NOAA Workshop on U.S. Export Controls

June 7-9, 2011 – HCHBJune 28-30, 2011 - Seattle

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U.S. Department of CommerceBureau of Industry and Security

Deemed Export Compliance

Bernard KritzerDirectorOffice of Exporter ServicesBKritzer@bis.doc.gov

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Agenda• Export Controls Overview• How to Classify Items on the Commerce Control List• Foreign National Visitor and Guest Access Program• Deemed Exports Overview• NOAA Deemed Export Compliance Program• Exercises• Show how to navigate and use the EAR• Threat Briefing – Office of Export Enforcement• ITAR Overview

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BIS is here to help!

• Outreach Activities• Exporter Counseling• Advisory Opinions• Commodity Classifications• Compliance Strategies

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Need Assistance?

Bureau of Industry and Security Ph. (202) 482-4811Outreach & Educational Services Fax (202) 482-2927

14th St. & Pennsylvania Ave. NWWashington, DC 20230

Western Regional Offices3300 Irvine Avenue, Suite 345 Ph. (949) 660-0144Newport Beach, CA 92660 Fax (949) 660-

9347

96 North 3rd Street, Suite 250 Ph. (408) 291-4212

San Jose, CA 95112 Fax (408) 291-4320

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7June 2011

Bureau of Industry and Security■ Bureau Mission: to advance

U.S. national security, foreign policy, and economic interests

Statutory Authority: Export Administration Act (EAA) of 1979, as amended; International Emergency Economic Powers Act, as amended

Responsibilities: BIS is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and reexport of most commercial and dual-use items.

8June 2011

The Threat

■ Dangers of illegal technology transfers are very real:

‑ WMD Proliferation

‑ Weapon Design/Manufacture

‑ Industrial Espionage

■ U.S. economy damaged by illegal technology transfers.

9June 2011

The Threat■ Significance: Both national security and U.S. economy can be seriously damaged by illegal technology transfers.

■ Damage to the economy can include loss of large amounts of proprietary R&D done over many years.

■ Loss of proprietary R&D can result in the establishment and/or enhancement of foreign competitors in leading edge technology sectors.

10June 2011

Origin of the Threat

■ U.S. Intelligence Community has noted: Collection and acquisition activities from

over 56 foreign nations 13 countries assessed to be most aggressive

collectors of U.S. proprietary economic information and critical technologies

Use of clandestine and illegal methods to collect technology

U.S. private sector studies estimate loss in the billions every year

11June 2011

What is being targeted?

Nationally Biotechnology Pharmaceuticals Nanotechnology Quantum Computing Advanced Materials Communications and Encryption Technology Weapons Systems yet unclassified

12June 2011

Methods Used to Target Technology

Unsolicited emails

Front companies

Liaisons with universities that have ties to defense contractors

Recruitment by foreign intelligence services

National laboratories

Compromise of laptop while traveling overseas

Attending/Hosting conferences

Relocating R&D facilities overseas

Circumventing export control laws

Visiting scientific and research delegations

Hacking

Downloading information from your network

13June 2011

Deemed Export Enforcement Facts

■ Since 2004, Export Enforcement has closed over 120 investigations, involving a deemed export. Many of these investigations resulted in action being taken or the issuance of a warning letter.

Since 2004, BIS has issued 19 final orders in 17 investigations involving deemed export violations. This has resulted in over $2 million in fines.

Approximately one-half of the cases involved Voluntary Self- Disclosures (VSDs) and both commodity and technology exports.

Eight cases involved deemed export violations alone.

Most violations involved unauthorized transfers of Category 3 (Electronics) and Category 5 (telecommunications).

14June 2011

Key Compliance Issues Since 2004, a central theme that has been identified in the

course of over 120 investigations of deemed exports has been the poor communications or disconnect between the key compliance actors in the private sector:

1) Export Compliance Personnel

2) Human Resources

3) Hiring Managers There were also issues surrounding foreign visitors and

the need for enhanced compliance training.

This is significant for high technology companies because the investigations identified the fact that many companies maintained effective programs for commodities but that it did not carry over in the area of technology.

15June 2011

Technology Control Plan (TCP)

■ The key to technology export compliance is an effective Technology Control Plan.

■ A TCP should contain the following essential elements:

• Management commitment to export compliance• Physical security plan• Information security plan• Personnel screening procedures• Training and awareness program• Self-evaluation program

■ Meaningful compliance is “win-win” because it protects national security and allows a company to protect its proprietary technical data essential to R&D and bringing new products to market timely.

16June 2011

Key Points for Discussion Successful deemed export compliance

incorporate commodities and technologies.

Successful deemed export compliance also represents management’s commitment to a holistic approach, involving successful interaction between the key stakeholders--export compliance personnel, hiring managers, and human resources.

