At the Intersection of Commercial Export Controls and Hiring Foreign National Employees: The Deemed Export Rule

CMBA International Law Section CLE Conference: International Law in the Age of the Internet

Cleveland, OhioMay 9, 2014

Law Offices of Jon P. Yormick Co. LPAAn International Law PracticeAttorney Advertising

Disclaimer

• The information provided is believed to be accurate as of the date of the presentation, but is subject to change without notice

• This presentation is designed for informational purposes only and is not intended to be, nor should it be deemed, specific legal advice. If such advice is required, please consult with qualified legal counsel

Day-to-Day Issues

• Q: Do we need an export license to send an email with export controlled information to our [citizenship of choice] colleague in Cincinnati?

• Q: If so, we can just let her download it from the server without a license, right?

It depends…

Assumptions• Jurisdictional analysis performed – ITAR v. EAR

• I-129 Part 6 Certification

• Export Control Classification Number (ECCN)* examples:

– 3E001 (“Technology” for the “development” or “production” of hard disk drive manufacturing)

– 9E991 (Technology for the development or production of aircraft parts)

– 9E980 (Technology for the development or production of monitoring equipment, e.g., electronic bracelets)

*Commerce Control List – 15 CFR Supp. 1 to Part 774

The Deemed Export Rule – 15 CFR 734.2

• “Technology” subject to the EAR is “deemed” to be exported when it is released to a foreign national within the U.S.

• “Technology” is specific information needed to develop, produce or use a controlled product

• Applies beyond Internet

The Deemed Export Rule

• Arises most often – U.S. employment of foreign nationals

• “Foreign national” definition

• Reasons for controls and licensing policy

Deemed Export Scenarios

• IT staffing company compliance

• Italian aerospace engineer on H1-B

• German optics engineer on L-1

• Indian optics engineer on H1-B

• Iraqi Ministry of Oil delegation plant tour

• CWRU Engineering students plant tour

• Thin film technology PowerPoint presentation

I-129 Part 6 Certification

• Box 1: A license is not required from Commerce or State to release such technology or technical data to the foreign person; or

• Box 2: A license is required from either Commerce or State for the release and petitioner will prevent access to controlled technology or technical data by beneficiary until and unless the petitioner has received required license or other authorization…

Why Talk about Deemed Export Rule?

BIS FY13 Report to Congress:

• “BIS continued increasing its regulatory compliance education programs in the critical area of deemed exports.”

• “…BIS continued to focus on the enforcement aspects of expanded outreach and deemed export compliance involving individuals and companies … BIS’s Office of Export Enforcement conducted more than 843 enforcement outreach visits [and] initiated 92 leads and cases involving allegations of deemed export licensing violations.

-Assistant Secretary for Export Enforcement, David W. Mills

Is a Deemed Export License Required?• Q: Send an email with export controlled information

to our [citizenship of choice] colleague in Cincinnati?

• Q: If so, we can just let her download it from the server without a license, right?

• Is a License Exception available? STA*?

• Caveats: - Follow documentation requirements

- Not available for China or Russia

* 15 CFR 740.20

Where to Find Guidance – www.bis.gov

• Policy Guidance Tab: Deemed Exports

–Deemed Exports FAQs http://1.usa.gov/1hsOlQm

–Guidelines for Preparing Export License Applications Involving Foreign Nationals http://1.usa.gov/Rm3egX

Consequences of Deemed Export Violations

• 2008 – California machining company; release of technology for production of aircraft parts to Iranian national; not VSD; $31,500 settlement

• 2012 – deemed export violation; 1 of 21 proposed charges; released technology controlled for Crime Control to Israeli national, without a license; voluntary disclosure – total penalty settlement $230,000

This is What $115,000 in Violations Looks Like

• February 19, 2014 – Intevac, Inc. (Santa Clara) – VSD

– Charge 1: Releasing National Security-Controlled Technology to Russian National Employee – development and production of hard disk drives

• “Release” – technology on server; provided employee with login and password to access server; view, print, download, create attachments

– Charges 2-4: Acting with Knowledge – 3 more releases while deemed export license application was pending with BIS

– Charge 5: Exported NS Controlled Technology to China without license – “export took the form of a transmission that occurred when a Chinese national employee working at the Chinese subsidiary used a login identification code and password … to access server” located in Santa Clara

What to Keep in Mind: Points from USG Officials at 2013 BIS Update

• Deemed exports is the fastest growing area of export controls

• Licensing trigger: private sourcing of research

• No need to correct/update Part 6 certification – get a license

• Time to license: 30-45 days

• Who gets deemed export licenses? Chinese – 74%, Iranians, Indians, Russians, Vietnamese

• Currently no routine information sharing

Points from USG Officials at 2013 BIS Update

• Ongoing training – HR must understand export controls during hiring process

• Targets: USML to CCL

• I-129 Part 6 is “hugely useful” to show knowledge and intent

– Do not sign unless check was actually performed

– Resist timing pressures

To Disclose or not to Disclose…

Keynote Speech of David W. Mills, BIS, Assistant Secretary for Export Enforcement, West Coast Forum, February 25, 2014:

“… on January 17, 2014, BIS reached a settlement with Amplifier Research for a $500,000 penalty. However, BIS suspended the civil penalty in its entirety because of the VSD filed by Amplifier Research in 2011 detailing the actions of Gormley and its substantial cooperation in the course of this investigation….By filing the VSD, Amplifier Research avoided criminal charges (against the company itself), and the suspended fine will be waived at the end of the penalty period provided all commitments are met.”

To Disclose or not to Disclose…

• Successor liability for export control violations

• C.A. Litzler Co., Inc. – April 24 BIS civil penalty settlement - $45,000

• ALJ granted BIS motion to amend Charging Letter under “substantial continuity” standard, finding C.A. Litzler acquired a substantial portion of assets, as well as services of key personnel, target ceased operations, but continued to exist as entity post-acquisition

Thank you

Jon P. YormickAttorney and Counsellor at Law

Law Offices of Jon P. Yormick Co. LPA

Email: jon@yormicklaw.com

Toll Free: +1.866.967.6425

Mobile: +1.216.269.5138

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