Introduction – Looking Back at 2003 . 2

Legislation. 2

Personnel Changes and Reorganization . 2

BIS. 2

DDTC. 3

Regulations3

EAR. 3

Microprocessors3

Encryption. 3

Mandatory AES. 4

Mandatory SNAP+. 4

Wassenaar Changes4

MTCR. 5

ITAR. 5

OFAC. 5

Enforcement6

BIS. 6

Penalties7

Voluntary Disclosures9

DDTC. 9

OFAC. 10

International Agreements11

Wassenaar11

Other International Regimes13

Missile Technology Control Regime (MTCR)13

Australia Group. 13

Nuclear Suppliers Group. 13

New Years Resolutions14

Audit Your Own Operation. 14

Enhance Your Due Diligence in Acquisitions14

Work the Advisory Committees14

Be Proactive on Capitol Hill14

Introduction – Looking Back at 2003

There were a number of important changes to the export control laws and regulations in 2003.  In addition, enforcement activity increased substantially in 2003, when compared with prior years.  As is our custom, this memorandum summarizes these and other developments in the field of U.S. and multilateral export controls.  It concludes with several suggested New Years Resolutions suitable for adoption by all companies that engage in the export of products and technologies that are subject to export controls.

Legislation

The Congress adjourned once again without passing Export Administration Act (“EAA”) renewal legislation.  In fact, neither the Congress nor the Administration made a serious attempt at passage of a new EAA.  Because the EAA had not been renewed by the Congress, on August 7, 2003, President Bush issued a Notice continuing export controls under the EAR for another year, pursuant to the International Emergency Economic Powers Act.

All stakeholders acknowledge that operating under emergency authority is a poor substitute for renewal of the EAA.  However, there is little momentum to move the legislation forward, as we enter 2004.  Senator Mike Enzi (R-WY) has expressed hope that a compromise can be reached with Senators Richard Shelby (R-AL) and Jon Kyl (R-AZ).  Nevertheless, prospects for passage in an election year are not very good.

Instead, the Congress focused its efforts in 2003 on specific situations of interest, such as sanctions imposed on Syria under the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003.  The Act provides diplomatic and economic sanctions against Syria that go into effect unless that nation meets a series of conditions, including halting any movement across its border of people and equipment destined for attacks on Americans in Iraq. The Act directs the president to impose his choice of at least two of six sanctions, unless the waiver is invoked: a ban on exports to Syria except food and medicine; a ban on American business investment; restrictions on Syrian diplomats in the United States; a ban on Syrian aircraft in American airspace; a reduction in diplomatic contacts; and a freeze on Syrian assets. The President signed the Act into law on December 12 (Public Law No: 108-175).  He has not invoked his waiver authority, to date. 

Personnel Changes and Reorganization

This year saw changes in personnel at BIS and State.  In addition, the former Office of Defense Trade Controls was reorganized into the new Directorate of Defense Trade Controls.

BIS

Mark Foulon replaced Karan Bhatia as Deputy Under Secretary of Commerce. He is the second ranking official in the Bureau of Industry and Security. Mr. Foulon came to the Commerce Department from the Department of State, where he was a member of the Policy Planning Staff and a senior speechwriter to the Secretary of State. A former Foreign Service Officer with experience in the Middle East and Europe, Mr. Foulon also served as an aide to U.S. Senator Bill Bradley focusing on trade and national security. Previously, Mr. Foulon was a consultant for McKinsey & Co. and a principal in several Internet start-up businesses.  Mr. Foulon is a graduate of Yale and Oxford University, where he was a Rhodes Scholar.

Jim Jochum moved from Assistant Secretary for Industry and Security to Assistant Secretary of Commerce for Import Administration. Peter Lichtenbaum replaced Jim Jochum as the Assistant Secretary for Industry and Security.  Mr. Lichtenbaum was a partner at Steptoe & Johnson where he specialized in international trade law, including litigation before the ITC, the Court for International Trade, the Commerce Department and the U.S. Appeals Court for the Federal Circuit. Previously, he served at the Treasury Department on international law and economic policy. He received his BA from Princeton in 1986 and his JD from Harvard Law in 1990. 

Julie L. Myers replaced Michael J. Garcia as Assistant Secretary of Commerce for Export Enforcement.  Ms. Myers served as Chief of Staff to the Assistant Attorney General for the Department of Justice, Criminal Division. Previously, Ms. Myers served as Deputy Assistant Secretary (Money Laundering and Financial Crimes) for the Department of the Treasury, Office of Enforcement. From November 1999 to October 2001, she served as Assistant United States Attorney for the U.S. Attorney's Office, Eastern District of New York. Earlier in her career, Ms. Myers served as an associate for the law firm of Mayer, Brown & Platt and as a law clerk for the U.S. Court of Appeals for the Eighth Circuit. She earned her bachelor's degree from Baylor University and her J.D. from Cornell Law School.

DDTC

The Office of Defense Trade Controls (“ODTC”) was reorganized and renamed.  The new Directorate of Defense Trade Controls (“DDTC”) includes a third deputy assistant secretary position and a new managing director.  The new positions will oversee the remaining DDTC which is divided into four smaller offices for licensing, policy, compliance, and management. Only time will tell whether this reorganization really makes the Office of Defense Trade Controls more seaworthy, or if it is simply rearranging the deck chairs on the Titanic.

The new organization included the creation of a third deputy assistant secretary position and a new managing director.  The new positions will oversee four smaller offices for licensing, policy, compliance, and management. The realignment eliminated the position of Director of the Office of Defense Trade Controls.  It was replaced with Deputy Assistant Secretary for Defense Trade Controls and Managing Director of Defense Trade Controls.  Robert Maggi is the Managing Director of Defense Trade Controls.

Greg Suchan was appointed Deputy Assistant Secretary of State with responsibility for the Directorate of Defense Trade Controls.  Mr. Suchan has been a Deputy Assistant Secretary of State in the Bureau of Political-Military Affairs since May 1, 2000. His previous responsibilities included supervision of the former Office of Defense Trade Controls (PM/DTC) and the Office of Regional Security and Arms Transfers (PM/RSAT), offices responsible for defense trade issues related to direct commercial sales of items controlled on the U.S. Munitions List and government-to-government arms transfers.

