ALP: When is a Person an Export?

What Employers Need to Know About Deemed Exports

May 2007

Recently, ITT Corporation, one of the leading manufacturers of night-vision equipment for the U.S. armed forces, agreed to pay a $100 million penalty for illegally exporting classified night-vision technology abroad.  ITT is the first major defense contractor convicted of a criminal violation under the federal Arms Export Control Act.  The enormous fine levied upon ITT is a potent reminder of the United States government’s steadfast determination to protect U.S. technology from misuse overseas – misuse that could benefit foreign governments, terrorist organizations, or corporations. Many of the numerous export compliance violations uncovered in this investigation related to ITT’s hiring practices. The military contractor allowed an engineer from Singapore to work at their manufacturing site in Virginia and hired two Chinese nationals as optical engineers at their Singapore-based research and development facility.  Employing these foreign nationals without an export license from the U.S. government was a clear violation of the “Deemed Export Rule.”

Manufacturers are generally aware that the physical export of their products my require an export license from a federal regulatory agency such as the Department of Commerce, Bureau of Industry and Security (“BIS”) or the Department of State, Directorate of Defense Trade Controls (“DDTC”).  However, according to U.S. regulations, information may also constitute an exportable product. Under U.S. export controls laws, the release of technology to a foreign national, even if the foreign national is in the United States, is “deemed” to be an export to the home country or countries of the foreign national.  If the export of such technology would have required an export license to the foreign national’s home country, an export violation has occurred.

For the purposes of U.S. export control laws, “technology” is specific information necessary for the “development,” “production,” or “use” of a product.  Technology can be released through a variety of formal and informal means, including visual inspection, oral exchanges of information, or the application to situations abroad of personal knowledge or technical expertise acquired in the United States.  Exposing a foreign national to technical specifications, plans or blueprints of export-controlled products, can be construed as a violation of the Deemed Export Rule.

Although U.S. employment laws generally prohibit employment discrimination based on an individual’s national origin, a “national security” exception exists to require employers to safeguard U.S. controlled-technology from their foreign national employees.  Not all foreign nationals are subject to the Deemed Export Rule.  Those foreign nationals resident in the United States under a permanent residence visa (i.e., “Green Card”) are classified as U.S. citizens for the purposes of the Deemed Export Rule.  Likewise, “protected persons”, including political refugees and asylum holders do not fall under this Rule.

Recognizing the importance of foreign nationals in the research conducted in the U.S. academic community, export control laws provide an exception to the Deemed Export Rule for “fundamental research.”  Fundamental research is basic and applied research in science and engineering where the resulting information is published and shared broadly within the scientific community.  All research intended for publication, whether or not it is ever accepted by a scientific journal, is considered to be “fundamental research” and therefore not subject to the Deemed Export Rule.  As the product of “fundamental research” is deemed publicly available, an export license is not required.  By contrast, “proprietary research”—conducted for the purpose of obtaining a business/national security advantage—falls under the auspices of the Deemed Export Rule.

In the prosecution of ITT, federal prosecutors noted that the company had viewed U.S. export control laws as “an obstacle to getting business done.” Employers need to be highly sensitive to the export classification of their products and the possibility of violating export regulations through hiring practices. In the global marketplace, companies regularly recruit overseas and/or transfer workers from foreign subsidiaries. As a result, compliance with U.S. export laws is increasingly difficult unless companies self-consciously adopt appropriate protocols. A legal professional can advise corporations engaged in international trade, helping to formulate appropriate safeguards to prevent export violations.

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