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Deemed Exports - April 27, 2011

The New I-129 Non-Immigrant Visa Certification

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Introduction• Deemed Export

A release of technology to a foreign person in the U.S. may be “deemed” to be an export to that foreign person’s “home country”

• May require a license

• Not a new concept – 3 decades old

• Has real bite – strict liability, penalties, fines, prison

• I – 129 certification suggests new era of enforcement

• Pains and penalty of perjury. Grants permission to audit

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The I-129 CertificationMandatory February 20, 2011

Part 6 of the form requires a petitioner seeking H-1B, H-1B1, H-1, or O-1A visas to certify that it has reviewed the Export Administration Regulations (“EAR”) and the International Traffic in Arms Regulations (“ITAR”) and determined that:

(1) A license is not required to release technology to the beneficiary; or

(2) If an export license is required, it will not release controlled technology to the foreign worker until it has received a license or other authorization to do so

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Overview• Who is a foreign person

• Understanding Technology and Technical Data in context of EAR and ITAR

• Which regime applies• What technology / technical data is

controlled

• How does a release occur

• When is a license required to release technology

• Penalties, fines, prison, and horror stories

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Foreign Person• Any “person” who is not a U.S. citizen, lawful permanent

resident; person granted asylum, a refugee, or temporary resident granted amnesty

• Includes any foreign corporation, business association, partnership, trust, society, or other entity or group not

incorporated or organized to do business in the U.S.

• Same Under EAR and ITAR

• EAR refers to a “Foreign National”• ITAR refers to a “Foreign Person”

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Home Country• Nuance between how the ITAR and EAR define a foreign

person’s home country

• The EAR = last place of permanent residency or citizenship

• The ITAR = place of birth, place(s) of citizenship, and residency

• Example: Foreign person born in Syria and now a permanent resident of UK. Under EAR, home country is UK. Under ITAR home country is UK and Syria

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U.S. Export Regulations• Essentially two regimes:

• The Export Administration Regulations (“EAR”)

• The International Traffic in Arms Regulations (“ITAR”)

• Single export system may be coming, but it isn’t here yet

• Both impose licensing requirements on the export, reexport, and in country transfer of a variety of items controlled for national security and foreign policy reasons

• Also govern related controlled technology

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Deemed Exports• EAR defines “export” to include: “[a]ny release of

technology or source code … subject to the EAR to a foreign national within the United States. Such release is deemed to be an export to the foreign national’s “home country”

EAR Part 734.2(b)(2)

• ITAR defines an export to include “disclosing (including oral or visual disclosure) or transferring technical data to a

foreign person, whether in the United States or abroad”

ITAR Part 120.17(a)(4)

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INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (“ITAR”)

15 CFR PARTS 120 TO 130

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ITAR• Department of State (“DOS”), Directorate of Defense

Trade Controls (“DDTC”)

• Covers items that are listed on the United States Munitions List (“USML”) 15 CFR Part 121 Categories I through XXI

• Covers defense articles, services, and technical data

• USML - 20 categories (i) – (xxi) [(xix) reserved]

• (iv) missiles; (vii) military vehicles; (viii) aircraft and associated equipment; (xi) military electronics; (xii) optical; (xiv) chemical agents; (XV) spacecraft systems; (xxi) miscellaneous [catch all]

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ITAR (Cont.) • Includes sub categories for parts, components, accessories, and attachments [e.g. of a military vehicle]

• Specifically designed, developed, configured, adapted, or modified for a military [or space] application ….

22 CFR Part 120.3

• Even the most insignificant modification likely to be sufficient to invoke ITAR control

• Toilet seat on military C130 aircraft

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ITAR (Cont.)

• Technical Data

Information … which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles

ITAR 120.10

Includes software directly related to defense articles

ITAR 120.10(a)(4); ITAR 121.8(f)

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ITAR (Cont.) • Examples of Technical Data

• Blueprints, drawings, photographs, plans, instructions, documentation, test data,

reports, even oral disclosure

• Defense articles themselves

• Mock-ups

• Not what it does, but how it does it (conveys know- how)

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ITAR (Cont.)• Not Technical Data

• General scientific, mathematical or engineering principles commonly taught in schools, colleges, universities

• Basic marketing information on function or purpose / general system descriptions

ITAR 120.10(a)(5)

• Public Domain

• Published and generally accessible or available to the public

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ITAR (Cont.)• Public Domain ITAR 120.11

1. Newstands and bookstores2. Unrestricted subscriptions3. Second class mailing4. Libraries5. Patents6. Unlimited distribution at conferences in the

