U.S. Export

1
U.S. Export Controls -- The Challenge for
Research Institutions
Richard A. Johnson NCURA richard_johnson_at_aporter.
com November 8, 2002
2
U.S. Export Controls and Trade Sanctions

• Purposes and Overview
• Differences Between ITAR and EAR
• Application to University or Non-profit Research
• Do We Need an Export License?
• Compliance and Penalties
• Trends to Watch

3
U.S. Export Controls and Trade Sanctions
Purposes

• Multiple goals that sometimes conflict
• Advance Foreign Policy Goals
• Restrict Exports of Goods and Technology That
  Could Contribute to the Military Potential of
  Adversaries
• Prevent Proliferation of Weapons of Mass
  Destruction (nuclear, biological, chemical)
• Prevent Terrorism
• Fulfill International Obligations

4
U.S. Export Controls and Trade Sanctions
Overview

• U.S. Export Controls
• Cover Any Item in U.S. Trade (goods, technology,
  information)
• U.S.-Origin Items Wherever Located, including the
  U.S.(Jurisdiction Follows the Item or Technology
  Worldwide)
• Exclude Patents and Patent Applications, Artistic
  or Non-Technical Publications
• Exclude Technology in the Public Domain
• Exports of most high-technology and military
  Items, as well as associated technology, require
  U.S. export authorization (either a license or an
  applicable exemption)
• Trade Sanctions Focus on Financing, Commodities,
  and Services in countries posing greatest
  security or foreign policy threats

5
U.S. Export Controls and Trade Sanctions
Agency Responsibilities

• State Department Munitions (the International
  Traffic in Arms Regulations or ITAR)
• Under Secretary for International Security
  (Bolton)
• Asst. Secy for Political-Military Affairs
  (Bloomfield)
• Licensing Office of Defense Trade Controls
  (DTC)
• Commerce Department Dual-Use Items (the
  Export Administration Regulations or EAR)
• Under Secretary for Industry and Security
  (Juster)
• Licensing Bureau of Industry and Security
  (BIS), formerly BXA
• Nuclear Regulatory Commission Nuclear Materials
  and Technology
• Treasury Department, Office of Foreign Assets
  Control (OFAC) Trade Sanctions, Embargoes,
  Restrictions on Transfers to Certain End-Users,
  Terrorism, Anti-Narcotics

6
U.S. Export Controls and Trade Sanctions
Differences Between ITAR and EAR

• International Traffic in Arms Regulations (ITAR)
• Covers military items (munitions or defense
  articles)
• Regulates goods and technology designed to kill
  people or defend against death in a military
  setting (e.g., tank, fighter aircraft, nerve
  agent defensive equipment)
• Includes most space-related technology because of
  application to missile technology
• Includes technical data related to defense
  articles and defense services (furnishing
  assistance including design, engineering, and use
  of defense articles)
• Strict regulatory regime
• Purpose of regulations is to ensure U.S. security
• --No balancing of commercial or research
  objectives

7
U.S. Export Controls and Trade Sanctions
Differences Between ITAR and EAR

• Export Administration Regulations (EAR)
• Covers dual-use items
• Regulates items designed for commercial purpose
  but that can have military applications (e.g.,
  computers, pathogens, civilian aircraft)
• Covers both the goods and the technology
• Licensing regime encourages balancing competing
  interests
• Balance foreign availability, commercial and
  research objectives with national security

8
U.S. Export Controls and Trade Sanctions
Sanctions

• Sanctions focus on the end-user or country rather
  than the technology
• Embargoes administered by Office of Foreign
  Assets Control, U.S. Department of Treasury
  (OFAC)
• Prohibitions on trade with countries such as
  Iran, Cuba
• Limitations on trade in certain areas of
  countries or with certain actors (e.g., UNITA,
  Balkan war criminals, etc.)
• OFAC prohibits payments to nationals and of
  sanctioned countries and to entities designated
  as terrorist-supporting
• Separate prohibitions under the ITAR and EAR
• ITAR proscribed list/sanctions (e.g., Syria,
  Pakistans Ministry of Defense or requirement for
  presidential waiver for China)
• EAR restricts exchanges with some entities and
  universities in India, Israel, Russia, etc.
  because of proliferation concerns

9
U.S. Export Controls and Trade Sanctions
Limitations for Researchers

• Both the ITAR and EAR provide certain exemptions
  for full-time, regular employees who maintain
  residency during the term of employment
• These exemptions may preclude the need for
  licenses, but often are unavailable for foreign
  national researchers
• Visa restrictions may preclude regular employment
  status by requiring the visa holder to maintain a
  foreign residence (e.g., most students with an F
  or J visa)
• Many researchers, particularly post-docs and
  students, cannot qualify for the exemption
  because universities have many well-established
  reasons for not making these individuals
  full-time employees

10
U.S. Export Controls and Trade Sanctions Key
Issues for University and Non-Profit Research

• Public Domain
• Fundamental Research Exemption
• Deemed Exports
• Other Applications