Regulations

EAR

Microprocessors

In January, BIS published a final rule changing the export controls on microprocessors.  While some general purpose microprocessors remain under the classification of Export Control Classification Number (ECCN) 3A001 on the Commerce Control List (CCL) because of their external interconnect speed, this rule moves many general purpose microprocessors to ECCN 3A991.  Specifically, 3A001.a.3.a is removed and reserved and 3A991.a.1 is created to control the export and reexport of “microprocessor microcircuits”, “microcomputer microcircuits”, and microcontroller microcircuits having a “composite theoretical performance” (“CTP”) of 6,500 million theoretical operations per second (MTOPS) or more and an arithmetic logic unit with an access width of 32 bit or more.  Microprocessors controlled under 3A991.a.1 are controlled for anti-terrorist reasons only. 

The rule retains license requirements for exports and reexports to designated terrorist-supporting countries.  This rule also creates a new section 744.17, “Restrictions on certain exports and reexports of general purpose microprocessors for ‘military end-uses’ and to ‘military end-users’.”  In addition to the license requirements for AT reasons, no one may export or reexport an item classified under ECCN 3A991.a.1 without a license if, at the time of the export or reexport, the exporter or reexporter knows, has reason to know, or is informed by BIS that the item will be or is intended to be used for a “military end-use” in a country that is of concern for national security reasons or by a “military end-user” in such a country.  The license review standard for applications to export or reexport general purpose microprocessors subject to this license requirement is a presumption of denial. 

This rule could be of particular importance, beyond the traditional vendors of microprocessors and their distributors.  The definition of “military end user” is quite broad, and includes “any person or entity whose actions or functions are intended to support “military end-users”.  Might this definition also be used in the context of License Exception CIV, for example?  Also of interest is the use of an EPCI-style “is informed” procedure where persons can be selectively informed about the existence of a “military end-user”.  This process has not worked well in the EPCI context and its replication here is not welcomed.

Encryption

On June 17, BIS published a “housekeeping” regulation that clarified some of the rules governing the export of hardware, software and technology implementing cryptography.  The new regulation falls far short of meaningful reform, but it is a (modest) step in the right direction toward simplification and clarification of the onerous export controls on cryptography.  It also implemented the changes agreed to by members of the Wassenaar Arrangement and makes a few other changes, the most important of which is decontrol of medical equipment containing encryption. 

Mandatory AES

In July, BIS and the Census Bureau published new regulations affecting every exporter and its forwarding agents, making mandatory Automated Export System (AES)/AESDirect filings for all items identified on the Department of Commerce's Commerce Control List (CCL) and the Department of State's United States Munitions List (USML).  The AES is the electronic method to file the paper Shipper's Export Declaration (SED) and the ocean manifest information directly with the Bureau of Customs and Border Protection (CBP). AESDirect is the Census Bureau's free Internet-based system for filing SED information with the CBP's AES.

Mandatory SNAP+

The Department of Commerce published a proposed rule that would amend the Export Administration Regulations (EAR) to implement a revised version of the Bureau of Industry and Security's (BIS) Simplified Network Application Processing (SNAP+) system. This proposed rule also would mandate use of SNAP+ for all filings of Export License applications (except Special Comprehensive Licenses), Reexport Authorization requests, Classification requests, Encryption Review requests, and License Exception AGR notifications unless BIS authorizes paper filing for a particular user or transaction. The requirement to use SNAP+ also would apply to any documentation required to be submitted with applications, requests or notifications.

BIS would consider requests for exceptions to the mandatory electronic filing rule and grant them in the following circumstances: a filer who has made no more than three submissions to BIS in the preceding twelve months; a filer who lacks access to the Internet; BIS has rejected the filer's request or revoked its eligibility to file electronically; BIS has requested that the filer submit a paper document for a particular transaction; or BIS determines that urgent circumstances or circumstances beyond the filer's control require allowing paper filing in a particular case.

BIS is aware of the possibility that some applicants might have to acquire certain hardware or software to be able to comply with this proposed rule. BIS also is aware that current electronic filers who use systems other than SNAP would have to begin using SNAP+ (or have an authorized agent acting on their behalf use SNAP+) in order to comply with this proposed rule unless one of the foregoing exceptions applies. BIS is interested in comments that address the benefits and burdens associated with these requirements.  Comments are due by January 12, 2004.

Wassenaar Changes

In March, BIS published a final rule implementing the revisions to the Wassenaar List that were agreed upon in the February 2002 meeting and to make necessary revisions to License Exception GOV, reporting requirements, definitions, and the General Technology and Software Notes.  BIS has indicated that they will work on publishing Wassenaar changes more quickly in the future.

In December, BIS published a final rule implementing the changes from the December 2002 Plenary session of Wassenaar. This final rule revises certain entries controlled for national security reasons in Categories 1, 2, 3, 4, 5 Part I (telecommunications), 5 Part II (information security), 6, and 7 to conform with changes in the List of Dual-Use Goods and Technologies maintained and agreed to by governments participating in the Wassenaar Arrangement.

The major changes in Category 3, Electronics were: (1) adding a new paragraph 3A001.a.1.c that adds a new parameter for integrated circuits, designed or rated as radiation hardened, (2) revising the parameters of 3A001.a.5.a.2 and 3A001.a.5.a.3 for analog-to-digital and digital-to-analog converter integrated circuits; (3) adding a new paragraph 3A001.a.5.a.4 to add a new parameter for analog-to-digital converter integrated circuits, (4) revising 3B001.f.1.b for minimum resolvable feature size from 0.5 µm to 0.35 µm for “stored program controlled” lithography equipment, and (5) revising ECCNs 3E001 and 3E002  by changing the parameter in paragraph b.1 of the Note from 0.7 µm to 0.5 µm.  The major change in Category 4, Computers, was the increase in the MTOPS parameter for ECCN 4A003 which was raised from 28,000 MTOPS to 190,000 MTOPS. The major changes in Category 5 Part 1 (telecommunications) included (1) changing the parameter for radio equipment employing QAM techniques in ECCNs 5B001.b.4, 5D001.b.4, and 5E001.c.4. from a QAM level above 128 to above level 256 and (2) revising the text regarding equipment employing “common channel signaling” in ECCNs 5B001.b.5 and 5E001.c.5 from  “Equipment employing "common channel signalling" operating in either non-associated mode of operation or quasi-associated mode of operation” to “Equipment employing "common channel signalling" operating in non-associated mode of operation.” Major changes to Category 6, Sensors and Lasers, were primarily concentrated in Image intensifier tubes (6A002.a.2), non-"space-qualified" "focal plane arrays" (6A002.a.3), and cameras (6A003).

