DEEMED EXPORTS: Do You Need Export Licenses For Your Employees

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DEEMED EXPORTS Do You Need Export Licenses
For Your Employees?
James K. KearneyEliot Norman
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THE GLOBAL WORKFORCE

• Companies employ tens of thousands of foreign
  nationals for technical and professional jobs
• Companies are increasingly managing an offshore
  workforce from the U.S.
• Outsourcing software development and other tasks
  to providers based abroad
• Creating development centers outside U.S.

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GLOBAL WORKFORCE TURNS EMPLOYERS INTO EXPORTERS

• U.S. companies must treat access to controlled
  technology by a foreign national as an export of
  that technology to the foreign nationals home
  country
• whether s/he is within or outside U.S. borders
• whether or not s/he is an employee

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EXPORT CONTROL REGULATIONS

• Dual-use Controls
• Export Administration Regulations (EAR)
• Department of Commerce, Bureau of Industry and
  Security (BIS)
• www.bcc.doc.gov
• Defense Controls
• International Traffic in Arms Regulations (ITAR)
• Department of State, Directorate of Defense Trade
  Controls (DTC)
• www.pmdtc.org
• Embargoes and Sanctions
• Foreign Asset Controls Regulations (FACR)
• Department of Treasury, Office of Foreign Asset
  Controls
• www.treas.gov/ofac

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DEEMED EXPORT RULE

• EAR 734.2(b)(2)(ii)
• Any release of technology or source code subject
  to the EAR to a foreign nationalis deemed to be
  an export to the home country or countries of the
  foreign national
• ITAR 120.17(4)
• Export includes...disclosing (including oral
  or visual disclosure) or transferring technical
  data to a foreign person orperforming a
  defense service on behalf of, or for the benefit
  of, a foreign person, whether in the United
  States or abroad

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EXPORT LICENSING OF EMPLOYEES

• Companies wishing to employ foreign nationals
  must apply for individual licenses for each
  controlled technology to which s/he will have
  access
• INS authorization to employ is not authorization
  to disclose controlled technologies
• Whether a license will be granted depends upon
• home country
• whether authorities have negative information
• the nature of the technology involved
• Technology Control Plans may be required as a
  condition

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LICENSE EXCEPTIONS APPLY

• E.g., EAR License Exception TSR--"Technology and
  Software Restricted allows exports of some
  controlled items to certain countries within EAR
  "country group B," if end-users pledge not to
  transfer the data to countries ineligible for a
  TSR exception
• E.g., ITAR 125.4(b)(9) allows disclosures of
  unclassified technical data in the U.S. by U.S.
  institutions of higher learning to foreign
  persons who are their bona fide and full-time
  regular employees, with certain conditions

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DEEMED EXPORT RULE -- WHY?

• Technology companies develop state of the art
  technologies with possible military applications
• Foreign governments target both classified
  information and industrial-source, dual-use
  technology
• A foreign national with access to controlled
  technology may divulge that technology to a risky
  foreign government or terrorist-supporting group
• No way to take back technology once released

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DEEMED EXPORT RULE IS CONTROVERSIAL

• Violation of constitutionally-protected free
  speech?
• Unwarranted barrier to recruiting technical
  workers?

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CONTROLLED TECHNOLOGY

• EAR technology includes technical assistance
  and technical data
• ITAR technology is called technical data, and
  includes defense services such as participating
  in a design review or writing software upgrades
• EAR/ITAR Technical Data means any information
  or software related to a controlled article other
  than information in the public domain, marketing
  information on functions or purpose, or general
  system descriptions

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IS ALL PROPRIETARY TECHNOLOGY CONTROLLED ?

• All defense technologies are controlled under
  ITAR
• For dual-use technologies, the more sophisticated
  and up-to-date the technology, the higher the
  level of control
• Many technologies are not highly controlled
  except for release to embargoed or sanctioned
  countries
• Mere day-to-day operation of controlled equipment
  is not a release of controlled technology

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DON'T UNDERESTIMATE SCOPE OF DEEMED EXPORT RULE

• Rule covers virtually any means of communication
  to a foreign national
• face-to face
• telephone
• e-mail
• fax
• sharing of computer files
• visual inspections
• site tours
• Includes reexports, i.e communications to a
  foreign national abroad of U.S.-origin technology
  legally exported originally
• Applies to employees, contractors or visitors

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BIS CONTEMPLATING STREAMLINING LICENSES FOR
"DEEMED EXPORTS"

