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Archive for the ‘Deemed Exports’ Category

Mar

15

Obama Hints at Specific Export Reforms

Posted by Clif Burns at 8:30 pm on March 15, 2010

Blackberry Last week, in his speech before the Ex-Im Bank, President Obama provided some details about the specific export control reforms which might be in the offing. The first relates to our ludicrously archaic and burdensome system of encryption controls. Obama promised to streamline the review process for “products with encryption capabilities like cell phone and network storage devices.” He promised to cut the review process required before exporting such devices from 30 days to 30 minutes. While a welcome change, even 30 minutes is too much. The U.S. should acknowledge the widespread availability of commercial encryption outside the U.S. and deregulate exports of all encryption products other than military encryption.

Second, Obama promised reform in a somewhat obscure area of export law mostly known to export control junkies and geeks:

And second, weâ€™re going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. Theyâ€™re running on two tracks, when they could be running just on one. So weâ€™re moving towards harmonizing those standards

What Obama is referring to here is the conflict between the standards applied by the State Department and the Commerce Department on “deemed exports.” Under the deemed export rules, exports of technology are deemed to be exports to the country of which the recipient is considered a national.

Under Commerce’s deemed export rules, an export to a foreigner with multiple citizenships or countries of permanent residencies is considered an export to the country of the most recently acquired citizenship or permanent residency. Under State Department rules, the export is considered to be an export to each of the countries — with the most restrictive licensing policy applied.

Obama doesn’t say which of these conflicting rules will yield to the other as they are “harmonized.” We can only hope that the Commerce rules will prevail.

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Feb

23

More Deemed Export Red Tape Courtesy of BCIS

Posted by Clif Burns at 8:29 pm on February 23, 2010

Category: Deemed Exports

Red Tape DHS’s Bureau of Citizenship and Immigration Services (“BCIS”) wants to make your life more difficult if you hire H-1B workers and need a deemed export license to do so. Under a proposed revision in the form used to apply for H-1B visas for skilled technical workers, employers will now need to obtain the deemed export license from the Bureau of Industry and Security (“BIS”) before applying for the H-1B visa. Previously, the license needed to be obtained before the foreign worker could be given information on the controlled technology, but the employer could file for the visa and the deemed export license simultaneously. Now, the export license must be obtained before the visa can even be submitted to BCIS. Here is a copy of the proposed form. Check out page 6.

Oddly, this requirement is only for employees needing BIS deemed export licenses. Those requiring a deemed export license from the Directorate of Defense Trade Controls (“DDTC”) for foreign workers involved with technologies controlled by the United States Munitions List (“USML”) can apply for the visa and the license at the same time.

BCIS, with typical transparency, announced the revision and asked for comments in this public notice in the Federal Register. The public notice doesn’t reveal the nature of the proposed changes or how to find them other than suggesting that employers go try to find the proposed forms at regulations.gov. Good luck with that. We can only thank a loyal reader for tracking down the proposed, but undisclosed, changes in the visa application form.

Comments on this proposed change are due by April 9, 2010. Comments can be submitted by fax to 202â€“272â€“8352, or via e-mail to [email protected].

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Apr

14

DDTC Asks NSC For Guidance on Foreign National Rules

Posted by Clif Burns at 10:06 pm on April 14, 2009

Category: BIS • DDTC • Deemed Exports

NSC Meeting During the Ford Administration An article (paid subscription required) in this week’s Washington Tariff & Trade Letter reports that at the Defense Trade Advisory Group (“DTAG”) meeting held on April 7, Frank Ruggiero, the Deputy Assistant Secretary of the Directorate of Defense Trade Controls (“DDTC”) announced that the agency had asked the National Security Council to review the treatment of foreign nationals under U.S. export laws. The DDTC request was sent at the end of March, but there is no current timetable for its consideration by the NSC inasmuch as the Obama administration is still putting together and organizing the new NSC.

At issue is the difference between the way the Bureau of Industry and Security (“BIS”) and DDTC treat foreign nationals with respect to approving transfer of controlled technical data to them. For example, DDTC may use the country of birth of a foreign national to deny licenses or agreements involving transfer of technical data to that individual. BIS, on the other hand, considers the individual’s current citizenship in evaluating his or her ability to receive controlled technical data regarding dual use items.

