracting with firms that sell equipment to Iran which can be used to censor or monitor Internet usage in Iran;

4. Require the Director of National Intelligence to submit a report to the Secretary of Commerce, the Secretary of State, the Secretary of the Treasury and the appropriate congressional committees that identifies all countries determined to be of concern with respect to transshipment, reexportation, or diversion of items subject to the provisions of the Export Administration Regulations to Iran.

5. Authorizes the imposition of a new licensing requirement for exports of certain products to countries designated as “Destinations of Possible Diversion Concern.”

6. Authorizes state or local governments to divest from companies that engage in certain enery sector investments in Iran.

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U.S. Business Groups Urge Obama Administration to Oppose Legislation to Broaden Scope of Iran Sanctions

Several leading U.S. business organizations and associations sent a letter today to National Security Advisor James Jones and National Economic Council Director Lawrence Summers urging the Obama Administration to oppose the Iran sanctions bills currently pending in Congress.

The bills, the Iran Refined Petroleum Sanctions Act of 2009 (H.R. 2194), which passed the House in December by a wide margin, and the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009 (S. 2799), which was approved by the Senate Banking Committee and placed on the Senate calendar, would expand the scope of current U.S. sanctions on Iran in a variety of ways, including making a number of changes to the Iran Sanctions Act, requiring certain sanctions to be imposed against non-U.S. companies that supply refined petroleum products to Iran and broadening the circumstances in which a U.S. company
could be penalized when one of its non-U.S. subsidiaries engages in business with Iran.

The letter states:

While we agree that preventing Iran from developing the capability to produce nuclear weapons is an urgent U.S. national security objective, the unilateral, extraterritorial, and overly broad approach of these bills would undercut rather than advance this critical objective.

The proposed sanctions would incite economic, diplomatic, and legal conflicts with U.S. allies and could frustrate joint action against Iran. They could prohibit any U.S. company from transacting routine business with critical partners from around the globe even if these transactions have no bearing on business with Iran. These provisions could encompass a very large portion of the global trade community with consequences that in our view have not been adequately assessed.

The proposals could have a large impact on the U.S. Export-Import Bank, precluding it from partnering with counterpart agencies abroad to co-finance U.S. exports that have no relation to Iran’s energy sector. A significant portion of the bank’s portfolio could be impacted, compromising its ability to boost U.S. exports.

The letter concludes by requesting the Obama Administration to "weigh in vigorously with Congress to eliminate these highly problematic proposals."

The letter was signed by the National Foreign Trade Council, the U.S. Chamber of Commerce, USA*Engage, the Business Roundtable, the Coalition for Employment through Exports, the Emergency Committee for American Trade, the National Association of Manufacturers, the Organization for International Investment and the U.S. Council for International Business.

The full text of the letter can be found here.

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In other Iran sanctions-related news, German engineering firm Siemens announced at its annual shareholder meeting today that starting in mid-2010 the company  would no longer accept any new orders from Iran.

In addition, Bloomberg today published a detailed story today entitled "Dubai Helps Iran Evade Sanctions as Smugglers Ignore U.S. Laws," describing how Dubai is used as a conduit to supply U.S. goods to Iran.

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Senate Holds Confirmation Hearing on BIS Officials

As mentioned in our previous post, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing today on the confirmation of two senior Bureau of Industry and Security officials, Kevin Wolf, nominated as Assistant Secretary of Commerce for Export Administration, and David Mills, nominated to serve as Assistant Secretary of Commerce for Export Enforcement. The webcast of the hearing, which also included nominees for other agencies, can be viewed here.  

The hearing was presided over by Senator Dodd (D-CT) and Senator Shelby (D-AL), the committee's chairman and ranking member.

While not a member of the Senate Banking Committee, Senator Blanche Lincoln (D-AR) gave a very nice introduction to Kevin Wolf. Unfortunately, due to audio problems, Kevin Wolfe's introductory remarks were inaudible, but in his prepared opening statement, which can be found here, he said note that "his background will also be helpful in crafting and implementing . . . the details of the significant export control reforms the President and the Secretary have announced . . . " He added that "if confirmed, [he will] be committed to the rule of law, transparency, and advancing the use of modem technology."

In his prepared remarks, David Mills discussed how his long time service at OFAC prepared him for this position and indicated that he believes that "the enforcement of those regimes must not only be fair and firm, but also as clear and transparent as possible, in order to advance both our national security and foreign policy interests and our economic potential through export promotion."