This rule also adds a new Supplement No. 3, Statements of Understanding, to part 774.  The first understanding to be placed in this supplement is a Wassenaar Arrangement statement of understanding concerning medical equipment.  It states that commodities that are ‘specially designed for medical end-use’ that ‘incorporate’ commodities or software on the Commerce Control List in Supplement No. 1 to part 774 of the EAR that do not have a reason for control of Nuclear Nonproliferation (NP), Missile Technology (MT), or Chemical & Biological Weapons (CB), are classified as EAR99. 

MTCR

In April, BIS published a final rule that implements the changes agreed upon in October 1999 by the members of the Missile Technology Control Regime (MTCR). With this regulation, BIS aims to harmonize the U.S. list of items controlled for Missile Technology (MT) reasons with international lists. This final rule also amends Country Group A:2, MTCR, to add the Czech Republic, Korea (Republic of), Poland, Turkey, and Ukraine to reflect their membership in the MTCR. In addition, BIS published an interim rule streamlining regulations for explosive detection equipment. As a result of numerous complaints by the industry, BIS has expanded the scope of ECCN 2A983 (previously 2A993), to include equipment that detects the presence of explosives, explosive residue, or detonators.  This equipment is primarily used at airports. BIS also tightened controls on these items, their related software, and technology.

ITAR

DDTC published a notice that the policy on licensing of defense articles and services to India or Pakistan was changed from a presumption of denial to review on a standard case-by-case basis.  This change in policy was based on the Presidential waiver of the Glenn Amendment sanctions signed on September 22, 2001, the reestablishment of the dollar thresholds for congressional notification signed into law on September 30, 2002 (Pub. L. 107-228), and the expiration of the MTCR Category I missile sanctions on November 21, 2002.

As noted in the BIS section, mandatory AES is here.  The State Department published a final rule amending the International Traffic in Arms Regulations (ITAR) to include the mandatory use of AES. In addition, this final rule includes a reporting requirement for exports of ITAR controlled articles that are not covered by AES (e.g., oral, visual, electronic transmissions of technical data and services).  The Department of State is implementing a system of electronic reporting directly to DDTC and this final rule amends the ITAR to require that all exports of technical data and services using a license, agreement or exemption shall be reported directly to DDTC. DDTC has delayed the use of the DDTC direct data reporting system until January 18, 2004.

In March, DDTC began implementation of a fully electronic ("paperless") arms export license application submission and review process. Since then, DDTC has processed hundreds of "live" license applications. Enhanced functionality is planned for 2004. If you are a defense trade registrant and you would like to use the electronic licensing program, you must submit a "Participants Letter" as a means to request DDTC approval to participate. Additional information can be found on DDTC’s website.

DDTC also published updated guidelines for preparing agreements and new guidelines for preparing DSP-5 applications.  As part of the update, DDTC has indicated that licenses for foreign national employees generally should be submitted as DSP-5 applications instead of the Technical Assistance Agreement (TAA) format. The TAA format is to be used when the employer is required to provide the foreign national employee technical training in order to perform the job hired for, because the applicant is now providing a defense service to a foreign entity which requires an agreement.

OFAC

The most significant changes to the OFAC regulations concerned Iraq.  In March, OFAC published new provisions to the Iraqi Sanctions Regulations to facilitate certain humanitarian activities in and around Iraq. These new regulations provide for the establishment of a registration program that would authorize nongovernmental organizations to engage in humanitarian activities in the areas of Iraq not controlled by the Government of Iraq. They also permit certain humanitarian assessment missions in Iraq. Related regulations are being added to the Iranian Transactions Regulations authorizing certain activities in Iran by nongovernmental organizations to the extent necessary to support authorized humanitarian activities in Iraq, as well as certain assessment activities in Iran.

In May, the UN Security Council voted to: lift trade and financial sanctions on Iraq; extend the “oil-for-food” program for six months; revisit the mandates of the United Nations Monitoring, Verification and Inspection Commission (UNMOVIC) and the International Atomic Energy Agency (IAEA) at a later date; request appointment of a Special Representative of the Secretary-General; and review implementation of those and other matters within 12 months. Contemporaneously, OFAC revised the Iraq Sanctions Regulations (ISR), issuing several General Licenses authorizing certain trade with Iraq.  These are summarized below:

• General License 1 authorizes the transfer of funds to any person in Iraq for non-commercial humanitarian purposes, including family remittances, provided that no U.S. person may transfer more than $500 per month to any person in Iraq.

• General License 2 authorizes U.S. government agencies and their contractors or grantees to engage in all transactions that are within the scope of their official duties or the relevant U.S. government contracts or grants.

• General License 3 authorizes all transactions necessary to provide privately financed humanitarian support, or to plan or prepare for the provision of humanitarian support, to the Iraqi people in Iraq.

• General License 4 authorizes the export of items classified under EAR99 and most items subject to anti-terrorism (AT) controls to Iraq.  If a product does not require a license for export to Iraq under the EAR, then it does not require a license for Iraq under the ISR. Items requiring a license for export or reexport to Iraq are listed in Section 746.3 of the EAR.  The list includes items controlled for National Security, Nuclear Nonproliferation, Chemical Biological Warfare and Missile Technology.  Generally, however, items that are controlled only for Anti-Terrorism (AT) reasons and items controlled under EAR99 do NOT require licenses for export to Iraq.

Specifically not authorized under these general licenses are transactions related to trade in arms (ITAR jurisdiction), stolen cultural artifacts and trade with Baath party officials and certain other Iraqi officials and agents.

OFAC also published an updated version of its internal Economic Sanctions Enforcement Guidelines. Although the guidelines were published as a part of the Cuban sanctions regulations, they are intended to provide a procedural framework for the enforcement of all economic sanctions programs administered by OFAC. Under the voluntary disclosure provision in the guidelines, when apparent violations are voluntarily disclosed to OFAC, the proposed penalty will generally be mitigated by at least 50%. This voluntary disclosure rule provides an incentive for persons who have violated economic sanctions laws to come forward and provide OFAC information that it can use to better enforce its economic sanctions programs. The guidelines also offer lists of possible mitigating and aggravating factors.  Some of the mitigating factors include: voluntary disclosure, first offense, compliance program in place at time of violation, other remedial measures taken, and evidence in the administrative record that a transaction(s) could have been licensed by OFAC under an existing licensing policy had an application been submitted, among others.  Some of the aggravating factors include: willfulness, second or subsequent offense, lack of remedial measures taken after notice or discovery, deliberate effort to hide or conceal the violation lack of compliance program at the time of the violation and familiarity with economic sanctions programs.