DDTC’s policy of considering country of birth has created some concern within the export community because it has been applied inconsistently and without any clear statement of applicable guidelines. In some formulations, it appears that the DDTC would automatically apply the policy to bar access to technical data by persons born in, but not citizens of, countries subject to arms embargos under section 126.1 of the International Traffic in Arms Regulations. At other times, DDTC has suggested that a case-by-case consideration would be applicable to foreign nationals born in proscribed countries, an approach that makes more sense when you consider situations such as a child of French diplomats born in China.

The policy has also drawn criticism from abroad. Human rights commissions in Canada and Australia have pointed out that the DDTC’s policy is, in effect, an illegal discrimination based on national origin. This has put U.S. contractors doing business in those countries in a difficult position since it is impossible for them to comply both with DDTC requirements and local laws.

Although a review of these issues for the purposes of achieving uniformity is laudable, DDTC’s motive in requesting that review is somewhat hard to determine. On the one hand, perhaps DDTC is looking for administrative cover to back away from its stricter rule and provide some relief from U.S. defense contractors with overseas operations. On the other hand, DDTC might simply be seeking to have its own narrower view imposed on BIS and other export agencies.

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Jun

3

California Firm Agrees to $31,000 Fine for Deemed Export Violation

Posted by Clif Burns at 9:08 pm on June 3, 2008

Category: Deemed Exports

ABOVE: TFC Manufacturing

California-based machining facility, TFC Manufacturing, recently agreed to pay $31,500 in fines to settle “deemed export” allegations made by the Bureau of Industry and Security. According to BIS’s charging letter, TFC disclosed “technology for the production of aircraft parts” to an Iranian national in the United States. According to BIS, the technology was classified under ECCN 9E991.

Those familiar with the logic of the Commerce Control List, will immediately note that the ECCN involved is one of the xx99x ECCNs. These are typically broad catch-all categories of items that are called, in BIS-speak, “n.e.s.,” or “not elsewhere specified.” (What additional costs would be incurred by BIS to eliminate “n.e.s.” as an acronym in the Commerce Control List and simply print out “not elsewhere specified”? Certainly not enough to justify this ridiculous acronym.) And these xx99x n.e.s items are generally controlled only for anti-terrorism (“AT”) reasons, meaning that licenses are only required to the AT countries such as Iran. In this case ECCN 9E991 refers to technology relating to ECCN 9A991 which simply covers aircraft parts “n.e.s.”

The President of TFC that signed the Settlement Agreement had an Iranian surname and it is likely, if not certain, that the employee involved was an Iranian refugee and not someone likely to transfer aircraft part technology to the government of Iran. Nevertheless, an “deemed export” of controlled technology to the Iranian refugee is equivalent, under BIS rules, to an export directly to Iran. The company was subject to the new $250,000 maximum penalty in this case, and so it is reasonable to assume that the $31,000 fine imposed on TFC was an implicit recognition that the violation was a technical violation that did not greatly impinge on the security interests of the United States.

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Apr

15

Work by Chinese Grad Student Leads To Deemed Export Conviction

Posted by Clif Burns at 9:52 pm on April 15, 2008

Category: Criminal Penalties • Deemed Exports

Unmanned aerial vehicle Daniel Max Sherman, a former employee of Knoxville-based Atmospheric Glow Technologies, entered a guilty plea today in federal court to a conspiracy with a former University of Tennessee professor to provide controlled technical data to a Chinese student research assistant in violation of the Arms Export Control Act. AGT had given a subcontract relating to its research on a military drone aircraft to UT’s Plasma Sciences Laboratory, and the professor and the Chinese research assistant were working on the project.

Sherman’s plea hearing went a little off track when Sherman declined to admit to one of the essential elements of the crime which led to a little prompting — and a misstatement of the law — by the prosecutors:

Sherman indicated to [Judge] Varlan that although he was admitting guilt he maintains he was unaware of the provisions of the Arms Export Control Act that would have restricted the work to U.S. citizens only barring a special permitting process. However, [prosecuting attorney]Theodore noted that the law states a person violating the action either must know or should have known about the act’s requirements and Sherman’s claim of ignorance would not pass muster.

Sherman then conceded that point and formally entered his guilty plea.

The AECA’s requirement of willfulness as an element of a criminal charge is a requirement that the defendant knew that the export was illegal. It is not whether the defendant knew or should have known that the export was illegal. Increasingly, it seems, U.S. attorneys are finding the scienter requirement to be too pesky to bother with and are looking for novel ways to disregard it.

[Thanks to Mike Deal for alerting me to this story.]

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