Several Senators asked questions to Messrs. Wolfe and Mills, including questions on a variety of export controls-related issues, including diversion-related issues, export control modernization, foreign availability, export enforcement penalties and whether BIS and its agents have the sufficient resources and powers to accomplish their goals. Senator Dodd's initial questions on export control issues start at the 71 minute mark of the webcast.

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Senate to Hold Hearing on Nominations of Senior BIS Officials

The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing tomorrow, January 21, 2009, on the confirmation of several persons nominated to serve in the Obama Administation, including two senior officials at the Commerce Department's Bureau of Industry and Security (BIS).

The Committee will consider the nominations of Kevin Wolf  to serve as Assistant Secretary of Commerce for Export Administration and David Mills to serve as Assistant Secretary of Commerce for Export Enforcement, both of whom were nominated in December.

On November 5, 2009, the Committee held a hearing today on the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the most senior position at BIS. While Mr. Hirschhorn's nomination was reported to the full Senate for inclusion on the Senate calendar on December 17, 2009, the Senate's vote was delayed due to the debate on health care and the Christmas recess.

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Incoterms Update: Incoterms 2010 Likely to Take Effect in January 2011

Frank Reynolds, the U.S. Delegate to the International Chamber of Commerce's (ICC) Incoterms committee, has provided International Trade Law News with an update on the status of the revisions currently underway to Incoterms 2000, the standardized trade terms commonly used in international sales contracts.

After receiving a large number of comments from the ICC National Committees, the Incoterms Drafting Group recently completed a third draft of the revised version of Incoterms. After comments on the third draft are submitted by the ICC National Committees, the Drafting Group will meet in March 2010 to prepare a fourth version of the draft revisions to Incoterms.

At this time, it remains the ICC’s goal to release the final version of Incoterms in the fall of 2010 with an effective date of January 1, 2011 (this date is subject to change).

In a change from previous reports, it appears that the new version of Incoterms will be entitled “Incoterms 2010”, reflecting the release date rather than the date they come into force (this is the third name change during this revision). In addition to the information provided in previous updates, Mr. Reynolds has provided the following information on items that may be contained in the final version of Incoterms 2010:

• There will be clear differentiation between the omnimodal terms and those intended only for marine use.
• Cargo security will be covered to the extent possible with differing regulatory systems.
• The preambles to each Incoterm will be expanded to better inform users of its intended use.
• A new term will be included to facilitate use in domestic transactions and those within Customs Unions where no export or import clearance obligations exist (as previously noted there are likely to be fewer than the 13 Incoterms in Incoterms 2000).

According to Mr. Reynolds, the "net result will be a more user-friendly set of terms reflecting up-to-date trade practice."  “The changes are substantial, but the benefits are well worth the effort to learn,” he said.

In order to prepare for 2011 implementation of the revised Incoterms, the United States Council for International Business will be conducting training programs starting in the fall of 2010.

The ICC introduced the first version of Incoterms, short for "International Commercial Terms," in 1936. There are currently 13 Incoterms. Incoterms have been revised six times in order to reflect international trade developments.

Frank Reynolds is the author of Incoterms for Americans, a useful publication for U.S. exporters and importers, which will be revised following the publication of Incoterms 2010.

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Export Control Practitioners Group Issues U.S. Export Control Reform Recommendations

Today the Export Control Practitioners Group, composed of a diverse group of associations, businesses, practitioners and seasoned compliance experts, released a comprehensive set of specific recommendations for transparent and efficient reform of the U.S. export control system.

The recommendations were included in a letter sent to National Security Advisor General James Jones and National Economic Council Director Lawrence Summers, both of whom are actively involved in the Obama Administration's export control reform initiative that was announced by the White House in August 2009.

The Export Controls Practitioners Group, which has been active for the past decade, began preparing these recommendations following the Administration’s announcement.

In addition to outlining their guiding principles for export control reform, the Export Controls Practitioners Group provided specific and practical recommendations in the following areas:

• Structure of the export control agencies;
• Changes to the Commodity Jurisdiction process;
• Control list review and reduction;
• Accountability in the export control process, including an appeals process of classification or jurisdiction decisions or technical and definitional decisions made by the agencies;
• Recommendations involving the process for decontrolling items in light of their foreign availability;
• Specific recommendations on changes to the procedures for the issuance of export licenses, license agreements, license exemptions, and license exceptions;
• Reforms to the export control enforcement process, including a suggestion for a graduated penalty process that would ensure that violations resulting from mistake or inadvertent conduct would not be subject to the most severe penalties;
• Limiting deemed export licensing requirements to sensitive, multilaterally controlled technology only (e.g., the Wassenaar Arrangement Very Sensitive List and the multilateral proliferation lists).
• Providing Trusted Party License Exceptions for dual-use intra-company transfers to and among non-embargoed destinations.
• Urging Congress to adopt legislation restoring Executive Branch authority to determine licensing
  jurisdiction for commercial satellites and associated items and technologies;
• Modernize the treatment of products and software containing encryption algorithms;
• Modifying end-user and end-Use Screening Requirements, including consolidating the various end-user lists maintained by the various agencies into one centralized list that includes names and data in the end users’ native languages, to afford easier access by exporters and other interested parties.

