4 column emplate - worldecr.com

WorldECREU dual-use list update comes into force 2

ING pays a record $619 million to settle 5alleged U.S. sanctions violations

EU moving towards DIY export control 12

New rules for intra-EU transfers of 14defence products

The Missile Technology Control Regime 1725 years on

OFAC and the reinsurance industry 21

Trade controls in Southeast Asia: taking 25a regional approach

Export controls initiatives in the Philippines 30

ISSUE 13. JUNE 2012

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News and alerts News and alerts

2 WorldECR www.worldecr.com

The regulation which

changes the EU dual-use list

came into force on 15 June.

Commentators say the

changes are designed both

to make the list more ‘user-

friendly’ and also to stay

abreast of developments in

technology, market trends,

and the international

security situation.

In total, 271 changes are

made to the list: these

include amendments of

definitions, the inclusion of

some new categories and the

deletion of others.

They are contained in

Regulation (EU) No

388/2012 of 19 April 2012

amending Council

Regulation 428/2009. The

amendments reflect the very

many comparable changes

made to lists set within, in

particular, the Wassenaar

Arrangement, the Nuclear

Suppliers Group, the Missile

Technology Control Regime,

and the Australia Group.

These include de-controls

on certain specified items

and amendments to certain

goods descriptions and

definitions.

In a briefing, law firm

Fried, Frank, Harris, Shriver

& Jacobson LLP noted that

most of the amendments to

the EU dual-use list were

driven by updates of the

Dual-Use Goods &

Technologies and Munitions

EU dual-use list update comes into force

The update will make the dual-use list more ‘user-friendly’ and

relevant to developing technology and security concerns.

List of the Wassenaar

Arrangement, and that

‘given that all 27 EU

Member States (but Cyprus)

are signatories to that non-

proliferation agreement, the

EU Dual Use List had to be

harmonized accordingly’.

It is particularly

noteworthy that the list

reflects the 2009 and 2010

expert reviews around the

Wassenaar Arrangement:

the former introduced

amendments to item lists

concerning encryption and

reception equipment for

global navigation satellite

systems, while changes

brought in by the latter

addressed commercial

developments related to

counter-terrorism. Member

States must now update

their corresponding lists for

the new regulation to be

given effect.

The regime in briefFried Frank gives a concise

summing up of the EU Dual-

Use Regulation as:

‘…an EU-wide system which

governs the control of

exports of dual-use items

outside the EU, transfers of

dual-use items within the

EU, and the brokering and

transit of dual-use items.

The underlying EU Dual-

Use List provides a list of

dual-use goods, software

and technologies that can be

used for both civil and

military applications, and

those which are subject to

export controls.

‘Broadly speaking, dual-

use items listed in the EU

Dual-Use List require prior

government authorization

when they are to be exported

from the EU to a non-EU

country. Conversely, intra-

EU transfers of dual-use

items typically only require

licenses for transfers of

certain items of high

sensitivity.’

At the time of

writing, the nations

of the Permanent

Members of the UN

Security Council +

Germany (the ‘P5’),

are meeting with

Iranian negotiators

in Moscow to

discuss Iran’s

uranium

enrichment

programme.

Early signs of an

agreement,

according to reports, are not positive: Iran wants

the P5 to begin rolling back sanctions; the P5

wants a commitment from Iran not to enrich

beyond 20% – neither side looks like budging.

One of the many groups watching the

negotiations closely is the world’s oil traders. On

1 July, the EU is due to schedule a full embargo

on Iranian oil exports to EU Member States -

even though it is bound to put considerable

pressure on the already stressed economies of

countries such as Greece and Italy.

Charles de Jager, a partner at the Brussels

office of law firm Salans, said that the prospect

of the full embargo has generated many new

enquiries, and added ‘[The embargo] is certainly

a way to maintain pressure on Iranian officials to

engage constructively in the negotiations in

Moscow. Absent

firm EU resolve on

the 1 July entry into

force of the

embargo, Iranian

officials may have

little incentive to

allow for any

progress to be

made.’

Client interest,

said de Jager

‘comes partly from

European business

circles seeking

confirmation of the impact of the latest

measures on any remaining operations they may

still have involving Iran’, and from ‘business

circles in the region that are still much more

sanguine about opportunities to develop

projects involving Iran. The advice in the latter

cases focuses on the manner in which these

projects may affect their ability to maintain trade

with the EU.’

According to de Jager, there is also a fair

degree of frustration on the part of certain

specific EU business interests regarding the

expanding scope of the sanctions against Iran:

‘This is especially true when they seek advice

relating to projects involving Iran’s neighbouring

countries and, often only tangentially, Iran itself,’

he said.

EU maintains stance on Iran oil embargo



A bitter spat is playing out

between two rival telecoms

companies – South Africa’s

MTN and Turkey’s Turkcell

– over allegations that MTN

bribed its way, and used

high-level political contacts,

to acquire contracts in Iran.

Among the alleged

‘services’ provided by MTN

was, alleges Turkcell, the

assurance that South Africa

would vote in favour of Iran

at key meetings of the

International Atomic Energy

Agency (‘IAEA’), and also

that it could provide Iran

with defence equipment

‘other wise prohibited by nat -

ion al and international laws’.

Damages claimOn 28 March 2012, Turkcell

filed an initial complaint to

that effect in the District

Court of Columbia,

Washington DC in which it is

claiming damages in excess

of US$4 billion. However,

the dispute is also being

played out in the more public

forum of the press.

Meanwhile, MTN says it

has appointed a leading QC,

Brick Court Chambers’ Lord

Leonard Hoffmann, to

under take an internal

investigation into corruption

allegations – according to

Lord Hoffmann’s chambers

the judge is ‘wholly

independent [and] is

chairman of a committee of

which the other three

members are independent

directors of MTN’.

Turkcell’s allegations

have at their heart a number

of claims made by MTN’s

former senior executive in

Iran, Chris Kilowan. On 4

June, Turkcell (which is

being advised by Read

McCaffrey of Washington

DC law firm Patton Boggs)

released a statement setting

out how it believes that ‘MTN

Group Ltd and its subsidiary

MTN International Limited

(together MTN) through

corruption and bribery in

2004 and 2005 stole the

Iranian second GSM license

opportunity from Turkcell’.

Patton Boggs has sent an

open letter to Lord

Hoffmann which, it says,

includes ‘sworn testimony

from a former MTN

employee [one Christian

Kilowan]…defin ite ly proving

that MTN paid bribes,

promised assistance on

nuclear issues at the IAEA

and with the sale of arms to

Iran from South Africa, and

entered into sham agree -

ments for payments to its

Iranian partners.’

Within the testimony is

the allegation that MTN

‘promised the Iranian

Foreign and Defense

Ministries that it would work

to ensure that South Africa

vote in favor (either by

positive vote or abstention)

of Iran at the International

Atomic Energy Agency

(IAEA).’ In the past few days,

an anti-corruption unit of

the South African police

known as ‘The Hawks’ has

announced that it is to

pursue an investigation into

bribery allegations.

‘Unfounded andsensationalist attacks’In response to Turkcell’s

charges, MTN CEO Sifiso

Dabengwa has described the

allegations as ‘unfounded

and sensationalist attacks by

opponents in relation to our

non-controlling 49% stake in

Irancell’. He said: ‘MTN has

been threatened and

attacked by a disappointed

competitor and a disgrunt led

former employee. The claims

made by Turkcell in U.S.

proceedings have no legal

merit and no place in a U.S.

court. We are fighting those

claims, and we fully expect

them to be dismissed. In any

event, the former employee

who is the source of the

claims has been shown

through the evidence in his

deposition not to be a

credible witness.’ He added

that MTN had launched its

investigation into Turkcell’s

claims long before they were

filed by Turkcell, and that

MTN had appointed Lord

Hoffmann ‘to ensure the

independence and integrity

of the investigation’.

News agency Reuters has

reported that in an interview,

Kilowan revealed that MTN

Group agreed to allow its

Iranian partners and Irancell

to set up a local Iranian

company with the purpose of

evading sanctions on Iran –

which Kilowan denies.

Commenting on the case,

one lawyer told WorldECRthat it was still unclear as to

whether the DC court would

accept jurisdiction, given that

the main body of events

occurred a long way from the

United States. He pointed

out that while the Alien Tort

Claims Act, under which it

had been brought, was slowly

gathering speed as a means

of bringing foreign-focused

claims before U.S. juries, its

record in this regard was

patchy. However, he noted,

the case pointed to the

potential for sanctions-

related allegations to be used

by business rivals to try to

obtain leverage and/or settle

scores.

Telecoms companies slug out corruptionand sanctions-busting claims in public

Turkcell has taken its dispute with MTN to the U.S. courts.

The text of the complaint filed against MTN can be found at:

http://www.politicsweb.co.za/politicsweb/view/politicsweb/en/p

age71619?oid=290033&sn=Detail&pid=71619

Further EU/Guinea-Bissau sanctionsAgainst a backdrop of continuing unrest in Guinea-Bissau, the EU

has announced the imposition of restrictive measures on a

number of members of the military whom, it says, are responsible

for the 12 April coup d’etat.

The full list can be found at:

http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:142:0011:0015:EN:PDF



On 6 June, the EU-US Joint

Customs Cooperation

Committee (‘JCCC’)

announ ced the mutual

recognition of the trade

partnership programmes of

the EU and U.S.: the

Authorized Economic

Operator Scheme and

Customs Trade Partnership

Against Terrorism Program,

respectively.

The agreement is in line

with earlier ones between

the U.S. and EU to intensify

and broaden the Agreement

between the European

Community and the United

States of America on

Customs Cooperation and

Mutual Assistance in

Customs Matters (known as

the ‘CMAA’) to include

container security, and to

strengthen transatlantic

cooperation in accordance

with the World Customs

Organization 2011

Framework of Standards to

Secure and Facilitate Global

Trade (‘SAFE Framework’).

Under the agreement,

members of each

programme are to be treated

by customs authorities in a

manner comparable to the

way they treat members of

their own trade partnership

programme. This treatment

is to include taking

favourably into account in

its risk assessment, for the

purpose of the conduct of

inspections or controls, the

respective membership

status of an operator

authorized by the other

customs authority in order

to facilitate EU-U.S. trade

and encourage the adoption

of effective security-related

measures.

About each scheme

C-TPATC-TPAT is implemented by

the Customs and Border

Protection (‘CBP’) agency of

the U.S. government, and is

a voluntary government-

business initiative that aims

to build builds cooperative

relationships to strengthen

and improve overall

international supply chain

and U.S. border security.

Currently over 7,400

companies in the global

supply chain are enrolled in

the programme, including

importers, customs brokers,

terminal operators, carriers

and foreign manufacturers.

Authorized EconomicOperatorsAuthorized Economic

Operator (‘AEO’) status can

be granted by Member

States to any economic

operator established in the

European Union that meets

Mutual recognition for C-TPAT and AEOs

EU imposes ban on luxury goods anddual-use items for export to SyriaOn 15 June, the Council of

the European Union

approved the implement -

ation of a ban on exports to

Syria of luxury goods and

new categories of dual-use

goods. Council Regulation

(EU) No 509/2012 amends

Regulation (EU) No

36/2012. Among goods

subject to the ban are:

Luxury goodsl Caviar, truffles, and

cigars with a sales price

exceeding EUR 10 per

item

l Wines and spirits with a

sales price exceeding

EUR 50 per litre

l Leather goods (sales price

above EUR 200) and

garments and shoes

(items above EUR 600)

l Jewellery, gems and

pearls

l Tableware, clocks and

watches (above EUR

500)

l Lead crystal glassware

(above EUR 200)

l Luxury vehicles, planes

and boats and new

vehicles from EUR 25,000

Dual-use goods Dual-use goods which may

not be exported to Syria

include:

l Protection and detection

equipment, for example

gas masks and protective

suits

l Chemical manufacturing

facilities, such as

reaction vessels and

storage tanks

l Chemicals that may be

used as precursors for

toxic chemical agents

l Human, animal and plant

pathogens, i.e. certain

viruses, bacteria and

toxins

Dual-use goods subject to

authorization for export to

Syria include:

l Further chemicals and

toxins

l Additional laboratory

equipment and chemical-

manufacturing facilities,

such as certain valves or

vacuum pumps

l Technology and software

required for the

development, production

or use of goods requiring

authorization for export

to Syria

the following common

criteria stipulated in

customs law.

l An appropriate record of

compliance with customs

requirements

l A satisfactory system of

managing commercial

and, where appropriate,

transport records, which

allows appropriate

customs controls

l Proven financial solvency

l Where applicable,

appropriate security and

safety standards

AEOs benefit both from

simplifications provided for

by the customs rules and/or

facilitation with regard to

customs controls related to

security and safety,

according to the type of

certificate they obtain.

The regulation is available at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:156:0010:0037:EN:PDF

Full details are available at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:144:0044:0047:EN:PDF



On 12 June 2012, the U.S.

government announced that

ING Bank N.V.,

headquartered in

Amsterdam, agreed to forfeit

U.S.$619 million for violating

U.S. sanctions and New York

state laws by knowingly and

wilfully moving billions of

dollars through the U.S.

financial system on behalf of

Cuban and Iranian entities.

The bank also issued its own

press release admitting its

failings: see ‘ING’s press

release in full: ING Bank

reaches agreement with US

Authorities’.

The agreement also

resolves outstanding charges

against ING for civil

violations of the Burmese

Sanction Regulations,

Sudanese Sanction

Regulations, and the now-

repealed Libyan Sanctions

Regulations, according to an

announcement by the U.S.

Department of Treasury,

Office of Foreign Assets

Control (‘OFAC’). Numerous

U.S. government agencies

were involved in the

investigation, including

OFAC, the Internal Revenue

Service, various divisions of

the U.S. Department of

Justice, and the New York

Country District Attorney’s

Office. The forfeiture

amount represents the

largest fine ever for U.S.

sanction violations.

According to court

documents, ING processed

over U.S.$2 billion from

Cuba, Iran, and other

sanctioned countries through

the U.S. financial system

since the early 1990s, causing

other U.S. financial

institutions to process

transactions that should have

been rejected or blocked.

The bank allegedly did so

through a number of means,

including the provision of

payment services to

sanctioned entities, removal

of information about the

ING pays a record $619 million to settle alleged U.S. sanctions violations

ING’s press release in full: ING Bank reaches agreement with US Authorities

Amsterdam, 12 June 2012

ING Bank announced today that it has entered into a Settlement Agreement with U.S. Department ofthe Treasury’s Office of Foreign Assets Control (OFAC) and Deferred Prosecution Agreements with theDepartment of Justice, the United States Attorney’s Office for the District of Columbia and the DistrictAttorney of the County of New York (together the “U.S. Authorities”) in relation to the investigation bythose agencies into compliance with U.S. economic sanctions and U.S. dollar payment practices until2007.

Under the terms of the Deferred Prosecution Agreements, no further action will be taken against INGBank if it meets the conditions set forth in the agreements. As part of the settlement, ING Bank hasagreed to pay a total penalty of USD 619 million. As announced on 9 May 2012, ING Bank took aprovision in the first quarter of 2012 to cover this issue.

ING Bank previously disclosed in its annual reports and other public filings that it was in discussionswith authorities concerning compliance with OFAC requirements in relation to transactions executedby Commercial Banking. Since 2006, prior to receiving inquiries from the U.S. Authorities, INGinitiated two extensive internal investigations. Much of the findings, which were voluntarily disclosedto OFAC, focused on conduct relating to transactions associated with ING Bank’s Cuban operations,as well as business with counterparties in other OFAC sanctioned countries. The discussions withauthorities on these issues did not involve ING’s Insurance and Investment Management operations,nor Retail Banking or ING Direct.

ING Bank has cooperated closely and constructively with regulators and other authorities throughoutthis process. The U.S. Authorities have recognized ING’s substantial cooperation in the resolution andING’s efforts and commitment to continuously enhance compliance within the organisation.

“The violations that took place until 2007 are serious and unacceptable. The facts as compiled in thestatement of the Department of Justice describe a very different ING than the company we’re allworking so hard for today,” said Jan Hommen, CEO of ING Group. “Since starting the investigations in2006, ING Bank has taken decisive actions to strengthen compliance throughout the organisationand heighten employee awareness of compliance risks. This continues to be a key priority in theinterests of our customers, employees and other stakeholders, and serves to ensure we remainabreast of compliance risks in an increasingly complex financial services industry.”

ING Bank is fully committed to conducting its business with the highest levels of integrity, whichincludes strict compliance with all applicable laws, regulations and standards in each of the marketsand jurisdictions in which it operates. ING Bank has taken various steps to strengthen globalcompliance risk management. The Bank:•Voluntarily terminated relationships with sanctioned banks and entities, including closing itsrepresentative office in Cuba in 2007 and liquidating the Netherlands Caribbean Bank, which wasconcluded in 2009.•Created a central team focused on preventing and detecting money laundering and terroristfinancing and related policies and procedures.•Implemented enhanced compliance and risk management procedures on a global basis to improvethe Compliance function and increased the number of compliance staff, which now has in excess of400 full time ING employees dedicated to Compliance across our worldwide operations.•Enhanced its global compliance training programme as part of ING’s continuing focus on building acompliance-based culture.•Amended key policies and guidelines and the international rollout of several programmes foreducation, awareness and monitoring of sanctions and compliance issues.