Enforcement

BIS

The BIS concluded a significant number of enforcement actions in 2003.  A few of them were particularly noteworthy and are included below.  In addition, BIS has contacted a number of exporters regarding reporting conditions on old licenses.  A review by the GAO revealed that in many cases reports had not been filed as required by license conditions. Assistant Secretary for Export Enforcement Julie Myers has made a crackdown on compliance with conditions one of her top priorities.

BIS published proposed penalty guidance for the settlement of administrative enforcement cases under the EAR.  In developing the guidance, BIS considered the OFAC Economic Sanctions Enforcement Guidelines published in January, which use a formula-based approach.  Customs Service penalty guidelines also use a formula-based approach.  Nevertheless, BIS decided not to implement a formula-based structure. Instead, the proposed rule identifies both general factors, such as the destination of the export and degree of willfulness involved in violations, and specific mitigating and aggravating factors, that BIS typically takes into account in determining an appropriate penalty. It also describes factors usually considered in deciding whether to issue a warning letter, rather than bring an administrative enforcement case. Mitigating factors include: submission of a voluntary self-disclosure of the violation; whether the party has an effective export compliance program; if the violation was an isolated occurrence or the result of a good-faith misinterpretation; whether authorization for the export transaction in question would likely have been granted upon request; and cooperation by the party.  Aggravating factors include: whether the party made a deliberate effort to hide or conceal the violation; if the party’s conduct demonstrated a serious disregard for export compliance responsibilities; and whether the violation was significant in view of the sensitivity of the items involved and/or the reason for controlling them to the destination in question.  It was interesting to note that the proposed rule gives “great weight” to submission of a voluntary self-disclosure.  Recently published settlement agreements seem to indicate that this is not necessarily the case.

Penalties

Silicon Graphics Inc. (SGI) pled guilty to two felony charges that the company violated Commerce Department regulations by illegally exporting high performance computers to a Russian nuclear laboratory in 1996. SGI agreed to pay $1 million in criminal fines to resolve the charges. In a related administrative case, SGI agreed to pay $182,000, the maximum penalty authorized by the Export Administration Regulations (EAR), to settle civil charges arising from the same exports to the Russian nuclear laboratory, as well as additional charges relating to illegal computer exports to Israel and for failure to meet reporting requirements for exports to China, Qatar, and the United Arab Emirates.

As part of the settlement of criminal charges, SGI admitted that, on two occasions in 1996, the company exported four Challenge L computer systems, upgrades, and peripheral equipment to the All-Russian Institute for Technical Physics (Chelyabinsk-70) in violation of U.S. export control regulations. Chelyabinsk-70, located in Snezhinsk, Russia, is a nuclear laboratory operated by Russia’s Ministry of Atomic Energy and is engaged in research, development, testing, and maintenance of nuclear devices. In addition to the monetary penalties, the civil settlement agreement provided that SGI’s exporting privileges to Russia will be denied for a period of three years. The denial of export privileges will be suspended provided that SGI does not commit any export control violations involving Russia during the suspension period. SGI also agreed, for a period of three years, not to exercise its eligibility to use License Exception CTP for exports and reexports to Russia, or to engage in any activity, such as repair or maintenance of computers, involving any military or nuclear end-user or end-use in Russia without the prior written consent of BIS. Finally, SGI agreed to report to BIS, within 45 days, all of its exports to certain countries of concern during the last six months. In announcing the settlement, Acting Assistant Secretary of Commerce for Export Enforcement Lisa Prager stated that this case demonstrates the Bureau’s determination to rigorously enforce its controls over items that can be used in the proliferation of weapons of mass destruction.

There was a lot of enforcement activity regarding the export of night vision / thermal imaging equipment. Worldwide Sports & Recreation, Inc., which does business as Bushnell Corporation, pleaded guilty in U.S. District Court for the District of Columbia to conspiracy and a substantive violation of the International Emergency Economic Powers Act. In pleading guilty, Bushnell admitted to exporting, between September 1995 and December 1997, over 500 Night Ranger night vision devices to Japan and 14 other countries, without the required Department of Commerce export licenses. Under the plea agreement, Bushnell has agreed to pay a criminal fine of $650,000 and receive 5 years of corporate probation. Bushnell also agreed to pay a civil fine of $223,000 and receive a one year denial of export privileges (suspended).

ABO (USA) Inc. of Miami, Florida agreed to a suspended civil fine of $20,000 and the denial of export privileges for two years to settle charges that the company violated the EAR by exporting night vision scopes to Japan without the required U.S. Government authorization. ABO’s export privileges are denied to all destinations other than Canada. BIS charged that ABO committed four violations of the EAR by conspiring to export and exporting second generation night vision scopes to Japan without the required export license from BIS. A BIS license is required to export second generation night vision devices from the United States to all destinations except Canada. ABO was charged with falsifying invoices and shipping documents and disassembling the night vision scopes before export to avoid detection by U.S. authorities. ABO is the final co-conspirator to be charged and to settle this administrative enforcement action involving the illegal export of night vision scopes to Japan. Two other companies, Bushnell Corporation and Hakko, a Japanese firm, were previously charged and agreed to settlements in this enforcement action.

Successor liability remains an issue for companies. BIS imposed a $9,000 civil penalty on Rockwell Automation Inc, a Milwaukee, Wisconsin-based corporation and successor company to Reliance Electric Company, and two of Reliance’s foreign subsidiaries to settle allegations that the Reliance companies committed four violations of the antiboycott provisions of the Export Administration Regulations (EAR). BIS alleged that Dodge International, a division of Reliance Electric Company, violated the EAR’s antiboycott provisions by failing to report a request from a Kuwaiti purchaser for a declaration from Dodge that the goods at issue did not originate in Israel and that Dodge was not affiliated with any Israeli boycotted or blacklisted company. BIS further alleged that Dodge failed to maintain records containing information relating to a reportable boycott request as required by the EAR’s antiboycott provisions. In addition, BIS alleged that two foreign subsidiaries of Reliance, prior to their acquisition by Rockwell, each committed one violation of the EAR’s antiboycott provisions by furnishing prohibited information about their or another company’s business relationships. The companies involved voluntarily disclosed the transactions and cooperated fully with the subsequent investigation.

