How to avoid violations from ‘deemed exports’

There is often a misconception about the scope of export-controls regulations. Consider, for example, a manufacturing company that sells its products, maybe including military items, to customers that are all in the U.S. Perhaps the customer is the U.S. federal government itself, either the Department of Defense or one of its military branches. Alternatively, consider a company that is not a manufacturer, but rather solely a provider of engineering or other services to domestic clients or perhaps directly to the U.S. government.
In either scenario, it would be a mistake to conclude that export-controls compliance is of no concern. Indeed, export-controls regulations are broader in scope than is often realized and actually regulate certain activities that one might not immediately identify as export transactions.
The types of activities that might constitute an export transaction include the act of sending a product out of the U.S. But the concept of an “export” includes more than that straight-forward and commonly understood transaction.
Under both the Export Administration Regulations and the International Traffic in Arms Regulations, the definition of export includes disclosing or transferring controlled information to a foreign person, either in the U.S. or abroad. The EAR uses the phrase “deemed export” to describe this type of transfer, since the release of the information is deemed to be an export to the country or countries of origin of the foreign person.
While the possible methods of transfer or disclosure are quite broad, the information itself can also take a vast number of forms, including blueprints, drawings, engineering designs, specifications, photographs, plans, models, charts, tables, instructions and manuals.
Such disclosures or transfers of information that are controlled for export purposes might require prior approval from either BIS or DDTC, depending on how the information is classified. Violations of export-controls regulations, including for failing to obtain prior approval for deemed exports, carry the possibility of significant civil, criminal and administrative penalties for both companies and individuals.
How might a violation occur? One possibility is through disclosure to employees. As mentioned, deemed exports involve transfers or disclosures of information to foreign persons. This would include employees of a foreign subsidiary or affiliate of a U.S. company, as well as employees in the U.S. who hold a temporary employment visa, such as an H-1B, covering persons in specialty occupations. Approval from the U.S. government may therefore be required before disclosure of or access to controlled information and technology to such employees may be provided.
The risks presented by deemed exports are not limited to an organization’s employees, however. Foreign visitors to a U.S. plant or offices, including employees of subcontractors, must not be permitted access to controlled technology prior to obtaining necessary formal approval.
Engaging in technical discussions with foreign persons, whether engineering personnel with whom you may be collaborating on a project or individuals who may be the focus of certain detailed marketing and business development activities, may also pose the risk of triggering an unauthorized deemed export. There might also be risks associated with providing drawings and other technical information to suppliers who may themselves employ foreign persons or simply not have a solid understanding of export controls.
A solid company compliance program can and should address these types of risks. The starting point must be to properly determine the jurisdiction and classification of company products and technology.
Written procedures should also be adopted to control access to covered technology and information and to help prevent unauthorized disclosures. These procedures should be tailored to a company’s specific risk profile, based on its business, operations and activities, and should address both physical and electronic access to controlled technology and information.
A good export-compliance program that reflects a company’s specific risks can help prevent against unauthorized deemed exports and the attendant risk of significant penalties and business disruption. •


Eric J. Rudolph is president of Rudolph Export Consulting Inc. He can be reached at eric@rudolphexport.com.

No posts to display