Rarely have we seen a deemed exporter fail that established and maintained a strong TCP, successful interaction between internal stakeholders, and meaningful annual assessments of its program.

17June 2011

Key Points for Discussion The cost of such compliance is small given

the potential downside loss of millions of dollars of proprietary technology and compromises to national security.

Meaningful deemed export compliance also requires an active partnership between government and all affected stakeholders.

Overview of the Export Administration Regulations

(EAR)

Mr. Douglas BellSenior Export Counselor

Office of Exporter Services

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BIS Mission

• To advance U.S. national security, foreign policy, and economic interests.

– BIS is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and reexport of most commercial items.

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How Do We Control Exports?

Statutory Authority

• Export Administration Act (EAA) of 1979, as amended

• International Emergency Economic Powers Act, as amended

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Broad jurisdiction BUT… narrow license requirements

Export Administration Regulations (EAR)

• Implement the Export Administration Act

• Apply to most commercial items

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Where can you find the EAR

• Code of Federal Regulations– 15 CFR 730-774– www.gpoaccess.gov

• Available on-line:– www.bis.doc.gov

• Order from Government Printing Office– 866-512-1800 (toll-free)– www.access.gpo.gov

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Why Do We Control Exports?

• National Security• Foreign Policy

– Anti-terrorism– Crime control– Regional Stability

• Non Proliferation– Nuclear weapons– Chemical/biological weapons– Missiles

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Who Else is Involved in Export Controls?Other Regulatory Agencies

Part 730, Supplement 3

• US Dept. of State - Directorate of Defense Trade Controls (ITAR)

• US Dept. of Treasury - Office of Foreign Assets Control

• US Dept. of Energy

• Nuclear Regulatory Commission

• US Dept. of Commerce – Patent & Trademark Office

• US Department of Interior

• Food and Drug Administration

• U.S. Department of Commerce –records) Bureau of the Census (trade statistics and SEDs/AES

• U.S. Department of Homeland Security – Border and Transportation Security– U.S. Customs Service (works with BIS to ensure compliance)

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Important EAR Terms

• Dual-Use• Item• Export• Reexport• Deemed export/reexport• Commerce Control List (CCL)• Export Control Classification Number (ECCN)

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Dual-use Items

• Items that have both commercial and military or proliferation applications.

• This term is often used informally to describe items that are subject to the EAR.

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What is an item?Part 772

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What is an export?

• An export is a shipment or transmission of items

out of the United States.

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What is a deemed export?

• The release of technology or source code to foreign national in the US is deemed to be an export.

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What is a reexport?

• A reexport is a shipment or transmission of items subject to the EAR from one foreign country to another.

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Technology and Software Exports and Reexports

• Include transfers regardless of the method or media– Consultations– Phone conversations– Instruction– Conferences– Application of knowledge– Visual inspections– Disks, blueprints, hardcopy, etc.– Internet, E-mail, Fax

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Other Important Concepts

• Commerce Control List (“CCL”)

• Export Control Classification Number (“ECCN”)

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What does “Subject to the EAR” mean?§734.2(a)

Items and activities under the regulatory jurisdiction of the EAR– Remember there are other government

agencies that administer export controls

“Subject to EAR” does not mean that a license is automatically required

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What is “Subject to the EAR?”§§734.3-734.5

• Items in the United States

• Some items located outside of the United States

• Activities of U.S. and Foreign Persons

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What is “Subject to the EAR”? Items in the United States

§734.3(a)(1)

• ALL Items in the United States, except: – Publicly available technology & software (excluding

encryption)– Items subject to the exclusive jurisdiction of

another federal department or agency– Literary publications, such as newspapers or

literary works (non-technical in nature)

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What is “Subject to the EAR”? Items Outside the United States

§734.3

• Some items located outside the United States:– U.S.-origin items wherever located– Certain foreign-made items, if:

• The value of the U.S. content exceeds the de minimis percentage

• The foreign-product item is the direct product of U.S. technology or software

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Overview-Summary

• BIS regulates exports, reexports and certain transfers of items subject to the EAR in addition to certain activities of U.S. persons.

• Important terms: Items, export, reexport, deemed export, CCL & ECCN

• First order of business is to determine whether or not your transaction is subject to the EAR.

Classification of Items on the Commerce Control List

Darrell SpiresSenior Electronics Engineer

Office of Nonproliferation and Technology Transfer Controls

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Topics of Discussion

• Determining the Export Control Classification Number (“ECCN”)– The Commerce Control List (“CCL”)

• Self-Classification• Official Commodity Classification Request

– SNAP-R

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Commerce Control List (“CCL”)Part 774, Supplement No. 1

• Contains lists of those items subject to the licensing authority of BIS

• Each entry is called an Export Control Classification Number (“ECCN”)

• Most items are described in terms of their technical parameters

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What does Export Control Classification Number (“ECCN”) tell us?

