The Catholic University of America

This article is produced with the permission of the Maryland Bar Journal and published by the Maryland State Bar Association. This article appeared in the March-April 2004 issue of the Maryland Bar Journal.

EXPORT CONTROL: A VISA MAY NOT BE ENOUGH

By Joseph J. Dyer

Mr. Dyer is a partner in the Government Contracts/International Group at Seyfarth Shaw LLP.

Recent years have seen an explosion in the number of foreign workers in technology industries in the United States technology industries. Spurred by industry concerns of shortages of skilled personnel in the domestic workforce, Congress increased the allotment of HB-1 visas from 65,000 in 1997 to 195,000 in 2003. The HB-1 visa allows foreign nationals with special skills to work in the United States for a three year, renewable, period. There has been similar increase in the use of the L1 visa. The L1 visa allows the intra-company transfer of foreign nationals possessing special skills to the United States to work for periods of up to five years. Many of the HB-1, and L1, visa holders are destined for work in the technology industry.

Congress reduced the allotment of HB-1 visas for 2004 back to 65,000. Congress is also considering legislation to limit the use of the L1 visa. Nonetheless, there are an estimated 700,000 - 1,000,000 foreign nationals working in the United States under the HB-1, and L1, visas, many of them in the technology industry. Business Week, Aug. 25, 2003, pg. 39.

Obtaining the proper visa, however, may not be sufficient to allow the foreign national to work in the technology industry. United States export laws define "exports" to include disclosing technical data to foreign nationals in the United States. Depending on the nature of the data in question and the nationality of the foreign worker, the law may require employers to obtain government approval before disclosing the data. Because access to data is often a necessary component of the work for which the foreign national is hired, employers may, therefore, have to obtain government approval before the foreign worker can be gainfully employed.


International Traffic In Arms Regulations

Exports from the United States are regulated, for the most part, by either the International Traffic In Arms Regulations ("ITAR") or the Export Administration Regulations ("EAR"). The ITAR regulates the export of defense related items. The EAR regulates the export of non‑defense related items.

The ITAR regulatory scheme is simple. The ITAR requires that persons desiring to export defense related items obtain the approval of the Directorate of Defense Trade Controls ("DDTC") before doing so. "Any person who intends to export … a defense article must obtain the approval of the Office of Defense Trade Controls prior to the export." 22 C.F.R. §123.1(a). The "Office of Defense Trade Controls," an office within the Department of State, recently changed its name to the "Directorate of Defense Trade Controls." The DDTC administers the ITAR.

"Defense articles" are not limited to hardware. The term includes "technical data." 22 C.F.R. §120.6. Technical data does not include all data of a technical nature. It, rather, is limited to "[i]nformation … which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles." 22 C.F.R. §120.10(A)(1).

The term "export" is defined to include not only sending technical data overseas. It also includes "disclosing … technical data to a foreign person whether in the United States or abroad." 22 C.F.R. §120.17(a)(4). "Foreign persons" include all persons not citizens, or permanent residents, of the United States (or not protected individuals under 8 U.S.C. §1324(a)(3)). 22 C.F.R. §120.16. Protected individuals are formally recognized refugees.

Thus, disclosing, in the United States, information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles to persons not citizens, or permanent residents, of the United States (or protected individuals) constitutes an export of that information. Consequently, the approval of the DDTC is required before disclosing the information.

And therein lies the rub. Persons admitted under the HB-1, or L1, visa will necessarily not be citizens, or permanent residents, of the United States. Nor will they be protected individuals. Yet given their specialty skills, they will likely require access to information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of the items with which they are working. If those items are defense related, the approval of the DDTC is required before giving them access to the information. In such cases, simply obtaining the visa is not sufficient to allow the person to allow the person to be gainfully employed. Obtaining the approval of the DDTC will also be required.

DDTC approval typically takes the form of an export license, or an approved technical assistance agreement. 22 C.F.R. §§124.1, 125.2(a) and 125.3(a). In either case, it will be necessary to identify the nationality of the person(s) to whom the information will be disclosed, and the nature of the information.

