If your technology company does business with foreign nationals, either domestically or abroad, it is possible that your company is undertaking activities subject to laws and regulations that govern the export of technology. These laws and regulations serve an important role in safeguarding our nation and its interests. However, their complexity can serve as a trap for the unwary, and the penalties for non-compliance can be substantial. Here are 10 things to keep in mind as you pursue business activities with foreign nationals:
1. There are several bodies of law that can apply to technology exports.
These laws and regulations include the Arms Export Control Act, the International Traffic in Arms Regulations (“ITAR”), the United States Munitions List (“USML”), the Export Administration Regulations (“EAR”), the Commerce Control List (“CCL”) and the various sanctions lists maintained by the Office of Foreign Assets Control (“OFAC”). Their coverage is broad in scope and oftentimes overlapping, with different bodies of law applying to the same export transaction.
When analyzing an export transaction, it is important to consider all of the applicable bodies of law, as the violation of any one can be subject to criminal penalties, including time in jail, or civil penalties. These penalties may be applied both to your company and to you as an individual.
2. Export activities are a privilege, not a right.
Under U.S. law, the ability to engage in export activities is a privilege, not a right. If you do not comply with the relevant bodies of law that apply to technology exports, one of the penalties that you and your company may face is a blanket prohibition on your export activities.
3. “Exports” may happen domestically or abroad.
The classic definition of an export is a good transported across country lines. However, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) has made it clear that an “export” of technology or source code occurs even when it is released to a foreign national within the United States.
This is known as the “deemed export” rule, and it is a good example of how the law in this area can be counterintuitive.
4. “Exports” may involve an employee or a contractor.
Again, the classic concept of an export involves a sale to a foreign third party. There is no such restriction inherent in the legal definition of an “export.” The BIS has made it clear that you may “export” technology or source code even to a foreign national that you employ or have retained as an independent consultant. This does not apply to foreign nationals that have been granted permanent residence in the United States or U.S. citizenship.
5. You may be prohibited from doing business with certain countries.
By law, U.S. citizens and residents are prohibited from transacting many or all forms of business with certain countries, including countries deemed by the State Department to support terrorism. These countries currently include Burma, Cuba, Iran, Liberia, North Korea, Sudan, Syria and Zimbabwe. The scope of prohibited business activities varies by country, and can include trade, aid and financial transactions.
6. You may be prohibited from doing business with certain individuals.
By law, U.S. citizens and residents are prohibited from doing business with certain individuals. These individuals are enumerated in several lists maintained by the government that, even when reviewed on the Internet, may be more or less out-of-date. These include the BIS’s Entity List, Denied Persons List and Unverified List, and the OFAC’s Specially Designated Nationals and Blocked Persons List.
7. Liability may result from subsequent improper “export” of your legal export.
Even if the export process is handled properly, your company may still face liability if your receiver improperly exports your technology to a national from yet another country. This is the BIS’s “deemed re-export” rule. For example, with reference back to points (3) and (4), if your receiver employs a foreign national who is not a permanent resident of the receiver’s country, and the receiver provides your technology to the third-party national in a way that constitutes an export violation, your company (and the receiver, obviously) may face export liability under U.S. law.
8. You are obligated to watch for “red flags.”
You may have heard that “ignorance of the law is no excuse.” Like other areas of law, you and your company are presumed to have knowledge of the laws that govern your export activities. However, export law goes one step further. If you “know” that a technology export that is otherwise permissible will be used for certain types of weapon systems, you are required to seek permission from the appropriate government agencies.
What if you don’t “know” anything, but suspect something? You are obligated to watch for potential “red flags” and to investigate them if they arise. Moreover, you cannot take steps to prevent “red flags” from coming to your attention.
These “red flags” include a name or address similar to that of a denied person; a reluctance by the receiver to offer information about the end uses for your technology; a mismatch between the product’s capabilities and the buyer’s line of business or the technical level of the country to which it is shipped; a willingness to pay cash for items which are typically financed; the receiver’s ignorance of the product’s characteristics; vague delivery dates; out-of-the-way delivery destinations or an abnormal shipping route; unusual packaging; and a refusal of routine services such as installation and training.
9. You may not need a license to export your products.
Assuming that you are not dealing with a prohibited country or individual, or in furtherance of a prohibited end-use, and your commercial goods consist of, for example, low-level technology or consumer goods, you may not need a license to export your products. Even so, you will still need to make the appropriate statements on your export declaration and keep proper records of your transaction.
10. Administrative procedures exist to facilitate these determinations.
Assuming that time and resources permit, the best way to resolve questions concerning export law is to seek appropriate permissions or licenses from the various government agencies involved before exporting your technology.
For example, the Directorate of Defense Trade Controls, an arm of the State Department, will accept what is known as a Commodity Jurisdiction Request to decide whether your export is on the USML. Similarly, the BIS will accept a Commodity Classification Request to decide whether your export is subject to the CCL. Be advised that these requests can take several months to process.
While some of the government agencies involved will field telephone requests concerning export transactions, it is important to remember to handle such communications, if necessary, in a manner that would preserve later claims of attorney-client privilege and work product.