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U.S. Export Controls -- The Challenge for Research Institutions PowerPoint PPT Presentation

U.S. Export Controls -- The Challenge for Research Institutions Richard A. Johnson NCURA [email protected] November 8, 2002 U.S. Export Controls and Trade Sanctions Purposes and Overview Differences Between ITAR and EAR Application to University or Non-profit Research

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U.S. Export

Controls -- The Challenge

for Research Institutions

Richard A. Johnson

NCURA

[email protected]

November 8, 2002


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U.S. Export Controls and Trade Sanctions

  • Purposes and Overview

  • Differences Between ITAR and EAR

  • Application to University or Non-profit Research

  • Do We Need an Export License?

  • Compliance and Penalties

  • Trends to Watch


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U.S. Export Controls and Trade SanctionsPurposes

  • Multiple goals that sometimes conflict

    • Advance Foreign Policy Goals

    • Restrict Exports of Goods and Technology That Could Contribute to the Military Potential of Adversaries

    • Prevent Proliferation of Weapons of Mass Destruction (nuclear, biological, chemical)

    • Prevent Terrorism

    • Fulfill International Obligations


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U.S. Export Controls and Trade SanctionsOverview

  • U.S. Export Controls

    • Cover Any Item in U.S. Trade (goods, technology, information)

    • U.S.-Origin Items Wherever Located, including the U.S.(Jurisdiction Follows the Item or Technology Worldwide)

    • Exclude Patents and Patent Applications, Artistic or Non-Technical Publications

    • Exclude Technology in the Public Domain

  • Exports of most high-technology and military Items, as well as associated technology, require U.S. export authorization (either a license or an applicable exemption)

  • Trade Sanctions Focus on Financing, Commodities, and Services in countries posing greatest security or foreign policy threats


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U.S. Export Controls and Trade SanctionsAgency Responsibilities

  • State Department: “Munitions” (the International Traffic in Arms Regulations or “ITAR”)

    • Under Secretary for International Security (Bolton)

    • Asst. Sec’y for Political-Military Affairs (Bloomfield)

    • Licensing: Office of Defense Trade Controls (‘DTC”)

  • Commerce Department: “Dual-Use” Items (the Export Administration Regulations or “EAR”)

    • Under Secretary for Industry and Security (Juster)

    • Licensing: Bureau of Industry and Security (“BIS”), formerly BXA

  • Nuclear Regulatory Commission: Nuclear Materials and Technology

  • Treasury Department, Office of Foreign Assets Control (OFAC): Trade Sanctions, Embargoes, Restrictions on Transfers to Certain End-Users, Terrorism, Anti-Narcotics


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    U.S. Export Controls and Trade Sanctions Differences Between ITAR and EAR

    • International Traffic in Arms Regulations (ITAR)

      • Covers military items (“munitions” or “defense articles”)

      • Regulates goods and technology designed to kill people or defend against death in a military setting (e.g., tank, fighter aircraft, nerve agent defensive equipment)

      • Includes most space-related technology because of application to missile technology

      • Includes technical data related to defense articles and defense services (furnishing assistance including design, engineering, and use of defense articles)

      • Strict regulatory regime

      • Purpose of regulations is to ensure U.S. security

        --No balancing of commercial or research objectives


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    U.S. Export Controls and Trade Sanctions Differences Between ITAR and EAR

    • Export Administration Regulations (EAR)

      • Covers dual-use items

      • Regulates items designed for commercial purpose but that can have military applications (e.g., computers, pathogens, civilian aircraft)

      • Covers both the goods and the technology

      • Licensing regime encourages balancing competing interests

      • Balance foreign availability, commercial and research objectives with national security


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    U.S. Export Controls and Trade SanctionsSanctions

    • Sanctions focus on the end-user or country rather than the technology

    • Embargoes administered by Office of Foreign Assets Control, U.S. Department of Treasury (“OFAC”)

      • Prohibitions on trade with countries such as Iran, Cuba

      • Limitations on trade in certain areas of countries or with certain actors (e.g., UNITA, Balkan war criminals, etc.)

    • OFAC prohibits payments to nationals and of sanctioned countries and to entities designated as terrorist-supporting

    • Separate prohibitions under the ITAR and EAR

      • ITAR proscribed list/sanctions (e.g., Syria, Pakistan’s Ministry of Defense or requirement for presidential waiver for China)

      • EAR restricts exchanges with some entities and universities in India, Israel, Russia, etc. because of proliferation concerns


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    U.S. Export Controls and Trade SanctionsLimitations for Researchers

    • Both the ITAR and EAR provide certain exemptions for “full-time, regular” employees who maintain residency during the term of employment

    • These exemptions may preclude the need for licenses, but often are unavailable for foreign national researchers

      • Visa restrictions may preclude regular employment status by requiring the visa holder to maintain a foreign residence (e.g., most students with an F or J visa)

      • Many researchers, particularly post-docs and students, cannot qualify for the exemption because universities have many well-established reasons for not making these individuals full-time employees