• Regulations would allow easier transfer of
  controlled technology to foreign subsidiaries
• Streamlined licensing process will only be
  available to companies willing to adopt a strong
  export control plan

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FOREIGN NATIONAL

• ITAR uses term foreign person any natural
  person who is not a lawful permanent resident as
  defined by 8 U.S.C. 1101(a)(20) or who is not a
  protected individual as defined by 8 U.S.C.
  1324b(a)(3). (ITAR 120.16)
• EAR does not directly define term foreign
  national or foreign person
• But, EAR 734.2(b)(2)(ii) deemed export rule
  does not apply to persons lawfully admitted for
  permanent residence in the United States and does
  not apply to persons who are protected
  individuals under the Immigration and
  Naturalization Act (8 U.S.C. 1324b(a)(3)).

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WHO IS NOT A FOREIGN PERSON

• U. S. citizens
• Lawful permanent residents Green Card Holders
• Conditional permanent residents 2 year Green
  Card for marrying a U.S. citizen
• Refugees
• Political asylee someone who has political
  asylum

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WHO IS A FOREIGN NATIONAL ?

• Everyone else
• H-1Bs and L-1s , F-1 students, O-1 researchers,
  anyone here on a nonimmigrant visas
• 900,000 H-1Bs (35 to 40 Indian, 10 Chinese)
  700,000 F-1s 1.6 million foreign high-tech
  workers
• Anyone not here legally the Bush undocumented
  aliens

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HOW CAN YOU TELL WHO IS NOT FOREIGN NATIONAL?

• Can you go to the I-9 Form and rely on It?
• www.uscis.gov Handbook for Employers
• Can you ask for proof that employee is not
  foreign national?
• Importance of uniform policy for all employees,
  not just those who look foreign

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DUAL OR "AFTER-ACQUIRED" NATIONALITY

• EAR/ITAR do not directly address how to treat
  dual nationalities
• EAR policy last-acquired citizenship or
  permanent residency determines home country for
  deemed export purposes
• But, knowledge or reason to know that a diversion
  of technology will occur to a country other than
  the presumed home country obligates exporter to
• Inquire further
• Seek license based on likely diversion
• Cease transaction

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GOVERNMENT ENFORCEMENT OF DEEMED EXPORT RULE

• GAO REPORT large number of H-1Bs, but very few
  export license applications
• New issues outsourcing of IT development work to
  India, China, Romania, etc.
• IT consultants special issues and constructive
  knowledge
• Dangers of Unrestricted Server Access and
  Master Access for IT consultants
• Recent investigations/prosecutions

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ENFORCEMENT EXAMPLE

• In 2000, two U.S. companies, and two individual
  principals of the companies, were criminally
  indicted for the illegal transfer of technology
  to China
• Improper transfer allegedly occurred when the
  companies provided controlled information to
  certain employees who were Chinese nationals,
  without proper export license
• Charged also with delivering tangible dual-use
  products to China without proper licenses

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IGNORANCE IS NOT A DEFENSE

• Exporter's knowledge that release of technical
  information to a foreign national is contrary to
  export regulations is irrelevant
• Failure to obtain a required license for the
  release of controlled technology is a violation

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Foreign Nationals and Technology Alerts Abroad

• The Visa Mantis Program
• How it works
• Who does it impact?

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BASIC VISA PROCEDURES

• Dealing with U.S. Consulates (Embassies)
  overseas
• Where you apply for H-1B and other visas
• Foreign nationals with B.S., M.S. or Ph.D.
  degrees
• Millions of trips -- business and personal --
  each year
• Realities of consular reviews The Cheat Sheets
  
• When in doubt refer for Security Advisory Opinion
  (SAO)

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WHICH FIELDS ARE COVERED BY TECHNOLOGY ALERT
LIST (TAL)? VISA MANTIS?

• Information security technologies associated
  with cryptography to ensure secrecy for
  communications, video data and related software
• Robotics and artificial intelligence
  automation, CNC machine tools, pattern
  recognition technologies
• Advanced computer/microelectronic technology
  supercomputing, hybrid computing, speech
  processing/recognition systems, neural networks,
  data fusion, frequency synthesizers, etc.

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TAL/VISA MANTIS COVERAGE (CONT.)

