Many companies or individuals who never imagined that they are involved in exporting from the United States may actually be doing so. The sharing of certain controlled information or technology with an individual from a foreign country may require an export license from the Federal Government regardless of whether that foreign individual is in the United States or abroad. Examples of this include the sharing of controlled research technology with a foreign national employed by your own company who does not hold a green card, protected status or United States citizenship; the sharing of controlled technology with a potential customer who is a foreign national; or even the sale or merger of a United States company with a foreign company where the foreign company is acquiring controlled United States technology.
Both the Department of Commerce Export Administration Regulations ("EAR") and the Department of State International Traffic in Arms Regulations ("ITAR") regulate "deemed exports". The EAR covers dual use items (items that have both commercial and military or proliferation applications) and the ITAR covers munitions list items (items inherently military in nature).
Under the EAR an export of technology or source code is "deemed" to take place when it is released to a foreign national within the United States. (Foreign nationals do not include permanent residents of the United States or those in protected status such as political refugees or political asylum holders). Technology is "released" for export when it is made available to a foreign national for visual inspection (such as reading technical specifications, plans, blueprints, etc.), disclosed orally, or made available by practice or application under the guidance of persons with knowledge of the technology. Under the ITAR an export of technical data is made by disclosing (either orally or visually) or transferring it to a foreign national in the United States. Additionally, deemed re-exports may occur when there is the transfer of United States technology to a foreign national overseas.
Under the EAR, "technology" is specific information necessary for the "development," "production," or "use" of a product. Under the ITAR "technical data" includes information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles (items inherently military in nature).
If such technology is "controlled" under the EAR or the ITAR, an export or re-export license is required from either the Department of Commerce or the Department of State before it can be released to the foreign national, unless a specific exception is available. Absent an exception, a United States entity must apply for an export license under the EAR's deemed export rule when both of the following conditions are met: (1) a transfer of controlled technologies or technical data to foreign nationals in the United States or abroad is intended; and (2) transfer of the same technology or technical data to the foreign national's home country would require an export license. The ITAR regulations can even be more complicated than this.
Failure to obtain a required export license can result in significant civil and/or criminal penalties. Under the EAR civil penalties can reach the greater of $250,000 per violation or twice the amount of the transaction. Civil penalties under the ITAR can reach $500,000 per violation.
Even though a company may not appear to be engaged in international trade or exporting, if it releases technology or source code to a foreign national, it may be at risk if the technology is "controlled" and a license would be required if it was physically exported to the home country of that foreign national.
Although a license is not required every time the deemed export rule is triggered, companies should always check to determine whether a license is required before releasing technology to foreign nationals. Companies that may employ foreign nationals, entertain foreign national visitors, have dealings with overseas companies or foreign nationals, share technology with foreign companies or foreign nationals, or who may be contemplating a merger, joint venture or other type of business combination with an overseas company should be particularly vigilant about ensuring they are compliant with EAR and ITAR.
A partner with Nossaman, F. Gordon Lee has more than three decades of experience in customs, export control, international trade, and immigration law. He represents major multi-national companies on a wide range of import and export issues before numerous government agencies. He can be reached at 202.887.1463 or fglee@nossaman.com.