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    U.S. Export Controls and Trade SanctionsKey Issues for University and Non-Profit Research

    • Public Domain

    • Fundamental Research Exemption

    • “Deemed” Exports

    • Other Applications


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    U.S. Export Controls and Trade SanctionsState Dept. (ITAR) Fundamental Research

    • Fundamental research exemption recognized, but purposely limited, given jurisdiction over goods and technologies designed to kill people

    • Covers information “which is published and which is generally accessible or available to the public” through a number of mechanisms including:

      • Unrestricted publications;

      • 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

      • Excludes information restricted for proprietary reasons or specific U.S. government access and dissemination controls


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    U.S. Export Controls and Trade SanctionsCommerce (EAR) Fundamental Research

    • Exemption significantly broader than ITAR

    • Research conducted by scientists, engineers, or students at a U.S. university normally exempt from licensing

      • Prepublication review solely to insure no inadvertent release of proprietary information generally does not trigger licensing

      • Prepublication review by a corporate sponsor or other restrictions on the publication of scientific and technical information generally invalidates the exemption

      • Exemption still available for work under U.S. government grants involving Commerce-controlled technology even if there are access and dissemination controls provided that university follows national security controls in grant proposal

    • Some limited technologies ineligible for fundamental research exemption (e.g., advanced encryption)


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    U.S. Export Controls and Trade Sanctions“Deemed” Exports

    • U.S. export controls also cover transfers of goods and technology within the U.S. (the transfer outside the U.S. is deemed to apply when a foreign national receives the information in the U.S.)

      • Applies to technology transfers under the EAR and the provision of ITAR technical data and defense services

      • Unless the fundamental research exemption applies, a university’s transfer of controlled technology to a non-permanent resident foreign national in the U.S. may be controlled and/or prohibited

    • Visa status important

      • Permanent resident (“green card holder”) has same right to controlled information as U.S. citizen (no license required)

      • Non-immigrant visa holders must satisfy export controls (license may be required)


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    U.S. Export Controls and Trade SanctionsApplication to University Research

    • Export of research products

      • Underwater research vehicle could require ITAR license if designed for military applications; would require Commerce Department authorization if designed for civilian purposes

      • Specially designed electronic components could be controlled

    • Temporary transfer of research equipment abroad

      • Carrying scientific equipment to certain destinations for research may require authorization (e.g., Iran, Syria, China, etc.)

    • Software development

      • Software that is provided to the public for free may not require licenses, but proprietary software of controlled technology could require licensing

      • Encryption technology could require licenses or could be prohibited for transfers to certain foreign nationals/countries


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    U.S. Export Controls and Trade SanctionsApplication to University Research (cont’d)

    • Restrictions on certain foreign nationals

      • March 2002 State Department rule expands fundamental research exemption for foreign nations involved in space-related research, but provides no relief for foreign nationals from certain countries (e.g., China)

      • IPASS likely to result in foreign nationals from certain countries being prohibited from working on “uniquely available sensitive technology”

    • Government grants may limit access by foreign nationals

      • Agencies may preclude or limit access by foreign nationals to research based on the export control laws

      • Determining whether a restriction is a “specific access and dissemination control” under the ITAR (which would invalidate the fundamental research exemption) particularly problematic


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    U.S. Export Controls and Trade SanctionsApplication to University Research (cont’d)

    • Corporate grants may limit access by foreign nationals

      • Proprietary restrictions or restrictions on publication by corporate grants may invalidate fundamental research

      • Could trigger licensing requirements for certain foreign nationals

    • Conferences

      • Potential restrictions on participants

      • Inability to co-sponsor with certain countries or groups (e.g., restrictions on co-sponsoring conference with Iranian government)

    • Transfer of defense services

      • Potential license requirements for work with foreign nationals to launch research satellite


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    U.S. Export Controls and Trade SanctionsApplication to University Research (cont’d)

    • Foreign national researchers ineligible to use some of the exemptions because they are not “full-time, regular employees” of the university

    • License processing takes time

      • Fast approvals in weeks;

      • Most approvals in months;

      • The hardest cases can take years


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    U.S. Export Controls and Trade SanctionsDo We Need an Export License?

    • Determining whether an export license is necessary is complicated

    • Literally thousands of pages of regulations could apply

    • Most organizations develop a compliance plan

      • Statement from the administration on the importance of compliance

      • Manual

      • Training

      • Audits and independent evaluation

    • The following process would cover most cases for universities, but to obtain the correct answer in any given case would require a review of the individual facts and circumstances


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    U.S. Export Controls and Trade SanctionsExport License Steps

    • Determine whether the exporter is subject to U.S. jurisdiction (U.S. universities are subject to U.S. jurisdiction as are any foreign nationals in the U.S.; overseas operations may be subject to U.S. jurisdiction)

    • Classify the technology or goods involved (i.e., subject to State Department ITAR controls, Commerce Department EAR controls, or other controls)

    • Determine if a license is needed for the particular technology and particular end-use and end-user

    • Determine whether any license exemptions or exceptions are available (e.g., public domain, fundamental research, etc.)