11
U.S. Export Controls and Trade Sanctions State
Dept. (ITAR) Fundamental Research

• Fundamental research exemption recognized, but
  purposely limited, given jurisdiction over goods
  and technologies designed to kill people
• Covers information which is published and which
  is generally accessible or available to the
  public through a number of mechanisms including
  
• Unrestricted publications
• Fundamental research in science and engineering
  at accredited institutions of higher learning in
  the U.S. where the resulting information is
  ordinarily published and shared broadly in the
  scientific community
• Excludes information restricted for proprietary
  reasons or specific U.S. government access and
  dissemination controls

12
U.S. Export Controls and Trade Sanctions
Commerce (EAR) Fundamental Research

• Exemption significantly broader than ITAR
• Research conducted by scientists, engineers, or
  students at a U.S. university normally exempt
  from licensing
• Prepublication review solely to insure no
  inadvertent release of proprietary information
  generally does not trigger licensing
• Prepublication review by a corporate sponsor or
  other restrictions on the publication of
  scientific and technical information generally
  invalidates the exemption
• Exemption still available for work under U.S.
  government grants involving Commerce-controlled
  technology even if there are access and
  dissemination controls provided that university
  follows national security controls in grant
  proposal
• Some limited technologies ineligible for
  fundamental research exemption (e.g., advanced
  encryption)

13
U.S. Export Controls and Trade Sanctions
Deemed Exports

• U.S. export controls also cover transfers of
  goods and technology within the U.S. (the
  transfer outside the U.S. is deemed to apply when
  a foreign national receives the information in
  the U.S.)
• Applies to technology transfers under the EAR and
  the provision of ITAR technical data and defense
  services
• Unless the fundamental research exemption
  applies, a universitys transfer of controlled
  technology to a non-permanent resident foreign
  national in the U.S. may be controlled and/or
  prohibited
• Visa status important
• Permanent resident (green card holder) has same
  right to controlled information as U.S. citizen
  (no license required)
• Non-immigrant visa holders must satisfy export
  controls (license may be required)

14
U.S. Export Controls and Trade Sanctions
Application to University Research

• Export of research products
• Underwater research vehicle could require ITAR
  license if designed for military applications
  would require Commerce Department authorization
  if designed for civilian purposes
• Specially designed electronic components could be
  controlled
• Temporary transfer of research equipment abroad
• Carrying scientific equipment to certain
  destinations for research may require
  authorization (e.g., Iran, Syria, China, etc.)
• Software development
• Software that is provided to the public for free
  may not require licenses, but proprietary
  software of controlled technology could require
  licensing
• Encryption technology could require licenses or
  could be prohibited for transfers to certain
  foreign nationals/countries

15
U.S. Export Controls and Trade Sanctions
Application to University Research (contd)

• Restrictions on certain foreign nationals
• March 2002 State Department rule expands
  fundamental research exemption for foreign
  nations involved in space-related research, but
  provides no relief for foreign nationals from
  certain countries (e.g., China)
• IPASS likely to result in foreign nationals from
  certain countries being prohibited from working
  on uniquely available sensitive technology
• Government grants may limit access by foreign
  nationals
• Agencies may preclude or limit access by foreign
  nationals to research based on the export control
  laws
• Determining whether a restriction is a specific
  access and dissemination control under the ITAR
  (which would invalidate the fundamental research
  exemption) particularly problematic

16
U.S. Export Controls and Trade Sanctions
Application to University Research (contd)

• Corporate grants may limit access by foreign
  nationals
• Proprietary restrictions or restrictions on
  publication by corporate grants may invalidate
  fundamental research
• Could trigger licensing requirements for certain
  foreign nationals
• Conferences
• Potential restrictions on participants
• Inability to co-sponsor with certain countries or
  groups (e.g., restrictions on co-sponsoring
  conference with Iranian government)
• Transfer of defense services
• Potential license requirements for work with
  foreign nationals to launch research satellite

17
U.S. Export Controls and Trade Sanctions
Application to University Research (contd)

• Foreign national researchers ineligible to use
  some of the exemptions because they are not
  full-time, regular employees of the university
• License processing takes time
• Fast approvals in weeks
• Most approvals in months
• The hardest cases can take years

18
U.S. Export Controls and Trade Sanctions Do We
Need an Export License?

• Determining whether an export license is
  necessary is complicated
• Literally thousands of pages of regulations could
  apply
• Most organizations develop a compliance plan
• Statement from the administration on the
  importance of compliance
• Manual
• Training
• Audits and independent evaluation
• The following process would cover most cases for
  universities, but to obtain the correct answer in
  any given case would require a review of the
  individual facts and circumstances

19
U.S. Export Controls and Trade Sanctions
Export License Steps

• Determine whether the exporter is subject to U.S.
  jurisdiction (U.S. universities are subject to
  U.S. jurisdiction as are any foreign nationals in
  the U.S. overseas operations may be subject to
  U.S. jurisdiction)
• Classify the technology or goods involved (i.e.,
  subject to State Department ITAR controls,
  Commerce Department EAR controls, or other
  controls)
• Determine if a license is needed for the
  particular technology and particular end-use and
  end-user
• Determine whether any license exemptions or
  exceptions are available (e.g., public domain,
  fundamental research, etc.)