All enhancements that have been implemented in the past years are designed to meet or exceedcurrent rules and regulations of law enforcement agencies and are aimed at preventing practices ofthis type from occurring in the future.

‘The violations that took placeuntil 2007 are serious andunacceptable.’ Jan Hommen,CEO of ING Group

Continues on page 6


payments’ origin, furnishing

misleading payment

information, using shell

companies, advising

sanctioned customers on

how to conceal their

involvement, fabricating

endorsement stamps for two

Cuban banks for purposes of

processing U.S. travellers’

checks, ignoring employee

concerns about sanction

violations, and threatening

employees if they failed to

remove references to

sanctioned entities in

payment messages.

ING locations around the

world were said to have

contributed to the scheme.

According to a government

official, ‘[f]or more than a

decade, ING Bank helped

provide state sponsors of

terror and other sanctioned

entities with access to the

U.S. financial system,

allowing them to move

billions of dollars through

U.S. banks for illicit

purchases and other

activities.’

Commenting on the

development, Washington

DC lawyer Jason Poblete of

Poblete & Margo said it was

an ‘interesting case for

several reasons, not least of

which the precedent-setting

fine. But there also seems to

be a potential thread with

regards to Cuba and prior

enforcement actions that

have resulted in large fines in

recently including: UBS,

Ericsson, and now, ING. If

you’re a European entity that

has holdings in Cuba as well

as the U.S., take note.

Enforcement of Cuba

sanctions has increased and

will likely continue to do so

long as the Castro

government remains in

power.’

WorldECR is grateful forthe help of David Hardin ofMiller & Chevalier in thewriting of this article.

Movers and shakers

Washington DC law firm Miller & Chevalier Chartered

announced in June the arrival of former Blank Rome partner

Barbara D. Linney, who joins the firm’s export controls and

economic sanctions practice.

According to the firm, Linney has advised both U.S. and

foreign clients on international trade and regulatory issues for

over 20 years, focusing on export controls and international

sanctions, defence trade and security regulations and issues

including foreign investment reviews, mergers, acquisitions, and

financings, and anti-corruption and anti-boycott compliance.

Also joining the firm is Kuang Chiang, previously a licensing

examining officer at OFAC, where her practice focused on the

review of licence applications and advisory requests under the

Iranian Transactions Regulations.

Peter Quinter, formerly of law firm Becker & Poliakoff, has joined

Florida’s GrayRobinson P.A. to chair the firm’s newly formed

customs and international trade law group. Quinter will besupported by fellow new arrival associate Melissa Groisman.

Quinter’s practice involves advising in all matters involving the

administration and enforcement of international trade and U.S.

Customs law. He is admitted to practice in Federal court in the

State of Florida as well as the United States Court ofInternational Trade.

Groisman will support the Customs and International Trade

Law Group. Her experience includes representing both domestic

and multinational corporations in matters arising before most of

the key federal agencies.


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BULLETINS BULLETINS


On 25 May 2012, the U.S. Department of Commerce, Bureau

of Industry and Security (‘BIS’) announced a $1.753 million

settlement with Ericsson de Panama S.A. of Panama City,

Panama for 262 alleged violations of the Export

Administration Regulations (‘EAR’). According to the

announcement, the company knowingly implemented a

scheme to route items subject to the EAR from Cuba to the

United States via Panama between 2004 and 2007. As part

of the alleged scheme, Ericsson de Panama repackaged the

items to conceal their Cuban markings, forwarded the items

to the United States for repair and

replacement, and then returned the items to

Cuba. As part of the settlement, the company

must undergo an independent export control

compliance audit of all Cuba transactions.

According to a BIS official, although the alleged

violations were egregious, the company

avoided criminal prosecution by voluntarily

disclosing them and cooperating in the agency’s

investigation.

http://www.bis.doc.gov/news/2012/bis_press05252012.htm

U.S. Department of Treasury settles with GenesisAsset Managers, LLP for alleged Iran violations On 21 May 2012, OFAC announced a $112,500 settlement

with U.S. asset manager Genesis Asset Managers, LLP

(‘GAM’) relating to the company’s alleged violations of the

Iranian Transaction Regulations (‘ITR’). According to the

announcement, GAM served as the investment manager for

Genesis Emerging Markets Fund (‘GEMF’), a Guernsey-

organized investment fund. GAM’s London-based subsidiary,

Genesis Investment Management LLP (‘GIM’), furnished

advice and transaction services to GAM relating to GEMF in

return for a fee. In 2007, on behalf of GEMF, GIM allegedly

purchased approximately $3 million worth of shares in the

First Persian Equity Fund, a Cayman Island company that

invests exclusively in Iranian securities. OFAC considered a

number of aggravating and mitigating factors in resolving the

case, the latter of which included GAM’s apparent failure to

fully understand its obligations under the ITR.

http://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/05212012_genesis_notice.pdf

OFAC designates Syria International Islamic BankOn 30 May 2012, OFAC designated Syria International

Islamic Bank (‘SIIB’) pursuant to executive order 13,382,

which allows the blocking of property of weapons of mass

destruction proliferators. According to a press release

announcing the designation, SIIB has been acting as a front

for the Commercial Bank of Syria and providing services for

the Syrian Lebanese Commercial Bank, allowing the two

financial institutions to circumvent applicable sanctions.

According to a government official, the designation ‘will add

to the economic pressure on the Assad regime by closing off

a key evasion route’. Designation adds SIIB to OFAC’s

Specially Designated Nationals (‘SDN’) list, thereby

prohibiting any person subject to U.S. jurisdiction from

engaging in dealings with that financial institution.

http://www.treasury.gov/press-center/press-

releases/Pages/tg1596.aspx

OFAC changes to the SDN listOFAC has made numerous changes to its SDN list pursuant

to the Global Terrorism Sanctions Regulations, Narcotics

Trafficking Sanctions Regulations, Foreign Narcotics

Kingpin Sanctions Regulations, and Foreign Terrorist

Organizations Sanctions Regulations. Persons subject to

U.S. jurisdiction are prohibited from engaging in dealings

with anyone identified on the SDN list.

http://www.treasury.gov/resource-center/sanctions/OFAC-

Enforcement/Pages/20120612_33.aspx


Enforcement/Pages/20120524.aspx







U.S. President signs executive order on YemenOn 16 May 2012, the U.S. President signed an executive

order titled ‘Blocking Property of Persons Threatening the

Peace, Security, or Stability of Yemen.’ The EO blocks the

property and interests in property of any person determined

by the U.S. Secretary of Treasury to ‘have engaged in acts

that directly or indirectly threaten the peace, security, or

stability of Yemen,’ including ‘acts that obstruct the

implementation of the agreement of November 23, 2011’

between the Yemeni government and opposition forces for

the peaceful transition of power. The order also blocks the

property and interests in property of: 1) political or military

leaders of entities engaged in the above-described activities,

and 2) persons who ‘have materially assisted, sponsored, or

provided financial, material, or technological support for, or

goods or services to or in support of,’ the above-described

activities or for any person blocked under the order.


center/sanctions/Programs/Documents/yemen_eo.pdf

U.S. President announces easing of restrictions against BurmaCiting recent economic and political reforms, the U.S.

President announced on 17 May 2012 the easing of U.S.

sanctions against Burma (Myanmar) by allowing the export

of financial services and new investment in Burma. The

President also emphasized the United States’ commitment

to ‘help ensure further reform’ and its ‘ability to reinstate

selected sanctions if there is backsliding’. Delays in

implementing the President’s announcement have

BIS agrees $1.75m settlement with Ericssonde Panama S.A. for alleged Cuba violations

By David Hardin of the Washington DC office of

Miller & Chevalier LLP.

www.milchev.com


reportedly been caused by inter-agency vetting, the

complexity of the Burma sanctions, and the future treatment

of certain SDNs in Burma.

http://www.whitehouse.gov/the-press-

office/2012/05/17/statement-president-burma

BIS settles with Akrion Systems, LLC for unlawful pump exportsOn 4 June 2012, BIS entered an agreement with Akrion

Systems, LLC to settle charges that the company exported

valves, pumps, and components valued at $853,230 and

classified under ECCN 2B350 to Taiwan, Singapore,

Malaysia, and China without the required licences.

According to the agreement, Akrion Systems engaged in

such prohibited conduct on 144 occasions, leading to a civil

penalty of $900,000. The company voluntarily disclosed the

violations. Under the agreement, $800,000 of the penalty is

waived provided that Akrion Systems pays $100,000 in a

timely manner and does not commit any export violations

during a two-year probationary period.

http://efoia.bis.doc.gov/exportcontrolviolations/e2269.pdf

BIS and other agencies foil illegal firearms export ringOn 24 May 2012, BIS and the U.S. Department of Justice

announced the arrest of three individuals for their role in

smuggling firearms from the United States to China.

According to the announcement, BIS and other agencies

arrested Joseph Debose, a U.S. national and a member of

the U.S. military, and Zhifu Lin and Lilan Li, both Chinese

nationals, for multiple exports of firearms

controlled under the U.S. Munitions List, in

violation of the Arms Export Control Act and

the International Traffic in Arms Regulations

(‘ITAR’). As part of the scheme, the serial

numbers of the firearms were allegedly altered

and the firearms were then hidden in packages

exported to China. The scheme, which took

place between December 2010 and April 2012, was

discovered after the firearms were found by Chinese

authorities. The individuals remain in custody and each

faces up to 20 years in prison if convicted.

http://www.bis.doc.gov/news/2012/doj05242012.htm

Chinese national arrested for unlawful exports to China On 23 May 2012, BIS announced the arrest of Qiang Hu, a

Chinese national, for alleged violations of the EAR.

According to the announcement, Hu caused the illegal

export of thousands of pressure transducers manufactured

by MKS Instruments, Inc., a U.S. company, in his role as

sales manager for the company’s Shanghai, China office. To

do so, he allegedly relied upon real licences to export the

transducers to China and, once in China, diverted them to

unlicensed end-users. In other cases, Hu allegedly obtained

export licences for the transducers in the name of a front

company. If convicted, he faces 20 years’ imprisonment and

a $1 million fine.


President of U.S.-based company arrested forunlawful exports to Iran On 22 May 2012, BIS announced the arrest of Markos

Baghdasarian, the president of a U.S.-based and Russian-

owned manufacturer of synthetic oils. According to the

announcement, Baghdasarian exported aviation engine oils

and a polymer, together valued at $850,000, between 2010

and 2011 to customers in Iran without the necessary

authorizations. In doing so, he falsely claimed a United Arab

Emirates (‘UAE’) company as the ultimate consignee of the

goods. Charged with unlawful exports and false statements,

Baghdasarian faces 20 years in prison if convicted. Both he

and his company, Delfin Group USA LLC also now face a

BIS-imposed temporary denial order (‘TDO’) against

exporting.



U.S.-based company and officers sentenced forunlawful export conspiracy involving IranOn 16 May 2012, BIS announced the sentencing of Online

Micro LLC and two of the company’s officers, Massoud

Habibion and Mohsen Motamedian, for illegally exporting

computer goods valued over $5 milion to Iran via the UAE

between 2007 and 2010. According to the announcement,

Online Micro and Habibion conspired with a company in the

UAE and Iran to procure U.S.-origin computers and export

them to Iran through Dubai without necessary

authorizations from OFAC. In doing so, Online Micro also

allegedly caused the filing of false information and told a

government cooperator to lie to U.S. government

investigators. The court sentenced Habibion to 13 months’

imprisonment and Motamedian to three years’ supervised

release. Habibion and Online Micro also agreed to forfeit

$1.9 million. The two parties are also denied export

privileges for ten years, although that denial is suspended

provided, among other things, neither commits an export

control violation during the ten-year period.


Former manager of Netherlands-based freightforwarder sentenced On 15 May 2012, BIS announced the sentencing of a former

manager of a Netherlands-based freight forwarder and

Dutch national, Ulrich Davis, for his role in a conspiracy to

export U.S.-origin aircraft-related commodities to Iran

without the required authorizations. The sentence follows

Davis’ guilty plea for violating the ITR, EAR, and a then-

existing TDO against him by arranging the shipment of

goods to Iran, making false statements in furtherance of the

scheme, and instructing others to make false statements.

The court sentenced Davis to six months in prison.



BIS denies export privileges for Zhen Zhou Wu,Yufeng Wei, and Chitron Electronics, Inc.On 4 June 2012, BIS denied export privileges for Zhen Zhou

Wu, Yufeng Wei, and Chitron Electronics, Inc. The denial

BULLETINS BULLETINS

WorldECR welcomes your News and Bulletins.

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follows criminal convictions for those companies in January

2011 for unlawful exports of electronic components and

other items to China that were subject to the EAR and ITAR.




BIS denies export privileges for Mohammad Reza VaghariOn 6 June 2012, BIS denied export privileges for

Mohammad Reza Vaghari following a previous criminal

conviction of Vaghari on two counts of aiding and abetting

the illegal export of ultrasonic liquid processors, stimulus

isolators, and laboratory equipment to Iran via the UAE

without the required authorizations from OFAC.


Proposed removal of items from the ITARBIS and the U.S. Department of State, Directorate of Defense

Trade Controls (‘DDTC’) recently published proposed rules

for the removal of certain items from U.S. Munitions List of

the ITAR. The rules relate to items and related technology

currently controlled under the following categories of the

Munitions List: Category XIII (auxiliary and miscellaneous

items), Category X (personal protective

equipment, shelters, and related items), and

Category IX (military training equipment). The

proposed removal is part of the U.S.

government’s effort to reform the U.S. export

control regime and follows similar proposed

rules for other categories. Under the proposed

rules, items removed from the Munitions List

would be shifted to the Commerce Control List (‘CCL’),

including proposed ‘600 series’ classifications within that

list. Comments to the proposed rules are due in July.

http://www.bis.doc.gov/federal_register/rules/2012/77fr29564.pdf

http://www.pmddtc.state.gov/FR/2012/77FR29575.pdf





DDTC releases ‘Blue Lantern’ reportOn 24 May 2012, DDTC released its fiscal year 2011 report

for its ‘Blue Lantern’ end-use monitoring programme. The

report, which is issued annually and summarizes the

agency’s findings for end-use checks, shows a slight decrease

in the overall number of inquiries undertaken from previous

years. It also shows that 27% of the checks led to findings of

inconsistency with information in a transaction’s application

or authorization, and the highest rate of inconsistency

occurring for exports to the Middle East. The agency also

found 34 instances of potential diversion. A finding of

inconsistency may result in the rejection, denial, or

revocation of a licence application, removal of a party from

an application or authorization, addition of a party to

DDTC’s Watch List, and/or referral to the agency’s

enforcement division.http://www.pmddtc.state.gov/reports/documents/End_Use_FY2011.pdf

DDTC posts guidelines for material change notificationsOn 2 May 2012, DDTC posted new guidelines for submitting

notifications of a material change in information for parties

registered with the agency, as required by the ITAR. Material

changes include: 1) ineligibility changes; 2) changes to name,

address, or senior officers; 3) establishment, acquisition or

divestment of a U.S. or foreign parent, subsidiary, or

affiliate, or merger; or 4) addition or deletion of USML

categories applicable to the party. http://www.pmddtc.state.gov/registration/notification_chreg.html

DDTC amends ITAR to exempt temporary exportsof chemical agent protective gearOn 2 May 2012, DDTC published a final rule that, among

other things, amends the ITAR to exempt the licence

requirement for temporary exports of chemical agent

protective gear for personal use and classified under

Category XIV(f)(4). The rule amends 22 C.F.R. § 123.17(f) to

allow use of that exemption where the protective gear: 1) is

for the U.S. person’s exclusive use, and 2) is eventually

returned to the United States. In addition, under the rule,

the U.S. person may not: 1) re-export the protective gear to

a foreign person or otherwise transfer ownership, or 2)

export the gear to any country where the importation would

be in violation of that country’s laws. The rule also clarifies

existing exemptions for exports of body armour, firearms,

and ammunition.

http://www.gpo.gov/fdsys/pkg/FR-2012-05-02/html/2012-

10599.htm

House passes satellite export amendmentOn 17 May 2012, the U.S. House of Representatives passed

an amendment to the National Defense Authorization Act

for Fiscal Year 2013 (HR 4310) that would allow the U.S.

President to move certain satellites and related items from

the U.S. Munitions List to the CCL, thereby shifting those

items from DDTC jurisdiction to BIS jurisdiction. The

amendment simultaneously imposes numerous

requirements for any transfer, such as retaining the broad

prohibition on the export of satellites and related items to

arms-embargoed countries, quarterly reports on

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Appeared in issue 5, WorldECR

Back issues of WorldECR are available.

For details, email [email protected] or visit

http://www.worldecr.com/back_issues.html


authorizations for exports of such items, and an

enumeration of each item, ‘to the extent practicable,’ that the

President intends to shift to the CCL.

Senate passes new Iran sanctionsOn the eve of negotiations between world powers and Iran,

the U.S. Senate on 21 May 2012 passed a new bill intended

to expand existing sanctions against that

country (S 2101). Inserted as an amendment

into a related bill previously approved by the

U.S. House of Representatives (HR 1905), the

combined bill expands the Iran Sanctions Act

of 1996 by adding penalties for individuals and

entities doing business with Iran, including

penalties for entities engaged in joint ventures

with Iran and for U.S. companies whose

foreign subsidiaries engage in a prohibited

activity. The bill also requires public companies to disclose

their Iran dealings to the U.S. Securities and Exchange

Commission. The Senate amendment includes language

stating that all options, including military action, are on the

table to prevent Iran from obtaining nuclear weapons and

that the bill does not authorize military action. The language

of the final bill is subject to negotiation in a conference

committee composed of House and Senate members.