"Technical data" does not, as noted above, include all information of a technical nature. Basic marketing information on the function or purpose, or general descriptions, of defense articles are not "technical data." 22 C.F.R. §120.6. Nor is information which, although otherwise falling within the definition of "technical data," is information concerning general scientific, mathematical or engineering principles commonly taught in schools." 22 C.F.R. §120.10(5). Nor does it include information in the public domain. 22 C.F.R. §120.10(5). Disclosing such information does not, therefore, constitute an "export." And DDTC approval is not required.

One should, however, be careful about relying on these definitions with respect to HB-1, or L1, visa holders in technology industries. Given the special skill they enjoy as the prerequisite to their obtention of the visa, it is unlikely that the information with which they will work constitutes only "general scientific principles taught in school," or information in the public domain. Typically the information will be controlled information, and DDTC approval will be required.


Export Administration Regulations

Regulating a wider scope of items than the ITAR, the EAR's licensing scheme is more complex than the ITAR's scheme. Whether or not approval, of in this case the Bureau of Industry and Security ("BIS"), before disclosing information related to non-defense items to foreign persons is required depends on the nature of the information and the nationality of the foreign person(s) in question. The BIS, an office within the Department of Commerce, administers the EAR.

General Prohibition One states the rule. "You may not, without a license or License Exception, export any item subject to the EAR to another country …if … (i) the item is controlled in the applicable Export Control Classification Number (ECCN), and (ii) [e]xport to the country of destination requires a license for the control reason as indicated on the Country Chart…." 15 C.F.R. §736.2(b)(1).

Although using different language, the EAR defines "exports" to a similar effect as does the ITAR. The EAR defines "export" to include the "release of technology or software … to a foreign national in the United States." 15 C.F.R. §734.2(b)(1). Technology or software is "released" by, for example, "[v]isual inspection" or "[o]ral exchanges." 15 C.F.R. §734.2(b)(3).

"Technology" is defined as "[s]pecific information necessary for the 'development,' 'production' or 'use' of a product." 15 C.F.R. §772.1. "Development," "production," and "use" are, in turn, defined terms. "Development" is defined as "relat[ing] to all stages prior to serial production, such as design, design research, design analysis, design concepts, assembly and testing of prototypes, pilot production schemes, design data, process of transforming design data into a product, configuration design, integration design [and] layouts." "Production" is defined as "all production stages, such as: product engineering, manufacture, integration, assembly (mounting), inspection, testing [and] quality assurance." And "use" is defined as "[o]peration, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing." 15 C.F.R. §772.1. "Technology," thus, encompasses essentially any specific, technical information regarding a product.

Like the ITAR, the EAR effectively defines exports to include only the release of technology to persons who are not citizens, or permanent residents of, the United States, or protected individuals. 15 C.F.R. §734.2(b)(2)(ii).

Regulating the export of non-defense related items, the EAR's scope is extraordinary. It covers the export of mundane items to highly sophisticated items. The EAR does not require persons to obtain approval to export the majority of items and technology subject to its jurisdiction. Whether or not approval is required depends on the nature of the information and the nationality of the foreign person(s) in question.

The first step in determining whether approval is required is to identify the Export Control Classification Number ("ECCN") applicable to the technology in question. The Commerce Control List assigns ECCNs to the various types of non-defense related items and technology. See 15 C.F.R. §774. The ECCN will identify whether the export of the technology is controlled, and the reasons for such control. The BIS may control exports of technology for reasons of anti-terrorism, national security, and crime control, for example. It may also control the export of technology in the interest of adherence to international treaty obligations. See 15 C.F.R. §738.2(d). The ECCN will also identify any License Exceptions applicable to the technology.

The second step in determining whether approval is required involves the Commerce Country Chart. The Chart lists the various countries of the world in its horizontal axis, and the reasons for controlling exports on its vertical axis. If the Chart marks the intersecting block with an "x," the EAR requires the approval of the BIS before exporting the item to that country - or, in the context of the present discussion, before releasing technology to a foreign national. 15 C.F.R. §738.4. The foreign national is considered to be a national of his country of citizenship. 15 C.F.R. §734.2(b)(5).

If the Chart marks the block intersecting your technology and the country of citizenship of the foreign national, the EAR requires you to obtain the BIS' approval before releasing the technology to the foreign national. 15 C.F.R. §738.4(a)(2)(ii). Typically, the more sophisticated the technology and the less friendly the country of nationality of the foreign person is to United States interests, the more likely it is that approval is required.

