Guest Post: 15 (FCPA) Blogs Sites to Check Out

Today's guest post is by Tom Fox, a Houston, Texas-based attorney with a great deal of experience in international transactions and global anti-corruption policy and issues, including the Foreign Corrupt Practices Act (FCPA). Tom writes the "FCPA Compliance and Ethics Blog", a great resource on the FCPA and other corporate ethics and compliance-related issues.

Tom published the following post last month and I thought readers of this blog would find it useful. Thanks to Tom for including International Trade Law News on his top 15 list. Tom's very active and informative Twitter feed is @tomfoxlaw.
 

15 (FCPA) Blogs Sites to Check Out 

For some time now I have wanted to write about whom I read and why, so I thought it might be a good idea to list my 15 favorite blog sites. Below is a list of my favorites and as this blog provides my spin on all things related to the Foreign Corrupt Practices Act (FCPA) arena here we go…

The First Blog I Read Each Day

FCPA Blog/FCPA Professor - I know I said “the” first but it is always one of these two, depending on how early in the morning it is and where the mouse pointer ends up when I make the first click. But regardless of which I read first, here is why they are the first.

FCPA Blog - Richard Cassin, the ‘Dean’ of FCPA bloggers. If you want to know what is going on in the FCPA, or wider compliance, world on a once, twice or thrice times daily basis, this is the blog for you. In addition to Dick’s own posts, he gets the crème-de-la-crème of the world’s anti-bribery and anti-corruption writers to send in posts. If the FCPA Blog didn’t exist, someone would have to create it and fortunately for us Dick has done so.

FCPA Professor - Professor Mike Koehler on all things ‘legal’ in the FCPA world. If you want to know the latest Department of Justice (DOJ), Securities and Exchange Commission (SEC), federal court or anything else FCPA-thinking, from the law perspective, this is the blog for you. Always insightful, and provocative, if you want to hone your Socratic method, parry and thrust via email with the Professor. I guarantee you will learn quite a bit, I know I have.

After I get through these I tweet about them so everyone else can enjoy their collective wit and wisdom then it’s off to the following sites…

Corporate Compliance Insights - A collection of all things compliance, with a starting rotation and bullpen of great authors and contributors. But more than simply blogs, it has job postings, career advice and a broad list of resources for the compliance practitioner. And here’s the best part-it’s all free. Maurice Gilbert and his team have put together an outstanding compliance resource.

Open Air Blog - How can one best describe Howard Sklar’s blogging; withering, skewering, contrarian; he describes himself as “a crusty, irascible curmudgeon.” Here’s how I would describe Howard – one of the best compliance practitioners and commentators around. His insights are great and he uses the right touch of humor and real-world examples to get his point across. His blog is great and a ton of fun to read so saddle up and enjoy the (compliance) ride.

Corruptions Currents - From the Wall Street Journal, Sam Rubenfeld and Joe Palazzollo blog all-day on all things related to the anti-corruption world; FCPA, AML, Whistleblowers, Sanctions and General Anti-Corruption are all covered in this blog. Both journalists were jointly named by Ethisphere as one of the 100 most influential folks in the anti-corruption world. Great coverage, great insight AND it’s from the Wall Street Journal.

From across the pond…

thebriberyact.com - If you only have one resource for all things UK Bribery Act related, you could not find a better site. Barry Vitou and Richard Kovalevsky have put together that rarest of all blog sites, one that covers an entire subject in-depth, with both practical insight and analysis. Their interviews of the relevant players allow all compliance practitioners to develop insight into what the top UK regulatory officials are thinking about on the Bribery Act.

From North of the Border…

i-sight investigation blog - Lindsey Khan provides excellent insight on a wide variety of compliance topics. As with most advice we Americans receive from our Canadian cousins, her blogging is direct with practical guidance on how to navigate compliance challenges. She often provides Templates with her blogging to give you specific guidance on the ‘how to’ of compliance. So get thee to the Great White
North and check out i-sight.com

The Business Ethics Blog - Chris MacDonald teaches Philosophy, including business ethics, at Saint Mary's University and fortunately for the rest of us, he blogs. If you believe either “a) that corporations have a god-given right to accumulate as much capital as possible without regard for who gets hurt along the way; or b) that all corporations, and all people who work for them, are inherently evil, you will probably be irritated by [his] blog.” However, the rest of us can learn quite a bit from this thought provoking blog.

