1. EXPORT COMPLIANCE OVERVIEW STATELINE WORLD TRADE ASSOCIATION January 22, 2009 1 Presented by Mary Lynn Murtaugh GLOBAL BACK OFFICE, LLC

2. TODAY’S AGENDA: What is Global Trade Compliance? Risks, Benefits & Challenges Key Export Compliance Requirements Documenting the Process Other Resources & Tools

3. WHAT IS INFORMED COMPLIANCE? Demonstrate Reasonable Care Clearly & Completely Informed of Legal Obligations Carry Out Requirements Document Process

4. RISKS, BENEFITS & CHALLENGES Risks & Costs of Non Compliance Penalties & Fines Ranging from Thousands-Millions (Company or Individual) Executive Jail Sentences or Probation Possible Loss of Import or Export Privileges Potential Shipment Seizures Legal Fees Stock Price or Employee Owned Impacts Reputation and Brand Name Damage with Negative Press Time Consuming Audit Process

5. COMPLIANCE BENEFITS Penalty Avoidance Bottom-Line Cost Savings Landed Cost, Duty Reductions Duty Drawback Opportunities Secondary Savings Often Found –Logistics, Finance Process Efficiencies Commercial Review of All Functional Areas Improved Customer Service – Internal Controls Competitive Advantage Free Trade Agreement Duty Reduction Demonstrate Supply Chain Security to Customers

6. COMPLIANCE CHALLENGES Getting Senior Management Buy In Justifying Professional Personnel, Resources, Compliance Awareness & Training Getting Started: Compliant & Practical Business Sense Approach Best Resources: Information Overload- Sorting Through Lack of legal in-house expertise Systems to Manage: Documenting the Process Staying Current with Multi-Agency Rules Automated Solutions Preparing for Focused Assessment

7. KEY COMPLIANCE REQUIREMENTS

8. KEY EXPORT REQUIREMENTS: Destination Country & Parties Screening: Screening Lists to Check: http://www.bis.doc.gov & Links http://www.bis.doc.gov Denied Parties Unverified List Entity List Specially Designated Nationals (OFAC) Debarred List Non Proliferation Sanctions: http://www.treas.gov/ http://www.treas.gov/

9. EXPORT SCREENING: WHO Must Screen? U.S. Citizens and Permanent Residents Even if they work for offshore company not subject to U.S law Companies Organized in the U.S. Foreign Branches of U.S. Companies Individuals and Entities Located in the U.S. WHAT Parties Need to be Checked? Marketing Agents, Distributors, JV Partners Parties to Finance Transaction Including All Banks Customers, Purchasers, End-Users, Freight Forwarders, Shipping Lines, Insurers

10. OTHER SCREENING ISSUES: Deemed Export: “Export” or “Release” of Technology to a Foreign National within the U.S. or Overseas Deemed to be an Export to the Home Country of the Foreign National Significant Source of Non Compliance in U.S. Especially Important for Licensable Technology Tours of US Plants by Foreign Visitors Retention of Non-Citizen Technical Employee Re-Export: Exporter Responsible to Verify Ultimate Destination & End User

11. OTHER TOOLS & RESOURCES Screening: EAR Marketplace –Combined Lists on One Site (Around $325/year) http://bxa.fedworld.govhttp://bxa.fedworld.gov Commercial Software & Services: JP Morgan Vastera www.jpmorganchase.com/vastera Management Dynamics http://www.managementdynamics.com/ STR Trade http://www.strtrade.com/str_home.aspx Shipping Solutions http://www.shipsolutions.com/classic.asp http://www.shipsolutions.com/classic.asp Use Destination Control Statement on Documents: “These commodities, technology or software were exported from the United States in accordance with Export Administration Regulations. Diversion contrary to U.S. law prohibited”

