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  1. U.S. Export Controls -- The Challenge for Research Institutions Richard A. Johnson NCURA richard_johnson@aporter.com November 8, 2002

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. U.S. Export Controls and Trade SanctionsKey Issues for University and Non-Profit Research • Public Domain • Fundamental Research Exemption • “Deemed” Exports • Other Applications

  11. 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

  12. 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)

  13. 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)

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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.)

  20. 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/

  21. 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

  22. 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

  23. 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!

  24. 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

  25. 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

  26. 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)

  27. 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

  28. 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 Richard_Johnson@aporter.com