Omega Engineering Inc. (“Omega”), of Stamford, Connecticut, agreed to pay $187,000 in civil penalties to settle charges that it illegally exported laboratory equipment to Pakistan. In addition, Omega and its Vice President, Ralph Michel, will have their export privileges to Pakistan denied for five years.  BIS charged that Omega exported certain laboratory equipment to Pakistan in 1997, although the Commerce Department had denied a license for the same shipments earlier that year.  Evidence showed that Michel personally authorized shipment through a third country to Pakistan, after the license had been denied. On April 29, 2003, in U.S. District Court in Hartford, Connecticut, Omega and Michel pleaded guilty to violating the International Emergency Economic Powers Act and the EAR on related charges. The U.S. District Court sentenced Michel to 10 months of confinement, followed by three years of supervised probation, and fined him $50,000 in penalties. The U.S. District Court fined Omega $313,000 in penalties, placed the company on corporate probation for five years, and ordered the company to implement an export compliance program.

E.H. Wachs of Wheeling, Illinois pleaded guilty to criminal charges that it committed multiple violations of the EAR in federal court in Chicago and was sentenced to pay a fine of $506,000 and serve probation for 24 months, and was ordered to institute an export compliance program.  BIS imposed the maximum civil penalty of $159,000 in connection with the export of pipe cutting machines to Iran in violation of the EAR. BIS alleged that Wachs committed multiple violations of the EAR when it conspired to export pipe cutting machines and spare parts to the National Iranian Gas Company without the required authorization. BIS alleged that Wachs split orders for more than 50 pipe-cutting machines and spare parts into small shipments and then exported the items through Canada to conceal the fact that they were destined for Iran. Wachs also paid a civil penalty of $85,000 to the Treasury Department's Office of Foreign Assets Control for the violations of Treasury regulations that stemmed from the unauthorized exports.

DSV Samson Transport, a freight-forwarding company based in New Jersey, pleaded guilty in U.S. District Court for the District of Columbia to a two-count Information, charging violations of the International Emergency Economic Powers Act and the Export Administration Act (“IEEPA”). In pleading guilty, DSV Samson admitted to forwarding over 30 shipments to India, between November 1999 and May 12, 2001, despite being warned by Special Agents from the Office of Export Enforcement on at least three occasions that such shipments would be in violation of Department of Commerce export controls designed to prevent nuclear proliferation. DSV Samson Transport was immediately sentenced by the Court to a $250,000 fine, an $800 special assessment and five years of probation. Separately, BIS and DSV Samson have tentatively agreed that DSV Samson will pay a civil penalty of $399,000 to resolve related administrative charges.

Sun Microsystems, Inc. and two of its subsidiaries agreed to pay $291,000 in fines to settle charges involving illegal exports of computers to military end-users in China and Egypt, and for failing to comply with conditions on eight BIS export licenses. A fourth company, Automated Systems Ltd. (ASL) of Hong Kong, involved in the export to the Chinese military end-user will pay a $22,000 civil penalty to settle allegations that it aided and abetted the export. Sun Microsystems will pay a $269,000 fine and have its export privileges denied for one year, although the denial will be suspended. To settle charges that they aided and abetted the illegal export to China, Sun Microsystems China Ltd., and Sun Microsystems California, Ltd., both of Hong Kong, will each pay a $11,000 fine and will not participate in transactions subject to the Export Administration Regulations involving the Changsha Institute of Science and Technology (CIST) in the People’s Republic of China, the Chinese military end-user, for one year. The settlement of the cases against Sun Microsystems was for 24 charges, including four charges for the two exports to military end-users, eight charges for breaching license conditions, and three charges for not fulfilling its duties as a licensee. BIS charged that, in February 1997, Sun Microsystems exported an Enterprise server to CIST without the required license. CIST offers courses specializing in missile and rocket research and development technology. In December 1997, Sun Microsystems exported two Enterprise servers to Egypt knowing that the Egyptian Army was the end-user. BIS also charged that Sun Microsystems did not fulfill its duties as a licensee on BIS export licenses, altered an end-user verification certificate and submitted the falsified certificate in response to a subpoena, and failed to file shipping documents as required by eight licenses.

Voluntary Disclosures

Although listed as a mitigating factor of “great weight” in the proposed penalty guidelines, the current BIS voluntary disclosure policy leaves companies unsure of what to do if they discover a violation that has taken place.  Recent history shows that BIS is not giving as much weight to voluntary disclosures in terms of mitigation as it has in the past.  Consider the following:

• After filing a voluntary disclosure (usually a mitigating factor), Hamilton Sundstrand Corporation (Sundstrand), of Windsor Locks, Connecticut agreed to pay a $171,500 civil penalty to settle allegations that the company violated the EAR.  BIS alleged that Sundstrand exported or re-exported centrifugal pumps to various end-users in China, Taiwan, Israel, and Saudi Arabia, without obtaining the required Department of Commerce export licenses. Sundstrand is a manufacturer of centrifugal pumps used for general, industrial, and chemical process application. These pumps are controlled for chemical and biological weapons reasons, as well as for anti-terrorism reasons. BIS also alleged that Sundstrand made false statements on Shipper’s Export Declarations (SEDs), stating that no export license was required, when in fact a license was required. Additionally, BIS alleged that Sundstrand failed to file SEDs as required, and failed to provide certain required information on those SEDs that Sundstrand did file. Sundstrand voluntarily disclosed these violations to BIS and cooperated throughout the investigation.

·         McMaster-Carr Supply Company (McMaster-Carr), an Elmhurst, Illinois supplier of industrial and commercial hardware, agreed to pay an $8,000 civil penalty to settle allegations that McMaster-Carr committed eight violations of the antiboycott provisions of the EAR.  BIS charged that McMaster-Carr failed to report its receipt of boycott-related requests within the time period required by the EAR. The alleged violations occurred in eight transactions involving sales of goods from the United States to Oman, the United Arab Emirates, Kuwait, Qatar, and Saudi Arabia. McMaster-Carr voluntarily disclosed the alleged violations.

·         BIS imposed a $200,000 civil penalty on Flint Hill Resources L.P. - formerly known as Koch Petroleum Group, L.P. - of Wichita, Kansas to settle allegations that the company exported crude petroleum from the United States to Canada without the required U.S. Government authorization. BIS alleged that between July 1997 and March 1999, Koch Petroleum committed 40 violations of the EAR by exporting crude petroleum to Canada on 20 occasions without the required export licenses and Shipper's Export Declarations. Acting Assistant Secretary Prager noted that in determining the amount of the penalty, BIS gave consideration to the facts that Koch Petroleum voluntarily self-disclosed the violations, stopped exports of oil once the violations were discovered, and enhanced its export compliance program.