For Export Control…

International Trade Law News - My favorite site for all things trade compliance. Fellow UT Longhorn Doug Jacobson has put together a great site for export controls, sanctions, customs law, FCPA, antidumping and other international trade issues. He touches on the FCPA from time-to-time but he is “The Man” for me to catch up with all issues relating to export control.

Subscription Required - Sorry but you have to pay to read these great blogs…

Compliance Week Blogs - Matt Kelly has put together a plethora of all-star bloggers for his publication Compliance Week. Bruce Carton on the SEC; Melissa Aguilar on Regulatory Developments; Tammy Whitehouse on Accounting and Auditing; Neil Baker with his Global Perspectives; Jaclyn Jaeger with the Scuttlebutt and the Man, Matt Kelly himself. Any of these bloggers would be worth a solo listing but to have them on one site is fantastic.

Just Anti-Corruption - Editor Mary Jacoby and Reporter Chris Matthews blog throughout the day on anti-corruption and anti-bribery issues from a DC perspective. Both are great journalists and both have first-class sources. It puts information to us out in the provinces (as in ‘Outside the Beltway’) on what the DOJ is doing and thinking on all things FCPA.

Aggregators-they put it all together for you.

MyCorporateResource-Nick Montgomery is the hardest working man I know of in the blogosphere world. He manages to post literally hundreds of blogs each day, all focused for the in-house corporate lawyer. He has a specific FCPA site, which is found in the Client Memos, International Trade Sub Menu, Foreign Corrupt Practices Act. He posts blogs from Blue Chip law firms so the information is well, blue chip. It is a fabulous resource for all things an in-house counsel would need to know and a wonderful FCPA resource.

Law Agents-this site announces that “With over 1,400 subscriptions by users, lawgents.com is the internet's largest free law related news and blog aggregator.” How is that for an opening line. Best of all, its free and you can join, post or just use as a resource.

New Kids on the Block - Note I didn’t say young but these two guys have recently started blogging and from what I know of them, their stuff will be high quality.

Internal Investigations Blog - Cleveland attorney Jim McGrath focuses on all aspects of investigations relating to anti-corruption, anti-bribery, corporate fraud and employee-related theft. His blog is broader than simply the FCPA but just imagine the results of L’Affaire Renault if that company had read Jim’s blog before firing the soon to be multi-millionaire ex-employees.

White Collar Defense and Compliance – and finally… Mike Volkov has started up his own blog. For anyone who has heard Mike speak or read any of his Client Alerts you know this guy knows his stuff. I often wonder how he puts out so much material and manages to practice law, but he does and we, and the greater compliance world, are better for it. So check him out, as in now.

So that is my 15 ‘faves’ list. If you are not on it, please don’t take it personally, I’m sure that I read your blog and tweet about you.

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Representative Berman Introduces Bill to Update U.S. Export Control System

Today, Representative Howard Berman (D-CA), the Ranking Member on the House Foreign Affairs Committee introduced what is expected to be the first of several bills to update the U.S. dual-use export control system. Such a bill is needed because the Export Administration Act of 1979 (EAA), the last major export control bill enacted by Congress, lapsed in August 2001 and the Export Administration Regulations have remained in effect as a result of successive presidents invoking the International Emergency Economic Powers Act (IEEPA).

Representative Berman's 68 page bill, entitled the Technology Security and Antiboycott Act (pdf) (no bill number assigned as of this writing), would repeal the EAA and replace the authority in that law with a new statutory scheme that reflects the numerous technological advances and global changes that have occurred since 1979.

The following are some of the key aspects of the Technology Security and Antiboycott Act:

• Provides the President with authority to deploy controls to counteract current and future national security threats, including rogue governments, terrorist organizations, and other non-state actors that seek to attack the U.S. and its allies.

• Modernizes the definition of "national security" to include sustaining U.S. leadership in science, manufacturing and our high-tech workforce, and requires the President to balance traditional security goals with maintaining U.S. academic and manufacturing leadership in applying controls.

• Updates the definition of "dual-use" to include capable of being used in terrorist or cyber attacks. 

•  Establishes a process for regular review of the Commerce Control List to ensure that new items are adequately controlled and that the level of control of items on the lists are adjusted as conditions change.

• Requires control lists to be published in a form that facilitates compliance by small and medium sized businesses and academic institutions.