BIS settles charges of anti-boycott violationsBIS recently announced settlements with SteelSummit

International Inc. and Samuel Shapiro & Company, Inc. for

their alleged violations of U.S. antiboycott regulations.

SteelSummit agreed to pay $14,400 to settle four charges

associated with furnishing information to persons in Saudi

Arabia about the company’s business relationships with

boycotted countries or blacklisted persons. Samuel Shapiro &

Company agreed to pay $10,000 to settle five charges

associated with failing to report the receipt of a request from

persons in the UAE to engage in a restrictive trade practice or

foreign boycott against a country friendly to the United States.

http://efoia.bis.doc.gov/antiboycott/violations/a725.pdf

http://efoia.bis.doc.gov/antiboycott/violations/a724.pdf

BULLETINS BULLETINS

On 1 April 2012, the Ministry of Economy, Trade and

Industry of Japan (‘METI’) issued a notification introducing

changes in application procedures for individual and general

bulk export licences for dual-use goods. The notification

includes changes to:

l Single-use licence

The notification introduces a new format for the end-user

certificate (‘EUC’). The EUC is a document

signed by the foreign importer or ultimate

end-user which is required for single-use

export licence applications. The notification

requires applicants to submit the revised EUC

as supporting documents when applying for a

single-use licence. The new EUC format takes

effect on 1 April 2012; the previous EUC

format will be valid until 1 July 2012. An

English version of the new EUC format is

available on the METI web site.

l General bulk licence

The notification splits the existing general bulk licence

(locally called ‘Ippan Houkatsu’ export licence) into two

categories:

White country bulk licence Traders looking to export certain non-sensitive dual-use

items to white countries can apply for white country bulk

licences. Requirements for this licence are less stringent

– only registration of responsible executives and staff

involved in classification are required; an internal

compliance programme (‘ICP’) is not required.

Application for the licence can only be done through the

NACCS online system.

Special general bulk licence (locally called ‘TokuichiHoukatsu’)This licence allows export of certain non-sensitive dual-

use items to various countries except high-risk countries

such as Iran, North Korea, Iraq, and United Nations-

embargoed countries. The details of eligible items and

destinations is contained in a matrix chart included in the

notification. Existing holders of general bulk licences will

have their licences converted to special general bulk

licences automatically. New applicants for the special

general bulk licence are required to undergo an on-site

pre-audit by METI in addition to the existing requirement

to implement ICP and registration with METI.

The new bulk licence scheme takes effect on 1 July 2012.

Japan’s METI streamlines procedures for export licences

By George Tan and Dylan Heng of the Singapore office

of Bryan Cave International Consulting.

www.bryancaveconsulting.com

Links and notesWhite Countries: Argentina, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,

Ireland, Italy, Republic of Korea, Luxemburg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, United

Kingdom, and the United States of America.

Editorial Editorial


WorldECR goes to press just as

the latest in the suite of

negotiations between Iran

and the P5 comes to an unsatisfactory

close. They are to be continued with

lower-level ‘technical talks’. Quite

possibly all that has been achieved is the

postponement of another conflagration

in the Middle East. We are all losers if

the negotiations ultimately fail.

It is likely that what will not now be

postponed is the introduction of the EU

embargo on the purchase of Iranian oil

within the EU, putting strain on an

already stressed Eurozone.

In the United States, the President

will probably face pressure to impose

sanctions in the run-up to the Autumn

presidential elections: the fear being

that he might act less because he

believes that it will achieve the desired

result of persuading Iran to give up its

enrichment programme, than on

account of the need of to play to his

domestic constituents.

‘It isn’t clear that the sanctions are

working,’ one lawyer told WorldECR: ‘It

is very difficult to know where to go

next.’ And so it also seems to be in Syria,

where, despite the ratcheting up of

measures, fighting between government

and rebel forces continues unabated,

with civilians caught in the middle –

and the international community is

coming to terms with the prospect of a

full-scale civil war.

But there has been a recent triumph

for the export control regime. On 20

June, UK authorities intercepted a

Russian ship carrying $60 million-

worth of helicopter gunships which

were ultimately bound for Syria, once

the vessel, the MV Alaed, had docked

and re-fuelled at a UK port.

UK officials have told the ship’s

insurers, the Standard Club, that they

believed that continuing to insure the

shipment would be a breach of the EU

arms embargo. The Standard Club has

now withdrawn insurance from all

vessels owned by Femco, which owns

the MV Alaed.

The most recent EU embargo against

Syria bans the export of luxury goods

including caviar, cigars, champagne and

luxury yachts – suggesting that the EU

is running out of sanctions options –

creating a new target client sector for

law firms advising on Syria embargo.

Indeed, in our next issue, we’ll be

revealing the results of an investigation

into the workflow of practitioners in the

last six months. Interesting data is

already emerging. One lawyer, who’s

seen less sanctions-related work

because companies doing business with

sanctioned countries have closed down

their activities, says that when it comes

to M&A, businesses are paying extra

attention to exports due diligence.

Because, no doubt, you never know

what a little probing will turn up.

Tom Blass, June 2012

[email protected]

Let them not eat caviar

The most recent EU

embargo against Syria

bans the export of

luxury goods,

suggesting that the EU

is running out of

sanctions options.

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Opinion Opinion


EU moving towards DIY export control

Dr Bärbel Sachs welcomes a developing trend for greater self-responsibility for export controls in Europe.

European companies are

increasingly realising the

possibilities of self-regulation in

export control compliance. While this

development may be welcomed by

many, there are certain pitfalls and risks

that need to be taken into account.

This trend can be compared with the

increase in self-checkout systems in

supermarkets where customers swipe

and pay – a lesser number of

supervisors replaces a higher number of

check-out staff. So the same seems to be

happening within trade control in

Europe – undertakings may take more

responsibility for trade controls which

allows the authorities to be less involved

in individual transactions.

The reasons for this seem to be

manifold. The (fairly) new procedures

reduce paperwork and administrative

burden. Many seem also to address

industry’s needs: fewer and faster

administrative procedures remove the

disadvantage possessed by competitors

based in jurisdictions with less strict

trade controls, while new procedures

allow the authorities to adopt security-

oriented control measures based on risk

management. Put simply, risk

management implies that the most

reliable undertakings carry out their

own controls in individual transactions

with occasional ex-post control by the

authorities. Individual transactions

identified as posing a high risk are

subject to stricter controls.

Clients have drawn our attention to

this trend. One, responsible for trade

control within the legal department of a

multinational, has identified more and

more responsibilities for itself. It uses

the embargo rules as an example.

Following the tightening of the EU Iran

embargo in October 2010, the EU

regulations contain prohibitions

regarding the export of an increasing

number of listed goods, e.g. in the oil

and gas sector. In contrast to military

and dual-use goods, initially there were

no procedures to have it confirmed by

the authorities that a good is, indeed,

listed under the embargo regulations

and so subject to an export prohibition.

The same continues to apply, for

example, to contractual exemption

clauses contained in both the Syria and

Iran embargo regulations (cf. e.g.

WorldECR, issue 12, page 12). In most

EU Member States there are no

procedures available by which to obtain

confirmation from the relevant

authority that an existing contract

justifies the export of goods subject to a

general export prohibition. This gives

undertakings the opportunity to assess

these legal questions themselves

without having to follow long

administrative procedures. But it also

represents a significant responsibility –

for while a violation of an embargo

provision constitutes a criminal offence,

a violation of a contractual obligation

may lead to a damages claim. A forcemajeure defence may only be available

if the export is, indeed, prohibited.

Businesses doin’ it for themselvesEmbargoes are only one example where

undertakings increasingly carry out

legal assessments and control of

individual transactions. In all areas of

trade law, industry has the chance to

assume more responsibility.

In export controls, traditionally the

export of listed goods is subject to an

authorization requirement. However,

are an increasing number of exceptions

to this rule. In Germany, a growing

number of global so-called ‘collective’

authorizations have been granted and

an increasing number of general

authorizations have been passed (both

on EU and national level, cf. WorldECR,

issue 7, page 27 et seq.). The latest

general authorization to be adopted by

EU Member States at a national level

will be one allowing transfers within the

EU to undertakings licensed pursuant

to the military goods directive. Likewise,

in customs law – and increasingly

following the US security-oriented risk-

management approach – there are

simplified procedures available.

However, in order to benefit from these,

undertakings must undergo a licensing

process proving their financial

reliability as well as the implement ation

of compliance procedures and general

safety measures. The most prominent

example of this is the introduction of the

Authorized Economic Operator (‘AEO’).

In the EU this status (i) allows better

access to authorizations, (ii) allows for

entry and exit summary declarations

comprising reduced data requirements

and (iii) reduces the amount of physical

and document-based controls. As this

status is also seen as a certification of

the financial health and good

administrative organization of the

undertaking, we may observe a de-factopressure for undertakings to obtain it.

There are some risks connected with

the use of these procedures. An export

that does not fulfil all the procedural

and material requirements of the global

and general licences constitutes an

unauthorized export and, thus, a

criminal offence. Likewise, in customs

matters, irregularities in individual

transactions may easily be treated as tax

evasion. The authorities may still

discover mistakes as they continue to

carry out ex-post controls during on-site

visits and audits.

In cases where undertakings make

use of these procedures, they need to

ensure that they have a functioning

compliance system in place so as to

rapidly discover violations and to

protect staff and managers.

Nevertheless, the use of these

procedures significantly reduces

correspondence with the authorities

and, as a result, cost. It is, in our view, a

positive development.

Dr Bärbel Sachs is a partner inthe Berlin office of Noerr LLPwhere she advises oninternational trade and exportcontrols.

[email protected]

In all areas of trade

law, industry has the

chance to assume more

responsibility.

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Timothy Hoffman, Deputy Director ofthe Defense Technology SecurityAdministration, U.S. Department ofDefense

Craig C. Healy, Director, ExportEnforcement Coordination Center(E2C2), Homeland SecurityInvestigations, U.S.

Iciar Rodriguez-Miranda, DirectorGeneral Enterprise, EuropeanCommission

Tom Smith, Head of Export ControlOrganisation, Department for BusinessInnovation & Skills, UK

Jan-Erik Lövgren, Deputy DirectorGeneral, Swedish Inspectorate ofStrategic Products (ISP)

Ramón Muro, Deputy Director forForeign Trade of Defence Materials andDual Use Goods and Technology,Secretariat of State for Trade, Ministryof Economy and Competitiveness,Spain

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Meir Shalit, Director of DefenceExport Control, Ministry of Defence,Israel

Fabio Della Piazza, Chair of the EUCouncil Working Party onConventional Arms Exports (COARM),European External Action Service

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Susan Griffiths, Export ControlManager, MBDA

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EU defence sector EU defence sector


30 June 2012 marks a new stage

for European defence markets.

As of this date, EU Member

States are obliged to apply the new

rules on intra-EU transfers of defence

technology. Three years ago, Directive

2009/43/EC simplifying terms and

conditions of transfers of defence-

related products within the Community

(‘Intra-Community Transfer Directive’

– OJ L 146/1 of 10 June 2009) entered

into force. Now, the new provisions

gain practical importance.

BackgroundTogether with Directive 2009/81/EC

on defence and security procurement

(‘Defence Procurement Directive’ – OJ

L 216/76 of 20 August 2009), the

Intra-Community Transfer Directive

forms the so-called ‘Defence Package’.

Both directives underline the

increasingly important role the EU

intends to play in the regulation of the

defence sector. The Defence Package is

designed to put an end to the

fragmentation of the European defence

market and apply the internal market

rules to this domaine reservé of

Member States, while taking on board

the particularities of the sector.

Although there is still significant

military spending by EU Member

States, there is not yet an EU-wide

strategy for a common procurement

policy and Member States spend most

of their equipment budget

domestically. Moreover, complicated

legal provisions and administrative

proceedings regarding the intra-

Community transfer of defence items

have proven an obstacle for awards to

contractors from other Member States.

The directives aim to facilitate the

transfer of defence goods within the

EU in order to allow more bidders from

other Member States to participate in

procurement procedures abroad. In

principle, the same criteria for the

licensing of intra-Community transfers

of defence items will apply in all 27 EU

Member States as of 30 June 2012. At

the same time, the first public

procurement procedures under the

new rules will take place – public

authorities have been obliged to apply

the Defence Procurement Directive

since last August.

Almost all Member States have by

now fully implemented the respective

national provisions, although the

Commission has initiated proceedings

against some, including Italy and

Romania, for failure to take sufficient

national measures regarding the Intra-

Community Transfer Directive.

Intra-Community TransferDirectiveThe Intra-Community Transfer

Directive simplifies the current

diversity of 27 different national

licensing schemes in the EU for cross-

border transfers of military equipment.

The directive deals neither with

exports out of the EU to third countries

nor does it withdraw the requirement

of a prior authorization in principle.

However, if an exporter established in

one EU Member State obtained such

an authorization he is authorized to

supply to all the other Member States

without restrictions (article 4 (1)).

In order to simplify the

authorization process and to burden

applicants (and authorities) less with

licensing procedures, the Intra-

Community Transfer Directive

provides for a system of ‘general’ and

‘global licences in place of individual

transfer licences. Both types of licence

have already been used by several

Member States. Now the directive

extends these instruments to the

defence sector throughout the EU.

General licencesGeneral transfer licences (article 5) are

published by Member States and allow

domestic companies complying with

the conditions set out in the licence to

transfer the defence item without

individual prior authorization. For

cases specified in the directive,

Member States are even obliged to

publish such general licences. This is

the case for intra-Community transfers

where the recipient is part of the armed

forces; where the transfer is made for

the purposes of demonstration,

evaluation or exhibition; or where the

good is transferred to the originating

supplier for the purpose of

maintenance and repair.

Importantly, there are also general

licences in place if the recipient is an

undertaking holding a certificate

granted to those able to demonstrate

their reliability (article 9 (2)). Such

reliability shall be assessed according

to the ability of an undertaking to

comply with export control law, in

particular by ensuring that senior

management is committed to

implementing an effective internal

compliance programme and to

providing authorities with all required

information on the end use of the

transferred product. These criteria are

set out in more detail in a Commission

recommendation of 11 January 2011

(OJ L 11/62 of 15 January 2011) which

also contains a template for the

certification process.

The European Commission will also

set up a central register of certified

defence undertakings which can be

accessed on the EU’s website. This will

allow potential exporters to quickly

check whether an intended transfer

falls into the scope of a general licence.

National agencies, such as the German

Federal Office of Economics and

Export Control (‘BAFA’), also publish

New rules for intra-EU transfers of defence products

The EU is stepping up its involvement in theregulation of the defence sector with a ‘DefencePackage’ that includes new rules governing theintra-Community transfer of defence technology.Falk Schöning examines the development.

The Defence Package

is designed to put

an end to the

fragmentation of

the European defence

market.



Member States and in their ability to

deliver the product and services to

other Member States. Since the Intra-

Community Transfer Directive

provides for a mutual recognition of

transfer licences, tenderers from the

EU should generally be able to

demonstrate such a certification.

The ability of bidders to export the

product to the destination required by

the contracting authority is also

reflected in the award criteria. If the

award of the contract is not based solely

on the lowest price, the authority will

award the contract to the most

economically advantageous tender

(article 47). Amongst the various criteria

which may apply in order to identify the

lists of certified recipients with a

registered seat of business in that

Member State.

Global licencesGlobal transfer licences (article 6) are

not published and applicable to all

exporters. They are granted

individually to undertakings and

require an application. Global licences

authorize the intra-Community

transfer of a large number of products

to one recipient or a certain category of

recipients in one single administrative

act. Thus, applications for global

licences may more often replace

individual authorization procedures

which were the common standard.

A global licence shall be granted for

a period of three years by the authority

of the Member State in which the

supplier is located or from where the

supplier intends to ship the goods.

They may be renewed after that period.

Defence Procurement DirectiveIn the Defence Package, the Intra-

Community Transfer Directive is

accompanied by another directive on

defence procurement. This directive

has applied since August 2011. As a

general concept, the Defence

Procurement Directive adapts the

existing civil public procurement law of

the EU to the specific needs of defence

procurement. However, it enables

greater flexibility for the award process

where there are also several links

between both directives, e.g. in the field

of security of supply where the Europe-

wide recognition of export licences is

relevant. As a result of the new

directive, Member States are expected

to conduct more public procurement

procedures instead of directly

awarding contracts to a bidder.

Scope and procedureThe Defence Procurement Directive

covers all public works and service

contracts for the supply of arms,

munitions and war materials as well as

those for the non-military security

sector. The threshold for such contracts

is EUR 400,000 for works and service

contracts and EUR 5 million for

construction contracts (according to a

recent change by Commission

Regulation (EU) No 1251/2011 of 30

November 2011).

Member States generally need to

publicly tender contracts (including

framework contracts) above this

threshold in non-discriminatory

proceedings which are open at least to

EU/EEA nationals. Although the new

provisions do not contain a European

preference clause, Member States may

nevertheless decide on an individual

basis to exclude bidders from third-

countries except where an

inter-ministerial agreement between

the EU Member State and the third-

country exists; this is the case for

agreements between many EU

Member States and the United States.

