JWB Presentation - IE Canada CGP-ITAR Session - 11th Annual Western Regional Conference February 26...

John W. Boscariol, International Trade and Investment Law Group, McCarthy Ttrault LLP / mccarthy.ca

ITAR & Controlled Goods: Canadian Defense Production Act & CGP Proposed

Amendments

Practical Compliance & Enforcement Issues

John W. Boscariol

February 26, 2014

I.E. Canada 11th Annual Western Regional Conference


Canadas Trade Controls export and technology transfer controls

Export Control List Area Control List

economic sanctions Special Economic Measures Act United Nations Act Criminal Code Freezing Assets of Corrupt Foreign Officials Act

domestic industrial security Defence Production Act, Controlled Goods Program

other trade control legislation blocking orders (Cuba) anti-boycott policy and discriminatory business practices laws anti-bribery law (Corruption of Foreign Public Officials Act and FCPA)

compliance convergence

Todays Focus Common CGP Issues and Challenges for Canadian Companies

background on Canadas Controlled Goods Program and relationship with United States defense trade controls

interaction with US ITAR - dual- and third-country nationals (ITAR 126.18)

impact of proposed changes to the coverage of the CGP

interaction with Canadas export control regime


Canadas Controlled Goods Program

background and history

relationship with US ITAR and Canadian exemption



Integration of Canadian and US Defence Trade Controls examples

ITAR 126.5(b) Canadian exemption permanent and temporary exports of certain defence articles and technical data to Canadian-registered persons defined by reference to Canadas Defence Production Act

Canadas ECL item 5504(i) controls export of US-origin goods or technology which have been determined under Parts 120 to 130 of Title 22 of the International Traffic in Arms Regulations of the Code of Federal Regulations (United States) as having substantial military applicability

and item 5504 is listed in the Schedule to the Defence Production Act and thereby included in the CGP

Canadas Export Permit Regulations paragraph 3(2)(c) requires that a US ITAR authorization be obtained for the export from Canada of defence-controlled US-origin goods, goods incorporating defence-controlled US-origin goods, and goods manufactured in Canada using defence-controlled US-origin goods


Integration of Canadian and US Defence Trade Controls key differences between CGP and US ITAR

ITAR is an export control regime

ITAR applies to deemed exports and deemed re-exports

ITAR focuses on 25 proscribed countries

ITAR does not require registration or security screening for examination, possession or transfer of controlled goods within the United States


Canadian Human Rights vs. ITAR

the problem in order to benefit from ITAR 126.5 Canadian exemption, transfers

of technical data and defence services must be to Canadian registered persons

exemption unavailable if dual national of a proscribed country, including those holding citizenship or born there

compliance with US ITAR licensing requirements

terms of Technical Assistance Agreement (TAA) or Manufacturing Licensing Agreement (MLA) approved by US State Dept may allow transfers only to certain dual nationals

to comply, Canadian companies required to determine citizenship, country of origin/birth, exclude access to certain areas, projects

may also require application for license or TAA/MLA amendments



prima facie breach of Canadian human rights law, if on basis of citizenship or country of origin:

terminate an employee

deny employment

restrict access to training

treat others preferentially promotions

overtime

scheduling

also - asking about citizenship, nationality, country of birth



examples of conflicts (ITAR)

General Motors Defense (2007 Ontario Human Rights Commission)

complaints by six employees, Canadian citizens or landed immigrants, citizenships of third countries (ITAR proscribed states)

employees sent home with pay, restricted their access to information, reassignments

settled, including monetary remedies

employer to make all reasonable efforts to secure such lawful permission as may be obtained to minimize any differential treatment



examples of conflicts (ITAR) (contd)

Bell Helicopter (2008 Quebec Human Rights Commission)

complainant born in Haiti, Canadian citizen for 30 years

applied for and hired on internship and training

subsequently denied internship because of ITAR rules

claim for damages settled



Qubec Human Rights Commission reiterates its opposition to the application of the ITAR rules in

Qubec because of their discriminatory impact

they include requirements that are inconsistent with the Qubec Charter of Human Rights and Freedoms

can no longer accept that companies established in Qubec submit to foreign rules that infringe on the values and rights of citizens as recognized by the National Assembly

following the political developments in this matter attentively any person that believes that his or her rights have been infringed by the application of the ITAR rules may rely on the services of the Commission


The New ITAR Rule (ITAR 126.18) May 16, 2011 final rule became effective August 15, 2011

no approval from the US State Department Directorate of Defense Trade Controls required for the transfer of defence articles, including technical data, to a foreign business entity, foreign government entity, or international organization that is an approved end-user or consignee for those items,

including the transfer to dual nationals or third-country nationals who are bona fide, regular employees, directly employed by the foreign business entity

transfer must take place completely within the territories where the end-user is located or where the consignee operates, and must be within the scope of an approved export license, other export authorization, or license exemption

the recipient of the defence article is required to have in place effective procedures to prevent diversion to destinations, entities, or for purposes other than those authorized by the applicable export licence or other authorization