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    U.S. Export Controls and Trade SanctionsExport License Steps (cont’d)

    • Determine whether any embargoes apply or whether any prohibited parties or destinations are involved

    • Determine whether there are any “red flags” or other warning signs of possible diversion of the goods or technology

    • If a license is required, apply promptly. Keep records in any case

    • State Department licensing requirements and forms available at: http://www.pmdtc.org

    • Commerce Department licensing requirements and forms available at: http://www.bis.doc.gov

    • Treasury (OFAC) licensing requirements available at: http://www.ustreas.gov/offices/enforcement/ofac/


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    U.S. Export Controls and Trade SanctionsPenalties for Noncompliance

    • State Department (ITAR)

      • Criminal violations: up to $1,000,000 per violation, up to 10 years imprisonment

      • Civil penalties: seizure and forfeiture of the articles and any vessel, aircraft or vehicle involved in attempted violation, revocation of exporting privileges, fines of up to $500,000 per violation

    • Commerce Department (EAR)

      • Criminal violations: $50,000-$1,000,000 or five times the value of the export, whichever is greater per violation (range depends on the applicable law), up to 10 years imprisonment

      • Civil penalties: loss of export privileges, fines $10,000-$120,000 per violation

      • Ex: DOC levied a $1.76 million fine yesterday on a company that exported biological toxins without a license for research to Europe and Asia


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    U.S. Export Controls and Trade SanctionsPenalties for Noncompliance (cont’d)

    • The ticking university time bombs

      • Corporate sponsored research

        • Liability if know, or have reason to know, about corporate sponsor violations, EAR General Prohibition Ten, 15 CFR § 736.2(b)(10)

        • Ex.: corporate departments  university U.S. citizens  release to university foreign researchers  university violations

      • Material transfer agreements

        • MTAs often will eliminate the FR exemption

        • Exports of MTAs increasingly require licenses


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    U.S. Export Controls and Trade SanctionsPenalties for Noncompliance (cont’d)

    • Treasury Department (OFAC)

      • Criminal violations: up to $1,000,000 per violation, up to 10 years imprisonment

      • Civil penalties: $12,000 to $55,000 fines (depending on applicable law) per violation

      • Violation of specific sanctions laws may add additional penalties

    • Most settlements with the Commerce, State or Treasury Departments generally become public. Court cases are always public!


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    U.S. Export Controls and Trade SanctionsCompliance Risks Faced by Universities

    • Universities have been largely immune from past export control enforcement. This likely will change -- soon

    • Increasing scrutiny of all exports, and universities in particular, following 9/11

    • Agencies criticized for failure to enforce “deemed exports” (GAO Report slammed DOC for countries including China and Israel)

    • Acting under a government grant is no defense

      • Los Alamos and Lawrence Livermore National Labs investigated for their role in providing a 486 computer and other items to a Russian lab to help control Russian material under a U.S. government research program!

      • State Department officials have told us that universities are not on their “top priority” list but that disclosure of sensitive technology to problematic end-users (e.g., mating a research satellite to a foreign launch vehicle) could change this


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    U.S. Export Controls and Trade SanctionsSpecial Considerations for Universities

    • U.S. export controls create significant tensions with university goal of non-discrimination based on nationality and a free and open campus

    • To avoid discrimination and preserve openness requires active university management of export controls

    • State Department officials erroneously believe that universities largely placated by March 2002 expansion of fundamental research; NSC and OSTP understand this is not true

      • This exemption is quite narrow and is only available for a limited number of nationalities

      • Other university concerns (e.g., exemptions for full-time researchers) remain unaddressed

    • IPASS likely will further limit access by certain foreign nationals

    • Increasing linkage of export controls with information controls and IPASS


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    U.S. Export Controls and Trade Sanctions

    • Several trends to watch

      • “National security v. openness” in export controls as a political and media issue. It no longer is only a technical issue

        • export control hearings planned in new Congress

        • state legislature pressures on land-grant universities

        • lots of interagency groups considering “broadening and deepening” export controls and related controls

    • Keep an eye on biology, biotech and bioengineering (increased threat; most unpredictable; least experience; greatest pressure for new export controls)


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    U.S. Export Controls and Trade Sanctions

    • Contracts and funding are becoming as much a lever as new regulations -- federal $$ increasingly linked to compliance with export controls and additional contractual restrictions

    • A shift from “the right to know” to “the need to know” as an operating principle of government

    • The Export Administration Act renewal battle next year will be expanded to include many more issues of interest to universities and researchers

    • University audits and investigations will be initiated


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    U.S. Export Controls and Trade Sanctions

    For Further Information Contact:

    Richard Johnson

    Arnold & Porter

    555 12th Street, NW

    Washington, DC 20004-1206

    202-942-5550

    202-942-5999 fax

    [email protected]


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