U.S.7. Public release after approval by cognizant

U.S. Government department or agency8. Through fundamental research

• Beware the Internet. Beware defense services

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ITAR (Cont.)• Fundamental Research

• 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

• No restrictions for proprietary reasons or U.S. Government access and dissemination controls

ITAR 120.11(a)(8)

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ITAR Licensing• ITAR = license likely to be required ITAR Part 125

• License is a DSP-5 for unclassified technical data along with an Non Disclosure Agreement

• DSP-85 for classified technical data as well as DSP-83 non-transfer and use certificate

• Examples of exemptions (Limited) ITAR Part 125.4(b)

• Official request or direction of DOD

• In furtherance of Manufacturing License Agreement or Technical Assistance Agreement

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ITAR Licensing• Examples of exemptions (Cont.)

• U.S. Government contract permits disclosure

• [and only if disclosure does not include details of design, development, production or manufacture]

• Basic operations, maintenance, and training for defense article previously lawfully exported

• Unclassified technical data in U.S. by U.S. institutions of higher learning to foreign

persons who are full time bona fide employees • [and only if: living in U.S., not from proscribed

country under ITAR 126.1, and institution informs that technical data may not be transferred]

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EXPORT ADMINISTRATION REGULATIONS (“EAR”)

22 CFR PARTS 730 to 774

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The Export Administration Regulations(The “EAR”)

• Department of Commerce (“DOC”), Bureau of Industry and Security (“BIS”)

• Covers “dual use” or purely commercial items / software

Broadly speaking, if a product or related technology does not fall under the ITAR, then it is “subject to” the EAR

• Most things “subject to” the EAR – pencils to rocket fuel

• However, only technology that is listed on Commerce Control List is controlled

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EAR (Cont.) • Technology controlled under the EAR is listed in the

Commerce Control List (“CCL”)

0. Nuclear1. Materials2. materials processing3. electronics4. computers5. (i) telecommunications; (ii) information

security6. sensors and lasers7. navigation and avionics8. marine 9. propulsion, space vehicles and related

equipment

•

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EAR (Cont.) • Groups within categories:

A. Systems, equipment, componentsB. Test, inspection, and productions equipmentC. MaterialsD. SoftwareE. Technology

• Example

• 4A001 Computers• 4E001Technology … for the

“development,” “production,” or “use” of equipment controlled by 4A ….

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EAR (Cont.) • Technology

• Specific information necessary for the “development”, “production”, or “use” of a product. The information takes the form of “technical data” or “technical assistance”

• Technical data – blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals, instructions written or recorded on other media …

• Technical assistance – instructions, skills training, working knowledge, consulting services

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EAR (Cont.) • Controlled Technology

• Development

• Production

• Use

• Needs to be Required Technology

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EAR (Cont.) • Development Technology

• Related to all stages prior to serial production, such as:

• Design, design research, design analysis, design concepts

• Assembly and testing of prototypes, pilot production schemes

• Design data, processes of transforming design data into product, configuration design, integration design, layouts

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EAR (Cont.) • Production Technology

• All production stages (the know-how):

• Production engineering

• Manufacture

• Integration

• Assembly

• Inspection

• Testing, QA

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EAR (Cont.) • Use Technology

• Operation, installation, maintenance, repair, overhaul, and refurbishment

• Need all six attributes otherwise EAR99

• Contrast to ITAR

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EAR (Cont.) • Required Technology

• That portion of technology which is peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions

• Example: to produce uncontrolled product x, production technology a, b, c is used

• A higher performance version is controlled and uses production technology a, b, c, d, and e. Only d and e is required technology.

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EAR (Cont.) • Not Controlled Technology

• Publically available EAR Part 734.3(b)(3); 734.7

• Includes internet

• Fundamental research EAR Part 734.3(b)(3); 734.8

• Educational EAR Part 734.3(b)(3); 734.9

• Public patent applications EAR Part 734.3(b)(3); 734.10

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EAR Licensing • EAR = License only necessary if listed on CCL and

license is required to export to home country

• Common license exception - TSR

• Technology and Software Under Restriction

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Release / Disclosure• Deliberate or inadvertent

• Access to drawings• Shared network drives• Collaboration• Telephone, fax, email• Visitors• Lunch room

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Implications of Deemed Export Violations

• License may be required

• Licenses take time (denial possible)

• Civil Penalties - $500,000 per violation

• Criminal $1,000,000 – 20 years in prison

• Denial of export privileges

• Debarment from U.S. contracts

• Possible deportation

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THANK YOU!

Ian H. MossPosternak Blankstein & Lund, LLP

Prudential Tower800 Boylston Street

Boston, MA 02199-8004Tel. 617.973.6146

Email: imoss@pbl.com