20
U.S. Export Controls and Trade Sanctions
Export License Steps (contd)

• Determine whether any embargoes apply or whether
  any prohibited parties or destinations are
  involved
• Determine whether there are any red flags or
  other warning signs of possible diversion of the
  goods or technology
• If a license is required, apply promptly. Keep
  records in any case
• State Department licensing requirements and forms
  available at http//www.pmdtc.org
• Commerce Department licensing requirements and
  forms available at http//www.bis.doc.gov
• Treasury (OFAC) licensing requirements available
  at http//www.ustreas.gov/offices/enforcement/ofa
  c/

21
U.S. Export Controls and Trade Sanctions
Penalties for Noncompliance

• State Department (ITAR)
• Criminal violations up to 1,000,000 per
  violation, up to 10 years imprisonment
• Civil penalties seizure and forfeiture of the
  articles and any vessel, aircraft or vehicle
  involved in attempted violation, revocation of
  exporting privileges, fines of up to 500,000 per
  violation
• Commerce Department (EAR)
• Criminal violations 50,000-1,000,000 or five
  times the value of the export, whichever is
  greater per violation (range depends on the
  applicable law), up to 10 years imprisonment
• Civil penalties loss of export privileges,
  fines 10,000-120,000 per violation
• Ex DOC levied a 1.76 million fine yesterday on
  a company that exported biological toxins without
  a license for research to Europe and Asia

22
U.S. Export Controls and Trade Sanctions
Penalties for Noncompliance (contd)

• The ticking university time bombs
• Corporate sponsored research
• Liability if know, or have reason to know, about
  corporate sponsor violations, EAR General
  Prohibition Ten, 15 CFR 736.2(b)(10)
• Ex. corporate departments ? university U.S.
  citizens ? release to university foreign
  researchers ? university violations
• Material transfer agreements
• MTAs often will eliminate the FR exemption
• Exports of MTAs increasingly require licenses

23
U.S. Export Controls and Trade Sanctions
Penalties for Noncompliance (contd)

• Treasury Department (OFAC)
• Criminal violations up to 1,000,000 per
  violation, up to 10 years imprisonment
• Civil penalties 12,000 to 55,000 fines
  (depending on applicable law) per violation
• Violation of specific sanctions laws may add
  additional penalties
• Most settlements with the Commerce, State or
  Treasury Departments generally become public.
  Court cases are always public!

24
U.S. Export Controls and Trade Sanctions
Compliance Risks Faced by Universities

• Universities have been largely immune from past
  export control enforcement. This likely will
  change -- soon
• Increasing scrutiny of all exports, and
  universities in particular, following 9/11
• Agencies criticized for failure to enforce
  deemed exports (GAO Report slammed DOC for
  countries including China and Israel)
• Acting under a government grant is no defense
• Los Alamos and Lawrence Livermore National Labs
  investigated for their role in providing a 486
  computer and other items to a Russian lab to help
  control Russian material under a U.S. government
  research program!
• State Department officials have told us that
  universities are not on their top priority list
  but that disclosure of sensitive technology to
  problematic end-users (e.g., mating a research
  satellite to a foreign launch vehicle) could
  change this

25
U.S. Export Controls and Trade Sanctions
Special Considerations for Universities

• U.S. export controls create significant tensions
  with university goal of non-discrimination based
  on nationality and a free and open campus
• To avoid discrimination and preserve openness
  requires active university management of export
  controls
• State Department officials erroneously believe
  that universities largely placated by March 2002
  expansion of fundamental research NSC and OSTP
  understand this is not true
• This exemption is quite narrow and is only
  available for a limited number of nationalities
• Other university concerns (e.g., exemptions for
  full-time researchers) remain unaddressed
• IPASS likely will further limit access by certain
  foreign nationals
• Increasing linkage of export controls with
  information controls and IPASS

26
U.S. Export Controls and Trade Sanctions

• Several trends to watch
• National security v. openness in export
  controls as a political and media issue. It no
  longer is only a technical issue
• export control hearings planned in new Congress
• state legislature pressures on land-grant
  universities
• lots of interagency groups considering
  broadening and deepening export controls and
  related controls
• Keep an eye on biology, biotech and
  bioengineering (increased threat most
  unpredictable least experience greatest
  pressure for new export controls)

27
U.S. Export Controls and Trade Sanctions

• Contracts and funding are becoming as much a
  lever as new regulations -- federal
  increasingly linked to compliance with export
  controls and additional contractual restrictions
• A shift from the right to know to the need to
  know as an operating principle of government
• The Export Administration Act renewal battle next
  year will be expanded to include many more issues
  of interest to universities and researchers
• University audits and investigations will be
  initiated

28
U.S. Export Controls and Trade Sanctions

• For Further Information Contact
• Richard Johnson
• Arnold Porter
• 555 12th Street, NW
• Washington, DC 20004-1206
• 202-942-5550
• 202-942-5999 fax
• Richard_Johnson_at_aporter.com