The Defence Procurement Directive

provides for three procedures for

contracting authorities to choose from

(article 25): the restricted procedure;

the negotiated procedure with

publicat ion of a contract notice; and

the competitive dialogue for very

complex projects.

In practice, the negotiated

procedure allows a sufficient amount of

flexibility for the contracting authority.

It includes a pre-qualification period

which results in the short-listing of a

minimum of three bidders. These

bidders are invited to negotiate the

contract over several bidding rounds.

The winning bid is identified after the

application of award criteria which are

specified in detail and for which

weightings must be given. The contract

can only be signed after the lapse of a

‘standstill period’ allowing competing

bidders to challenge the award decision.

Interaction with the TransferDirectiveThe new licensing framework under

the the Intra-Community Transfer

Directive is also of relevance for the

procurement procedure. The

contracting authorities may lay down

special conditions relating to the

performance of the contract, amongst

others, regarding its requirements of

security of supply. The authorities may

require that the bid contains a

sufficient certification that the tenderer

will be able to fulfil its obligations

regarding the export, transfer and

transit of goods to be procured (article

23). This provision is deemed to

enhance the trust of contracting

authorities in tenderers from other

In practice, the U.S.

ITAR regulations will

continue to play an

important role for EU

undertakings.

Scope and exceptions

Article 1 (2) of the Intra-Community

Transfer Directive underlines the

fact that the new provisions do not

affect the discretion of Member

States as regards policy on the

export of defence-related products

to countries outside the EU.

Restrictions of exports to non-EU

countries continue to apply.

Therefore, exporters need to

consider both the national laws of

EU Member States when it comes

to exports to third countries as well

as the export control legislation of

such recipient countries. In

practice, the U.S. ITAR regulations

will continue to play an important

role for EU undertakings.

Additionally, Member States

reserve the right to protect the

essential interests of their security

which are connected with the

production of, or trade in, arms

according to article 346 of the

Treaty on the Functioning of the

European Union (‘TFEU’), leaving a

loophole for Member States to

ignore any European legislation

which they consider to interfere too

strongly with their national security

interests.

However, despite these

exceptions, the Intra-Community

Transfer Directive will facilitate the

licensing application process for

undertakings. Although the new

rules do not entirely cut through the

red tape, they make it easier for

exporters to apply for licences as

Member States have to mutually

recognise such licences.



most advantageous tender is also

security of supply. Thus, a proven ability

of a bidder as regards export and intra-

Community transfer licences may even

help to win a contract.

Practical impact Both the Intra-Community Transfer

Directive and the Defence Procurement

Directive have ambitious goals, but

opening up closed European defence

markets will not occur overnight.

Although the new provisions on intra-

Community transfers will apply in all

Member States it remains to be seen

whether the suppliers will in fact have

the opportunity to make use of them.

This would require a higher spending

of Member States abroad – in times of

the European currency crisis and of a

decreasing military budget in most EU

countries a rather unlikely scenario.

Moreover, the Defence Procurement

Directive contains several exemptions

from the general obligation to publicly

tender contracts. Among others,

government-to-government (‘G2G’)

contracts, awards according to

international organization rules, e.g.

the OCCAR, or research & development

projects remain outside the scope of the

new Directive. Member States may also

continue to invoke article 346 of the

Treaty on the Functioning of the

European Union (‘TFEU’), in order to

evade any European obligations.

Moving forwardAs contracting authorities are used to

awarding contracts directly to preferred

suppliers it may take some time – and

probably legal action under the review

procedure (article 55 et seq.) – before

the new provisions are applied as a

matter of course. However, the Court of

Justice of the European Union only

recently narrowed the scope of

application of article 346 TFEU in a

reference for a preliminary ruling under

article 267 TFEU (judgment of 7 June

2012, case C-615/10 – InsTiimi).

Nevertheless, the ease of the EU

licensing requirements according to the

Intra-Community Transfer Directive

will be welcomed by many businesses

throughout Europe. Once the same can

be said for the effective implementation

of the Defence Procurement Directive

in practice, the interaction between

both directives will be even more

important since successful contractors

may rely on an efficient Europe-wide

recognition of transfer licences.

Falk Schöning is a seniorassociate at Hogan Lovells’Berlin office where his practiceinvolves export control, antitrustand public procurement mattersbefore various German and EUagencies and courts, with a focuson the defence industry.

[email protected]

The ease of the EU

licensing requirements

according to the

Intra-Community

Transfer Directive will

be welcomed by

many businesses

throughout Europe.

Visit www.LearnExportCompliance.com/schedule or call +1 540 433 3977 (USA) for details or registration.

“US Export Controls on Non-US Transactions” seminars in two locations Fall 2012:

Persons and Items Subject to US Jurisdiction (ITAR & EAR) US De Minimis Content Calculation US Defense Trade Controls Technical Data Considerations Enforcment Issues , Practical Advice...and MUCH MORE

Seminars also coming to SAN FRANCISCO AUSTIN CHICAGO BOSTON

DUBAI UAE 17-20 SEPTEMBER, 2012

AMSTERDAM THE NETHERLANDS 29 OCTOBER - 1 NOVEMBER, 2012

Missile Technology Control Regime Missile Technology Control Regime


Of the the handful of

international export control

regimes related to the trade of

materials, equipment and technology

with potential weapons of mass

destruction (‘WMD’) uses, the Missile

Technology Control Regime (‘MTCR’)

is growing in importance vis-a-vis

current proliferation threats. In the

context of recent events coinciding

with the regime’s 25th year of

operation – including, notably, ballistic

missile tests by India, North Korea and

Pakistan – it is useful to look back at

what the MTCR has accomplished,

what obstacles it still needs to

overcome, and what future role it will

play in the broader scope of WMD non-

proliferation. This article presents the

major developments and issues facing

the MTCR, with a particular emphasis

on the role and responsibility of

exporters in maintaining the efficacy of

the regime.

What is the Missile TechnologyControl Regime?The MTCR was formed in 1987 by

seven countries – Canada, France,

Germany, Italy, Japan, the United

Kingdom and the United States – in

response to mounting concern about

the spread of missiles capable of

carrying out chemical, biological or

nuclear attacks. At the time, these

nations were primarily disquieted by

the potential proliferation of long-

range delivery systems and sought to

use the regime to control mainly

ballistic missile technologies. Since

then, the regime’s principal objective

has been to ‘restrict the proliferation of

missiles, complete rocket systems,

unmanned air vehicles, and related

technology for those systems capable of

carrying a 500-kilogram payload at

least 300 kilometres, as well as systems

intended for the delivery of weapons of

mass destruction.’1 Put simply, MTCR

members – of which there were 34 as

of early 2012 – agree to abide by

regime guidelines, which are then

implemented nationally regarding the

export of items on a control list. This

activity is critical to worldwide non-

proliferation efforts because it stems

the spread of unmanned delivery

vehicles of WMD: that is, the ‘weapon’

aspect of a nuclear, chemical, or

biological weapon.

The regime rests upon adherence to

the MTCR Equipment, Software and

Technology Annex (‘the Annex’), which

functions as a control list for exporters.

Like the guidelines of other export

control regimes, those of the MTCR are

not legally binding; rather, member

states have a responsibility to legislate

and enforce the guidelines in their

respective domestic systems. In

addition, many MTCR non-member

countries aim to abide by the

guidelines in order to contribute to a

norm of international behaviour

regarding the trade of military and

dual-use items related to delivery

systems. The Annex defines two

categories of items to which different

export rules apply: Category I goods, to

which the strictest restrictions apply,

include complete rocket systems;

unmanned air vehicle systems capable

of delivering a payload of at least

500kg to a range of at least 300km;

production facilities for such systems;

and major sub-systems. Category II

goods, to which less stringent

restrictions apply (the regime uses the

phrase ‘greater flexibility’), include

complete rocket systems and

unmanned air vehicles not covered by

Category I items capable of a

maximum range greater than or equal

to 300km. The second category also

includes additional goods for uses

other than those directly related to

WMD-capable missiles. A catch-all

clause added to the Annex in 2003

provides the legal foundation for the

control of items not specifically listed

in the Annex but which nevertheless

appear destined to contribute to the

proliferation of unmanned delivery

systems.

Apart from publishing and updating

the Annex, the MTCR holds annual

plenaries, inter-sessional consult -

ations, and technical experts meetings

in order to promote the exchange of

information, address the concerns of

member states, make decisions, and

review and update the control list. The

regime also coordinates outreach and

dialogue activities in various regions of

the world in order to promote the

mission of the organization and

facilitate the implementation of export

controls related to missile technology.

Accomplishments in 25 yearsThe rapid pace of technological

development and globalization has

presented the MTCR with significant

challenges in implementing its

objectives since its inception.

Nevertheless, the organization can

claim several significant accomplish -

ments, namely in stemming the

proliferation of intercontinental

ballistic missiles (‘ICBMs’) and

promoting global export control

norms.

On the issue of proliferation, the

The Missile Technology ControlRegime 25 years on

The Missile Technology Control Regime is 25years old. Dr. Andrea Viski reviews itsaccomplishments and setbacks to date andexamines the role exporters can play inworldwide WMD non-proliferation efforts.

The MTCR was formed in 1987

by seven countries in response to

mounting concern about the

spread of missiles capable of

carrying out chemical, biological

or nuclear attacks.



can be used to deliver nuclear

weapons.’6 However, China has sold

missile components and technology to

countries such as Iran, Iraq, Libya,

North Korea, Pakistan and Saudi

Arabia.7 In 2008 the United States, as

part of the U.S.-India Civil Nuclear

Cooperation Agreement, permitted

India to purchase missile interceptor

systems restricted by the MTCR’s

Annex I in exchange for placing its

civilian nuclear facilities under

international monitoring, setting a

troubling precedent for future

worldwide trends for the sale of Annex

I goods.8 While the examples presented

here reflect just some of the issues with

state practice in dispute with MTCR

rules, they exemplify the problems

associated with informal rules when

their implementation is overshadowed

by strategic and economic factors. The

regime guidelines do not contain

enforcement procedures for use in such

cases; countries therefore face political

rather than legal sanctions.

A second recurring dilemma facing

the MTCR is the fast pace of technology

and the associated new options for the

potential delivery of WMD. The regime,

while successfully precluding the spread

of ICBMs in several cases, has not been

able to effectively hinder the

proliferation of short-range and

intermediate-range ballistic missiles

(‘SRBMs’ and ‘IRBMs’). More

importantly, the Annex focuses

predominantly on ballistic missile

technology and supplies, creating a

situation whereby countries seeking

unmanned delivery systems have opted

for alternatives that are easier to acquire

and finance, such as cruise missiles and

other types of unmanned aerial vehicle

(‘UAV’). The regime initially focused on

ballistic missiles because such missiles

were linked to nuclear weapons

delivery, which was the main concern

over biological or chemical weapons,

and which require shorter-range

delivery systems. Addition ally, regime

members erron eou sly believed that

cruise missiles and UAV technology

would be too sophisticated for non-

members to acquire.

When an increasing number of

countries successfully developed such

technologies, the MTCR found itself in

a context to which its control list no

longer really applied – namely, one in

which cruise missiles and UAVs could

serve similar strategic ends as ballistic

missiles, and yet be much easier to

obtain. While some changes have been

MTCR has played an important role in

precluding states from acquiring or

moving forward with ballistic missile

programmes. States that have

abandoned their programmes due to

MTCR engagement include Argentina,

Brazil, Egypt, South Africa, South

Korea and Taiwan, to name a few.2 In

each of these countries, MTCR

restrictions delayed their ability to

build or expand their programmes,

allowing political factors to influence

non-proliferation objectives. These

success stories exemplify the broader

role of supply-side export controls in

complementing other non-

proliferation tools by making it more

difficult, costly and time-consuming for

countries to pursue WMD-related

activities. In addition, the MTCR

played a part in the decision of former

Eastern bloc countries to destroy

Soviet-era Scud missile inventories

following the breakup of the former

Soviet Union.3 These examples must be

qualified, however, by recent events,

particularly the unveiling of Indian,

North Korean and Pakistani ICBMs in

early 2012.

While the MTCR performs an

instrumental export control function in

terms of delineating controlled items in

its Annex, it has also taken active steps

to create norms in order to enhance

global compliance with regime

standards. In November 2002, a total

of 93 countries signed the International

Code of Conduct against Ballistic

Missile Proliferation (also known as the

Hague Code of Conduct), a document

ostensibly linked to the MTCR. The

code provides for increased

transparency and confidence-building

measures related to the ballistic missile

and space launch policies of signatory

states, including declarations regarding

test sites; quantities; and advance

notice of launches. The code also calls

on states to exercise ‘maximum

possible restraint in the development,

testing, and deployment of ballistic

missiles.’4 Because the regime aims to

render the code ‘universally accepted’,

this initiative is an accomplishment in

terms of building international custom

related to the trade of WMD means of

delivery.

In sum, the MTCR has succeeded in

meeting its non-proliferation

objectives in two principal areas. First,

export controls on annexed items have

contributed to controlling the spread of

ballistic missiles. Second, the MTCR

has achieved the adoption of a global

code of conduct regarding ballistic

missile non-proliferation, particularly

in terms of creating a forum for

promoting communication and

cooperation among countries

regarding norms of practice.

Recurring issuesWhile the MTCR has played an

important non-proliferation role, it

also faces several recurring issues that

hamper its effectiveness. The first is

germane to all international export

control regimes and concerns their

informal, voluntary nature and lack of

status in international treaty law. More

specifically, MTCR guidelines are not

binding on regime members and

therefore transgressions are only

punishable by political or economic

means – rather than formal, legal

penalties – usually in the form of trade

or aid sanctions. This informal quality

also means that the regime is only as

effective as the consistency and

commitment with which its members

implement their obligations in their

national jurisprudence, enforcement

procedures and state practice.

Since the MTCR’s inception, many

of its members have indeed engaged in

practices in contravention of their

commitments under the regime. For

example, Russia has been implicated in

supplying missile technology and

supplies to Iran, North Korea and

others.5 China, which has sought

MTCR membership since the early

2000s, has pledged that it will

generally abide by MTCR standards,

and not assist any country ‘in the

development of ballistic missiles that

The MTCR played a part in the

decision of former Eastern bloc

countries to destroy Soviet-era

Scud missile inventories following

the breakup of the former

Soviet Union.



In the U.S., the Department of

Commerce is responsible for

administering controls on

manufacturing equipment for Category

I items, and all dual-use items in

Category II. Licensing requirements

and policies regarding controls for

missile technology are delineated in

sections 742.5 and 744.3 of the Export

Administration Regulations. While the

baseline for exporters is to be aware of

the necessary requirements, they must

also keep in mind the U.S. secretary of

commerce’s specific policy

considerations regarding industry

behaviour. These considerations are

not necessarily specific to the U.S. and

therefore constitute a helpful model for

other countries that seek to comply

with MTCR guidelines.12 The U.S.

Department of Commerce takes into

consideration the probability that

exports will achieve their intended

foreign policy purpose; the

compatibility of the exports with

foreign policy objectives; the potential

reaction of other countries to the

exports; the economic impact of the

exports on industry; and the

effectiveness of enforcement

procedures in the case of illegal

exports.

While public-private outreach is

critical for ensuring that exporters

remain aware and up to date on missile

technology export controls, industry

must be an active participant in

shaping the future of the MTCR

regime. This means being aware, being

informed, and being responsible when

weighing the effect of a potential

export. Due to the fact that state

practice rests on the decisions made by

each and every company that trades in

controlled goods and technologies,

exporters must take into consideration

the ways in which their individual

choices can affect the ability of the

international community to achieve a

WMD-free world.

them. The Hague Code of Conduct and

the outreach and dialogue activities

begun by the MTCR in 1996 have

helped to promote international rather

than member-only norms regarding

the trade in missile technology. The

MTCR has also updated its control list

to account for cruise missile goods and

technology to a greater degree,

although sales of these goods,

including sales by MTCR members to

non-members, continue.11 In order to

meet future challenges and keep pace

with changing trends, the MTCR must

work on strengthening state practice in

line with regime guidelines.

The future of the MissileTechnology Control Regime One important way in which to ensure

that the MTCR remains capable and

strong enough to address future

proliferation issues is through industry

awareness of the role of export control

rules in meeting the broader objective

of preventing the spread of WMD.

Because legal responsibility for

infraction ultimately lies with

exporting companies, it is crucial for

exporters to institute a comprehensive

internal procedure for the responsible

export of affected goods. This includes

thorough internal awareness of the

control list, effective end-user controls

and modern risk-management

systems. It further necessitates keeping

up to date with the changing ways in

which exports take place, such as the

increasing importance of controlling

intangible transfers of technology.

made to the control list to reflect the

spread of non-ballistic technology,

many countries oppose more

substantial restrictions because their

companies are already used to a rather

unregulated market.9 In the U.S.,

industry has lobbied for the relaxing of

restrictions on export controls on

drones – another example of a

technology that is becoming an ever

more substantial issue for the MTCR.

The dilemma, at least for the time

being, reflects the difficult intersection

between keeping up with changing

proliferation trends and protecting

trade and market competitiveness.