• Retains IEEPA penalty structure of maximum criminal penalties of $1 million or 20 years in prison and maximum civil penalties of $250,000 or twice the amount that this the basis of the violation.

• Civil penalties for export violations would be based on seriousness of the violation, culpability of the violator and violator's record of cooperation with the government.

• Provides that penalties for export and antiboycott violations would be subject to judicial review.

• Requires the publication of "best practices" guidelines to assist persons in developing and implementing, on a voluntary basis, effective export control programs.

• Provides that implementation of an effective export compliance program should be mitigating factors in civil penalty cases.

• Requires civil aircraft parts certified by the Federal Aviation Administration to be subject to dual-use controls under the Technology Security Act and not the International Traffic in Arms Regulations (ITAR).

• Establishes the Transfer Policy Committee, a high-level interagency management group responsibility for overall administration, rule-making and oversight of export controls. 

• Reenacts provisions authorizing the antiboycott authority and non-proliferation (missile and chemical and biological) functions of the U.S. government.

The Technology Security and Antiboycott Act is expected to be referred to the House Foreign Affairs Committee, where Representative Berman is the senior Democrat. Representative Ileana Ros-Lehtinen (R-FL), the Chairman of the House Foreign Affairs Committee indicated in the May 12, 2011 export control hearing that she plans to introduce a bill to that would authorize a short-term extension of the lapsed Export Administration Act that would also include other provisions to "help enable Congress and the Administration to tackle together the critical changes necessary to strengthen our national security, while advancing commercial interests." The Obama Administration is also working on legislative language to implement those aspects of the export control reform reform process that requires legislation.

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EU Export Controls for North American Trade Compliance Professionals to be Held in DC on July 18, 2011

The Trusted Trade Institute is holding a one-day program on European Union (EU) export controls on July 18, in the Washington, DC area.

The program, entitled "EU Export Controls for North American Trade Compliance Professionals" is being held the Monday before the annual BIS Update Conference on Export Controls, in order to allow those who reside outside of the Washington, DC area to attend both programs in one trip.

This Special Master Class is designed to give participants an overview of the essentials of EU dual-use export controls, with an introduction into the complexity presented by the national administration
of those controls (and their own additional controls) by the individual EU Member States.

Led by a senior official of Germany’s export control agency, this program will outline parallels and contrasts between the EU and US regulatory systems. The program will feature practical presentations and information presented by leading export control attorneys and consultants from the perspective of both
in-house counsel and outside counsel/consultants. The program will also feature keynote remarks by Kevin Wolf, the U.S. Department of Commerce’s Assistant Secretary for Export Administration.

Further information on these programs, including the agenda, speaker bios and registration information, can be found below. The direct registration page can be found here.

EU Export_Controls_2011_Trusted Trade Institute July 18, 2011

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Flurry of New Iran-Related Sanctions Imposed by U.S. Government

There has been a flurry of sanctions activity under the Iran Sanctions Act, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).

Yesterday President Obama issued an Executive Order that authorizes OFAC to implement ISA and CISADA related sanctions on parties and individuals that have been determined by the Secretary of State to have violated ISA/CISADA.

Today OFAC announced several sets of ISA/CISADA sanctions on a number of companies. Because ISA and CISADA authorize a wide variety of sanctions to be imposed, the sanctions that are imposed under ISA/CISADA can vary from entity to entity.

ISA/CISADA sanctioned parties are now designated on OFAC's SDN List as [ISA].

As for the specific sanctions, OFAC has added the following three shipping companies to the SDN List for providing shipping services in violation of CISADA:

• ASSOCIATED SHIPBROKING (a.k.a. ASSOCIATED SHIPBROKING S.A.M.; a.k.a. "SAM"), Gildo Pastor Center - Block C 4.20, 7 rue du Gabian, Fontvieille MC 98000, Monaco [ISA]

• ROYAL OYSTER GROUP, ROG Corporate Office, Royal Oyster General Trading LLC, P.O. Box 34299, Dubai, United Arab Emirates [ISA]

• SPEEDY SHIP FZC (a.k.a. SEPAHAN OIL COMPANY; a.k.a. "SPD"), Room 206, 2nd Floor, Building W5B, Dubai Airport Free Zone, P.O. Box 54916, Dubai, United Arab Emirates [ISA]

OFAC also added PETROCHEMICAL COMMERCIAL COMPANY INTERNATIONAL (PCCI) to the SDN List for CISADA violations, but that company was already on the SDN List due to other Iran-related sanctions.