Similar to the case with the ITAR and defense related technical data, releasing, in the United States, technology related to the development, production or use of non-defense items to persons not citizens, or permanent residents of, the United States (or protected individuals) constitutes an export of that technology. Consequently, depending on the nature of the technology and the nationality of the foreign person to whom the technology will be released, the approval of the BIS may be required before releasing the technology.

And as with the ITAR, persons admitted under the HB-1, or L1, visa will necessarily not be citizens, or permanent residents, of the United States. Nor will they be protected individuals. Yet given their specialty skills, they will likely require access to information required for the development, production or use of the items with which they are working. If those items are non-defense related, the approval of the BIS may be required before giving them access to the information. Again, in such case, simply obtaining the visa is not sufficient to allow the person to be gainfully employed. Obtaining the approval of the BIS will al so be required. That approval generally takes the form of an export license. As is the case with the ITAR, the license application will be required to identify the nationality of the person(s) to whom the information will be disclosed, and the nature of the information.

In a manner similar to the ITAR, the EAR does not apply to "[p]ublicly available technology and software … that: (i) [a]re already published or will be published …, (ii) [a]rise during, or as a result from, fundamental research …, (iii) [a]re educational … [or] (iv) [a]re included in certain patent applications." 15 C.F.R. §734.3(b)(3). As with the ITAR, however, one should be careful about relying on these exceptions with respect to HB-1, or L1, visa holders in technology industries. Given the special skill they enjoy as the prerequisite to their obtention of the visa, it is unlikely that the information with which they will work constitutes only "publicly available technology or software."


Sanctions

Significant penalties can be imposed for disclosing technical data (or, to use the EAR's term, "technology") without the required approvals. Not surprising given the commonality of the interests protected, the penalties for violating the ITAR and EAR are similar. Persons willfully violating the ITAR can be criminally fined up to $1 million, and imprisoned up to 10 years. 22 C.F.R. §127.3. Persons willfully violating the EAR may be criminally fined up to the greater of five times the value of the export at issue or $250,000 ($1 million in the case of a company), and imprisoned for up to 10 years. 15 C.F.R. §764.3(b)(2). Persons may also be subject to civil fines for violating the ITAR and EAR of up to $500,000 and $100,000, respectively. 22 C.F.R. §127.10; 15 C.F.R. §.764.3(a)(1).

Perhaps the most significant penalty which may be imposed, however, is the denial of export privileges. The BIS can, for example, temporarily deny persons export licenses where "such [denial] is necessary in the public interest to prevent the occurrence of an imminent violation." 15 C.F.R. §764.6(c). The BIS can also debar persons convicted of violating the EAR from export activities requiring BIS approval. 15 C.F.R. §764.6(d).

The DDTC is more strict. The DDTC can, for example, debar a person from participating in export activities for, in the words of the ITAR, "a violation of such a character as to provide a reasonable basis … to believe that the violator cannot be relied upon to comply with the [ITAR]." 22 C.F.R. §127.7(b)(2). A conviction is not a prerequisite to a debarment under the ITAR. The DDTC can suspend a person from participating in export activities in those situations where it finds that "suspension is reasonably necessary to protect … the security or foreign policy of the United States." 22 C.F.R. §127.8(a).

A denial of export privileges can have devastating effects on companies relying to any significant extent, on export activities. A denial effectively shuts down those portions of the company's business dependent on exporting. To use the example of foreign nationals working in the United States, a denial of export privileges could prohibit a company from disclosing technical data (or "technology" in the case of the EAR) to all of the company's foreign national employees. To the extent that those employees require access to technical data to perform their jobs, a denial would effectively render the employees useless to the company.