A third issue for the MTCR regime,

and one which also applies to related

export control regimes such as the

Nuclear Suppliers Group, is that it is

perceived by some countries as an

exclusive group that divides the world

into ‘haves’ and ‘have-nots’, with the

former acting as a cartel to maintain its

monopoly over lucrative and

strategically important technology. In

fact, some non-members’ pursuit of

missile programmes has been

motivated by the weakness of the

regime’s legitimacy and its monopoly

over sensitive technology. For example,

India has justified its own programme

by stating that it ‘reduces the

vulnerability of major programs

[missiles] … from various

embargoes/denial regimes, instituted

by advanced countries.’10

While these issues raise questions

regarding the MTCR’s effectiveness,

the regime has taken steps to address

Links and notes

1 For more information on the MTCR, see <http://www.mtcr.info/english/objectives.html>. 2 ‘The MTCR: Staying relevant 25 years on’, International Institute for Strategic Studies, IISS Strategic

Comments, Vol. 18, Comment 6, February 2012.3 Mistry, Dinshaw. ‘Beyond the MTCR’, International Security, Vol. 27, No. 4, Spring 2003.4 For the full text of the Hague Code Of Conduct Against Ballistic Missile Proliferation, see

<http://www.hcoc.at/#>. 5 Gormley, D. M., ‘Missile Contagion: Cruise Missile Proliferation and the Threat to International

Security’ (Praeger Security International: Westport, CT, 2008).6 People’s Republic of China Foreign Ministry spokesperson’s statement, Beijing, 21 November 2000. 7 Rasmussen, N., ‘China missile technology control: regime or no regime?’, Danish Institute for

Strategic Studies Brief, February 2007,

<http://www.diis.dk/graphics/publications/briefs2007/nra_chinese_missile_technology_control.pdf.8 Gormley, D. and Scheinman, L., ‘Implications of proposed India-US civil nuclear cooperation’, Nuclear

Threat Initiative Brief, 1 July 2005. It should be noted that the missile interceptor system purchased

by India would be supplied by Israel, which originally received the system from the U.S., also in

contravention of Annex I MTCR restrictions.9 International Institute for Strategic Studies (note 3).10 Sighu, W., ‘Looking back: the Missile Technology Control Regime’, Arms Control Association Brief, April

2007.11 Lewis, J., ‘Storm Shadow, Saudi and the MTCR’, Arms Control Wonk, 31 May 2011,

<http://lewis.armscontrolwonk.com/archive/4051/saudi-arabia-storm-shadow-the-mtcr>.12 US Department of Commerce, Bureau of Industry and Security, ‘Missile Technology Controls: Chapter

8’, <http://www.bis.doc.gov/news/2007/foreignpolicyreport/fprchap08_mctr.html>.

Dr. Andrea Viski is a researcherat the Stockholm InternationalPeace Research Institute (SIPRI),Dual-Use and Arms TradeControl/Non-proliferation,Disarmament and Arms ControlProgrammes.

[email protected]


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The long arm reach of law enforcement agencies puts global companies before unprecedented challenges in terms of conflict of laws anobjective of moving to a safer world and the business reality? How are judges and arbitrators expected to adjudicate a claim against non-performance triggered by foreign economic sanctions? Conference highlights This Conference provides a unique public-private forum to discuss the extraterritorial application of economic sanctions. Industry leaders and their counsel will make the case to government officials on both sides of the Atlantic on how sanctions could be better conceived and applied. Who should attend? Lawyers, compliance officers, bank executives, general managers, payment and treasury officers in companies and banks, government officials and academics. Register online now and benefit from the Early Bird Special Rate until 9 May 2012 for this key symposium on Economic Sanctions. Partnership opportunities ICC trainings and conferences offer you an unrivalled opportunity to build worldwide partnerships. Partnering will get you visibility with the major decision makers in global business and/or within the international arbitration network. For further information, please contact Ms Rodriguez at: [email protected]

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Reinsurance Reinsurance


The U.S. Department of the

Treasury’s Office of Foreign

Assets Control (‘OFAC’) is a small

agency with a very broad mandate. Its

approximately 165 employees

administer between 20 and 30

sanctions programmes imposing the

duty of compliance on all U.S. persons

– including insurers, reinsurers and

brokers.1 Where U.S. businesses cross

borders, non-U.S. entities also

increasingly must be conscious of

OFAC compliance obligations – if only

to ensure business transactions are

processed without preventable

complications. Contained within this

article is: (1) a summary of some of the

more common OFAC touch-points for

non-U.S. reinsurers; (2) a summary of

recent OFAC enforcement actions for

the industry; (3) a discussion of general

compliance hurdles for the industry;

and (4) tips for developing a risk-based

compliance programme.

OFAC touch-points for non-U.S.reinsurersAlthough many U.S.-based reinsurers

understand that they are subject to

OFAC’s regulations, most non-U.S.

based reinsurers could benefit from a

focus on OFAC’s regulations where the

reinsurer is engaged in a transaction

with an OFAC touch-point. OFAC

touch-points can occur where a

transaction is denominated in U.S.

dollars, where the reinsurer avails itself

of U.S.-based services, or where the

transaction involves a U.S. person.

Addressed below are some of the more

common OFAC touch-points for the

non-U.S. reinsurer.

U.S.-dollar denominatedtransactionsPerhaps the most common instance in

which an otherwise ‘foreign-to-foreign’

transaction comes within OFAC’s

jurisdiction is when a claim or

premium payment is denominated in

U.S. dollars. Because almost all U.S.

dollar-denominated transactions

transiting the traditional financial

system still clear through a U.S.

financial institution, an otherwise non-

U.S. transaction comes within OFAC’s

jurisdiction when the payment is

processed through a U.S.

correspondent bank. As a U.S. person,

the U.S. correspondent bank will

screen the transaction for a sanctioned

party nexus (i.e., beneficiary, remitter,

and corresponding financial

institutions are screened against the

OFAC SDN (specially designated

national) list and other lists; locations

are screened against OFAC’s country-

based programmes). Where such a

nexus is identified, the correspondent

bank will, as appropriate, block or

reject the transaction and file a report

with OFAC. For example, if a non-U.S.

reinsurer is processing a U.S. dollar-

denominated premium payment for

facultative reinsurance which includes

liability for Sudanese-owned vessels,

when the reinsurer initiates a payment

to the cedent, the reinsurer’s financial

institution will remit the payment

through its U.S. correspondent bank

for the benefit of the cedent’s financial

institution. If the correspondent bank

can identify the Sudanese entity in the

underlying transaction, the U.S.

correspondent bank is responsible for

rejecting the transaction and filing a

report with OFAC. If the Sudanese

entity is a SDN or the government of

Sudan, the bank will block the payment

and file a blocking report with OFAC.

In these scenarios where a non-U.S.

reinsurer is processing a U.S. dollar-

denominated transaction involving an

OFAC-sanctioned party, the reinsurer

risks that the premium payment will

not be processed into the reinsurer’s

account. There is also some risk that

the reinsurer, although not a U.S.

person, may be subject to an OFAC

penalty of an amount not to exceed the

greater of $250,000 or twice the value

of the transaction that is the basis of

the violation. While OFAC typically

only pursues an enforcement action

targeting a non-U.S. person where the

non-U.S. person has engaged in

activity intentionally designed to mask

the sanctioned party’s identity so U.S.

parties will process the transaction, the

decision whether to pursue an

enforcement action remains with the

agency and/or the Department of

Justice.

The recent line of banking cases

exemplifies this aggressive approach to

enforcement.2 In each of those cases, a

non-U.S. office of the financial

institution developed procedures

through which to strip the identity of a

U.S.-sanctioned party so that the

transactions could be processed

through the U.S. correspondent banks

without the U.S. banks’ knowledge.

U.S.-based serviceThe non-U.S.-based reinsurer also may

inadvertently come within OFAC’s

jurisdiction if the entity is using a U.S.-

based service including, for example, a

call centre or help-desk, a compliance

office, or is storing its disaster recovery

materials in the United States.

Call centre: It is often the case that an

insurer offering employee medical

benefits will maintain call centre

capabilities with 24-hour coverage. To

meet the needs of a worldwide

OFAC and the reinsurance industry

‘Where U.S. businesses cross borders, non-U.S. entities also increasingly must beconscious of OFAC compliance obligations.’ So says Cari Stinebower in thisspecial focus on the global reinsurance industry, summarizing common OFACtouch-points, recent OFAC enforcement actions, and offering advice on how bestto develop a risk-based compliance programme.

Where a non-U.S.

reinsurer is processing

a U.S. dollar-

denominated

transaction involving

an OFAC-sanctioned

party, the reinsurer

risks that the premium

payment will not be

processed into the

reinsurer’s account.



third-country, if one of the reinsurers

is a U.S. person, the U.S. reinsurer

cannot provide cover and the

remaining reinsurers may be,

depending on the terms of the contract,

responsible for picking up the risk.

Where the broker is the U.S. person, it

may be necessary for the broker to seek

specific authorization from OFAC

before proceeding with settling the

claim. No such authorization is

guaranteed. In some cases,

authorization from OFAC has been

granted only after litigation for breach

of contract has ensued. As discussed

later in this article, OFAC expects that

U.S. persons will have built in sufficient

protections at the onset of a

relationship so that the U.S. person can

extricate itself in the event that

exposure to a sanctioned party arises.

Original insured is a U.S. personWhere the original insured is a U.S.

employee base, this often means

staffing a call centre in the United

States. If a covered employee seeks

evacuation services from a sanctioned

country and the U.S. call centre is

contacted to arrange for such services,

the otherwise non-U.S. insurance

coverage comes within OFAC’s

jurisdiction. Reinsurance for the same

service conceivably also would be

within U.S. jurisdiction. While this type

of emergency service is of the type the

agency may license on an expedited

basis, it is not the type of service that

likely would receive advance

authorization from OFAC. It remains

within OFAC’s discretion whether to

pursue an enforcement action against

the reinsurer or insurer in these cases.

Compliance desk: As with the call

centre example, many reinsurers

maintain compliance offices in

multiple jurisdictions to service

underwriters wherever located. If a

compliance function is hosted in the

United States and is designed to

address questions posed from non-U.S.

offices, the compliance officers will

have to be trained to recognize and

recuse themselves from foreign-to-

foreign transactions containing a U.S.

sanctioned-party element. If the

compliance officer were to approve the

transaction, the compliance officer

could be engaged in prohibited

facilitation of a transaction.

Disaster recovery centre/back-upservers: If the reinsurer maintains

disaster-recovery capabilities in the

United States, the disaster recovery

centre in the United States also is

subject to OFAC’s jurisdiction. A strong

argument can be made that non-U.S.

originating and terminating

transactions that (1) involve no U.S.

persons, services or products and (2)

merely flow through or are stored on

the U.S. server are exempt from the

prohibitions in most of OFAC’s

sanctions programmes3 because they

are covered by the Berman

Amendment to the International

Emergency Economic Powers Act and

the Trading With the Enemy Act.4

Nonetheless, the data may be subject to

OFAC’s subpoena authorities.

Cedent, other reinsurer orbroker is a U.S. entityWhen covering risk outside the United

States, a non-U.S. reinsurer may find

OFAC jurisdiction to be present if

another party to the coverage is a U.S.

person. This can occur where the

cedent, other reinsurer or broker to the

coverage is a branch of a U.S. entity or,

in the Cuba context, where any of the

above is a foreign subsidiary of a U.S.

entity. Where a U.S. element is present

and where an OFAC-sanctioned party

is present, the non-U.S. reinsurer may

be asked to cover additional risk or

work with the U.S. parties in advance

of entering into a contract to remove

them from engaging in prohibited

transactions. OFAC has accepted the

recusal process, at least informally, as

a means through which to allow U.S.

persons employed by non-U.S. entities

to navigate often complex business

environments.

For example, if a non-U.S. broker

arranges for four reinsurers to provide

aviation cover and a claim is made

where a European craft damages a

Sudanese airline at an airport in a

In 2011, OFAC published five notices of

civil penalties relating to the (re)insurance

industry (see ‘The cases’ below). The fines

ranged from $22,500 to $122,408. In

each instance, the entity subject to the

fines cooperated with OFAC, instituted

remedial measures, and OFAC deemed the

activity non-egregious. Four of the five

penalties involved coverage relating to Iran

(the fifth involved Cuba); two of the five

entities were brokers; one of the penalty

cases involved the activities of a foreign

subsidiary; two of the cases involved

reinsurance and three involved insurance.

The lessons from these cases are

threefold: (1) Iran remains OFAC’s focus;

(2) OFAC generally will pursue first the U.S.

person for non-egregious sanctions

violations; and (3) OFAC’s focus on the

industry continues to grow.

The cases

According to OFAC’s Civil Penalty Notice

(29 June 2011), GenRe agreed to a

$59,130 penalty for the provision of

reinsurance claim payments to a cedent

relating to losses arising from vessel

operations of the National Iranian Tanker

Company.


center/sanctions/CivPen/Documents/062

92011.pdf.


(26 April 2011), HCC Insurance Holdings

agreed to a $38,448 penalty relating to its

foreign subsidiary’s participation in the

hull portion of a hull and aviation liability

insurance placement relating to coverage

for a non-U.S. owned commercial airline

that leased aircraft to an air charter

company with operations in Iran.



62011.pdf.

According to OFAC’s Civil Penalty Notice (7

April 2011), McGriff, Seibels & Williams

agreed to a $122,408 penalty relating to

the placement of commercial multiple peril

policies to cover a submersible oil rig in

Iranian waters.



72011.pdf.


(31 January 2011), Aon International

Energy agreed to a $36,000 penalty for

the placement of coverage and payment of

premiums for facultative retrocession of

reinsurance associated with a petroleum

project on Kharg Island.



12011.pdf.

According to OFAC’s Civil Penalty Notice (7

April 2011), MetLife agreed to a $22,500

penalty relating to the remittance of a

$30,162 check for death benefit payments

mailed directly to the beneficiary in Cuba.



72011.pdf.

Recent enforcement actions



each of the original insureds. Second,

U.S. reinsurers operating in the

European Union, Canada and Mexico,

among other jurisdictions, are often

faced with an obligation to comply with

the Cuban Assets Control Regulations

(‘CACR’) and the local blocking or

‘antidote’ statute prohibiting

compliance with the same set of

regulations (see box ‘Blocking

statutes’). Third, even where a

reinsurer is willing and able to screen

data provided by a cedent for

compliance with OFAC’s sanctions

regulations, the data is often

unstructured or not sufficient to de-

conflict potential matches to OFAC’s

SDN list.

Complying with OFAC’ssanctions regulationsPerhaps a core problem for U.S.

reinsurers is OFAC’s prohibition on

engaging in a transaction in which a

sanctioned party maintains a property

interest. Property interest is defined

broadly to include any property, real,

personal, or mixed, tangible or

intangible, or interest or interests

therein, present, future or contingent.

(See e.g., 31 C.F.R. §594.309.)

It has been argued that, because the

reinsurer is in privity of contract only

with the cedent and will not always

have access to information relating to

the original insured, (1) the reinsurer’s

obligation is to ensure that the cedent

is not a sanctioned party and (2) it is

the cedent’s responsibility to ensure

the original insured is not a sanctioned

party. OFAC informally has disagreed

with this analysis, asserting that the

original insured maintains an interest,

present, future or contingent in the

contract between the reinsurer and the

cedent. As a result, the U.S. reinsurer is

equally responsible for ensuring the

reinsurance contract and the primary

insurance contract are consistent with

OFAC’s regulations.

OFAC has suggested that a reinsurer

can implement compliance procedures

by, for example, instituting global

sanctions exclusions clauses in

contracts with cedents. While this

option is increasingly possible for U.S.

reinsurers operating on the global

market when complying with the

sanctions targeting global terrorists,

those engaged in the proliferation of

weapons of mass destruction and the

government of Iran, it remains

problematic (as addressed in the next

section) for sanctions targeting the

WorldECR, May 2012) – all of which

provide enforcement authorities to

pursue activities of non-U.S. persons

assisting Iran (and Syria) in various

activities. In addition, CISADA’s

amendments to the ISA and recent

legislation working its way through the

Hill contain specific provisions

regarding insurance services to Iranian

sanction targets. For example, HR

1905, passed by voice vote in the

Senate on 21 May 2012, calls on the

President to block the property of any

person who knowingly provides

(re)insurance on goods that could

materially contribute to activities of the

government of Iran with regard to

weapons of mass destruction or

terrorism. Sanctions can extend to any

successor entity; any person who owns

or controls the (re)insurance company;

or is under ownership or control with

the (re)insurance company.

Particular compliance hurdlesfor reinsurersIt is clear that U.S. reinsurers (i.e.,

those located in the United States or

those reinsurers that are foreign

branches of U.S. reinsurers) must

comply with OFAC’s sanctions

regulations. Non-U.S. reinsurers with a

U.S. nexus also must take into account

OFAC’s jurisdiction to ensure that

business proceeds. Nonetheless, U.S.

reinsurers operating in the global

market and non-U.S. reinsurers

providing services with a U.S. nexus

often face significant compliance

hurdles. First, and perhaps most

importantly, it is often difficult, if not

impossible, for the reinsurer –

particularly where treaty reinsurance is

involved – to know the identities of

person, non-U.S. reinsurers find the

coverage for those U.S. persons (i.e., an

export of a service to a U.S. person)

within OFAC’s jurisdiction – issue

spotting is important to ensure that

potentially problematic transactions

are identified before they are

processed. Nonetheless, OFAC’s focus

for any enforcement action likely will

remain with the U.S. person unless the

non-U.S. parties have engaged in

attempts to evade or avoid U.S.

sanctions. OFAC remains keenly

focused on non-U.S. parties seeking to

evade U.S. (and United Nations)

sanctions targeting the governments of

Iran and Syria. One need only look at

the recent amendments to the Iran

Sanctions Act; section 1245 of the

National Defense Authorization Act of

2012 which sanctioned the Central

Bank of Iran (‘CBI’) and the Iranian

financial sector and authorized the

imposition of sanctions on foreign

financial institutions engaged in

certain transactions with the CBI; and

the most recent ‘GHRAVITY’ executive

orders designed to tackle human rights

abuses by the governments of Iran and

Syria via information technology (see

Links and notes1 OFAC’s sanctions programmes are at: http://www.treasury.gov/about/organizational-

structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx.

