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August 17, 2011 

Summary of BIS 2011 Update Conference on Export Controls and Policy (Part 2 of 2)

For those readers that were not able to attend last month's Update 2011 Conference on Export Controls and Policy in Washington, DC, we are presenting a two part summary of the conference prepared by Benjamin Tarr, a law student at the American University's Washington College of Law who is focusing on international law. Below is part two, which covers days two and three of Update 2011. Part one, which covers the first day of Update 2011, can be found here.

Wednesday July 20, 2011

This day began with an Interagency Panel featuring speakers from BIS and the Departments of State and Defense. The first speaker was Ann Ganzer, Acting Assistant Secretary of State for Non-Nuclear and Counter Proliferation. She underscored the need for a multilateral approach to export controls that would curtail and prevent instability. She noted that the State Department is working with the United Nations on arms embargo treaties and is working towards worldwide acceptance of non-proliferation standards in subsequent treaties.

Mr. Anthony Aldwell, Deputy Director of the Defense Technology Security Administration (DTSA) highlighted four factors to be considered for whether to issue export licenses. First, the end state’s policies should be evaluated for friendliness or antagonism towards America’s interests. Second, the end state’s technology level shall be considered. Third, consider the end-user and its history. Fourth, consider the export licenses’ impact on America’s international agreements to ensure compliance with international law. 

He also discussed the key objectives of export control policy, including: protecting assets that give America’s military a critical edge in the fight against terrorism; fostering partnerships among allies; it should enhance enforcement and intelligence agencies.

Wednesday's keynote address was presented by Georg Pietsch, who serves as Director General, Export Controls, of Germany's Federal Office of Economics and Export Controls, which is is commonly known as BAFA.  Mr. Pietsch noted in 2010 approximately 2,700 companies, most of these medium sized companies, submitted over 35,000 formal licence applications to BAFA. In addition, more than 10,000 general inquiries were sent to BAFA’s technical and administrative experts. He noted that number of licence applications has increased by over 50% in six years and the total value of export licence applications received by BAFA in 2010 was approximately 13 billion Euros. He noted that this growth has been very difficult to handle for BAFA and is another reason why BAFA has been following the export control reforms in the U.S. very closely.

Mr. Pietsch addressed how U.S. export controls impact German and other European companies and he noted some legal concerns on the implementation of the State Department's recently published final rule on dual and third country nationals. In addition, he addressed how U.S. export control rules involving classification, exports/reexport and de minimis calculations have a significant impact on German companies.

Mr. Pietsch also addressed BIS's new Strategic Trade Authorization (STA) license exception. On the one hand he noted that "the willingness to enact such liberalizations for long-time partners is without doubt a step in the right direction to get rid of some ineffective, unduly burdensome regulations that restrict German–American economic relations." On the other hand he asked "whether the additional documentation requirements that will come with the STA are really necessary in the case of your closest allies" and that such requirements raise a number of issues for companies located in the European Union. (Editor's note: the full text of Mr. Pietsch's  speech can be found here.)

During the afternoon, there were a number of break out sessions, including one on the new I-129 Form and Deemed Exports. The main theme was the poor communication between compliance officials within the private sector.

The first day concluded with a review of export enforcement issues, including a keynote address by David Mills, Assistant Secretary for Export Enforcement and with an export enforcement panel led by Donald Salo, Jr., Deputy Assistant Secretary for Export Enforcement.

Assistant Secretary Mills noted that he is a strong supporter of outreach and information aimed at small to medium sized businesses since understanding all the elements of export controls remains a challenge and compliance with such laws should not need large staffs.

Striking the right balance between compliance, enforcement and the competitiveness of our exporting community is critical, and as a result, we seek to broaden a two-way dialogue on key control and enforcement issues.

With respect to voluntary self-disclosures, which he called a "pivotal element of compliance", Assistant Secretary Mills said that BIS has implemented a process to centralized the review process of VSDs in Washington, DC, which has resulted in more consistent and speedier resolution. He noted that in fiscal year 2010 226 VSD’s were closed.  Of these, 19% were found not to involve any actual violation, and 67% resulted in warning letters only.  Only 6% of the VSDs resulted in administrative sanctions.  He also said that during the first three quarters of fiscal year 2011, BIS received 193 VSDs, a disclosure rate comparable to previous years.

Mr. Mills also discussed some recent export enforcement cases and BIS's current focus on  seeking penalties against individuals or supervisors who are complicit in deliberate export control violations made by subordinates. (Editor's note: the full text of Mr. Mills' speech can be found here.)

Thursday July 21, 2011
In addition to the the popular roundtable discussion sessions with staff from BIS and other agencies, the main program on Thursday was an encryption workshop. In this session, the panel examined the changes made to the encryption provisions of the Export Administration Regulations that were published in the Federal Register on June 25, 2010.

This workshop noted some common encryption mistakes made by applicants. One mistake is that companies use the old Supplement No. Five to Part 742 of the EAR. Another common mistake is that the new Note Four to Category 5, Part 2 of the Commerce Control List, which eliminates encryption controls on many items where encryption is not the primary function, does not require registration and Note Four overrides every other Category Five requirement. 

Editor's note: The presentations from most of the panel presentations can be found here on the BIS website.

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