·         Bio Check, Inc., of Burlingame, California, agreed to pay a civil penalty of $22,500 to settle allegations that the company violated the EAR when it exported medical diagnostic kits to Iran without approval from the Treasury Department’s Office of Foreign Assets Control (OFAC), and without filing the required Shipper’s Export Declarations. BIS alleged that Bio Check shipped the items to Iran through freight forwarders in the United Arab Emirates and Italy. The settlement takes into account a $32,000 fine that OFAC imposed for violations of its regulations involving the same illegal exports. Bio Check voluntarily disclosed these violations to both BIS and OFAC and cooperated throughout the investigation.

·         Honeywell International Inc. agreed to pay a civil penalty of $36,000 in connection with illegal exports of chemicals to Mexico.  Honeywell voluntarily disclosed the violations and cooperated fully with the investigation.

Voluntary disclosure does not seem to have as much of a positive impact on whether the company will face enforcement action by BIS.  As such, many companies might be inclined to forgo voluntary disclosure and take their chances on getting caught by BIS Office of Export Enforcement (OEE).  The best way to avoid this dilemma is a “pound of prevention” including making sure you have an up to date export compliance program and conducting internal audits, as necessary to ensure compliance. 

DDTC

As 2003 comes to a close, the most significant enforcement action of the year clearly was the investigation of the commercial aviation industry in connection with exports of flight instruments and aircraft incorporating the quartz rate sensors that are controlled under the ITAR.  Beginning with the investigation of the manufacturer and its customers, then sweeping in the air transport and general aviation aircraft makers, and extending even to the airlines and leasing companies, the State Department cast a wide net.  It is far too soon to tell whether any charges will be filed, but the potential penalties are staggering, if every time a commercial aircraft lands in another country outside the United States ultimately is considered a licensable event.

Boeing Co. and Hughes Electronics Corp. agreed to pay $32 million to settle civil charges that they illegally transferred sensitive U.S. space technology to China during the 1990s in violation of export-control regulations. The settlement ends a seven-year dispute in which the State Department contended that China could have used the data to develop intercontinental missiles. Under the settlement, Boeing and Hughes, a unit of General Motors Corp., will pay $20 million over the next seven years and direct another $8 million to the development of internal export-control processes. They were credited $4 million for changes already made. The companies also agreed to hire an outside special compliance officer. Government officials said the $32 million civil penalty is the largest in an arms export case.  Previously the Lockheed Martin Corporation and Loral Space and Communications Corporation agreed to pay fines, $13 million and $20 million respectively, to settle similar cases. The Justice Department terminated its criminal investigation of Hughes and Loral last year without taking any action.

Raytheon Co. of Lexington, MA, settled a civil complaint filed in U.S. federal court for having illegally attempted to export troposcatter communications equipment to Pakistan between 1990 and 1997 in violation of U.S. export control laws. The case stems from Raytheon's efforts to sell its “troposcatter” radio system, widely used by U.S. forces during the Persian Gulf War, to Pakistan, which is prohibited from receiving American arms exports under the 1990 Pressler Amendment. Raytheon had been negotiating to sell the radios to the Pakistani military during the 1980s. When the law was passed, Raytheon spent $2 million to “commercialize” the radio and satisfy the requirements of the law. The company negotiated to sell the modified radios to an organization called the National Logistic Cell, which claimed it was involved in civilian transportation and disaster relief. However, numerous Pakistani military personnel were involved with the group, which agreed to purchase six of the radios in 1994. In the settlement, Raytheon “acknowledges and regrets that it erred in failing to seek from the U.S. State Department a determination of whether the radio system was commercial or military.”

The company agreed to pay a total of $25 million to resolve resulting government claims. Raytheon and its subsidiary, Raytheon Canada Ltd., were charged with having committed fraud on the U.S. Customs Service and the U.S. State Department as part of a scheme to violate United States export control laws. As part of the settlement, the company agreed to pay $20 million to the Customs Service and $3 million to the State Department as a civil administrative penalty. The company also will invest $2 million to upgrade its export controls compliance program. According to U.S. Attorney Michael Sullivan, “Businesses that place their profits ahead of compliance with our country’s export control laws will be held accountable. The successful resolution of this investigation is the direct result of the diligence and extraordinary effort of the U.S. Customs Service. This settlement financially penalizes Raytheon for its past conduct and ensures future accountability in Raytheon’s export controls compliance program.”

An Iraqi native living in California and his son were arrested in connection with the sale of millions of dollars' worth of gunboats to Iraqi dictator Saddam Hussein's government. Sabri Yakou, a U.S. resident, was arrested in Bangkok, Thailand, and flown to Washington to face charges of violating the arms embargo against Iraq and international arms trafficking laws. Yakou is accused of negotiating and arranging contracts, purchases, sales and transfers of six armored patrol boats worth an estimated $11 million to Saddam's government. His son, Regard Yakou, was arrested Saturday in Baghdad, Iraq, according to officials of the Bureau of Immigration and Customs Enforcement. Regard Yakou is a naturalized U.S. citizen with homes in San Diego and Walnut Creek, California. The father and son say their business addresses are in Danville, California, and in Singapore. The charges were the first brought by U.S. authorities stemming from the search of records by customs agents in Baghdad after the fall of Saddam's government in April. Fifteen Bureau of Immigration and Customs Enforcement agents have been in Iraq to help identify and locate American citizens and entities involved in violating U.S. laws or sanctions in connection with illicit shipments of weapons to Iraq.

OFAC

OFAC began publishing a list of enforcement actions that it had concluded, which made for some interesting reading.  Here are a few of the highlights:

The New York Yankees were fined $75,000 for signing a contract in which the Cuban government had an interest. Newsday reported that the contracts involved pitcher Orlando "El Duque" Hernandez and three other unnamed Cuban players.

ExxonMobil was fined $50,000 for exports to Sudan.

Citibank, which had a $2,925 assessed penalty to settle charges it dealt in property with a terrorist organization and paid another $2,500 for a funds transfer to Sudan.

ChevronTexaco was fined a total of $14,071.07 for deals with Cuba and Iraq.

ESPN was fined $39,000 for a contract with Cuba. A spokesman at the sports cable network said the network's South American unit had paid some travel expenses for the Cuban team at a major international volleyball tournament held in Argentina in 1998 and televised by the ESPN Sur network.

The U.S. Volleyball Association of Colorado Springs, Colorado, agreed to pay the Treasury Department’s Office of Foreign Assets Control a penalty in the amount of $10,000 for entering into a contract in which the government of Cuba has an interest, in 1998.