‘U.S. person’ is defined under most OFAC sanctions programmes as any United States citizen,

permanent resident alien, entity organized under the laws of the United States (including foreign

branches), or any person in the United States. 31 C.F.R. 560.314. In the Cuban Assets Control

Regulations, 31 C.F.R. Part 515, OFAC also asserts jurisdiction over foreign subsidiaries of U.S.

entities.

2 On 12 June OFAC announced a US$619m with ING Bank. See News this issue.,

See also ABN AMRO Order of Assessment of a Civil Monetary Penalty and Monetary Payment (19

December 2005) available at http://www.treasury.gov/resource-center/sanctions/OFAC-

Enforcement/Documents/amrocmp.pdf.

See also OFAC’s Notice of Civil Penalty, Credit Suisse, available at http://www.treasury.gov/resource-

center/sanctions/OFAC-Enforcement/Documents/12162009_a.pdf.

3 Programmes not promulgated pursuant to the International Emergency Economic Powers Act or the

Trading with the Enemy Act do not contain the same exemptions.

4 The Berman Amendment bars from regulation the exchange of communications or information. See

50 U.S.C. § 1702 and 50 U.S.C. App. § 5(b)(1). OFAC nonetheless has narrowed the scope of the

exemption by requiring that the information be pre-existing.

OFAC has suggested

that a reinsurer can

implement compliance

procedures by, for

example, instituting

global sanctions

exclusions clauses in

contracts with cedents.



government of Cuba. For example, as a

result of U.S. and EU sanctions

targeting Iran, very few global

(re)insurers provide coverage where

there is a risk that an Iranian vessel or

a vessel carrying Iranian crude or

petrochemicals may be involved. To

illustrate, Lloyds Register, a leading

maritime risk-management firm, has

shut its operations in Iran in response

to U.S. and EU sanctions. Additionally,

as a result of the EU sanctions targeting

Iran’s petrochemical sector, there is a

shortage of (re)insurers capable or

willing to provide coverage for ships

operating in that market.

Sanctions screeningA U.S. reinsurer (or a reinsurer

processing a transaction within OFAC’s

jurisdiction) is expected to screen

against the SDN list premium and

claims payments to ensure that no funds

are flowing to or from a sanctioned

party. This step also is practical because

any financial institutions involved in

processing the payments will most

certainly be screening against the SDN

list if the payment is denominated in

U.S. dollars or otherwise involves a U.S.

person. U.S. reinsurers (and, where

appropriate, non-U.S. reinsurers) also

should screen cedents, brokers and

other identified parties against the SDN

list.

The difficulty in screening arises

with treaty reinsurance where a cedent

will often receive a bordereaux or other

data relating to the insured’s – but it

will either be in an unstructured and

difficult-to-screen format or will not

contain sufficient identifying

information (first and last name,

address, date of birth, nationality,

passport or tax identification number)

to de-conflict a potential match to

OFAC’s SDN list. For example, if a

reinsurer were to screen data in a

bordereaux containing ‘Jose Gonzalez’,

the reinsurer would find six matches on

the SDN list. Without other identifying

information, the reinsurer cannot rule

out that an SDN is a party to the

underlying coverage. If the reinsurer

has screened the data and identified a

potential match but has no other

identifying information, it is difficult to

say that screening appropriately

mitigates a risk. While OFAC and more

traditional financial institutions have

come to rely heavily on OFAC

screening, it is merely one available

compliance tool – and may not be best

suited for treaty reinsurance.

General compliance obligationsAs addressed above, while screening is

a compliance tool, other tools are

available, including sanctions

exclusions clauses and appropriate

training for underwriters, agents and

brokers. If there is potential for

exposure to blocking statutes, the U.S.

party should be prepared to instruct

the party in the blocking statute’s

jurisdiction to comply with the CACR

and should be prepared for the

appropriate response. In particularly

sensitive scenarios, it also may be

appropriate to engage relevant officials

from the blocking jurisdiction and from

within Treasury and State to address

potential solutions before the matter is

escalated to an enforcement action or

plays itself out in the press. Finally,

given the complexity of the reinsurance

industry and the numerous scenarios

for potential sanctions exposure that

often arise unexpectedly, it often helps

to engage in open discussions within

the industry and to include OFAC when

addressing potential compliance

solutions.

A non-U.S. reinsurer also should

conduct an OFAC risk assessment to

determine potential for exposure to an

(1) OFAC-touch point and (2) OFAC-

sanctioned party. It may be appropriate

to focus the risk analysis to identify

higher risk coverage. Given OFAC’s

focus on Iran and the issues addressed

above, the following coverage should

be identified as higher risk:

l Oil and gas, petrochemicals

l Aviation

l Maritime

l Political risk

l International group life policies

l Premiums and claims reported on a

bulk report.

Where a non-U.S. reinsurer

employs U.S. nationals, the U.S.

nationals should be subject to a formal

recusal policy. Where transactions are

denominated in U.S. dollars, the

transactions should be screened before

the payment is remitted or received.

Where a reinsurer uses U.S. services

(including a compliance desk), it may

be helpful to screen the transactions for

a potential OFAC-sanctioned party

nexus before using the service. Perhaps

most important, relevant employees

(underwriters, accounts payable/

receivable, agents) should be trained to

identify OFAC touch-points and OFAC-

sanctioned parties. Finally, as part of

the training, the reinsurer should

maintain a clear formal escalation

procedure outside of the United States

to address potential sanctions issues.

The U.S. and non-U.S. reinsurer

also should document the risk

assessment and steps taken to mitigate

identified risks. Documents relating to

OFAC compliance should be

maintained for at least five years. These

documents include training materials,

screening results, and transactions

with a U.S. nexus. Finally, written

procedures for compliance should be

approved by management and

available to relevant employees.

Cari N. Stinebower is counsel inCrowell & Moring’s internationaltrade practice group in the firm’sWashington, D.C. office.

[email protected]

In response to the extraterritorial

jurisdiction of OFAC’s Cuba sanctions

programme, the European Union and

Canada, among others, have instituted

blocking or antidote laws that prohibit

nationals as well as companies

established in these countries (including

subsidiaries of U.S. entities) from

complying with the extraterritorial

components of the CACR and its

underlying statutes. (See EU Regulation

271/96 (22 Nov 1996) and the Foreign

Extraterritorial Measures Act of 1992.)

As a result, a reinsurer operating in

multiple jurisdictions may find that it is

required to reject coverage under U.S.

law and prohibited from doing so under

local law. For example, a U.K. subsidiary

of a U.S.-based reinsurer should expect

instructions from its parent to comply

with applicable U.S. laws and

regulations. Under U.K. law, the U.K.

subsidiary may find that it is prohibited

from refusing Cuban-related business.

Options for proceeding are not entirely

satisfactory. For example, the U.S.

parent could request authorization from

OFAC to proceed with the coverage – but

success is not guaranteed. It is also

possible that the act of requesting

approval from OFAC to proceed also

could be viewed as a violation of the UK

blocking statute.

Blocking statutes

Southeast Asia Southeast Asia


Southeast Asia is an essential

part of the global trade system.

Through this region flows a

significant amount of the world’s

ocean-going cargo; seven Southeast

Asian ports are ranked in the top 50

worldwide, including second-placed

Singapore with a volume of 28 million

TEUs in 2010. In 2010, the economies

of the Association of Southeast Asian

Nations (‘ASEAN’) traded U.S.$1

trillion in commodities and

experienced a steady rise in both

imports and exports.As economic development and

integration in the global trade system

continues, Southeast Asian states will

play an ever-larger role in the trade of

sensitive, high-tech commodities –

both as customers and as

manufacturers. This increase in the

presence of dual-use items highlights

the need for strengthened trade

security systems within the region.

Southeast Asian countries have been

used in the past as transhipment and

manufacturing hubs for sensitive

materials related to the development of

weapons of mass destruction (‘WMD’).

Most notoriously, the nuclear

smuggling network of Pakistani

scientist AQ Khan employed a

Malaysian-based firm to manufacture

centrifuge parts for Libya’s nuclear

weapons programme and utilized ports

in the region to tranship sensitive

commodities. Apart from the Khan

network, illicit procurement efforts by

Iran and North Korea have made use of

lax enforcement in Southeast Asian

ports to obtain controlled dual-use

commodities, possibly for their nuclear

and missile programmes.

After the AQ Khan network was

publicly revealed in 2004, the United

Nation Security Council (‘UNSC’)

passed a resolution obligating all

member states to control the trade in

dual-use sensitive materials. UNSC

Resolution 1540 (‘UNSCR 1540’) has

been the basis of international

cooperation and engagement on

strategic trade controls since its

adoption in April 2004. In April 2011,

the resolution was renewed for another

decade, indicating the importance that

the international community places on

the control of WMD-related materials.

Many Southeast Asian countries

were initially sceptical about UNSCR

1540 and considered it to be an

unfunded mandate imposed by more

developed states – particularly

permanent members of the Security

Council like the United States and the

United Kingdom.1 This scepticism has

been somewhat mollified by countries

that supported UNSCR 1540 (like the

U.S., Japan and the EU) offering

assistance to countries in Southeast

Asia and elsewhere struggling with

meeting UNSCR 1540 mandates. This

suggestion of states assisting states in

meeting their obligations is alluded to

in the resolution, and the 1540

Committee, which is tasked to oversee

the implementation of the resolution,

has tried to be a clearing house for

offers of and requests for assistance.2

Many policy-makers in Southeast

Asia have argued that since their

countries do not have WMD

programmes of their own and have not

previously manufactured sensitive

dual-use materials that the imposition

of strict export controls would be

detrimental to the economic

development of their countries.

Southeast Asian countries (with the

clear exception of Singapore) have

consistently viewed with distrust the

multilateral export control regimes

(‘MECRs’) such as the Nuclear

Suppliers Group (‘NSG’), the Missile

Technology Control Regime (‘MTCR’),

the Australia Group (‘AG’) and the

Wassenaar Arrangement (‘WA’),

viewing them as cartels. However,

since UNSCR 1540 was enacted and

the notion of strategic trade controls

has gained more wide spread

acceptance, these organizations and

the control lists they support have

gradually been seen as tools that can

assist with facilitating safe trade, and

thus not necessarily hindrance to

trade.

This change in perception of trade

controls has been occurring, although

Trade controls in Southeast Asia:taking a regional approach

The effectiveness of strategic trade controls in Southeast Asia varies wildly fromcountry to country yet their governments are expected to play an increasinglyimportant part in non-proliferation efforts. Stephanie Lieggi examines controls asthe region against the backdrop of burgeoning trade and consumerism and callsfor internationational cooperation in the fight against terrorism.



an effective training program for all

relevant employees.

In November 2011, Malaysia’s

president cited the STA as a tool that

Malaysia would use to stop its ports

being used as an illicit trafficking hub.

Mohamed Shahabar Abdul Kareem

was appointed strategic trade

controller in August 2011 and has been

an active spokesperson for Malaysia’s

efforts. He has readily admitted in

public statements that fully

implementing the controls in Malaysia

will be difficult, since many of the

concepts related to the control of

strategic trade are new to Malaysian

officials.

Officials from assisting states –

including the United States – have

commented that there appears to be

significant political will in Kuala

Lumpur to see the strengthening of its

strategic trade control system.

However, a number of obstacles

remain. The STA is very complex –

including issues related to intangible

technology transfers and ‘catch-all’

controls. These highly technical

features, mixed with the relative lack of

training for officials dealing with these

issues in Malaysia, has hindered full

implementation of the law. Although

the Malaysian government appears

supportive, other stakeholders remain

sceptical – including business interests

who still see the law as hindering trade.

Vietnam: keeping its record clean Unlike Malaysia, Vietnam4 has not had

a history of being used by illicit

trafficking networks related to WMD or

missile technology (although Vietnam

does have experience with dealing with

illicit drug networks.) As their economy

grows and their ports increase in size,

officials in Hanoi are concerned that

WMD-related traffickers will target the

country. Despite this concern,

bureaucratic inertia and lack of proper

training for those most involved in the

enforcement of trade controls has

meant that very little solid movement

has been made to strengthen related

legislation.

Since the passage of UNSCR 1540 in

2004, Hanoi has made some efforts to

increase its ability to control sensitive

exports through enacting stricter

regulations. For instance, Vietnam

passed its ‘Law on Technology

Transfer’ in 2006, which, in part,

restricts the transfer of certain

technologies for reason of national

security and in support of complying

at a relatively slow pace, in many of the

major economies of ASEAN. Buoyed by

outreach efforts of supplier countries

and the 1540 Committee, some policy-

makers are viewing the strengthening

of their ability to manage sensitive

trade as important for distinguishing

their country as a mature trading

partner. This article reviews and

assesses the current systems in three

significant growing economies within

the region – Malaysia, Vietnam and

Indonesia. These countries represent

the wide range of systems in the region

and the different policies aimed at

moving the issue forward at the

domestic level. Additionally, it will look

at how the main regional groups –

ASEAN, the ASEAN Regional Forum

(‘ARF’), and Asia-Pacific Economic

Cooperation (‘APEC’) – could

effectively play a role in strengthening

strategic trade controls across the

region.

Malaysia: moving forward The role Malaysian entities played in

the activities of the AQ Khan illicit

trafficking network was made public in

2004 after the interception of a

shipment of gas centrifuge parts en

route to Libya. Components for these

centrifuges had been manufactured by

the Malaysian firm SCOPE under the

guidance of Sri Lankan businessman

and close Khan confidant, B.S.A. Tahir.

SCOPE employees and managers did

not appear to be knowingly assisting

the Khan network and most reports

indicate that they believed they were

manufacturing components for the oil

and gas industry. Although no

Malaysian citizens appear to have been

directly implicated as having

contributed to the network’s activities

the weakness of the Malaysian export

control system was placed under

intense scrutiny.

Despite outside pressure, Malaysia

initially resisted calls to strengthen its

trade control system. In its 2004 report

related to implementation of UNSCR

1540, Kuala Lumpur stated that it had

sufficient controls in place and it did

not need assistance from outside

countries. Ignoring the problem

however did not make it go away, and

Malaysia was soon seen as the venue of

choice for illegal trafficking, especially

as the UAE (Dubai) bent to pressure

from the U.S. to improve its controls.

Middlemen working out of Malaysia,

particularly those with business ties to

Iran (and in some cases North Korea)

exploited the lack of transhipment and

brokering controls.3

As more attention was given to

incidences involving Malaysian ports

or brokers, and as the leadership in

Kuala Lumpur became concerned

about its reputation, Malaysian

authorities began to work more closely

with international partners on

improving their trade control system.

In April 2010, Kuala Lumpur

announced the passage of the Strategic

Trade Act (‘STA’), followed in

December 2010 by the publishing of

regulations for the new law (see

WorldECR, March 2011). The STA

provided a stronger legal basis for

Malaysia’s control of strategic dual-use

materials and curbing the use of

Malaysian ports for illicit trafficking.

The STA established controls over

brokers and on commodities transiting

or transhipping Malaysian ports. The

penalties, at least on paper, were severe

– including the death penalty ‘where

death is the result’ of the criminal act.

The main implementing body, the

Strategic Trade Control Secretariat

released guidelines in April 2011

requiring Malaysian entities who wish

to ship sensitive materials using bulk or

multi-use licences to establish an

internal compliance programme

(‘ICP’). The ICP should include, among

other items: the appointment of a

designated company manager

responsible for trade compliance; the

creation of a clear set of compliance

procedures and a transparent reporting

system; a system capable of timely

screening of customers; regular audits

of export compliance procedures; and

Despite outside pressure,

Malaysia initially resisted

calls to strengthen its trade

control system.



operational nuclear power plant. As

Vietnam’s need for sensitive dual-use

materials increase, so, too, will the

scrutiny placed on its trade control

system by international suppliers.

Another significant deficiency – and

one that is apparent throughout

Southeast Asia – is the lack of

awareness within government and

industry about how domestic assets

could be used for nefarious purposes.

Some Vietnamese officials recognize

that with the rapid growth in their

economy, which includes a significant

growth in small and medium-size

enterprise, their current lack of trained

enforcement staff and their deficiencies

in industry outreach will have a major

impact on their ability to control

strategic trade in the future.

In order for Vietnam to improve its

strategic trade controls, training of

relevant personnel, improved industry

outreach and a more effective

regulatory framework is clearly needed.

Although international assistance has

been helpful in these areas, more

concrete action still needs to come

from the Vietnam’s leadership in way

of legislation – particularly the

instalment of control lists and

guidelines that meet international

standards.