Several members of the Group are a part of the business community’s Coalition for Security and Competitiveness, which released its recommendations for reform last week. While the recommendations issued by the two groups differ in terms of emphasis, the key message is the same: the U.S. business community is united in the effort to work with the Administration to effectuate reform of outdated U.S. export controls.

The associations that signed the Export Controls Practitioners Group letter included the following:

• American Association of Exporters and Importers
• American Council on International Personnel
• Association For Manufacturing Technology
• Coalition for Employment Through Exports
• Computer and Communications Industry Association
• Electronic Design Automation Consortium
• Emergency Committee for American
• National Council on International Trade Development
• National Defense Industrial Association
• National Foreign Trade Council
• Satellite Industry Association
• Semiconductor Equipment and Materials International
• Semiconductor Industry Association
• TechAmerica
• U.S. Chamber of Commerce

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Twenty Two Executives and Employees of Military and Law Enforcement Products Companies Indicted in Alleged Foreign Bribery Scheme

The Justice Department announced today that 22 executives and employees of companies in the military and law enforcement products industry have been indicted and arrested in the largest single investigation and prosecution against individuals in the history of the enforcement of the U.S. Foreign Corrupt Practices Act (FCPA).

Twenty one of the defendants were arrested in Las Vegas yesterday and one defendant was arrested in Miami. In addition, approximately 150 FBI agents executed 14 search warrants in locations across the U.S. In addition, the United Kingdom’s City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments.

The defendants arrested in Las Vegas were there because they were attending the annual Shooting, Hunting, Outdoor Trade Show and Conference, known as the SHOT Show, the largest trade show of its kind. 

According to the Justice Department, the indictments allege that the defendants engaged in a scheme to pay bribes to the minister of defense for a country in Africa. In fact, the scheme was part of the undercover operation, with no actual involvement from any minister of defense. As part of the undercover operation, the defendants allegedly agreed to pay a 20 percent "commission" to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard. In reality, the "sales agent" was an undercover FBI agent.

The defendants were told that half of that "commission" would be paid directly to the minister of defense. The defendants allegedly agreed to create two price quotations in connection with the deals, with one quote representing the true cost of the goods and the second quote representing the true cost, plus the 20 percent "commission." The defendants also allegedly agreed to engage in a small "test" deal to show the minister of defense that he would personally receive the 10 percent bribe.

Each of the indictments allege that the defendants conspired to violate the FCPA, conspired to engage in money laundering, and engaged in substantive violations of the FCPA. The indictments also seek criminal forfeiture of the defendants’ ill gotten gains.

The maximum prison sentence for the conspiracy count and for each FCPA count is five years. The maximum sentence for the money laundering conspiracy charge is 20 years in prison.

A list of the persons named in the indictments are included in the press release.

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International Trade Law News Twitter Updates for 1/8/10 to 1/16/10

AP: Taiwan-based company assists Chinese firm in obtaining pressure transducers for Iran -- http://bit.ly/929Jcd

Follow-up from previous tweet: Certain pressure transducers are classified on U.S. Commerce Control List as ECCN 2B230 (NP and AT controls)

New Blog Post: Management Consultant Arrested and Charged With Violating Iran Embargo: http://bit.ly/79P0SX

It's official: DDTC Appoints Lisa Studtmann as Director of Office of Defense Trade Controls Compliance -- http://bit.ly/5Km9KX

Politico: Beth McCormick to be Deputy Ass't Secy at State Dept's Bureau of Political-Military Affairs (oversees DDTC) - http://bit.ly/7mo4lZ

RT @complianceweek: Poll says compliance budgets are faring better than you'd expect, considering economy . . . http://bit.ly/7ZVdOw

New Blog Post: Coalition for Security and Competitiveness Releases Detailed Export Control Recommendations: The Co... http://bit.ly/5q1FbK

House Foreign Affairs Committee to hold export controls hearing at Stanford University on January 15th. Details here: http://bit.ly/6ptLlb