Waterfront Beer and Wine of Boston, Massachusetts, was assessed a penalty in the amount of $12,440 by the Treasury Department’s Office of Foreign Assets Control for the purchase and sale of Cuban origin goods in 1999.

International Agreements

Wassenaar

The 2003 Plenary session was held in Vienna, Austria. Among other agreements, the members agreed to tighten controls on exports of "man-portable" surface-to-air missile systems that could end up in the hands of terrorists. After trying for several years, the United States finally obtained approval for a "catch-all" proposal that establishes new end-use controls on products that may fall below normal control levels but that could make a substantial contribution to a military program or activity in a specific country of concern.  However, once again the United States failed to win endorsement of a long-standing U.S. proposal to require Wassenaar member nations to consult closely before deciding to export certain "dual-use" products to countries of concern. The proposal, called the "no-undercut" rule, would have required a Wassenaar member country considering selling a particular dual-use item to a country of concern to hold pre-export consultations with other Wassenaar members that have already denied the export of a similar or identical item to the same suspect country.

The United States once again attempted to convince the members of the Wassenaar Arrangement to provide information on license denials, and to agree to new anti-terrorism controls.  However, the participating member states did not achieve a consensus on these high level issues.  Indeed, there were only a few fairly minor changes to the Dual Use List in 2003 (which will become part of U.S. regulations in 2004).

Category 2 – Materials Processing.  In ECCN 2B001 a new Note 3 was added indicating that a machine tool “having at least two of the three turning, milling or grinding capabilities (e.g., a turning machine with milling capability), must be evaluated” against the applicable entries in 2B001.a, 2B001.b, and 2B001.c.  In addition, “and specially designed components “ was added to the ECCN description.  In ECCN 2B002, there is a new entry for machine tools using a magnetorheological finishing (MRF) process.  MRF is a material removal process using an abrasive magnetic fluid whose viscosity is controlled by a magnetic field.

Category 3 – Electronics.  In ECCN 3A001.b.1 the parameter in Note 1 and Note 2 was changed from 31 GHz to 31.8 GHz.  In ECCN 3A001.b.1.a.1 the control parameter on traveling wave tubes was changed from 31 GHz to 31.8 GHz.  The entry for microwave monolithic integrated circuits (MMIC) power amplifiers in ECCN 3B001.b.2 has been completely rewritten with six subparagraphs including frequencies and power controls. The entry for microwave transistors in ECCN 3B001.b.3 has been completely rewritten with five subparagraphs including frequencies and power controls. The entry for microwave solid state amplifiers in ECCN 3B001.b.4 has been completely rewritten with six subparagraphs including frequencies and power controls. The entry for microwave "assemblies" capable of operating at frequencies exceeding 31 GHz in ECCN 3A001.b.6 has been deleted. The description of frequency synthesized signal generators in ECCN 3A002.d has been amended by changing subparagraph 1 that controls items exceeding 31.8 GHz but not exceeding 43.5 GHz and rated to generate a pulse duration of less than 100 ns and adding a new subparagraph 2 controlling items with a maximum synthesized frequency exceeding 43.5 GHz. A new entry has been created, ECCN 3A003, adding a control on spray cooling thermal management systems.

In addition, there were a number of changes to the controls on semiconductor manufacturing equipment controlled under ECCN 3B001.  In 3B001.a, .b, .c, .d, .e, and .f, the term “Stored program controlled" was deleted. The entry for 3B001.a.1 was rewritten for equipment designed for epitaxial growth to include new sub-paragraphs. The entry for equipment with cassette-to-cassette operation and load-locks in 3B001.d was modified and subparagraph b controlling equipment for generating less than 0.04 particles/cm² with a measurable particle size greater than 0.1 mm in diameter was eliminated. The controls on "Stored program controlled" test equipment, specially designed for testing finished or unfinished semiconductor devices in 3B002 were changed from 31 GHz to 31.8 GHz and from 333 MHz to 667 MHz.

Changes to software included a major revision to ECCN 3D003 which formerly controlled computer-aided-design (CAD) "software".  This entry has been rewritten to control “physics-based simulation ‘software’ specially designed for the ‘development’ of lithographic, etching or deposition processes for translating masking patterns into specific topographical patterns in conductors, dielectrics or semiconductor materials”. A new entry, 3D004, was added for "Software" specially designed for the "development" of the spray cooling thermal management systems controlled by 3A003.

In the Technology controls, ECCN 3E003.b was modified to include a new note explaining that this entry does not control technology for high electron mobility transistors (HEMT) operating at frequencies lower than 31.8 GHz and hetero-junction bipolar transistors (HBT) operating at frequencies lower than 31.8 GHz.  The control parameter for electronic vacuum tubes in ECCN 3E003.g was changed from 31 GHz to 31.8 GHz.

Category 4 – Computers.  ECCN 4A002 which controlled "Hybrid computers" and "electronic assemblies" and specially designed components was deleted.

Category 5 Part 1 – Telecommunications.  The big change in telecommunications occurred in ECCN 5B001.b.1, 5D001.d.1, and 5E001.c.1 which changed the control on equipment, software, or technology for the development or production of equipment employing digital techniques designed to operate at a "total digital transfer rate" exceeding 1.5 Gbit/s.  The new control parameter is 15 Gbit/s and the term “Asynchronous Transfer Mode” has been deleted. In addition, in ECCN 5B001.b, 5D001.d, and 5E001.c the term “Stored program controlled" was deleted. The control parameter in 5E001.c.4.b was changed from 31 GHz to 31.8 GHz.

Category 5 Part 2 – Information Security.  ECCN 5A002.a.7 which controlled items designed or modified to provide certified or certifiable "multilevel security" or user isolation at a level exceeding Class B2 of the Trusted Computer System Evaluation Criteria (TCSEC) or equivalent was deleted.

Category 6 – Sensors and Lasers.  The entry for towed acoustic hydrophone arrays with hydrophone group spacing of less than 12.5 m controlled under ECCN 6A001.a.2.b.1 was amended to control hydrophone group spacing of less than 12.5 m or able to be modified to have hydrophone group spacing of less than 12.5 m.

The entry for video cameras incorporating solid state sensors, having a peak response in the wavelength range exceeding 10nm, but not exceeding 30,000 nm controlled under 6A003.b.1 was changed from “any of the following” to “having all of the following”. Other amendments included renumbering the sub-paragraphs and adding a new Technical Note 2 that says, “For the purpose of this entry, camera tracking data is the information necessary to define camera line of sight orientation with respect to the earth.  This includes: 1) the horizontal angle the camera line of sight makes with respect to the earth's magnetic field direction and; 2) the vertical angle between the camera line of sight and the earth's horizon.”