12. EXPORT LICENSING: Governed by Bureau of Industry and Security (BIS) Also see EAR Database Link http://www.access.gpo.gov/bis/ear/ear_data.htmlhttp://www.access.gpo.gov/bis/ear/ear_data.html License requirements are dependent upon an item's technical characteristics, the destination, the end-user, and the end-use. A key in determining whether an export license is needed from the Department of Commerce is knowing whether the item you are intending to export has a specific Export Control Classification Number (ECCN). The ECCN is an alpha-numeric code, e.g., 3A001, that describes a particular item or type of item, and shows the controls placed on that item. All ECCNs are listed in the Commerce Control List (CCL) (Supplement No. 1 to Part 774 of the EAR) http://www.access.gpo.gov/bis/ear/pdf/indexccl.pdf http://www.access.gpo.gov/bis/ear/pdf/indexccl.pdf

13. THE COMMERCE CONTROL LIST: The CCL is divided into ten broad categories – 0 = Nuclear materials, facilities and equipment (and miscellaneous items) 1 = Materials, Chemicals, Microorganisms and Toxins 2 = Materials Processing 3 = Electronics 4 = Computers 5 = Telecommunications and Information Security 6 = Sensors and Lasers 7 = Navigation and Avionics 8 = Marine 9 = Propulsion Systems, Space Vehicles, and Related Equipment Each category is further subdivided into five product groups – A. Systems, Equipment and Components B. Test, Inspection and Production Equipment C. Material D. Software E. Technology

14. IF YOUR ITEM IS NOT ON THE CCL: If your item falls under U.S. Department of Commerce jurisdiction and is not listed on the CCL, it is designated as EAR99. EAR99 items generally consist of low-technology consumer goods and do not require a license in many situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain a license.

15. WHERE ARE YOU EXPORTING? Restrictions vary from country to country the following countries are subject to U.S. embargo or restrictive trade sanctions: Cuba Iran Libya* North Korea (Democratic Republic of Korea) Sudan Syria *The comprehensive embargo on Libya has been lifted. However, export licenses continue to be required for most exports.

16. WHAT WILL YOUR ITEM BE USED FOR? Some end-uses are prohibited while others may require a license. For example, you may not export to certain entities involved in the proliferation of weapons of mass destruction (e.g., nuclear, biological, chemical) and the missiles to deliver them, without specific authorization, no matter what your item is.

17. IF YOUR ITEM IS ON THE CCL LIST: Determine What Reasons for Control Exist for Your ECCN #: (See Supplement No 1 to Part 774) Chemical & Biological Weapons (CB) Nuclear Nonproliferation (NP) National Security (SN) Missile Technology (MT) Regional Stability (RS) Firearms Convention (FC) Crime Control (CC) Anti-Terrorism (AT) Check Country Chart (Supplement 1 to Part 738) Verify License Exceptions

18. DEPARTMENT OF STATE JURISDICTION: Regulates Exportation of Defense Articles, Defense Services, and Related Technical Data. Department of State, Office of Defense Trade Controls (ODTC) http://pmddtc.state.gov/ http://pmddtc.state.gov/ Published Regulations-International Traffic in Arms Regulations (ITAR). http://pmddtc.state.gov/itar_index.htm http://pmddtc.state.gov/itar_index.htm All Items on the US Munitions List (USML) are Considered a Defense Item or Service and Require an Individual Validated License for Export. Validated State Export License Valid for Four Years. A One-Time Registration of Person/Business Before Any State Export License Will Be Issued

19. ANTI-BOYCOTT REGULATION Jurisdiction of BIS and US Department of Treasury Prohibits U.S. Companies from Participating in Foreign Boycotts that the U.S. Does Not Sanction Refer to Part 760 of the EAR Database Reporting Requirements: Department of Commerce- Quarterly Department of Treasury (IRS)- Annually with Tax Return

20. HARMONIZED CLASSIFICATION SYSTEM: Used to Classify Products for Customs or Census Purposes U.S. Exports Use Schedule B : http://www.census.gov/foreign- trade/schedules/b/index.htmlhttp://www.census.gov/foreign- trade/schedules/b/index.html U.S. Import Use HTS Schedule: http://www.usitc.gov/tata/hts/bychapter/index.htm http://www.usitc.gov/tata/hts/bychapter/index.htm Significant Changes in 1 st Quarter 2007 in Numerous Chapters Generally 6-10 Digits and by International Agreement, Most Countries Recognize the Same First 6 “Harmonized” Digits Classification Methodology Is Very Technical, Detailed Process Generally Completed by Engineer, Product Manager or Licensed Custom Broker. Listed on Export Documentation: Shippers Export Declaration and Free Trade Agreement Certificates of Origin.