In the event that any U.S. accounts need to be blocked as a result of these designations, the procedures in the Iran Financial Sanctions Regulations (31 CFR Part 561) need to be followed.

In addition, for the first time OFAC is implementing targeted sanctions under CISADA on the following two companies located in Singapore and Israel:

• Ofer Brothers Group, Ramat Aviv Tower, 40 Einstein St., P.O.B #11, Tel Aviv, 69102 Israel; MATAM Haifa, 9, Andre Saharov St., P.O.B #5090, Haifa, 31905 Israel

• Tanker Pacific Ship Management (a.k.a Tanker Pacific), Headquarters (Singapore), Tanker Pacific Management (Singapore) Pte Ltd, 1 Temasek Avenue, #38-01,Millenia Tower, Singapore 039192

U.S. financial institutions are now prohibited from making loans or providing credits totaling more than $10,000,000 in any 12-month period to these two companies unless the activity is associated with the relief of human suffering and the loans or credits are provided for such activities. However, it is important to note that these companies are not being added to the SDN List and there is no need to block any property or funds in U.S. accounts.

Finally, today the U.S. imposed sanctions on the Venezuelan state-owned oil company PDVSA for shipping refined petroleum to Iran. However, the sanctions are limited in scope and prohibit PDVSA from competing for U.S. government procurement contracts, from getting financing from the Export-Import Bank of the U.S. and from obtaining U.S. export licenses. Crude oil exports by PDVSA to the U.S. are not affected.

This new “mix and match” sanctions approach under ISA/CISADA will make it difficult for banks and companies to monitor the type of activity that is permissible or not.

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U.S. Imposes Sanctions Pursuant to Iran, North Korea and Syria Nonproliferation Act

Yesterday the U.S. imposed sanctions on a number of entities and indviduals under the Iran, North Korea and Syria Nonproliferation Act (INKSNA).

The sanctioned entities are:

• Belarusian entities – Belarusian Optical Mechanical Association and BelTechExport;
• Chinese entities and individuals – Mr. Karl Lee, Dalian Sunny Industries, Dalian Zhongbang Chemical Industries Company, and Xian Junyun Electronic
• Iranian entities and individuals – Milad Jafari, Defense Industries Organization, Islamic Republic of Iran Shipping Lines (IRISL), Islamic Revolutionary Guard Corps Qods Force, SAD Import-Export Company, and Shahid Bakeri Industries Group
• North Korean entity – Tangun Trading
• Syrian entities – Industrial Establishment of Defense and Scientific Studies and Research Center
• Venezuelan entity – Venezuela Military Industries Company

Sanctions were imposed on these entities as provided in the INKSNA because there was credible information indicating that they had transferred to or acquired from Iran, North Korea, or Syria equipment and technology listed on multilateral export control lists (Australia Group, Chemical Weapons Convention, Missile Technology Control Regime, Nuclear Suppliers Group, Wassenaar Arrangement) or otherwise having the potential to make a material contribution to WMD or cruise or ballistic missile systems.

The sanctions apply to the specific entities above and will be in effect for two years. The sanctions do not apply to these entities’ respective countries or governments.

The sanctions that will be imposed on the entities and individuals listed above consist of the following:

• No department or agency of the U.S. Government may procure, or enter into any contract for the procurement of, any goods, services or technology from these entities;
• No department or agency of the U.S. Government may provide any assistance to these entities and they shall not be eligible to participate in any assistance program of the U.S. Government;
• U.S. Government sales of any item on the U.S. munitions list (USML) to any of these entities are prohibited, and sales of any defense articles, defense services or design and construction services controlled under the Arms Export Control Act are terminated; and
• New licenses will be denied and any existing licenses suspended, for transfer to these entities of items controlled under the Export Administration Act of 1979 or Export Administration Regulations.

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U.S. Sanctions on Burma Renewed for Additional Year

President Obama today issued a notice (see below) renewing sanctions on Burma (Myanmar) for an additional year. The language contained in this year's renewal is nearly identical to that used in previous notices renewing sanctions on Burma.