Part 772

• What items are controlled?• Why BIS controls the item?• Which destinations will require a license?

– Country Chart in Supp. 1 to part 738, • What (if any) list-based license exception

applies?

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The Structure of the ECCN

0 A 018

0 Category

A Product Group

018 Type of Control

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Categories of the Commerce Control List

0 Miscellaneous & Nuclear Materials

1Materials, Chemicals, Microorganisms, and Toxins

2 Materials Processing

3 Electronics

4 Computers

5 Part 1-Telecommunication

5 Part 2- I nformation Security

6 Sensors & Lasers

7 Navigation & Avionics

8 Marine

9 Aerospace & Propulsion

0 A 018

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Product Groups of the Commerce Control List

A Systems, Equipment & Components

B Test, I nspection & Production Equipment

C Materials

D Software

E Technology

0 A 018

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Type of Controls Associated with Entry

0 National Security Reasons

1 Missile Technology Reasons

2 Nuclear Nonproliferation Reasons

3 Chemical & Biological Weapons Reasons

9

Anti-terrorism

Crime Control

Regional Stability

Short Supply

UN SanctionsSurreptitious Listening

0 A 018

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Most of the time related items are grouped in series

Equipment, assemblies

and components

Test, inspection

and production equipment

Software

Technology

Materials

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How to Read an ECCN entry

• Number and Heading• License Requirements

– Reasons For Control• License Exceptions (List-based)• List of Items Controlled

– Units– Related Controls– Related Definitions– Items

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How to Read an ECCN

Heading:

ECCN & Descriptio

n

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How to Read an ECCN

License Requirement

s:

Reasons for Control

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How to Read an ECCN

License Exceptions

:

List-Based

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How to Read an ECCN

List of Items

Controlled:

Units

Related Controls

Related Definitions

Items

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June 2011 53

Technology and Software Classification

• Review Commerce Control List (CCL)• Identify Export Control Classification

Number (ECCN)• In most cases, technology tied

directly to hardware “development”, “production”, or “use”

• Refer to General Technology and Software Notes (Supplement No. 2 to Part 774)

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General Technology Note

The export of “technology” that is “required” for the “development”, “production”, or “use” of items on the Commerce Control List is controlled according to the provisions in each category.

June 2011 55

5A101

5D101

5E101

Technology and Software ECCNs

Telemetry Equipment

Telemetry Software

Telemetry Technology

Product Groups D and E

3A292

3D292

3E292

Digital Oscilloscope

Oscilloscope Software

Oscilloscope Technology

The deemed export rule affects technology and software.

The deemed export rule affects technology and software.

Deemed Export ECCNs

Analog-digital conversion, greater than 1 giga-sample per second, 8 bits or greater resolution, stores 256 or more samples

Production, development or use technology is controlled

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Technology and Software Terms

• Development

• Production

• Use

• Required

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"Development"• "Development" is related to all

stages prior to serial production, such as: design, design research, design analyses, design concepts, assembly and testing of prototypes, pilot production schemes, design data, process of transforming design data into a product, configuration design, integration design, layouts

June 2011 59

"Production"• Means all production stages, such as:

product engineering, manufacture, integration, assembly (mounting), inspection, testing, quality assurance.

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"Use"• Operation, installation (including

on‑site installation), maintenance (checking), repair, overhaul and refurbishing.

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"Required"• As applied to "technology" or

"software", refers to only that portion of "technology" or "software" which is peculiarly responsible for achieving or extending the controlled performance levels, characteristics or functions. Such "required" "technology" or "software" may be shared by different products.

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EAR99 Items• Items that are not specifically listed on the

Commerce Control List yet subject to the EAR, use the designation EAR99 in place of an ECCN.

• This designation may be found at the end of every category of the CCL:

“EAR99 Items subject to the EAR that are notelsewhere specified in this CCL Category or inany other category in the CCL are designated

by the number EAR99.”

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How can you obtain the ECCN of your item?

1. Ask the manufacturer, but verify…

2. Self-classify

• Work with company engineer or someone who knows the item

3. Submit formal classification request to BIS

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An Approach to Self-Classifying Items

• Do an index comparison (good starting point)

You need to understand the functions & characteristics of the item!

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How to Request a Classification File using SNAP-R (or BIS-748-P)

• “Best guess” ECCN• Maximum of six items per request• Item details

– Manufacturer– Model/Part number– Applications– Specifications

• Include detailed technical specifications– Pictorial illustration, e.g. sales brochures

Commodity Jurisdiction Process 22 CFR 120.4(b)

• Determines if items are controlled on the U.S. Munitions List (Department of State) or the Commerce Control List (Department of Commerce)

• Criteria 22 CFR 120.3– Is the item specifically designed, developed, configured,

adapted, or modified for a military application?– Does the tem have a predominant civil application?– Does the item have a performance equivalent to those of an

article or service used for civil application?– Is the item designed for military application and has

significant military or intelligence applicability?

