What Is the “Deemed Export” Rule?
The “deemed export” rule1 views any disclosure of US-controlled technology or know-how to a foreign national within the United States as an export to that foreign national’s country of origin whether or not the technology or know-how is physically shipped outside the United States. One of the rationales behind the deemed export rule is the concern that many of the state-of-the-art technologies developed by US companies have potential military use. If foreign nationals have access to US-controlled technology they may disclose such information to terrorist organizations or certain suspect countries. Therefore, the deemed export rule attempts to thwart such disclosures without the appropriate licenses. Nevertheless, the General Accounting Office has reported that one-third of companies it interviewed did not have internal controls in place to protect export-controlled information.2 Compounding the export compliance challenges confronting companies is, as the General Accounting Office observed, a scarcity of readily accessible information disseminated from government agencies.3
Technologies and Industries Covered by the Deemed Export Rule
Many types of technologies and industries are affected by the deemed export rule. Some of the categories of US-controlled technologies include (1) materials, chemicals, microorganisms and toxins; (2) electronics; (3) computers; (4) telecommunications and information security; (5) navigation and avionics; (6) lasers and sensors; (7) marine; and (8) propulsion systems, space vehicles and related equipment. Within each category, items are arranged by groups including (1) equipment, assemblies and components; (2) test, inspection and production equipment; (3) materials; (4) software; and (5) technology. In 2001 most deemed export licenses authorized foreign nationals to work with advanced electronics, computer, or telecommunications and information security technologies.4
Because of the broad list of categories, many industries may find that they have US-controlled technology and know-how which may need to be disclosed to foreign nationals and, therefore, are in need of a license. While it may be obvious that nuclear reactors are on the list of US-controlled technology, many other items that are considered US-controlled technologies are not as obvious. In particular, encryption software developed by a high technology company to be included in a product may be considered US-controlled technology based on the encryption bit level of the software. Additionally, certain speech recognition software and navigational positioning equipment (e.g., global positioning system or GPS) are considered US-controlled technologies.
Who Is a Foreign National?
A foreign national is any person who is not a US citizen, lawful permanent resident or protected individual (asylee or refugee). For example, persons in the United States under non-immigration status, such as H-1B (Specialty Occupation Workers), L-1 (Intra-company Transferees) and F-1 (Student Workers) employees, and persons unlawfully in the United States are considered foreign nationals under the rule.
In the event that an individual is a permanent resident or citizen of a country other than that of their nationality, then it will be necessary to determine an individual’s home country, which will vary depending on the government agency involved.
Using a foreign national from a non-US subsidiary to develop proprietary, state-of-the-art encryption software technology could violate the export control laws.
Examples of Disclosure
Disclosure of US-controlled technology and know-how can happen in many different ways including (1) face-to-face meetings; (2) telephone conversations; (3) email or facsimile transmissions; (4) visual inspections; (5) physical access; (6) practice or application under the guidance of someone knowledgeable of the technology; and (7) making information accessible on servers or intranet or extranet sites. For example, suppose a business needs to fill a vacant network consultant position. The job responsibilities include unrestricted or administrator access to servers containing controlled technical data, for the purposes of ensuring systems are up and running. If an H-1B individual is hired for the position then there could be a violation of the export control laws, even though that foreign national never actually accesses the controlled technical data.
Additionally, using a foreign national from a non-US subsidiary to develop proprietary, state-of-the-art encryption software technology could violate the export control laws. Moreover, if foreign national customers (or even foreign employees from a non-US office) visit manufacturing facilities in the United States and observe US-controlled processes and equipment, there could be a violation of export control laws. Therefore, it is very important to ensure that controlled technology and know-how is not inadvertently disclosed to foreign nationals, unless under the proper license.
How to Determine Whether You Need a License
Unless there is a license exception, a deemed export license is typically required to release US technology or know-how to a foreign national if the technology is controlled for export to the home country of the foreign national, or if the individual is or has been employed by a prohibited entity. Therefore, prior to hiring a foreign national who will have access to US technology or know-how or releasing such information to a foreign national employee or visitor, it is important to obtain, at least, the following information about the foreign national to assess whether a license will be required for this individual:
- Determine the person’s home country;
- Review the individual’s résumé to establish the person’s previous employers;
- Compare individuals and employers on the résumé against the Denied Persons List, Entity List and Specially Designated Nationals List (no technology or know-how can be released to an individual named on one of these three lists); and
- Consult with the Commerce Department to determine if an export license is necessary if a former employer of the individual is on these above described lists.
As a matter of course, a company should obtain this information for all foreign nationals, even if they do not have access to technology controlled for export.
Additionally, if, for example, a foreign national will be visiting offices or meeting with employees, then a company should consider the following points in order to protect it from inadvertently violating export control laws:
- Will the foreign national’s visit be supervised?
- What type of computer will the foreign national be using? Determine the MTOPS (million theoretical operations per second) of the computer to determine whether the computer is controlled for export.
- What software will the foreign national be using?
- Does the software contain encryption?
- What is the level of encryption and what is the purpose of the encryption?
- Is the foreign national’s use of any encryption software restricted to internal company use? (There are special rules relating to a foreign national’s use of encryption software for internal company use.)
- What technical data is stored on the computer network?
- What technical data is controlled for export that the foreign national might have access to?
- What areas will the foreign national have access to? Do these areas have any controlled information? Is this information secured to prevent unauthorized access?
- Will the foreign national be speaking with employees?
- What subjects will the foreign national be addressing?
- Is it possible that an employee may relay controlled technology to the foreign national?
If the foreign national potentially will have any access (even unauthorized) to any information that is controlled (either through oral communication, visual inspection or written form), an export license may be necessary to allow the individual site access. A company will need to examine the Commerce Control List and Commerce Country List to determine if it needs to obtain an export license.
If the foreign national potentially will have any access (even unauthorized) to any information that is controlled an export license may be necessary to allow the individual site access.
The deemed export rule is a broad rule covering a wide variety of technologies and industries. In today’s global economy, deemed exports may occur with great ease and frequency. Many companies may not even know that their technology is controlled under the export control laws. Further, companies often do not realize that they are exporting their technology, even though there is no physical shipment of goods. Faced with issues discussed above, it is important for companies to launch effective initiatives to ensure that the proper licensing procedures are in place for compliance with the export control laws.