Due to U.S. concerns over certain actions of the Government of Burma, the U.S. has imposed a wide range of sanctions on Burma, including an import ban on products from Burma, a prohibition on certain new investment activities in Burma, a freeze on the assets of certain entities and individuals in Burma, and restrictions on funds transfers between the U.S. and Burma. In addition, under the Export Administration Regulations, an export license is required to for most exports, reexports, and transfers of items subject to the EAR to persons whose property and interests in property are blocked pursuant to the various Executive Orders involving Burma.

NOTICE

- - - - - - -

CONTINUATION OF THE NATIONAL EMERGENCY WITH RESPECT TO BURMA

On May 20, 1997, the President issued Executive Order 13047, certifying to the Congress under section 570(b) of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 (Public Law 104-208), that the Government of Burma had committed large-scale repression of the democratic opposition in Burma after September 30, 1996, thereby invoking the prohibition on new investment in Burma by United States persons contained in that section. The President also declared a national emergency to deal with the threat posed to the national security and foreign policy of the United States by the actions and policies of the Government of Burma, invoking the authority, inter alia, of the International Emergency Economic Powers Act, 50 U.S.C. 1701-1706.

Because the actions and policies of the Government of Burma continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States, the national emergency declared on May 20, 1997, and the measures adopted to deal with that emergency in Executive Orders 13047 of May 20, 1997, 13310 of July 28, 2003, 13348 of October 18, 2007, and 13464 of April 30, 2008, must continue in effect beyond May 20, 2011.

Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency with respect to Burma. This notice shall be published in the Federal Register and transmitted to the Congress.

BARACK OBAMA

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Winners of 2011 Presidential “E” Awards for Export Excellence Announced Today

Congratulations to the 27 companies and organizations that received the prestigious 2011 Presidential “E” Awards for export excellence today. Secretary of Commerce Locke presented the awards to the recipients at a ceremony in Washington, DC.

The “E” Award, which is celebrating its 50th anniversary this year, is the highest U.S. government recognition any American entity may receive for supporting export activity.

The Presidential “E” Award was created by President John F. Kennedy in 1961, to recognize persons, firms, or organizations that contribute significantly to increasing United States exports. The Department of Commerce’s International Trade Administration manages the award program that has recognized more than 2,500 firms since its inception.

The 2011 “E” Award for Exports recipients are:

• Abaxis, Inc., Union City, Calif.
• Acrow Corporation of America, Parsippany, N.J.
• Advanced Protein Systems, Phoenix, Ariz.
• Aero Precision Industries, LLC, Livermore, Calif.
• Amarr Garage Doors, Winston-Salem, N.C.
• Blackboard, Inc., Washington, D.C.
• Brandt Holdings Company, Fargo, N.D.
• Codonics, Inc., Middleburg Heights, Ohio
• Combustion Associates, Corona, Calif.
• Cyanotech Corporation, Kailua-Kona, Hawaii
• Kenyon International Emergency Services, Inc., Houston, Texas
• Labcon North America, Petaluma, Calif.
• MagicTime International, Doral, Fla.
• Noni Biotech International, LLC, Haiku, Hawaii
• Rauland-Borg Corporation, Mount Prospect, Ill.
• Ruud Lighting, Inc., Racine, Wisc.
• Signature Fencing and Flooring Systems, LLC, New York, N.Y.
• Tiger Machinery Company, LLC, Birmingham, Ala.
• Unique Spectronix, Inc., Fullerton, Calif.; and
• Volk Optical, Inc., Mentor, Ohio.

The following companies and organizations have been awarded the 2011 President’s “E” Award for Export Service:

• California ETEC, Irvine, Calif.
• Edwards Global Services, Inc., Irvine, Calif.
• Le Centre International de Lafayette, Lafayette, La.
• Nance College of Business, Cleveland, Ohio
• Pennsylvania Center for Trade Development, Harrisburg, Pa.
• RF International/Ocean World Lines, Inc., Lake Success, N.Y.; and
• Trade Technologies, Inc., Austin, Texas.

Further information on the "E" Awards, including the application process, can be found here.

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DDTC Publishes Final Rule Adding ITAR Exemption for Certain Transfers to Dual Nationals and Third-Country Nationals Employed by End-Users

Today the State Department's  Directorate of Defense Trade Controls (DDTC) published a final rule in the Federal Register modifying the policy on providing access to ITAR-controlled defense articles and technical data to dual national and third-country nationals that are employed by authorized end-users that are not otherwise eligible to receive controlled items or information under an existing ITAR exemption.

