Hartford Business Journal

12 Hartford Business Journal • July 11, 2016 www.HartfordBusiness.com A new focus for many manufacturers from page 1 the nation's top domestic-international trade agency, the U.S. Commerce Depart- ment, is trying to rigorously drive home through tightened compliance require- ments on major, so-called "tier 1" technol- ogy providers like Pratt & Whitney and General Electric, and smaller, "tier 2" par- ticipants in their supply chain. In June, the Marriott Hartford Downtown was the site of a day-long Commerce Depart- ment forum meant to educate small and mid- size Connecticut manufacturers and suppliers about the need for compliance. It was also a showcase for the commerce agency, whose undersecretary overseeing export cyberse- curity compliance was a keynote speaker, to update companies on the federal government's headway in reducing red tape and other paper- work to make their compliance tasks easier. For instance, a machine-tool maker must ensure not only that end users of its devices aren't on the U.S.-enemies list, but that none of the machine's components can be canni- balized to make weapons or be incorporated into enemy defense systems. Officials at Birken Manufacturing Co. in Bloomfield, which performs value-added machining of component parts for Pratt and a host of other Connecticut and U.S. custom- ers with overseas markets, say they see the value in the U.S. shielding vital technology from its enemies — and support it. "It's a brave new world,'' said Birken co- owner and CEO Gary Greenberg. "All of us in the industry are very cognizant about national security.'' Avoiding 'wrong hands' Eric L. Hirschhorn, a New York lawyer who has been undersecretary of Commerce for Industry and Security and head of the Bureau of Industry and Security (BIS) since March 2010, likens his role as "the opposite side of the coin to the defense department.'' "Their job is to ensure that if [the U.S. mili- tary] goes onto the battlefield,'' he said, "they have the best possible equipment and technol- ogy. My job is to make sure the other guys don't.'' To that end, the U.S. for years has kept a lengthy list of American-made parts and technologies — International Traffic in Arms Regulations (ITAR) — that are banned for export to any nation-state other than America's allies, Hirschhorn said. The growth in outsourced production and distribution of American technology, in tandem with the mushrooming appeal and convenience of the internet to match faceless buyers and sellers of that technology, has ratcheted up America's urgency to ensure its best innovations don't fall into the wrong hands, Hirschhorn said. But along with that sense of urgency is recognition, he said, of the difficulty for some large and small American manufac- turers to keep up. To help with that, the U.S. government has shortened the wait time for American firms that apply for export-import licenses, especially in doing business with U.S. allies, Hirschhorn said. James Kask is partner at accounting- consultancy CohnReznick LLC in Hartford and co-head of its manufacturing and whole- sale distribution and industry practice. Kask moderated one of the panel sessions for the Commerce Department's recent cybersecu- rity forum in Hartford. Kask said the presence of a Connecti- cut assistant U.S. attorney assigned to the national-security and major-crimes unit, drove home for him the gravity of the govern- ment's desire to educate more New England companies about their cybersecurity roles and responsibilities. "Many of them have only recently given thought to this area,'' Kask said. "Histori- cally, the cybersecurity strategy for a lot of companies haven't been properly aligned with business risk.'' Costly compliance There's also the issue of the cost to imple- ment and monitor cybersecurity protocols. At large companies, that expense can include the salary and benefits of one or a team of ITAR-compliance officers, not to mention the cost to buy and operate electronic hardware and software for monitoring compliance. H. Ross Garber, head of the government practice at Hartford law firm Shipman & Goodwin LLC, said companies just can't walk into a store and pluck a fully equipped compliance package off the "cybersecurity shelf.'' Not only are such systems costly, Garber said, they must be thorough enough to account for all of a company's products, markets and customers. "It's, frankly, very difficult for smaller compa- nies to comply with the … requirements that the government imposes, particularly those related to cybersecurity and international trade,'' Gar- ber said. "Many smaller companies have adopt- ed a strategy of simply hoping for the best.'' And certainly over the past few years, Garber said, government and prime contrac- tors have been trying to educate smaller com- panies that "hoping'' isn't a workable strategy. If the cybersecurity threat is real, so is punishment for companies that lapse in their compliance responsibilities. In June 2012, the U.S. slapped Farmington's United Technologies Corp., and its Pratt-Canada and Hamilton Sundstrand divisions, with more than $75 million in fines for lying about the illegal export of U.S. military software that China used to develop its first modern military helicopter, the X-10. At smaller firms, responsibility for compli- ance typically falls to a single individual. At Birken, a major aeroparts supplier to Pratt and GE, among others, ITAR compliance- monitoring is Greenberg's duty. In the past decade alone, he said he has watched grow steadily the number of its parts/technologies subject to "no sale'' to non-allies. Each year, Birken applies to the federal Directorate of Defense Trade Controls to receive its mandatory identification-registration code. "We always used to sell direct to Pratt or to the U.S. government,'' Greenberg said. "We don't do very much internationally. It's only when the customer asks us to direct-ship to someone.'' The U.S. also strictly limits outsiders' access to shop floors where vital technology is being developed or tested. For instance, Birken, like many other production "job shops'' around the country, must keep a log of visitors to and from their offices. Anyone who is not an American citizen, or doesn't hold a legitimate "green card,'' is banned from setting foot in certain sensitive areas, or seeing or handling, sensitive tech- nology, authorities say. Recently, Greenberg said he sold a part to a New York broker. But before the deal could close, Greenberg insisted the broker provide him with verification — for Birken's files — that the part was not headed overseas. He said a government-issued checklist of banned parts, technologies and procedures would simplify his compliance routine. Greenberg said federal authorities typi- cally have relied on "whistleblowers'' to tip them to potential trade-technology breaches. "When we're talking about national secu- rity,'' he said, "if [enemies] can use our tech- nology against us, it's not something we want to be part of.'' n Export License Facts • In FY 2015, the Bureau of Industry and Security (BIS) processed 37,398 export license applications for transactions. This marked a 20.8 percent increase from the 30,953 applications processed in fiscal 2014. BIS approved 31,199 license applications (83.4 percent), returned 5,860 applications without action (15.7 percent), and denied 339 applications (0.9 percent). • In 2014, $16.1 billion (1 percent of total exports) was exported under the license authorization of the BIS of the U.S. Department of Commerce. • BIS currently has seven export con- trol officers working overseas in six locations: China, India, Germany, Singapore, UAE and Hong Kong. S O U R C E : U . S . C O M M E R C E D E P A R T M E N T James Kask, partner, CohnReznick LLC U.S. Commerce Undersecretary Eric L. Hirschhorn, responsible for securing America's exports of capital goods and technology from enemy hands, addressing Connecticut manufacturers in downtown Hartford in June. P H O T O | C O N T R I B U T E D

• Cover