by Wes Demory
Deemed Export Overview
U.S. export laws are not limited to just physical shipment abroad. They also apply to information transfers involving foreign persons located inside or outside of the United States. When technology or source code is transferred to a foreign person, it is “deemed” to have been exported to that person’s home country. If export laws prohibit a particular transfer, the U.S. government provides a process to apply for an export license. Most license applications are approved; however, applications take time to process. Failure to comply with U.S. export laws can lead to civil fines, denial of export privileges, criminal fines and even imprisonment.
EAR vs ITAR Restrictions
Compliance with the deemed export rule starts with the identification of proper regulatory jurisdiction over the transfers. Information controlled under the Export Administration Regulations (EAR) is subject to different restrictions (and therefore a different type of compliance program) from information controlled under the International Traffic in Arms Regulations (ITAR). It is critical to determine which set of regulations apply before assessing the licensing requirements. The following discussion focuses on information controlled under the EAR.
Who is a Foreign Person?
For purposes of the EAR, a foreign person is generally any person that is not currently a U.S. citizen, permanent resident (Green Card holder), or “protected individual” as defined under 8 U.S.C. 1324b(a)(3), such as an admitted refugee or alien granted asylum in the United States.
Examples of Foreign Persons:
- A non-U.S. citizen with an H1-B visa
- A non-U.S. citizen who has applied for a Green Card, but it has not yet been issued
- A non-U.S. citizen who has filed an i-765 form and is temporarily working in the U.S.
Examples of Persons NOT Considered Foreign Nationals:
- A person holding dual citizenship, where the United States is one of the countries
- A non-U.S. citizen who has obtained official U.S. permanent residency (valid Green Card)
What is the Foreign Person’s Home Country?
Export laws focus on the foreign person’s citizenship and domicile/permanent residency. Under the EAR, the focus is the most recent country. Under the ITAR, all countries are considered. Thus, it is possible that a foreign person may have more than one “home country.”
Foreign Persons of Embargoed Countries
The United States maintains comprehensive embargoes on several countries, currently Cuba, Iran, North Korea, Sudan and Syria. U.S. export regulations impose the greatest restrictions on information transfers to foreign persons of these countries. Therefore, this can lead to additional due diligence associated with determining whether a “deemed” export license is required. There also may be additional restrictions related to recruiting and compensating foreign persons of embargoed countries if they maintain ties to their home country. In addition, U.S. companies may need to adjust internal policies for certain reimbursements or remote access for foreign persons of embargoed countries who visit their home country while working for the company.
What Types of Technologies are Export Controlled?
There are a variety of technology categories subject to export controls and many are not obvious given their widespread commercial use. Each industry is impacted differently and businesses anywhere within research and development, supply chain, manufacturing or distribution are responsible for export compliance. Example Categories of Controlled Items:
- Biological Materials
- Information Security & Encryption
- Lasers & Sensors
- Material Processing
- Navigation & Avionics
- Propulsions Systems
- Telecommunications & Networking
- Weapons & Law Enforcement
Controlled technology can include the technical information for the design, development, production, disposal or use of controlled items. Even if these items are merely used internally in the course of business, this could have deemed export implications. However, most publicly available information is exempt from the license requirements.
How is Technology Transferred?
Controlled technology can take many forms, including technical data, technical assistance and software source code. Such information may be transferred through visual inspection of equipment or facilities, oral exchanges with others, the application of personal knowledge or technical expertise to a particular situation, transfers of electronic or physical documents, review of technical drawings/blueprints or other similar methods. However, if a person is only given information concerning how to operate certain controlled equipment, this is usually not enough to trigger an export license requirement under the EAR.
Overseas offices are not immune from the deemed export issue. Restrictions can apply to all transfers world-wide if they involve U.S.-origin technology. Therefore, information transfers to foreign persons located in an overseas office may still be subject to the deemed export regulations, even if a U.S. office does not make the transfer.
Who is Subject to the Deemed Export Rules?
Companies may encounter deemed exports in a variety of situations. For example, foreign persons with exposure to export-controlled technology or source code may be employees, interns, or contingent workers. They may also be employed by third-parties, such as staffing firms, vendors, partners, or customers.
Other Restricted Persons
The U.S. government maintains various lists of persons with whom U.S. companies are generally prohibited from transacting. These prohibitions are separate from those based on specific information transfers. Designated persons include both foreign persons and U.S. persons. Companies are encouraged to screen employees and contractors against these lists.
Since 2011, organizations petitioning the U.S. government for certain foreign nationals to work or be trained in the United States (H1-B, L-1, etc.) must certify on the I-129 (Petition for a Nonimmigrant Worker) whether an export license is required for the release of technology to the individual. This procedure mandates that petitioners evaluate the deemed export implications for the particular circumstances and indicate on the form whether an export license is needed.
Export License Applications
Once an organization determines that it requires an export license, it should prepare a license application with the relevant government entity. In most cases, this will be the Department of Commerce. However, depending on the circumstances, the organization may need to file with other departments, such as the Department of State or Department of the Treasury.
Applications typically include specific details about the individual’s background (previous residences, work history, etc.), the job position and the scope of technology that will be transferred. Standard applications take roughly 45-90 days for the government to process. Applications involving nationals of embargoed countries, restricted persons or highly-controlled technology may take much longer to process. Although organizations may be able to still employ the foreign person while the application is pending, they should take measures to ensure they do not violate export laws before the license issues.
For more information, please contact us at:
Thomsen and Burke, LLP
Two Hamill Road, Suite 415
Baltimore, MD 21210
Disclaimer: This document may be considered Attorney Advertising. It is provided for informational purposes only and is not to be considered legal advice. Its distribution does not establish an attorney-client relationship. Each situation is unique and the techniques used will differ depending on the facts and circumstances. Therefore, this document does not describe the work that may performed in any particular matter.