This final rule, which will not take effect until August 15, 2011, culminates a process that began when the proposed rule was published by DDTC on August 11, 2010 (75 Fed. Reg. 48,625) as part of the Obama Administration's export control reform process. Because of the impact of the proposed rule and the interest and sensitivity of this issue outside of the U.S. DDTC received 32 comments, including comments submitted by foreign governments, the American Bar Association, manufacturers and exporters of defense articles, and other interested trade associations. 

While the public comments submitted were unfortunately not been released to the public, DDTC noted that "the overwhelming majority of commenting parties expressed dissatisfaction with the current rule regarding dual and third-country nationals, citing conflicts with foreign human rights laws as well as the burden of compliance, and welcomed the Directorate of Defense Trade Controls' (DDTC) efforts to reform current practice."

It is important to note that this final rule does not completely address President Obama's goal announced in his speech to the Ex-Im Bank on March 10, 2010 where he pledged to harmonize the EAR and ITAR's conflicting standards on dual and third country nationals, to eliminate the double standard between how the United States treats its own dual nationals and what it demands of other countries; and resolve the inherent conflict between U.S. policy and other countries’ privacy, employment discrimination, and human rights laws.

What today's final rule does do is is to amend Parts 120, 124, and 126 of the ITAR to allow dual national and third-country nationals that are employees by approved end-users once specific procedures have been implemented. Specifically, the final rule adds a new exemption in section 126.18 that allows for intra-company, intra-organization, and intra-government transfers of unclassified defense articles and technical data to dual national and third-country nationals who are bona fide regular employees of the foreign consignee or end-user as long as the transferor has "effective procedures" to prevent diversion to destinations, entities, or for unauthorized purposes. With respect to the scope of effective procedures, section 126.18(c) provides that a security clearance approved by the host nation government for its employees or  a Non-Disclosure Agreement will be sufficient. However, the end-user or consignee must also screen its employees for substantive contacts with restricted or prohibited countries listed in Section 126.1 of the ITAR (which includes China, Venezuela, among others). While the "substantive contacts" screening process was widely criticized, DDTC responded by stating that "It is not DDTC's intent to deny access based solely upon relationships or contacts with family members in a context posing no risk of diversion." However, DDTC also stated that "contacts with government officials and agents of governments of Sec. 126.1(a) countries, be they family or not, would require higher scrutiny."

In response to overwhelming criticism, DDTC left in place the "special retransfer authorizations" in section 124.16 of the ITAR when a Technical Assistance Agreement or Manufacturing License Agreement is in place and the foreign nationals are citizens of NATO and certain other countries. However, DDTC amended section 124.16 section to include workers who have long term employment relationships with licensed end-users, in accordance with the new definition of "regular employee'" added in part 120.

To give readers of International Trade Law News an idea of the international reaction to today's final rule, below is an analysis of DDTC's final rule by two experienced export controls practitioners in the Toronto office of McCarthy Tétrault, a leading Canadian law firm.

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Guest Post: Final US ITAR Rule on Dual and Third Country Nationals Raises New Challenges for Canadian Business

Guest Post: Final US ITAR Rule on Dual and Third Country Nationals Raises New Challenges for Canadian Business

by: John W. Boscariol, Brenda C. Swick

Today, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) published in the Federal Register the final rule containing its long-awaited amendments to the International Traffic in Arms Regulations (ITAR) governing the access of dual and third-country nationals to ITAR-controlled defence articles, including technical data. These, together with ongoing changes to Canada’s Controlled Goods Program (CGP) generally covering similar goods and technology, are anticipated to have a significant effect on Canadian companies in the aerospace, defence and satellite sectors, and in particular on their security, compliance and screening processes.

Up to now, Canadian firms have faced numerous difficulties with ITAR rules that prohibit employees of certain nationalities or born in certain proscribed countries from accessing US-controlled defence goods and technology in Canada. In order to comply with these restrictions, Canadian companies have had to risk violating provincial and federal anti-discrimination laws, as well as exposure to human rights complaints, when denying employees access to projects involving ITAR-controlled items because of their nationality or country of birth. Companies in affected sectors have had to address, defend and settle costly, and in some cases very public, anti-discrimination claims arising from ITAR compliance.

