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Beyond Virginia
 
DEEMED EXPORTS – HOW TO EXPORT WITHOUT LEAVING THE U.S.

The term “export” conjures up images of cargo ships loaded with containers; intercontinental plane trips; and sales in exotic destinations. To the unitiated, therefore, it may come as a surprise that you can conduct an export of goods, technology, or services, including exports that may require an export authorization from the U.S. Government, without leaving the United States. Both the Export Administration Regulations (“EAR”), which govern exports of dual-use and high-technology items, and the International Traffic in Arms Regulations (“ITAR”), which govern exports of defense articles and services, include in their definition of “export”, transfers of controlled items or technology to foreign persons located in the United States. See 15 C.F.R. §734.2(b) and 22 C.F.R. §120.17(a).

In the EAR, these transfers are termed “deemed exports” because they are deemed to be exports to the country of nationality of the foreign person who receives them. See 15 C.F.R. §734.2. While the ITAR does not use the term “deemed exports”, the same concept is embodied in the definition of “export”. See 22 C.F.R. §122.17(a). From a practical perspective, U.S. companies therefore must be aware of who they are speaking with, or providing access to their facilities, even in the United States, including their own employees. Examples of scenarios that may raise export licensing requirements include:

  1. Providing a tour of a U.S. manufacturing facility to a potential foreign customer;
  2. Hiring an engineer who is not either a U.S. citizen or a U.S. permanent resident; or
  3. E-mailing technical drawings or specifications to an employee of your U.S. supplier who, unbeknownst to you, may be a foreign person.

Deemed exports create a trap for companies that do not realize that they do not need to travel or transfer goods and technology abroad to conduct licensable exports. Both the U.S. Department of Commerce and the Department of State have fined companies for failing to obtain export authorizations for deemed exports. For example:

  1. Fujitsu Network Communications, Inc. paid a $125,000 fine to the Department of Commerce for failing to obtain export authorizations to provide fiber optic technology to its employees, who were nationals of the People’s Republic of China and the Ukraine, see www.bis.doc.gov/ComplianceAndEnforcement/DontLetThisHappenToYou2007_sm.pdf;
  2. Suntek Microwave, Inc. was assessed a $275,000 administrative penalty and denied export privileges for twenty (20) years by the Department of Commerce for failing to obtain the necessary export authorization to provide technology related to detector log video amplifiers to employees who were Chinese nationals and for other export violations, see http://www.bis.doc.gov/ComplianceAndEnforcement/DontLetThisHappenToYou2007_sm.pdf; and
  3. General Motors Corporation and General Dynamics Corporation were assessed fines and penalties totaling $20 million for permitting their employees, who were nationals of foreign countries including Canada, access to hardware and technical data related to light armored vehicles without appropriate export authorization from the Department of State, see http://www.pmddtc.state.gov/ca_generalmotors.htm.

B. Practical Steps to Avoid Unauthorized Deemed Exports

The following basic steps will help companies, whose business includes EAR- or ITAR-controlled articles and technologies, to avoid unauthorized deemed exports:

  1. Use the I-9 form that must be completed for all employees, to confirm whether any employees are “foreign persons”, meaning that they are not U.S. citizens or U.S. permanent residents (green card holders) and do not qualify as asylees or refugees;
  2. Ensure that any foreign person employees do not have access to any items, data, or technology that are controlled under the EAR or the ITAR, including access to data that may be stored on company computer systems and databases;
  3. Obtain export authorizations, or identify and document applicable license exceptions or exemptions, for any foreign person employees that require such access;
  4. Prior to providing any EAR- or ITAR-controlled technology, such as blueprints, specifications, or requirements, to another company, ensure that that company has signed a non-disclosure agreement or confidentiality agreement that includes an acknowledgement that the technology they will receive from you is export-controlled and may not be provided to any foreign person without appropriate prior authorization from the U.S. Government; and
  5. Implement procedures that require all visitors to your facility, who may receive any access to EAR- or ITAR-controlled articles or technology during a meeting, plant visit or design review, to confirm whether the visitors are U.S. citizens or permanent residents.

These basic steps will permit U.S. companies to minimize the risk of unauthorized exports. If you have questions concerning deemed exports or other export compliance issues, please feel free to contact us directly.