New Blog Post: Philadelphia Area Chemical Engineer Sentenced to Four Years in Prison for Violating Iran Sanctions:... http://bit.ly/7Gnx11

Pakistan claims to be implementing "effective export controls in line with international obligations": http://bit.ly/61RuOX

The Hill's story on yesterday's CSC export control reform recommendations found here: http://is.gd/6bxHC

SEC Enforcement Division names Cheryl J. Scarboro as head of Foreign Corrupt Practices unit. Details at http://bit.ly/707aub

AP reports that North Korea will allow more American tourists -- http://bit.ly/6Y5Fk4

LA Times: 3 men charged in scheme to illegally export vacuum pumps and equipment to Iran via UAE -- http://is.gd/6fkmk

Politico: At meeting with defense company executives SecDef Gates pledges support for export control reforms - http://bit.ly/7S8u8z

DefenseNews reports on new Deputy Assistant Secretary of State who will oversee defense export control agency: http://bit.ly/6qRsfP

American Association of Exporters and Importers' export control reform recommendations to Congress can be found here: http://bit.ly/8abX2y

Op-Ed by Rep. Berman in San Jose Mercury News on today's export controls hearing being held at Stanford: http://bit.ly/8obtnz

Rep. Berman: You practically have to have a law degree or Ph.D. to keep from running afoul of increasingly complex export-controls regime.

BIS adds Chinese entity to list of parties eligible for Validated End-User (VEU) program: http://bit.ly/7Qp0v7

National Defense Magazine: Job Creation Argument May Prompt Congress to Move on Arms Export Controls Reform - http://bit.ly/8tlUlG

AP: North Korea plays sanctions card in nuclear standoff -- http://is.gd/6nvR6

Stanford president urges lawmakers to change export controls at export controls hearing (from Stanford News) http://bit.ly/4Kry4X

San Jose Mercury News' story on yesterday's export controls hearing at Stanford found here: http://bit.ly/5HIDYA

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Philadelphia Area Chemical Engineer Sentenced to Four Years in Prison for Violating Iran Sanctions

Philly.com reports that Dr. Ali Amirnazmi, a Stanford trained chemical engineer and founder of Exton, Pennsylvania-based TranTech Consultants Inc, who was convicted in February 2009 of violating the U.S. embargo on Iran, was sentenced today to four years in prison and five years of supervised release. He was also ordered to pay restitution to a bank of $17,277, forfeit $81,277 and continue mental-health treatment.

Dr. Amirnazmi was convicted by a federal jury of one count of conspiracy to violate the International Emergency Economic Powers Act (IEEPA), three counts of violating IEEPA, three counts of making false statements to federal officials and three counts of bank fraud.

The Justice Department alleged that Amirnazmi, a citizen of the U.S. and Iran, participated in illegal business transactions with Iran between 1996 and 2008. Amirnazmi also allegedly engaged in investments with companies located in Iran, including a chemical company controlled in whole or in part by the government of Iran.

The jury convicted Amirnazmi of making false statements to the Treasury Department's Office of Foreign Assets Control (OFAC), the FBI and the Internal Revenue Service (IRS) about business deals with Iran in an attempt to cover up that illegal activity. Amirnazmi also allegedly submitted false tax returns to several banks in order to secure loans for which he would not have qualified.

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Coalition for Security and Competitiveness Releases Detailed Export Control Recommendations

The Coalition for Security and Competitiveness (CSC) today released detailed recommendations on the specific steps the Obama Administration and Congress can take to reform and modernize the U.S. export control system.

The document, entitled "Recommendations for a 21st Century Technology Control Regime", which was included with a letter sent to to President Obama and other key members of the Obama Administration, states that:

United States export control system has not been significantly revised in more than twenty years. The result is a system that no longer fully protects our national security, has not kept up with accelerating technological change, and does not function with the efficiency and transparency needed to keep the United States competitive in the global marketplace.

The Administration’s export control review, as well as impending legislative proposals, provides an opportunity to strengthen our security and give business the clarity and guidance it needs to comply with the rules and remain competitive.