DDTC officials have stated that the final rule is intended to move away from nationality-based screening and avoid the human rights conflicts that have plagued trade partners in Canada and other countries.

These proposed changes were first released on a preliminary basis for comment by DDTC in August of 2010. Our legal update discussing the preliminary rule can be found here. The final rule retains the essence of what was initially proposed, with some minor changes to the text and some other more significant revisions referred to below.

ITAR Defence Articles May Now be Transferred to 3rd Country or Dual National Employees

Under new ITAR section 126.18, DDTC approval will not be required for the transfer of defence articles, including technical data, to a foreign business entity, foreign government entity, or international organization that is an approved end-user or consignee for those items, "including the transfer to dual nationals or third-country nationals who are bona fide regular employees, directly employed by the foreign consignee or end-user." This exemption will apply provided the transfer takes place completely within the territories where the end-user is located or where the consignee operates, and must be within the scope of an approved export licence, other export authorization, or licence exemption.

Key Condition — Effective Procedures to Prevent Diversion

As a condition of transferring to foreign person employees under this provision, the recipient of the defence article is required to have in place "effective procedures to prevent diversion to destinations, entities, or for purposes other than those authorized by the applicable export licence or other authorization in order to comply with the US Arms Export Control Act and the ITAR."

In order to be considered to have such effective procedures, Canadian firms that are consignees or end-users of the defence articles must either (i) require a security clearance approved by the Canadian government for its employees or (ii) implement a screening process for their employees and execute Non-Disclosure Agreements that provide assurances that employees will not transfer any information to persons or entities unless specifically authorized by the employer.

Under the new rule, Canadian firms will be required to screen all employees who are to access controlled items for "substantive contacts" with the 25 restricted or prohibited countries under the ITAR— including China, Vietnam, Haiti, Venezuela and other countries subject to US military sanctions. The final rule has expanded upon what is meant by substantive contacts — these now include:

regular travel to those countries;
recent or continuing contact with agents, brokers and nationals of those countries;
continued demonstrated allegiance to those countries;
maintenance of business relationships with persons from those countries;
maintenance of a residence in those countries;
receiving salary or other continuing monetary compensation from those countries; or
acts otherwise indicating a risk of diversion.

The amendments provide that, although an employee’s nationality is not in and of itself a determinative factor prohibiting access to defence articles, if an employee is determined to have substantive contacts with persons from the ITAR-restricted or prohibited countries, this is presumed to raise a risk of diversion "unless DDTC determines otherwise".

Companies are also required to maintain a technology security/clearance plan that includes procedures for screening employees’ substantive contacts and maintaining records of the same for five years. The technology security/clearance plan and screening records are to be made available to DDTC or its agents for civil or criminal law enforcement upon request.

Other Significant Aspects of the New Rule

The final rule and DDTC’s accompanying commentary address a number of additional significant issues for Canadian companies:

Perhaps most significant from the Canadian perspective is that, despite requests from parties commenting on the proposed changes, DDTC did not agree to an explicit exemption for companies that comply with other countries’ domestic industrial security programs that provide for effective screening and other security measures for the protection of these controlled items. This means that Canadian companies that are registered and comply with Canada’s Controlled Goods Program (which applies to essentially the same items) must still review and revise existing security measures to ensure compliance with this new ITAR rule for all their employees that will access ITAR-controlled goods or technology.
A number of commenting parties had expressed concern that contract employees would not be subject to the new rule. Although DDTC resisted applying the rule to all contract employees, they agreed to narrowly extend it to workers who have a long-term employment relationships with licensed end-users. This is reflected in a new definition of "regular employee". In addition to an individual permanently and directly employed by the company, "regular employee" now also includes "an individual in a long term contractual relationship with the company where the individual works at the company’s facilities, works under the company’s direction and control, works full time and exclusively for the company, and executes nondisclosure certifications for the company, and where the staffing agency that as seconded the individual has no role in the work the individual performs (other than providing that individual for that work) and the staffing agency would not have access to any controlled technology (other than where specifically authorized by a license)".