Indonesia: starting from(almost) zeroSimilar to Vietnam, Indonesia is

seriously lacking in regulations related

to the control of sensitive dual-use

materials. Indonesia has in the past

been critical and distrustful of export

control regimes. Many Indonesian

officials continue to view their

domestic industry as not advanced

enough to require strict controls and

therefore see strategic trade controls as

undue restriction that will hinder their

economic progress. In its reporting to

the 1540 Committee in 2004 and 2005,

Indonesia appears sceptical about the

need for extensive trade controls.

The legal structure that regulates

Indonesia’s trade is a patchwork of

with international obligations (like

UNSCR 1540.) Hanoi has also reached

out to international partners for

assistance in improving their strategic

trade control system. In its most recent

report to the 1540 Committee,

submitted in 2008, Hanoi directly

requests assistance with acquiring

equipment meant for improving its

customs agency’s ability to undertake

risk management, and relevant

training for its strategic trade control-

related personnel.

Vietnam has yet to enact an

overarching law (such as Malaysia’s

STA) that would help to clarify lines of

authority and what commodities are

controlled. As a result of the absence of

clear rules for administering its trade

control system, Vietnam lacks ‘catch-

all’ controls and still has weak controls

for transhipments and brokering.

Hanoi also does not have control lists

that closely match multilateral export

control regimes. According to experts

who have discussed the issue with

Vietnamese officials, concepts like

‘dual-use’ remain unclear to many

officials across the varied agencies that

implement parts of the existing trade

control system. The deficiencies in

Vietnam’s system may continue for

some time, as the current bureaucracy

appears unable to formulate an

effective system.

The effort by some in Vietnam to

implement international agreements

like UNSCR 1540 is in part due to a

desire to have wider access to high

technology, particularly technology

related to nuclear power development.

Vietnam is expected to be the first

Southeast Asian country to have an

Links and notes1 Tanya Ogilvie-White, ‘Facilitating Implementation of Resolution 1540 in South-East Asia and the South

Pacific,’ Implementing Resolution 1540: The Role of Regional Organizations (UNIDIR 2008),

http://www.unidir.org/pdf/articles/pdf-art2745.pdf.

2 See the Assistance page on the 1540 Committee website at

http://www.un.org/en/sc/1540/assistance/general-information.shtml.

3 Justin Blum, ‘Iran Gains U.S. Military Technology through Malaysia Middlemen’, Bloomberg News, 14

September 2009, www.bloomberg.com; see also Stephanie Lieggi and Richard Sabatini, “Malaysia’s

Export Control Law: A Step Forward, But How Big?” Issue Brief, Nuclear Threat Initiative website, May

10, 2010, http://www.nti.org/analysis/articles/malaysias-export-control-law/.

4 Many of the details from this section come from field research undertaken by my colleague Robert

Shaw in Vietnam and elsewhere in 2011 and 2012. Much of his research is available in the May 2012

report on the James Martin Center for Nonproliferation Studies (CNS) website entitled 'Prospects for

Nuclear Security Partnership in Southeast Asia.'

http://cns.miis.edu/opapers/pdfs/120515_seasia_nuclear_security_partnership.pdf

5 For more on Indonesia’s recent efforts in non-proliferation, see Stephanie Lieggi, ‘The Nonproliferation

Tiger: Indonesia’s Impact on Nonproliferation in Asia and Beyond,’ Issue Brief, Nuclear Threat Initiative

website, 5 March 2012, http://www.nti.org/analysis/articles/nonproliferation-tiger-indonesias-impact-

nonproliferation-asia-and-beyond/.

6 Togzhan Kassenova, ‘1540 in Practice: Challenges and Opportunities for Southeast Asia,’ Policy

Analysis Brief, Stanley Foundation, May 2011,

http://www.stanleyfoundation.org/publications/pab/KassenovaPAB611.pdf.

7 The text of the SEANWFZ treaty (the Bangkok Treaty) is available at

http://www.aseansec.org/5181.htm; also see ‘Southeast Asia Nuclear-Weapon-Free Zone Treaty

(Treaty Of Bangkok),’ Inventory of International Nonproliferation Organizations & Regimes, CNS

website, last updated 24 July 2011; and Peter Crail and Xiaodon Liang, ‘Southeast Asia Nuclear-

Weapon-Free Zone and the Nuclear-Weapon States,’ Asia Pacific Bulletin, No. 148,

http://www.eastwestcenter.org/print/33289.

8 See ‘Hanoi Plan of Action,’ ASEAN website, http://www.aseansec.org/8754.htm.

9 See the 2001 APEC’s Leaders Statement on Counter-Terrorism at http://www.apec.org/en/Meeting-

Papers/Leaders-Declarations/2001/2001_aelm/statement_on_counter-terrorism.aspx and 2002

Statement on Fighting Terrorism and Promoting Growth at http://www.apec.org/en/Meeting-

Papers/Leaders-Declarations/2002/2002_aelm/statement_on_fighting.aspx.

10 See the CTTF page on the APEC website, http://www.apec.org/Home/Groups/SOM-Steering-

Committee-on-Economic-and-Technical-Cooperation/Task-Groups/Counter-Terrorism-Task-Force.aspx.

11 See STAR programme webpage on APEC website, http://www.apec.org/Groups/SOM-Steering-

Committee-on-Economic-and-Technical-Cooperation/Task-Groups/~/link.aspx?_id=2C2CB779DA304

8879AEA788578166AF6&_z=z

Vietnam has yet to enact an

overarching law (such as

Malaysia’s STA) that would

help to clarify lines of authority

and what commodities are

controlled.



and disarmament issue – has

expressed greater acceptance of the

need for international standards for

controlling dual-use materials. This is

coupled with Indonesia’s positive

momentum in the area of non-

proliferation over the last year,

including the country’s long-awaited

ratification of the Comprehensive Test

Ban Treaty (CTBT). 5 The new attitude

toward issues like strategic trade

controls should allow Jakarta to be

more accepting of cooperation with

international partners – like the 1540

Committee, the U.S. and Japan – on

efforts to establish a strategic trade

control system that can effectively deal

with Indonesia’s diverse domestic

needs.

Regional organizations: time toplay a partWhen the Security Council renewed

UNSCR 1540 in April 2011, one area

receiving special attention was the role

of regional organizations in the

strengthening of the resolution’s

implementation. In particular, the

Security Council urged the 1540

Committee to engage actively with

regional organizations ‘to promote the

sharing of experience, lessons learned

and effective practices’ in the

implementation of the 1540 mandate.

In Southeast Asia, regional

organizations like ASEAN, ARF and

APEC continue to be under-utilized in

the strengthening of strategic trade

controls or UNSCR 1540

implementation in the region.6

However, each of these organizations

has undertaken related activities that

could serve as models for regional

cooperation in the area of non-

proliferation trade controls.

Although most ASEAN member

states were not enthusiastic about the

passage of UNSCR 1540, over the last

few years, policy-makers (as was

evident in Indonesia) have been more

accepting of the need for increased

attention to 1540 implementation. The

ASEAN officials note that the

organization takes a ‘soft’ approach to

1540 implementation by supporting the

resolution in official statements, but

without backing any significant

practical steps. ASEAN in general is

hesitant to press for direct action that

might affect states’ domestic legislation,

which has been seen as a hurdle for the

organization’s ability to promote the

issue widely in the region. However,

ASEAN activities can also be positively

rules, most unrelated to concerns

about WMD proliferation. While

Indonesia’s current production of

sensitive dual-use materials is limited,

this is likely to change as the country’s

industrial base expands. Indonesia

already produces components for the

oil and gas industry that have dual-use

implications in the nuclear sector. The

country has a burgeoning nuclear

industry, which may soon include

sensitive nuclear materials and other

technologies dual-use in nature. As

with Vietnam, Indonesia has the

potential for becoming a key

transhipment point for illicit

trafficking, particularly as countries

like Malaysia increase their capacity to

detect and control the transfer of dual-

use materials and traffickers must look

elsewhere.

Indonesia’s enforcement capabil -

ities are weak and the system lacks

awareness, training, and equipment for

detecting illicit WMD-related goods.

Customs officials have not been trained

to identify proliferation-sensitive

materials, nor are they on any special

alert to pay attention to such materials

leaving the country. From my own

discussions with Indonesian customs,

it is clear that customs lacks any

mandate to undertake investigations

related to the smuggling of strategic

goods.

Although political and capacity

issues are major challenges to Jakarta’s

ability to control strategic trade,

Indonesia’s geography makes any

efforts being taken even more difficult.

The country is made up of over 17,000

islands and its borders are porous and

largely uncontrolled. There are

numerous incidents of piracy and

smuggling in nearby waters, and a

number of known terrorist

organizations operating in the country

(such as Jemaah Islamiyah) could have

the intent or the means to facilitate

WMD proliferation. The presence of

piracy, terrorist groups and an

increasingly sophisticated industrial

base means that the strengthening of

Indonesia’s trade control system is

becoming increasingly important to the

international non-proliferation regime.

Recent discussions with Indonesian

officials do indicate some weakening of

earlier scepticism, particularly in

regards to implementation of UNSCR

1540. Indonesia – traditionally a

regional leader on non-proliferation

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these reports to monitor member

economies’ activities and assess their

progress in counter-terrorism.

Since the passage of UNSCR 1540, a

number of APEC countries have cited

the resolution in the CTAP; however,

the CTTF has not overtly connected its

work with that of 1540. APEC also

administers the Secure Trade in the

APEC Region (‘STAR’) programme

which aims to secure and facilitate the

flow of goods and people.11 The target

audience for this programme is actors,

including in the private sector, dealing

directly with supply chain security and

aims to help these actors identify

potential weak points in the system. In

this programme, and others related to

securing trade in the APEC region, the

member states show clear recognition

that the threat of terrorism is bad for

business. However, a number of APEC

participants – including ones that are

also members of ASEAN – remained

concerned about the regional

organization becoming too focused on

security, to the detriment of promoting

economic development.

ConclusionThe effectiveness of strategic trade

controls in Southeast Asia is an

increasingly essential part of the

overall international non-proliferation

regime and efforts to secure global

trade. As is evident from the three case

studies above, the state of trade

controls in the region are mixed and

have much room for growth and

improvement. Many states are

cooperating with international

partners to increase their capacity in

this area, but the efforts remain in a

formative stage. The international

community and regional actors would

do well to look to regional

organizations like ASEAN, ARF and

APEC to share relevant knowledge and

best practices. This type of regional

cooperation is critical for assisting

Southeast Asian states in creating

strategic trade control systems that will

fit their domestic needs in the years to

come.

influenced by a member state taking the

lead on an issue – in this instance a

country like Malaysia who could be a

model for other members to follow.

The ASEAN Secretariat,

headquartered in Jakarta, has been

active in promoting non-proliferation

initiatives in the region, most

significantly the creation of the

Southeast Asian Nuclear Weapons Free

Zone (‘SEANWFZ’), which all ASEAN

members have joined.7 SEANWFZ

includes a call for countries to

strengthen their nuclear-related

safeguards commitments with the

International Atomic Energy

Association, including ratification of

the Additional Protocol (‘AP’). The

ASEAN Convention on Counter -

terrorism (‘ACCT’), which came into

force in 2011, has relevance to the issue

of strategic trade controls, including

preventing terrorist financing and

increasing relevant border/customs

control.

The ARF – the larger outgrowth of

ASEAN – has taken a more active role

than its parent organization in

promoting trade controls and 1540

implementation. Staff from the ASEAN

secretariat – who also administer the

activities of ARF – generally point to

the forum as the best mechanism for

these sort of efforts due the presence of

‘major powers’. ARF has already shown

support of UNSCR 1540 through

establishment of inter-sessional

meetings (‘ISM’) on non-proliferation

and disarmament, which have

consistently discussed challenges to

domestic 1540 implementation and

proposals for promoting the resolution

in the region. As part of the 2009 ISM,

ARF participants were presented with

the ‘Memorandum on the Guidelines

for Managing Trade of Strategic

Goods’, prepared by the Council for

Security Cooperation in the Asia Pacific

(‘CSCAP’), a network of non-

governmental organization. Many ARF

participants reportedly used this

document as a basis for improving the

capacities of their systems.

At the July 2010 ARF meeting in

Hanoi, the forum participants adopted

the Hanoi Plan of Action (‘PoA’) which

includes policy guidance aimed at

increasing cooperation in certain

security-related areas. These areas

include counter-terrorism, trans -

national crime, maritime security,

non-proliferation and disarmament.

According to the PoA, by 2020 ARF

should have in place a network of law

enforcement and military agencies for

capacity-building, information sharing

to respond timely to relevant threats.8

ARF has the potential to play a

much more active role in strengthening

trade controls, particularly as existing

mechanisms could assist in the sharing

of regional expertise and promote

greater levels of cooperation. However,

ARF has many of the problems present

in its parent organization ASEAN, such

as the limitation of resources (as seen

through the reliance on ASEAN’s

secretariat for general support) and the

fact that ARF still must follow the

consensus-based tradition of ASEAN.

Unlike ASEAN and ARF, APEC has

an established linkage to the private

sector that would be beneficial for

efforts to reach industry and

strengthen awareness of strategic trade

controls. APEC has recently given

much focus to preventing terrorist

activities from harming trade and

security within the APEC region. Since

2001, APEC has increased its activities

related to counter-terrorism and secure

trade, and particularly taken aim at

preventing non-state actors from

harming the supply chains of member

economies.9

APEC’s counter-terrorism task force

(‘CTTF’) assists member to identify and

assess counter-terrorism needs

and to coordinate capacity-building

programmes. A major component of

CTTF’s work relates to the counter-

terrorism action plan (‘CTAP’), which

each member economy provides to the

task force detailing the counter-

terrorism measures undertaken

domestically.10 The task force uses

The international community

and regional actors would do

well to look to regional

organizations like ASEAN, ARF

and APEC to share relevant

knowledge and best practices.

Stephanie Lieggi is a seniorresearch associate at the EastAsia Nonproliferation Programat the James Martin Center forNonproliferation Studies (CNS).

[email protected]

Philippines Philippines


As a general rule, the Philippines

eschews export prohibitions

but respects its international

obligations.

This principle was enshrined in

executive order (‘E.O.’) no. 1016

‘Withdrawing the Inspection,

Commodity and Export Clearance

Requirements on Philippine Exports’,

signed by then president Ferdinand

Marcos on 25 March 1985. The E.O.

dispensed with ‘all inspection,

commodity and export clearance

requirements’ on Philippine

commodity exports except for:

l those required as a result of the

existence of import quotas in other

countries;

l those covering items which are

banned for export;

l those covering exports of logs,

copper and coffee; and

l those covered by international

agreements to which the

Philippines is a signatory.

E.O. 1016 established an inter-

agency committee (‘IAC’) – composed

of the representative of the Ministry of

Trade and Industry, as chairman, and

the representatives of the ministries of

finance and budget, the Central Bank,

and the National Economic and

Development Authority, as members –

to consider the reinstatement of such

clearance requirements. The IAC

periodically updates the list of

prohibited and regulated exports of the

Philippines, with the last update in

November 2011. The list was then

officially incorporated in relevant

national regulations, particularly in

relation to customs and banking

transactions.

Meanwhile, presidential decree

(‘P.D.’) no. 930 ‘Simplifying Export

Procedures and Documentation’,

originally signed on 13 May 1976 assigns

government offices and agencies to

process specific export clearances,

standardize export documents, and

provide for periodic clearances. Its

implementing rules and regulations are

adjusted periodically as new laws and

regulations come into effect.

Prohibited and regulated exportsThe Philippines prohibits the export of

certain products as shown in the table

‘Prohibited exports’ along with their

legal bases.

There are terrestrial, aquatic and

marine flora and fauna covered by the

Convention on International Trade in

Endangered Species (‘CITES’) and

Philippine resource conservation laws

the export of which are regulated.

These lists are frequently updated; for

example, the Bureau of Fisheries and

Aquatic Resources (‘BFAR’) recently

reissued the ban on the exportation of

elvers (young eel). Additional exports

regulated other than through these

conventions and regulations are shown

in the table ‘Regulated exports’, again

with their legal bases.

The updated list of prohibited and

regulated exports is available at the

Export Development Council website.1

It is also included as table AIII.6 in the

report of 20 and 22 March 2012 Trade

Policy Review of the Philippines by the

World Trade Organization.2

Export controls in the Philippines

are clearly characterized by control,

regulation, and licensing activities that

deal with prohibited or regulated items

and that are being implemented by

different government agencies. The

system is not comprehensive enough to

cover all the controlled items listed

under international export control

regimes such as the Nuclear Suppliers

Group, the Missile Technology Control

Regime, the Australia Group, and the

Wassenaar Arrangement, particularly

those for dual-use goods control.

International prohibitions andregulationsIt is also clear from the lists of

regulated exports that Philippine

export controls involve the usual

international conventions. In relation

to international agreements on

weapons of mass destruction (‘WMD’),

the Philippines is a founding member

of the United Nations. In fact, the

Philippines, as vice-chairman of the

1540 Committee, helped in the passage

of UN Security Council Resolution

1540 on 28 April 2004 and called on all

members to join the Weapons of Mass

Destruction Convention. The country is

Export controls initiatives in the Philippines

The Philippines’ commitment to its international obligations and a belief that certain industry sectors will benefit from increased investment underpins current developing trade control efforts. Gerry Anigan examines the current controls regime and outlines the shape of controls to come.