In order to accomplish these reforms, the CSC indicated that these goals can best be accomplished in the near term by structuring export control reform around the following five themes:

1. Draw clear lines of agency responsibility.

2. Control lists should be revised and reduced. 

3. Complete the transition to an end user-based system. 

4. Enhance cooperation with allies. 

5. Enhance cooperation with the business community. 

The CSC also provided detailed recommendations in the following 11 areas applicable to the dual-use (EAR) and munitions control (ITAR/USML) control systems that can be taken within the existing legislative authorizations and would not require further Congressional action:

1. Establish Clear Lines of Responsibility in the Commodity Jurisdiction Process

2. Promote Effective Compliance and Enforcement

3. Improve Outreach to and Resources for U.S. industry, particularly for Small and Medium-sized Enterprises

4. Promote Greater Multilateral Cooperation with Allies and Partners

5. Improve the Licensing System and Increase Transparency

6. Systematic Review of the Commerce Control List (CCL) with a Greater Focus on Foreign Availability

7. Encryption

8. Focus and Improve the U.S. Munitions List

9. Improve Export Licensing Caseload Management

10. Provide for DoD Acquisition, technology and Logistics Role in Export Controls

11. Developing Transparent and Disciplined Processes for the Department of Defense’s Disclosure Decisions

The CSC's letter to the President noted that, “our principles and recommendations would create a 21st century export control regime that protects critical technologies, safeguards our national security, spurs innovation and promotes economic growth.”

The CSC is comprised of the following member associations: the Aerospace Industries Association, the Association of American Exporters and Importers, the AMT - Association for Manufacturing Technology, The Business Roundtable, the Coalition for Employment Through Exports, the General Aviation Manufacturers Association, the Industrial Fastener Institute, the Information Technology Industry Council, the National Association of Manufacturers, the National Defense Industrial Association, the National Foreign Trade Council, the Satellite Industry Association, the Space Enterprise Council, The Space Foundation, TechAmerica and the U.S. Chamber of Commerce.

The CSC's letter to President Obama can be found here.

The CSC's specific export control reform recommendations can be found here.

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Management Consultant Arrested and Charged With Violating Iran Embargo

Mahmoud Reza Banki, a management consultant formerly employed by McKinsey and Co., was arrested yesterday by Immigration and Customs Enforcement agents following an indictment charging him with violating the U.S. sanctions on Iran and operating an unlicensed money transfer business between the U.S. and Iran.

According to the indictment, from January 2006 to September 2009, Banki, who is 33 years old and a U.S. citizen, allegedly provided money transmitting services to residents of Iran by operating a "hawala," which is a type of informal value-transfer system in which money does not physically cross international boundaries through the banking system. In the hawala system, funds are transferred by customers to a hawala operator, or "hawaladar," in one country, and corresponding funds, less any fees, are disbursed to recipients in another country by hawaladar associates on that end.

Banki allegedly received wire transfers in a personal bank account he maintained at Bank of America in Manhattan totaling about $4.7 million from companies and individuals located in Saudi Arabia, Kuwait, Latvia, Slovenia, Russia, Sweden, the Philippines, the United States, and other countries. Banki apparently did not know the wire originators personally. He allegedly received the funds with the understanding that an equivalent amount of Iranian currency would, in turn, be disbursed to intended recipients residing in Iran. Banki informed an Iran-based co-conspirator when funds had been received, and the co-conspirator then disbursed the funds in Iran, less any fees.

Banki allegedly used specific funds transferred into his Bank of America account to make joint investments in the United States with the Iran-based co-conspirator. Among other things, Banki used the funds to purchase a $2.4 million Manhattan condominium; to invest in securities for his own benefit and that of the co-conspirator; and to make payments on his credit card accounts, including about $55,000 in one month alone in the summer of 2007.

Banki is charged with violating the International Emergency Economic Powers Act (IEEPA), together with Executive Orders and U.S. Department of Treasury regulations; conducting an unlicensed money transmitting business; and conspiracy to commit those crimes. If convicted, Banki faces a maximum sentence of five years in prison on each of the conspiracy and unlicensed money transmitting counts and 20 years in prison on the IEEPA violation count.

This case is being prosecuted by the Complex Frauds and Asset Forfeiture Units of the U.S. Attorney's Office, Southern District of New York.

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DDTC Appoints Lisa Studtmann as Director of Office of Defense Trade Controls Compliance

The State Department's Directorate of Defense Trade Controls (DDTC) has confirmed that Lisa Studtmann, Esq. is now the Director of the Office of Defense Trade Controls Compliance, succeeding former Director David Trimble and Acting Director Daniel Buzby.

Ms. Studtmann began work as a compliance specialist at DDTC in July 2007 and has served as a senior compliance specialist at DDTC's Enforcement Division since August 2008. Prior to joining DDTC, Ms. Studtmann worked as an attorney for approximately ten years, both in private practice and in the General Counsel’s office of the Central Intelligence Agency.  She has a J.D. and an M.A. in Clinical Psychology from the University of Tulsa.

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