Many Canadian companies currently benefit from ITAR section 124.16 special retransfer authorizations. They permit retransfers of defence articles and technical data to employees of foreign (including Canadian) entities who are nationals exclusively of NATO or EU countries or Australia, Japan, New Zealand or Switzerland. DDTC initially proposed to eliminate 124.16 with the implementation of the new rule. In its final rule, however, DDTC reconsidered its position and noted a major concern expressed by commenting parties was that the proposed dual national rule did not include transfer to approved sub-licencees (which are included under section 124.16). Under the new amendments, section 124.16 is now retained and its definition of "regular employee" has been amended to include workers who have long-term employment relationships with end-users as discussed above.
Academic institutions in Canada have encountered particular challenges with compliance issues arising in the context of ITAR-controlled goods and technology. Any uncertainty regarding the application of the new rule to Canadian universities was put to rest by DDTC when it noted in its commentary that it is not prepared to extend the exemption to academic institutions at this time.

Interaction with Canada’s Controlled Goods Programs

Despite DDTC’s refusal to allow an explicit exemption for CGP-registrants at this time, Canada is developing measures to accommodate these new ITAR requirements in an attempt to facilitate compliance for Canadian companies. Following a security threat and risk review, Canada’s Controlled Goods Directorate at Public Works and Government Services (CGD) recently implemented its Enhanced Security Strategy which includes the development of a risk matrix for identifying individuals at risk of unauthorized transfer of controlled goods.

New Questionnaire Developed for Canadian Companies

CGD has indicated that a screening questionnaire is being developed and will be provided to Canadian companies to assist them to identify risks during the security assessment of their employees under the CGP. Factors to be considered in such an assessment are not unlike those in the "substantive contact" analysis under the new ITAR rule and include the following:

contacts with government officials, agents or proxies;
business and/or family contacts;
continuing allegiance to a foreign country;
relationship with a foreign country government (e.g., employment);
frequent travel:
residence and/or bank accounts in a foreign country; and
affiliations within or outside Canada.

CGD has also indicated that the nature and substance of these contacts will be used to determine if an individual should be subject to broader security assessment or denied registration. Where the risk threshold is exceeded, CGD, working with a number of other government departments, will undertake a risk assessment of the individual to determine whether or not access should be granted.

Additional Measures Under the Enhanced Security Strategy

Also included in CGD’s Enhanced Security Strategy are measures to tighten security requirements for Canadian registrants under the CGP in a number of areas, including: students, interns and collectors; broader security assessments of foreign temporary workers and visitors; broader security assessments of transportation companies (together with Transport Canada); additional requirements for a company’s security plan, especially relating to cyber-security risks; more in-depth inspection processes; and the development of a list of debarred individuals and companies.

Next Steps

The new ITAR rule becomes effective August 15, 2011. This, along with Canada’s new CGP requirements, will require Canadian companies to implement enhanced security measures, including screening of all employees requiring access to controlled items. What this exactly entails will have to be determined on a case-by-case basis for each particular employer. It is expected that there will be challenges for Canadian companies undertaking these measures to ensure their procedures satisfy the diligence required by ITAR but at the same time do not expose them to risk of non-compliance with human rights and privacy laws in Canada.

It will be important for Canadian companies in the military, aerospace and satellite sectors that access controlled goods and technology to work closely with their US and Canadian counsel to ensure compliance with the applicable defence control regimes in both countries as well as the requirements for employment, privacy and human rights laws.

McCarthy Tétrault’s International Trade and Investment Law Group has extensive experience in dealing with defence trade control measures and is available to advise on related enforcement, compliance and strategic planning issues.

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International Corporate Compliance Workshop to be Held June 13, 2011 at Center for American and International Law in Texas

The well-respected Center for American and International Law is holding an International Corporate Compliance Workshop on June 13, 2011 at their campus in Plano, Texas (near Dallas).

The program will feature a number of timely and important topics, including:

• U.K. Bribery Act Implementation
• Dodd-Frank Whistleblower Provisions
• Compliance Implications of “Industry-wide” FCPA Approach to FCPA Enforcement
• Anti-Corruption Update: Enforcement and Compliance Challenges in India, China, and Brazil
• Anti-Corruption Auditing Techniques

Presenters and moderators at the conference include in-house counsel and Chief Compliance Officers from Flowserve Corporation, Baker Hughes, Sungard and a number of attorneys in private practice.

Continuing legal education credit is available. 

The Center for American and International Law, which was founded in 1947, is a nonprofit institution dedicated to the continuing education of lawyers and law enforcement officials in the U.S. and abroad.

Click here for more information and to register.

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