21. ELECTRONIC EXPORT INFORMATION (EEI) FORMERLY SHIPPERS EXPORT DECLARATION (SED) Commerce Department Form that is Required by Law to Enable the Census Bureau to Compile US Export Statistics, and Assist Other US Agencies to Enforce Export Control Laws. Required to All Foreign Countries Except Canada for Shipments via AES: Where value exceeds $2500 per HTS Classification When Valid Export License is Required Exceptions: Shipments to the U.S. Armed Services Software and Technical Data Exported via the Internet or Email Required Information: ECCN # or EAR 99 NLR or License Number Number of Units, Value HTS Classification Number Related Party Information Routed/Non Routed (New Requirements 10/1/08)

22. ELECTRONIC EXPORT INFORMATION ISSUES Incoterm Conflicts EXW Requires Foreign Buyer to Manage Export Clearance but US Law Holds Exporter Responsible Proof of Filing Generally Through Freight Forwarder- AES ITN # Listed on Transport Document Some High Volume Shippers File Directly Difficulty With Documented Proof on Routed Transactions Shipper Also Must Provide Forwarder with Power of Attorney On ALL Transactions, Shipper Must Provide Required Information Penalties & Fines: Up to $50,000 per Transaction For: Delayed Filing Determined Per Mode of Transport Incomplete or Inaccurate Filings Also possible imprisonment up to 5 years

23. RULES OF ORIGIN Rules of Origin Publication: http://www.cbp.gov/linkhandler/cgov/toolbox/legal/informed_compliance_pu bs/icp026.ctt/icp026.pdf http://www.cbp.gov/linkhandler/cgov/toolbox/legal/informed_compliance_pu bs/icp026.ctt/icp026.pdf Non-Free Trade Agreements Rules of Origin Substantial Transformation An Article that Consists, in Whole or in Part, of Materials From More Than One Country is a Product of the Country in which it has Been Substantially Transformed into a New and Different Article of Commerce with a Name, Character and Use Distinct From that of the Article from Which it Was So Transformed. Free Trade Agreement Rules of Origin Regional Value Content OR Tariff Shifts May Include Both a Change in Tariff Classification and Regional Value Content

24. FREE TRADE AGREEMENTS EXISTING Chile Israel Jordan NAFTA Singapore Australia Morocco Bahrain Oman CAFTA (El Salvador, Guatemala, Honduras, Nicaragua, & Dominican Republic and Costa Rica )

25. FREE TRADE AGREEMENTS: NEGOTIATIONS COMPLETE: Peru (Pending Legislation) Colombia (Pending Legislation) Panama (Pending Legislation) Korea (Pending Legislation) IN NEGOTIATIONS: Andean (Columbia, Ecuador, Peru, Bolivia) Thailand Southern African Customs Union (SACU) United Arab Emirates FTAA

26. OTHER EXPORT REQUIREMENTS: Recordkeeping: Establish & Document that Files & Records are Maintained for 5 years. Maintain Records for Administrative Elements (like ECCN, HTS, Country of Origin). Money Laundering Anti-Bribery (Foreign Corrupt Practices Act) Red Flags

27. DOCUMENTING THE PROCESS Export Management System Key Elements: Administrative: Management Policy Statement Responsible Officials Record Keeping Training Internal Reviews Notification Order Processing: Written Procedures and Exception Processing Screening: Denied Parties (all) Export License Diversions Risk Anti-Boycott

28. QUESTIONS Mary Lynn Murtaugh Global Back Office, LLC Tel: (262) 242 3140 Cell: (414) 861 7073 globalbackoffice@wi.rr.com