The entry for individual, multiple-transverse mode semiconductor "lasers" controlled under 6A005.b.2 was changed from “having all of the following” to “any of the following”. Other amendments included rewriting sub-paragraphs  a. and b. and adding a new sub-paragraph c.  Thus, the control for individual, multiple-transverse mode semiconductor "lasers" controlled under 6A005.b.2 now reads as follows:

Individual, multiple-transverse mode semiconductor "lasers", having any of the following:

a.A wavelength of less than 1400 nm, and having an average or CW output power exceeding 10W;

b.A wavelength equal to or greater than 1400 nm and less than 1900 nm, and having an average or CW output power exceeding 2.5 W; or

c.A wavelength equal to or greater than 1900 nm and having an average or CW output power exceeding 1 W.

The entry for individual arrays of individual semiconductor "lasers", controlled under 6A005.b.3 was rewritten and now includes a new paragraph c.  Thus, ECCN 6A005.b.3 now controls:

Individual semiconductor "laser" arrays, having any of the following:

a.A wavelength of less than 1400 nm, and having an average or CW output power exceeding 80 W;

b. A wavelength equal to or greater than 1400 nm and less than 1900 nm, and having an average or CW output power exceeding 25 W; or

c. A wavelength equal to or greater than 1900 nm, and having an average or CW output power exceeding 10 W.

A new entry was created in ECCN 6A005.b.4 for array stacks of semiconductor "lasers" containing at least one array that is controlled under 6A005.b.3.

ECCN 6A006.a, magnetometers, was amended to include “triaxial fluxagate”. ECCN 6E003.f which controls technology for the “development” or “production” of fluxgate “magnetometers” or fluxgate “magnetometer” systems was amended to refer to “non-triaxial fluxgate”.

As a result, the Administration has made a decision to focus its efforts more narrowly in the 2004 list review. For example, it has decided that the United States will send only ten proposals to revise the control list in 2004.  There is certain to be a lot of jockeying for position to get proposals onto the U.S. agenda.  For example, we anticipate that the U.S. will attempt again to increase the controls on night vision equipment, and to complete the decontrol of microprocessors.  In addition, the Plenary has determined that the participating member states should conduct a study of semiconductor manufacturing equipment under Category 3B in 2004, so we anticipate one or more proposals in this area.  There may be fewer opportunities for industry to affect the discussions, if Defense Department proposals crowd out decontrol initiatives.

Other International Regimes

Missile Technology Control Regime (MTCR)

The Missile Technology Control Regime (MTCR) held its 18th Plenary Meeting in Buenos Aires from 19 to 26 September 2003.  In order to give continued high priority attention to export control issues, it was decided to include national "catch-all" requirements in the Guidelines of the Regime. Such controls would provide a legal basis to control the export of items that are not on a control list, when such items are destined for missile programs. The MTCR also agreed to take steps to develop national procedures to subject MTCR-controlled intangible technology transfers to export controls, in accordance with their national legislation.

Australia Group

The Australia Group held its annual meeting in Paris in June.  The group reinforced its determination to prevent the spread of chemical and biological weapons (CBW) in the face of existing and emerging threats by agreeing to a series of new measures to further strengthen export controls. New measures agreed by the Group include:

• Addition of 14 biological agents (human pathogens) to the Biological Control List.
• Endorsement of a cooperative program of action for more effectively engaging countries in the Asia-Pacific region on CBW-related export control issues - a response, in part, to specific requests from several countries in that region.
• Approval of a practical guide for compliance and enforcement officers to help them more efficiently detect, identify and prevent illegitimate transfers of items controlled by the Australia Group.
• New procedures for improving transparency and enhancing information sharing among members.

Nuclear Suppliers Group

The Nuclear Suppliers Group held its Plenary Meeting in May in Busan, South Korea. Participating Governments expressed concern over Iran's nuclear program. Without wishing to prejudge the outcome of discussion at the June meeting of the IAEA Board of Governors, the Group called on the Iranian Government to resolve outstanding questions about this program. The NSG expects Iran, as a member of the NPT, to uphold the nuclear non-proliferation regime.

New Years Resolutions

Audit Your Own Operation

Most companies have gone through a predictable cycle in the past three years.  As business conditions deteriorated, they first cut travel and training.  Next, they cut outside counsel and consultants.  Then, they laid off internal personnel responsible for compliance.  Now, as business conditions improve, they are rebuilding programs that have atrophied, or worse.  A thorough audit of compliance programs, to identify the gaps and rebuild them in a timely and cost effective manner, should be on every company’s “to do” list for 2004.

Enhance Your Due Diligence in Acquisitions

OEE is not giving the same weight to voluntary disclosures that it has in the past.  It is going to be difficult to structure transactions to avoid successor liability.  Therefore, companies should enhance their due diligence methodologies in corporate mergers and acquisitions, to avoid unpleasant surprises.

Work the Advisory Committees

The Administration revived the President’s Export Counsel, including its Subcommittee on Export Administration, in 2003.  In addition, senior BIS officials made several appearances at the various Technical Advisory Committees charged with providing industry input to the regulatory and list review processes.  These groups could be more influential than ever, in an election year, where the Administration’s efforts are not likely to be focused on EAA renewal legislation.  For example, companies that license large numbers of foreign nationals should be participating in the discussions surrounding the expanded use of license exceptions and Special Comprehensive licenses, currently under consideration by the RPTAC.  Companies in the electronic component business should be participating in discussions surrounding decontrol of microprocessors and field programmable gate arrays (FPGAs)  at the ISTAC.  Both the RPTAC and the ISTAC are considering proposals to revise the export controls on encryption.  Finally, every company in the aviation industry should be thinking about what happens if the Department of State waives the “see through” rule for avionics that incorporate an ITAR controlled component.

Be Proactive on Capitol Hill

Although at this point the EAA appears to be dead, industry cannot afford to ignore the possibility of a bad bill, reacting to world events.  Congress generally gets more active when compelled to do so by world events.  For example, discovery of U.S.-origin goods in the arsenals and labs of the former Iraqi regime could lead to a resurrection of interest in tighter export controls.  Furthermore, we are never going to get a bill that is acceptable to industry without educating the Congress about the realities of international trade in a competitive marketplace.  It is time to begin this process, in 2004.