New ITAR Rule (ITAR 126.18) effective procedures to prevent diversion non-US firms that are

consignees or end-users of the defence articles must either:

require a security clearance approved by a foreign government for its employees or

implement a screening process for their employees and execute Non-Disclosure Agreements (NDA) that provide assurances that employees will not transfer any information to persons or entities unless specifically authorized by the employer

must screen all employees who are to access controlled items for "substantive contacts" with the 25 restricted or prohibited countries under ITAR including China, Vietnam, Haiti, Cuba, Venezuela and other countries subject to U.S. military sanctions


New ITAR Rule (ITAR 126.18) what are substantive contacts?

include: regular travel to those countries

recent or continuing contact with agents, brokers and nationals of those countries

continued demonstrated allegiance to those countries

maintenance of business relationships with persons from those countries

maintenance of a residence in those countries

receiving salary or other continuing monetary compensation from those countries

acts otherwise indicating a risk of diversion


New ITAR Rule (ITAR 126.18) if an employee is determined to have substantive

contacts with persons from the ITAR-restricted or prohibited countries, this is presumed to raise a risk of diversion "unless DDTC determines otherwise

other requirements

technology security/clearance plan that includes procedures for screening employees substantive contacts

maintaining records of same for five years

technology security/clearance plan and screening records to be made available to DDTC or its agents for civil or criminal law enforcement upon request


How Does Canadas Controlled Goods Program Work With ITAR 126.18? problem: the final ITAR rule does not contain an

explicit exemption for companies that are registered under and comply with CGP

CGD Enhanced Security Strategy (October 1, 2011)

August 2011 Exchange of Letters Between US DDTC and PWGSC

DDTC has high regard for the CGP as a means to mitigate the risks of diversion


How Does Canadas Controlled Goods Program Work With ITAR 126.18? what has DDTC policy section said (May

2012)? gives CGP the golden seal of approval

no circumstances in which CGP screening will be insufficient for 126.18 substantive contact screening

non-disclosure agreement is not required if CGP-screened but has since retracted

endeavouring to put it in writing


How Does Canadas Controlled Goods Program Work With ITAR 126.18? employee concerns and pushback

on sensitive and personal information regarding: travel frequency, duration and location significant and meaningful associations criminal history financial issues

previous broad Privacy Act statement: consent to disclosure to law enforcement and other government departments and agencies, including foreign governments, which conduct checks and/or investigations in accordance with Memoranda of Understanding (MOUs) established with Public Works and Government Services Canada (PWGSC)

no longer references foreign governments


How Does Canadas Controlled Goods Program Work With ITAR 126.18? continuing ITAR/CGP challenges

no guarantee yet that screening in accordance with ESS, CGP and Canadian law will meet the ITAR section 126.18 requirements

are US exporters/partners comfortable relying on section 126.18?

does this resolve human rights and privacy issues?

practical issues remain

highly sensitive area for employees continue education and explanation

careful adherence to the CGP application and guidance



does not resolve anything for academic institutions

ITAR coverage shrinking, but CGP remains the same (US export control reform)

DDTCs suggested non-disclosure agreement (NDA) requires employees to comply with ITAR and certify that they have never acted for or provided information to 126.1 countries, including Cuba, etc.

made-in-Canada NDA?



broader issues:

is ESS permitted under the DPA and controlled goods regulations?

is this consistent with Canadian constitutional (Charter) law?


Proposed Changes to Coverage of CGP Defence Production Act Schedule attempts to resolve issues regarding differences in

coverage of ITAR and CGP

Stream 1 ITAR-controlled items from United States

concerns with Stream 2 certain non-US origin Group 2, 5504, and Group 6 items

administrative burden of tracking two streams vs one

consistent with purpose of CGP?

competitiveness vis--vis United States and other countries?

timing of implementation as US export control reform proceeds


Interaction Between CGP and Export Controls domestic security regime (PWGSC - CGD) vs

controls over international transfers (DFATD -ECD)

exporting CGP items

must apply to ECD for export permit and provide evidence of registration under CGP

exporting most CGP items from Canada for end-use in the United States does not require a permit


Interaction Between CGP and Export Controls discovery of potential contraventions

mandatory security breach report to CGD without delay

voluntary disclosure available for ECD but informal

others to notify

CBSA, RCMP, DFATD Economic Law Section (sanctions), Canadian Nuclear Safety Commission


John W. BoscariolMcCarthy Ttrault LLPInternational Trade and Investment Lawwww.mccarthy.caDirect Line: 416-601-7835

E-mail: [email protected]: www.linkedin.com/in/johnboscarioltradelawTwitter: www.twitter.com/tradelawyer

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JWB Presentation - IE Canada CGP-ITAR Session - 11th Annual Western Regional Conference February 26...

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