Page 1 U.S. Export Controls -- The Challenge for Research Universities U.S. Export Controls -- The Challenge for Research Universities Richard A. Johnson.

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U.S. Export Controls -- The Challenge for Research Universities

U.S. Export Controls -- The Challenge for Research Universities

Richard A. JohnsonNCURA

[email protected]

November 2003

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U.S. Export Controls and Trade Sanctions

Purposes and Overview

The basic export control framework -- ITAR, EAR and

OFAC

Why export controls have become an “A-list” concern for

top research universities

Application to university or non-profit research

Compliance, enforcement and penalties -- institutional and

individual

Emerging trends and issues for research universities

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Purposes U.S. export controls have 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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Overview U.S. Export controls -- some basic points

— Cover Any Item in U.S. Trade (goods, technology, information)— Extend to U.S.-Origin Items Wherever Located, including U.S.

(Jurisdiction Follows the Item or Technology Worldwide)— Under U.S. law, exporting is a privilege and not a right— Controls have broad coverage and limited exclusions -- exs.,

— Published Patents— Technology in the Public Domain

Exports of most high-technology and military items, and associated technology, are subject to U.S. export controls (require either a license or an applicable exemption) -- an increasing amount of university research is covered

Limited transparency, objectivity and procedural protections compared to other U.S. government regulations

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Agency 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: Directorate 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 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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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 space-related technology and research; increasing applicability to other university research areas such as nanotechnology/new materials and sensors and life sciences

— Creates “defense articles” (includes tech data which encompasses software unlike EAR) and “defense services” (certain information to be exported may be controlled as a “defense service” even if in the public domain)

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

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Differences Between ITAR and EAR

Export Administration Regulations (EAR)— Covers dual-use items: 10 CCL categories of different

technologies covering equipment, tests, materials, software and technology

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

— Covers goods, test equipment, materials, technology (tech data and technical assistance) and software

— Also covers “re-export” of “U.S.-origin” items outside the United States

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Economic Sanctions U.S. economic 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 activities in certain areas of countries or with certain non-state actors

OFAC prohibits payments or providing “value” to nationals of sanctioned countries and to specified entities even if the country is not subject to sanctions (ex. Baathists in Iraq)

Separate prohibitions under the ITAR and EAR — ITAR proscribed list/sanctions (e.g., Syria 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 -- Why the growing concern with universities? 9/11 changed everything -- including how the government

looks at export controls the emergence of top research universities as a focal point

for U.S. government export control compliance the growing intersection of cutting-edge science,

technology and engineering research with national security, foreign policy and homeland security

the evolving role of the research university (global in scope,

multidisciplinary, changing innovation role)

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U.S. Export Controls -- The Post 9/11 Regulatory Framework Increasing intersection of export controls with post-9/11 regulatory

framework ( and growing disconnects) Life sciences as a major security concern -- biological agents, toxins and

chemical precursors Increasing focus on material transfers and use of a wide range of

select agents, chemicals and reagents Select agents: growing export control issues beyond compliance

with the Patriot Act and the Biopreparedness Act regulations Increasing interest not only in the material but also in controlling the

underlying technology, information and data “Sensitive but unclassified” information

Reconsideration of NSDD-189 Card memo (March 2002) and other Executive directives

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U.S. Export Controls --The Post 9/11 Regulatory Framework Increasing intersection of export controls with post-9/11 regulatory

framework ( and growing disconnects) Foreign student visas and IPASS

Technology Alert List Immigration Act (212): deny visas “in area of illegal export of

U.S. technology” Sensitivity to fields/countries subject to nonproliferation

export controls (ex. India, China and Israel) “Regulation by contract” -- new federal funding programs

increasingly linked to export controls or government security controls (exs.,bioterrorism, homeland security and cybersecurity)

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U.S. Export Controls -- A Growing Focus on Top Research Universities Growing government perception that universities “are not serious” about

export control compliance and are misusing the fundamental research exemption

Corporate complaints that universities “aren’t playing by the same rules” with competitive implications

GAO Report (2002) severely criticizing Commerce’s oversight of “deemed exports”, especially with foreign nationals from India, Pakistan, China, Russia and Israel

Fall 2003 -- Federal interagency export control investigation/audit of 9 major research universities; OIG Report and likely Congressional hearings in 2004

“Enhanced” export control enforcement focus on universities and their researchers

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Key Issues for University and Non-Profit Research “Deemed” Export