The system is not

comprehensive enough

to cover all the

controlled items listed

under international

export control regimes,

particularly those for

dual-use goods control.

Links and notes1 http://edc.net.ph/downloads/Prohibited_Regulated_Prod_4exports.pdf2 http://www.wto.org/english/tratop_e/tpr_e/tp361_e.htm3 Source: Inventory of International Nonproliferation Organizations and Regimes, Center

for Nonproliferation Studies, Last Updated: 11/19/2010

http://cns.miis.edu/inventory/pdfs/philippines.pdf



also a member of the International

Atomic Energy Agency (‘IAEA’) and the

Organization for the Prohibition of

Chemical Weapons (‘OPCW’). It sits in

the preparatory commission of the

Comprehensive Nuclear-Test-Ban

Treaty Organization.

The Philippines is also a state party

to the following WMD-related treaties

and agreements:

Nuclearl Nuclear Non-proliferation Treaty

l Comprehensive Nuclear Test Ban

Treaty

l Partial Test Ban Treaty

l IAEA Safeguards Agreement

l IAEA Additional Protocol

l Nuclear Safety Convention

l Joint Spent Fuel Management

Convention

l Convention on the Physical

Protection of Nuclear Material

l Southeast Asian Nuclear-Weapon-

Free-Zone Treaty (Bangkok)

Chemical and biologicall Chemical Weapons Convention

(‘CWC’)

l Biological and Toxin Weapons

Convention

l Geneva Protocol

WMD delivery systemsl International Code of Conduct

against Ballistic Missile. 3

In addition, the Philippines is a

member of:

l Organization for Prohibition of

Chemical Weapons

l International Atomic Energy

Agency

l Preparatory Commission for the

Comprehensive Nuclear-Test-Ban

Organization (‘CTBTO’)

l Hague Code of Conduct

The Philippine constitution places

high priority on disarmament and non-

proliferation. Specifically, section 2 of

article II – Declaration of Principles

and States Policies of the 1987

Philippine Constitution states that ‘the

Philippines renounces war as an

instrument of national policy and

pursues a policy of freedom from

nuclear weapons in its territory’. Other

supporting provisions can be found

under sections 5 and 8 of the same

article which states that ‘the

maintenance of peace and order, the

protection of life, liberty, and property,

1) Gold from small-scale mining or panned

gold

2) Selected aquatic fauna – e.g., live mud

crabs, shrimps, prawns -- and marine

wildlife – e.g., corals, seahorses, manta

ray, certain sea snakes and sharks,

cetaceans, milkfish fry, fingerlings and

mother fish, certain shells and clams

3) Saba banana (Musa paradisiaca)

planting materials

4) Abaca and ramie seeds, seedlings,

suckers and root stocks; buri seeds and

seedlings

5) Mangrove ‘Bakawan’; Monkey pod

‘Acacia’; Raw rattan including poles;

round logs, poles and piles including

log core and flitches/railroad ties

produced from naturally grown trees

both from the forestlands and private

lands

6) Stalactites and stalagmites

7) Selected terrestrial wildlife species

whether live, stuffed or by- products:

e.g., certain birds, butterflies, orchids,

mammals, reptiles

8) Matured coconuts and coconut

seedlings

Republic Act (‘R. A.’) No. 7076 ‘People’s

Small-Scale Mining Act of 1991’ (27 June

1991).

Convention on International Trade in

Endangered Species (‘CITES’)

R. A. No. 8550 ‘The Philippine Fisheries

Code of 1998’ (25 February 1998).

P.D. No. 704 ‘Fisheries Decree of 1975’

(16 May 1975)

Bureau of Plant Industry (B.P.I.) Quarantine

Administrative Order No. 4, Series of 2005

R.A. No. 4666 ‘An Act prohibiting the

exportation of Fibers (Buntal) or Filaments

of the Plant commonly known as ‘Buri’ or

seeds or seedlings thereof … ‘ (18 June

1966)

R.A. No. 925 ‘An Act amending Act

Numbered Thirty-Two Hundred Fifty-One,

entitled An Act to Prohibit the Exportation

to Foreign Countries of Seeds of Abaca and

its derivatives’ (20 June 1953);

E.O. No. 23 ‘Moratorium on the cutting and

harvesting of Timber in the natural and

residual forests’ (1 February 2011)

R. A. No. 7161 ’An Act incorporating certain

sections of the National Internal Revenue

Code of 1977, as amended, to P.D. No.

705, as amended, other-wise known as the

‘Re-vised Forestry Code of the Philippines’

…’ (10 October 1991).

Revised Rules and Regulations

Implementing P. D. No. 930

R. A. No. 9072 ‘National Caves and Cave

Resources Management and Protection

Act’ (8 April 2001)



CITES

R. A. No. 9147 ‘Wildlife Resources

Conservation and Protection Act of 2001’

(30 July 2001)



P.D. No. 1644 “Granting Additional Powers

to PCA” (October 4, 1979)

R. A. No.1145 “An Act Creating the

Philippine Coconut Administration” (17

June 1954)

Prohibited exports

and the promotion of the general

welfare are essential for the enjoyment

by all people of the blessings of

democracy’ and ‘the Philippines

consistent with the national interest,

adopts and purses a policy of freedom

from nuclear weapons in its territory’,

respectively.

The country also has strong nuclear

non-proliferation foreign policy

initiatives. Former president Gloria

Macapagal-Arroyo attended the 2010

Nuclear Security Summit held in

Washington D.C. on 12 and 13 April

2010. The Philippines, with the rest of

ASEAN agreed in November 2011 on

Philippines

32 WorldECR

the Southeast Asia Nuclear Weapon

Free Zone (‘SEANWFZ’) proposal with

nuclear weapon states – the United

States, the United Kingdom, France,

Russia and China. President Benigno

Aquino III designated vice-president

Jejomar Binay to represent him at the

2012 Nuclear Security Summit held in

South Korea on March 26-27, where

the Philippines pushed for stricter

monitoring and supervision in the

transport, safekeeping and use of even

small quantities of nuclear resources

such as high-grade uranium and

plutonium to prevent their being used

for terrorist activities.

The Philippines has regulations in

place for the export of nuclear

materials: R. A. No. 5207 ‘Atomic

Energy Regulatory and Liability Act of

1968’ (15 June 1968); R. A. No. 2067

‘Science Act of 1958’ (13 June 1958);

munitions, explosives, arms: R. A. No.

8294 ‘An Act amending the provisions

of P.D. No. 1866, as amended …’ (6

June 1997); P.D. No. 1866 ‘Codifying

the Laws on Illegal/Unlawful

Possession, Manufacture, Dealing in,

Acquisition or Disposition of Firearms,

Ammunition or Explosives…’ (29 June

1983); and certain hazardous and toxic

substances: Used Lead Acid Battery

(ULAB) – Basel Convention on the

Control of Trans-boundary Movements

of Hazardous Wastes and their

Disposal; R.A. No. 6969 ‘Toxic

Substances Hazardous and Nuclear

Wastes Control Act of 1990’ sections 2

and 3. (26 October 1990).

However, the Philippines still has to

fully implement its commitment in

relation to dual-use goods and

chemical weapons but efforts have

been initiated.

Philippine export controlinitiativesThe responsibility for ensuring that the

country develops its strategic trade

control system in full was lodged with

the Office of the Special Envoy on

Transnational Crime (‘OSETC’) in the

Office of the President, with a person

dedicated to the effort. Since 2005,

OSETC has been conducting inter-

agency meetings with such concerned

agencies as the Bureau of Customs, the

Philippine Ports Authority, the

Department of Trade and Industry, the

Philippine Nuclear Research Institute,

the Department of Health, the

Department of Environment and

Natural Resources, and the

Department of National Defense,

among others.

1) Legal tender Philippine notes and coins,

checks, money order and other bills of

exchange drawn in pesos against banks

operating in the Philippines in an

amount exceeding PHP10,000.00.

2) Copper concentrates

3) Live animals, its products and by-

products, veterinary feed premixes and

biologics, laboratory specimen of

animal origin, feeds and feed

ingredients that may be carriers of

communicable animal diseases

4) All plants, planting materials and plant

products; pest specimen; including

wood packaging materials capable of

harboring plant pests

5) Used Lead Acid Battery (‘ULAB’)

6) Firearms, ammunitions and explosives

7) Coffee

8) Crushed and/or sized sand gravel

and/or other unconsolidated materials

Iron, manganese and/or chromium

ore(s), whether unprocessed or

processed.

Mine wastes and/or mill tailings

Unprocessed, raw or run-of-mine

mineral(s) of ore(s)

9) Grains and grain by-products

10) Cultural properties such as

archaeological materials, traditional

ethnographic materials, antiques,

historical relics, Natural History

specimens (holotypes, endangered,

irreplaceable specimens, fossils)

11) Radioactive materials

12) All sugarcane-based sugar (such as

raw sugar, white sugar, muscovado)

and Molasses

Manual of Regulations on Foreign

Exchange Transactions (Bangko Sentral ng

Pilipinas or central bank)

Letter of Instruction no. 1387 (21 February

1984)

CODEX and World Organization for Animal

Health

R. A. no. 9296 ‘The Meat Inspection Code

of the Philippines’ (12 May 2004)

E.O. no. 338 series of 2001’Restructuring

the Department of Agriculture …’ (10

January 2001)

E.O. no. 292 ‘Administrative Code of 1987’

(25 July 1987)

International Standards for Phytosanitary

Measures (ISPM)

P.D. no. 1433 ‘Promulgating the Plant

Quarantine Law of 1978 ‘ (10 June 1978)

Basel Convention on the Control of Trans-

boundary Movements of Hazardous

Wastes and their Disposal

R.A. no. 6969 ‘Toxic Substances

Hazardous and Nuclear Wastes Control Act

of 1990’ Sections 2 & 3. (26 October

1990)

R. A. no. 8294 ‘An Act amending the

provisions of P.D. No. 1866, as amended …

’ (6 June 1997)

P.D. no. 1866 ‘Codifying the Laws on

Illegal/Unlawful Possession, Manufacture,

Dealing in, Acquisition or Disposition of

Firearms, Ammunition or Explosives…’ (29

June 1983)

International Coffee Agreement

R.A. no. 7942 ‘Philippine Mining Act of

1995’ (3 March 1995)

P. D. no. 4 ‘National Grains Authority Act"

(26 September 1972)

R. A. no. 10066 ‘National Cultural Heritage

Act of 2009’ (26 March 2010)

R. A. no. 8492 ‘National Museum Act of

1998’ (12 February 1998);

R. A. no. 4846 ‘Cultural Properties

Preservation and Protection Act’ as

amended (18 June 1966)

R. A. no. 5207 ‘Atomic Energy Regulatory

and Liability Act of 1968’ (15 June 1968)

R. A. No. 2067 ‘Science Act of 1958’ (13

June 1958)

E.O. no. 18 ‘Creating A Sugar Regulatory

Administration’ (28 May 1986)

Regulated exports

www.worldecr.com



A technical working group (‘TWG’)

on export control was convened in

2006 and was able to come up with a

draft E.O. to govern existing export

control efforts of the government

pending the passage of a law on export

control, as well as a draft bill on export

control that had been submitted to

both houses of the legislature. Other

initiatives of the OSETC included:

l Publication of a compilation of laws

and rules relating to Philippine

export controls;

l Coordination of various export

control awareness and capacity

building seminars and workshops;

l Representation of the Philippine

government in regional and

international consultations and

cooperation.

House bill no. 6268: ‘An Act

Preventing The Proliferation Of

Weapons of Mass Destruction by

Regulating The Transfer of Strategic

Goods and Items Providing Penalties

For Their Violations Thereof and For

Other Purposes’ was filed in the 14th

Congress on 28 April 2009. Its

counterpart senate bill no. 3268: ‘An

Act to Prevent The Proliferation of

Weapons of Mass Destruction By

Regulating The Transfer of Strategic

Items/Goods Which Are Being Used To

Carry Out Acts of Terrorism, and For

Other Purposes’ was filed on 21 May

2009. They did not progress beyond

the committee level.

There are pending Philippine bills

on dual-use and strategic goods re-filed

in the current 15th Congress. House bill

4030 ‘Regulating the proliferation of

strategic and dual-use goods and

services, providing penalties for

violation thereof’ was approved by the

TWG of the Committee of Public Order

and Safety on 8 June 2011 though the

report still has to be formally adopted.

The proposed measure aims to

institute stringent strategic trade

controls over the import, export and

transhipment of strategic and dual-use

commodities that could have the

potential of being used in the illicit

development, production or

stockpiling of weapons of mass

destruction. Counterpart bills are also

pending in committee at the Senate.

Both the House and Senate versions

establish a control list, provide an

inter-agency council to prepare the list

and oversee the implementation of the

law, set the OSETC as secretariat for

the council, and designate the

incumbent special envoy for

transnational crime at the time of the

law’s passage as the first chair of the

Council.

While legislation is slow moving,

business and academia have been

pressing ahead. E.O. no. 39 (April

2011) designated the Anti-Terrorism

Council (‘ATC’) as the Philippine

national authority of the CWC; ATC is

finalizing its draft national legislation

to implement the CWC. In

consultations with the chemicals

industry, there was agreement to

incorporate the legislation in the

pending bills on dual-use goods. On

biosafety and biosecurity, the

University of the Philippines created an

Institutional Biosafety and Biosecurity

Committee (‘IBC’) which, among

others, evaluates research proposals

involving pathogens. IBC has prepared

its manual of guidelines for such

evaluation and that is currently

undergoing peer review. A Philippine

Biosafety and Biosecurity Association

has also been created to assist

government agencies in developing a

national policy and implementation

plan. Key agencies involved with

pathogen research have undergone

security upgrades.

Consultations on CWC were

conducted with the Philippine

chemicals industry association

(Samahan sa Pilipinas ng mga

Industriyang Kimika, ‘SPIK’). SPIK

groups the Association of

Petrochemical Manufacturers of the

Philippines, the Philippine Association

of Paint Manufacturers, the Philippine

Oleochemical Manufacturers of the

Philippines, and the Philippine Plastic

Industry Association, among others.

The Philippine Nuclear Research

Institute, as the nation’s competent

authority on nuclear (peaceful use),

radioactive materials and related

devices, has also adopted the

International Code of Conduct on the

Safety and Security of Radioactive

Sources, and the additional guidance

on import/export of radioactive

sources. It is also managing the

international monitoring system set up

following the Senate’s ratification of

the Comprehensive Nuclear Test Ban

Treaty in 2001.

The Philippines will most likely

adopt the same control list as the EU

and will ease rules, procedures and

documentation for exporters who trade

regularly in these products. Aside from

chemicals, the DTI is also interested in

the long-term competitiveness of the

automotive, aerospace, business

process outsourcing, electronic,

metalworking, shipbuilding, and

software businesses in the Philippines.

Current efforts in the private sector

include intensifying industry outreach

to raise awareness among companies

and commercial individuals of their

export control responsibilities as well

as the integration of commodity

identification training in the regular

training programmes of law

enforcement agencies.

Probably, the prevailing culture of

export facilitation in the Philippine

government and business associations

has worked against a faster passage of

legislation. Currently, however, the

department of trade and industry and

business associations have been

working on ‘industry roadmaps’ to

develop competitive Philippine sectors

in the short, medium and long term (up

to 2030). Stakeholders, particularly in

the chemicals industry, have realized

that a regime of strategic trade controls

needs to be in place to attract investors.

Their more active and visible support

should expedite passage of the bill,

probably by next year towards the end

of the current Congress or by the early

part of the following one.

Gerry Anigan managed policyanalysis and advocacy in thePhilippine ExportersConfederation (‘Philexport’) formore than 14 years. Prior toPhilexport, he worked at theDepartment of Trade andIndustry and the formerMinistry of Trade. He iscurrently a part-time tradepolicy advisor to Philexport andBryan Cave InternationalConsulting.

Stakeholders,

particularly in the

chemicals industry,

have realized that a

regime of strategic

trade controls needs to

be in place to attract

investors.

Contributors in this issueFalk Schöning, Hogan Lovells

www.hoganlovells.com

Cari N. Stinebower , Crowell & Moring LLP

www.crowell.com

Dr. Andrea Viski, Stockholm International Peace Re-

search Institute (SIPRI)

www.sipri.org

Stephanie Lieggi, James Martin Center for

Nonproliferation Studies (CNS)

www.miis.edu

Gerry Anigan, Philippine Exporters Confederation

WorldECR Editorial BoardLarry E. Christensen, Miller & Chevalier, Washington DC.

[email protected]

Iain Macvay, Bird & Bird LLP, London/Brussels.

[email protected]

Dr. Bärbel Sachs, Noerr, Berlin.

bä[email protected]

Iain Sandford, Minter Ellison, Canberra.

[email protected]

Edmund Sim, Appleton Luff, Singapore.

[email protected]

George Tan, Bryan Cave Consulting, Singapore.

[email protected]

General enquiries, press releases, subscriptions: [email protected]

Contact the editor, Tom Blass: [email protected] tel +44 (0)7930405003

Contact the publisher, Mark Cusick: [email protected] tel: +44 (0)7702289830

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ISSN 2046-4797. Refer to this issue as: WorldECR [0203]

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WorldECRThe journal of export controls and compliance

ISSUE 13. JUNE 2012

www.WorldECR.com