• Navigation, avionics and flight control
  internal navigation systems, flight control
  systems, even Global Positioning Systems (GPS)
• Sensors and sensor technology marine acoustics,
  optical sensors, night vision devices, image
  intensification devices, high speed photographic
  equipment
• Other fields biomedical engineering, laser
  systems, marine, nuclear engineering

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THE CONSULAR TAL INTERVIEW

• Mandatory interview and 2 Minute Drill
• Present H-1B approval notice
• Indicated job title GPS systems analyst
• Consular Officer (Conoff) criteria for decision
• prevent technologies from falling into wrong
  hands
• zero tolerance for mistakes
• profiling nationals of terrorist states or the
  Suspect 26
• when in doubt refer for SAO

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THE CONSULAR TAL/VISA MANTIS INTERVIEW (Continued)

• 1 What is your field and is it on TAL? Do you
  have advanced degree? Show me your CV or
  Resume
• 2 What are you doing with your GPS research?
• 3 Does your company have an export license?
• 4 212(a)(3)(A)(iii) inadmissible on security
  grounds?
• reasonable ground to believe standard

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THE SECURITY ADVISORY OPINION

• At this point, if he does not know what to do,
  Conoff refers for SAO
• Practical matter very few persons denied entry
  cost is delay -- 30 days to 9 months
• Extra scrutiny of companys entire export control
  compliance program

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The SECURITY ADVISORY OPINION (Cont.)

• SAO goes to every agency with an interest in GPS
  technologies Defense, CIA, Homeland Security,
  NASA
• Must wait for response
• Simultaneously, another referral made to FBI for
  name clearance (6.3 million name checks a year)
• 30 day rule is abolished
• Referrals can be made to Defense and Commerce to
  investigate company

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IMPACT OF TAL/VISA MANTIS DELAYS ON ITAA MEMBERS

• Agencies not on any time schedule
• FBI record check not mission critical to clear
  name
• No pre-clearance available
• Existing export license is not a factor in
  decision to deny or delay visa issuance
• Reforms in October if pass once, get one year
  clearance for same employee

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SOME LIGHT AT END OF TUNNEL

• FBI and State Department now recognize problems
• Balance security concerns with business issues
• Formation of IPASS clearinghouse for SAO
  Opinions
• FBI doing better clearing names
• Additional resources for busy consulates Japan,
  Korea, Frankfurt, London

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Practice Tips for Dealing with Visa Mantis

• Conoff WHEN IN DOUBT REFER for SAO
• Eliminate any doubts right at the outset
• Anticipate two sets of questions at the Embassy
  and at the U.S. airport
• Provide employee with short memo explaining
  nature of research and why technologies are not
  subject to TAL
• Employee must document ties to USA and reasons
  for foreign travel
• Plan ahead even export license is not a free
  pass

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Practice Tips for Dealing with Visa
Mantis(cont.)

• Accelerate Green Cards for valuable foreign
  nationals Green Card Holder is not foreign
  national under deemed export rule
• Use the one year Mantis Pass for repeat
  travelers
• Mock Interview to cover questions at embassy
• Evaluate the risks with advice from Counsel

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NEED FOR EXPORTER COMPLIANCE EFFORTS

• Know which export control regime applies to your
  technologies and how they are classified on
  relevant product classification lists
• Dual-use technologies EAR Commodity Control
  List ("CCL")
• Defense technologies ITAR U.S. Munitions List
  ("USML")
• Use a technology/product matrix
• Monitor changes to technology/product mix as well
  as to export regulations

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NEED FOR EXPORTER COMPLIANCE EFFORTS (cont.)

• Integrate hiring with export compliance
  consistent practice of screening candidates
• All nonimmigrant candidates for hire should be
  screened, not just those from problem countries
• Review background and employment history of
  candidate for "red-flags" suggesting ties with
  "at-risk" countries, persons, or entities
• Check government "proscribed" lists to make sure
  candidate is not a "denied person" or involved
  with a person or entity on a list

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INTERNAL COMPLIANCE PROGRAMS NOT REQUIRED BUT
ADVISABLE

• Absence of program can be an aggravating factor
  in an enforcement action
• Existence of program can be a mitigating factor
  in the case of a violation, unless the company
  does not vigorously and demonstrably enforce the
  program

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HR POLICIES TO DEAL WITH DEEMED EXPORT RULES

• Best Practice make clear that export licensing
  is a condition of employment for key technical
  jobs
• Best Practice annually re-verify all
  employees working with controlled technologies
  
• When in doubt, consult HR Director or Counsel

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QUESTION ANSWER SESSION
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Contact Information

• Jim Kearneyjkearney_at_reedsmith.com 202.414.9228
• Eliot Normanenorman_at_reedsmith.com804.344.3427
• www.reedsmith.com