Public Domain Exemption Fundamental Research Exemption Full-time employee exemption Educational Instruction Exemption Government-sponsored research covered by national security

contract controls ITAR -- “defense articles” and “defense services”, especially in

space research and, increasingly, in life sciences and nanotechnology research

The application of OFAC sanctions to university-sponsored or related activities

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“Deemed” Exports U.S. export controls 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 who is not a full-time university employee 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

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U.S. Export Controls and Trade Sanctions -- Public Domain Public Domain/Publicly Available

Broadest exclusion under EAR and ITAR -- it allows deemed export or export without controls

Preconditions no equipment or encrypted software involved no reason to believe information will be used for WMD U.S. government has not imposed any access and

dissemination controls as a funding condition No side deals

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U.S. Export Controls and Trade Sanctions -- Public Domain Applies to published information through one or more of the

following: libraries open to the public unrestricted subscriptions for a cost not exceeding

reproduction/distribution (including reasonable profit) published patents conferences, seminars in the United States accessible to public

for a reasonable fee and where notes can be taken (ITAR) --or also abroad only if EAR

Generally accessible free websites w/o knowledge General science/math principles taught at universities

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State 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

— Excludes research abroad by Americans

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Commerce (EAR) Fundamental Research Exemption significantly broader than ITAR Research conducted by scientists, engineers, or students

at a U.S. university normally exempt from licensing— Brief prepublication review solely: (1) to ensure no inadvertent

release of proprietary information; or (2) to decide whether to patent 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 technologies ineligible for fundamental research exemption (e.g., advanced encryption)

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Application to University Research Export of research products— Certain oceanography or marine biology equipment may be

controlled by ITAR

— 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 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

— Source code licenses as “dissemination controls”

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Application 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) and creates oversight problems (e.g., U.S. entity must be responsible for what its European collaborator does with the information/technology)

— IPASS or similar measures could 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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Application 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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Application to University Research (cont’d) No side deals! Any unauthorized “understandings” or side

deals can pose serious dangers for the university and for the individual researcher

License processing takes time— Fast approvals in weeks;

— Most approvals in months;

— The hardest cases can take years

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Full-Time Employee Exemption Exemptions for “full-time, regular” bona fide employees who maintain U.S.

residency during employment ITAR -- but university must inform employee/faculty member in

writing that Tech Data may not be transferred to foreign nationals without DDTC written, prior approval

Also, exemption limited to Tech Data; some at DDTC believe it does not extend to “defense services”

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 of long-standing employment policies

— Foreign visitors to campus, such as conference or colloquium participants, generally do not qualify for an exemption

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Penalties 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 recently levied a $1.76 million fine on a company that exported to W. Europe and Japan routine research reagents without a license

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Penalties for Noncompliance (cont’d) Loss of “exporting” privileges (usually for 30-90 days) could

cripple a university’s normal activities Puts federal funding at risk -- for the university and for the

individual 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. UCLA recently fined for an OFAC violation involving an activity with Iran.

— Violation of specific sanctions laws may add additional penalties

Public relations and media attention -- 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 -- The breadth of export control

issues Some current issues to consider in thinking about the

breadth of export controls: 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 documents university U.S. citizens release to university foreign researchers university violations

Even if FR applies to university work, the initial corporate-university transfer may be subject to license requirements

Material transfer agreements:— Do MTA conditions eliminate the FR exemption?

— Exports of biological material increasingly will require licenses

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U.S. Export Controls -- the breadth of export controls

University Patents: Tech transfer disclosures for potential licensing to foreign

entities or foreign nationals before patent issues may export license

Export controlled technology can be exported without license if directly related to foreign patent applications

Increasing government interest in greater use of Invention Secrecy Act of 1951 for sensitive university inventions as de facto export control tool

about 5000 patents currently have Secrecy Orders

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U.S. Export Controls -- the breadth of export control issues

Software license terms -- especially source code; software license terms as “access and dissemination controls” that invalidate the fundamental research exemption

Server access: a demanding compliance challenge because you must be able to prove the negative

Can you show that non-US persons do not have access to export-controlled technical data?

Can you demonstrate that nothing on the open server is export-controlled?

Do you know the export classifications of the technology and software on the university’s servers?

Page 1 U.S. Export Controls -- The Challenge for Research Universities U.S. Export Controls -- The Challenge for Research Universities Richard A. Johnson.

Documents

ofacwhy export controls

trade goods

trade sanctions differences

trade sanctions purposesu

trade sanctions overview

defense articlespage

technology worldwideunder

associated technology