It is worth reiterating the facts that a conviction is not a prerequisite to a denial of export privileges, and that a denial can have devastating effects. These facts were evident in the DDTC's recent actions against Hughes Electronics Corporation and Boeing Satellite Systems, Inc. The DDTC found that Hughes had, without required licenses, transferred technical data, and provided services, to the Chinese government in connection with the investigation into the causes of an explosion of a Chinese rocket on take-off. Despite both Hughes' denials that it had violated any export control regulations, and the Department of Justice's decision not to bring criminal charges, the DDTC suspended Hughes' export privileges and threatened imposing fines of up to $60 million. The Washington Post, Jan. 1, 2003, pg. A.7. The matter was settled by consent with Hughes and Boeing agreeing to pay civil fines totaling $32 million. The New York Times, Mar. 5, 2003, pg. A.9. Boeing had purchased the violating division of Hughes, resulting in Boeing's involvement in the matter.

Both the BIS and DDTC maintain internal procedures intended to afford suspected violators due process. 15 C.F.R. §766; 22 C.F.R. §128. Once the BIS or DDTC acts, however, challenges to their actions are generally futile. Appeal to the courts of BIS, or DDTC, actions, are even less often successful than are appeals of other agencies' actions. Given the broad authority with which the applicable statutes and regulations invest the BIS and DDTC, and seriousness of the issues involved (e.g. national security), courts are particularly reluctant to second guess the administrative decision. (see, for example, Karn v. U.S. Dept. of State, 925 F. Supp. 1 (D.D.C. 1996), remanded 107 F. 3d 923.)


Voluntary Disclosures

While the penalties for violating the ITAR and EAR can be significant, the good news is that the DDTC and BIS are more interested in encouraging compliance than they are in imposing penalties. Both the ITAR and EAR encourage persons voluntarily to report violations of the regulations. And they both view voluntary disclosure as a mitigating factor in determining the penalty, if any, to impose. 22 C.F.R. §127.12(a); 15 C.F.R. §764.5(a).

The DDTC and BIS are, however, dedicated to encouraging compliance. They do, therefore, insist that the voluntary disclosure be thorough and directed at ensuring future compliance. They will want to see that the reporter thoroughly investigated the circumstances of the violation. That is, they will want to know: (i) the specific nature of the item or data exported, (ii) the person(s) to whom the item or data was exported, (iii) the person(s) exporting the items, (iv) the knowledge of those persons exporting the item - that is, whether the violation was intentional, or was innocently made in ignorance of the regulatory requirements; (v) if the reporter has reviewed its export control procedures and practices to determine if they are sufficient to ensure compliance, and (vi) that the reporter is taking all steps necessary to improve any procedures or practices found lacking. If the reporter does not have any procedures in place, the DDTC or BIS will likely require that they adopt them. They will also likely require the reporter to provide training on the export control regulations to those of its employees engaged in exporting activities.

If violating companies report violations and take the steps referenced in the preceding paragraph, there is a good chance that the DDTC and/or BIS will refrain from imposing any penalty. This is especially true where the potential harm to United States interests from the violation is relatively small.

It is generally advisable to voluntarily disclose violations. As discussed above, provided the disclosure is thorough and the reporter demonstrates its commitment to future compliance, the DDTC or BIS likely will impose no penalty for the violation. However, one is admitting to violations of law, and relinquishing Constitutionally guaranteed rights (to refuse to incriminate oneself). One should, therefore, seriously consider the possible ramifications before deciding to disclose.


Treasury Regulations

Less directly applicable, but still worthy of note, are the Treasury regulations. The Treasury administers United States embargoes - both of countries and of individuals. Although there are exceptions, the regulations, as a general rule, prohibit, or severely restrict, United States persons from dealing with embargoed countries and individuals. This includes "exporting" - disclosing technical data and/or technology to them. It should be rare that HB-1, or L1, visas are issued to nationals or embargoed countries (or to persons against whom the United States maintains a personal embargo). As such, the Treasury regulations should not generally be of much note to the situation at hand.

Along these same lines, the ITAR and EAR generally will incorporate the Treasury restrictions into their provisions. That is, if the Treasury regulations impose an embargo on a particular country, the ITAR and EAR will require license approval before disclosing technical data or technology to nationals of that country (and will refuse to grant the license approval).


Conclusion

In sum, companies hiring foreign nationals cannot rely simply on their obtention of an appropriate visa to ensure that the employee can be gainfully employed. If the company plans to give the employee access to technical data it may also, depending on the nature of the data and the nationality of the employee, have to obtain the approval of the DDTC or BIS.







links updated 8/5/08 rab