A research and development corporation, Atmospheric Glow Technologies, Inc. (AGT), recently pled guilty to charges that it exported controlled defense services and technical data to a Chinese national in violation of the Arms Export Control Act (AECA) [1] and its governing regulations, the International Traffic in Arms Regulations (ITAR). [2] AGT reached the plea agreement with federal prosecutors days before a University of Tennessee professor went to trial for related charges. A jury later found the professor guilty of those charges. Although the case presents some unusual circumstances, universities, research institutions and defense contractors should ensure that their export compliance programs focus on deemed exports. Relevant Export Requirements The AECA and the ITAR prohibit the export of defense articles, defense services and related technical data enumerated in the ITAR’s U.S. Munitions List, unless the exporter has obtained a validated license or written approval from the U.S. Department of State. The ITAR define “export” broadly to include the disclosure or transfer of technical data to a foreign person and the performance of a defense service on behalf of or for the benefit of a foreign person, whether in the U.S. or abroad. [3] Thus, a disclosure of technical data to a foreign person located in the United States, known as a “deemed export,” is considered an export to that person’s country of citizenship and is subject to licensing requirements. Background In 2000, the University of Tennessee Research Foundation granted an exclusive license to use, develop and market the university’s plasma technology to AGT, a publicly traded company. In 2004, AGT entered into two successive contracts with the Air Force to research and develop plasma actuator technology for use on unmanned military air vehicles, or drones. AGT’s lead scientist for the contracts, Daniel Max Sherman, hired University of Tennessee Professor Emeritus John Reece Roth as a technology transfer consultant for the second contract.

Professor Roth assigned several foreign national graduate students to work on the munitions contract, including one student who is a citizen of the People’s Republic of China and another who is a citizen of Iran. On May 20, a federal grand jury in the Eastern District of Tennessee returned indictments against AGT and Professor Roth charging that they had exported technical data and defense services in violation of the AECA and the ITAR by sharing with these students items and information included on the U.S. Munitions List without the required license. In April, Mr. Sherman had pled guilty to similar charges and is awaiting sentencing pursuant to that plea agreement. [4]

The Plea Agreement

On August 20, AGT pled guilty to ten charges of knowingly exporting defense services and technical data without the required license under the AECA and the ITAR by sharing controlled information with Professor Roth’s Chinese foreign national graduate student and granting him access to controlled equipment in 2005 and 2006. In return for pleading guilty to these deemed exports, AGT agreed to cooperate with the government. This cooperation included assisting with any testimony by former or current AGT employees. The government also agreed to recommend a reduced sentence at AGT’s sentencing hearing. That hearing is scheduled for December 8, when the company faces a maximum penalty of $10 million and 50 years of probation.

The Roth Trial

AGT’s and Mr. Sherman’s plea agreements with federal prosecutors left Professor Roth as the sole party involved in the case to go to trial. On September 3, a jury found Roth guilty of eighteen counts of conspiracy, fraud, and violations of the AECA following a six-day trial that included testimony by Mr. Sherman. The jury found Professor Roth guilty of illegally exporting technical data and defense services to his Chinese and Iranian graduate students without obtaining required licenses from the Department of State pursuant to the AECA and the ITAR. Professor Roth’s sentencing hearing is scheduled for January 7, 2009. He faces a maximum penalty of 160 years in prison and over $1.5 million in fines.

Implications for Universities, Research Institutions, and Defense Contractors

AGT’s recent plea agreement and Professor Roth’s guilty verdict demonstrate the Justice Department’s willingness to investigate and prosecute deemed export cases against researchers. They also confirm the government’s ability to carry out such prosecutions. Universities and research institutions, as well as defense contractors, should ensure that their export compliance programs address restrictions on deemed exports and personnel are trained to recognize the possibility of transferring controlled information. [5] Compliance programs become increasingly important as the number of foreign engineering students at U.S. universities continues to rise and the research undertaken on campus increasingly relates to commercial or government projects. It is essential that faculty be trained to recognize the possibility that even their non-commercial activities may fall outside the exemption for “fundamental research” upon which so many university investigators rely. The federal government, universities and research institutions have been struggling to arrive at workable deemed export regulations for at least a decade, without a clear meeting of the minds. Regardless of ongoing controversy, the Roth conviction demonstrates the genuine risk of prosecution and the need for clear guidelines to protect universities, investigators and non-U.S. citizen students, as well as the government’s interest in controlling sensitive information.