• The CJ application is reviewed by the Departments of Defense, State, and Commerce. Defense and Commerce recommend, State makes the final decision

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Classification- Summary

Determining an ECCN1. Check with the Manufacturer

2. Work with company engineer/someone who knows the item• CCL is organized in a logical manner • ECCN entries are based on the technical

parameters of an item and contain a wealth of information regarding export controls

3. Submit formal classification request to BIS

Determining License Requirements based on ECCN

and Destination

Darrell SpiresSenior Electronics Engineer

Office of National Security and Technology Transfer Control

June 2011 69

Commerce Country ChartPart 738, Supplement No. 1

• Reasons for Control/Country Chart• If there is:

– “X” in the box indicates a license requirement– No “X” in the box indicates no license

requirement

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Structure Commerce Country ChartWhen the Destination and the Reason for Control Meet, Ask Yourself…

Is there an “X” in the box?

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No License Required

(“NLR”)

• You may use NLR for:– EAR99 items, or– ECCNs where there is no “X” on the Country Chart

under reason(s) for control; and– When the transaction does not require an export

license based on any other licensing requirement (e.g., end-use/user requirements)

June 2011 72

Summary-Determining Licensing Requirements based on ECCN & Destination

• “X” in the box indicates a license requirement

• No “X” in the box indicates no license requirement

License Exceptions

Mr. Douglas BellSenior Export Counselor

Office of Exporter Services

June 2011 74

There is an “X” in the Box…

What do I do?

June 2011 75

Topics of Discussion

• What is a License Exception?

• Restrictions

• List Based License Exceptions

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What is a License Exception?Part 740

An authorization that allows you to export or reexport, under stated conditions, items subject to the EAR that would otherwise require a license.

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When can’t you use a License Exception?

§740.2• Authorization has been suspended or revoked• Export subject to a General Prohibition that is

not eligible for License Exceptions.• Surreptitious Interception Devices • Crime control items to most destinations• Most Missile Technology control items• Embargoed destinations, in most instances

For Full list Refer to §740.2

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The way the EAR sees the world…

Country Groups Supplement 1 to Part 740

Group A: Regime Members

Group B: Less Restricted

Group D: Countries of Concern

Group E: Terrorist Supporting

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Some of the possibleLicense Exceptions…

Availability Based on transaction details - Shipments to US Government employees (GOV)– Civil End Users (CIV)– Repair, Replace or Service Items (RPL)– Technology and Software Restricted (TSR)– Baggage (BAG)

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Shipments to US Government Personnel

§740.11

• Shipments to USG employees either military or civilian

• Items for personal use or official capacity• Also includes agencies of cooperating

governments found in Country Group A:1 and Argentina, Austria, Finland, Hong Kong, Ireland, New Zealand, Singapore, South Korea, Sweden, Switzerland, and Taiwan.

GOV

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CIV Civil End-Users §740.5

• Country Group D:1, except North Korea

• Items that require a license to the ultimate destination for national security reasons only

• Civil end-uses and end-users– No military or proliferation

end-users/uses

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RPL Replacement, Repair and Servicing of Equipment

§740.10

• All Destinations with some restrictions• Commodities• One-for-one replacement of a legally

exported item• Not to be used to stockpile inventory• Servicing of the item can not enhance

capabilities

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TSR Technology & Software Under Restriction

§740.6

• Country Group B

• Technology & software requiring a license to the ultimate destination for national security reasons only

• Prior to use, written assurance required from consignee

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TSR Written Assurance

• Letter, other written communication, licensing agreement, fax

• No written assurance -- No TSR

BAG Baggage §740.14

• Personal Effects

• Household effects

• Tools of the Trade

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TMP Temporary Imports, Exports and Re-exports §740.9

• Exhibitions or Demonstrations

• Tools of the Trade

• Must Return to US within one year

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Summary-License Exceptions

• Make sure your export requires a license (i.e. there is an “X” in the box), before reviewing the License Exceptions.

• Before going to a specific license exception, make sure there are no restrictions.

• Each exception is unique, make sure you meet all of the criteria.

Douglas BellSenior Export Counselor

Office of Exporter Services

Deemed Exports

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Deemed Exports: Definition

• Release of • technology or source code • that is subject to the EAR • to a foreign national • in the United States (EAR

§ 734.2(b)(2)(ii)). • Release is “deemed” to be an export to foreign national’s home country

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Technology or Source Code Possible Release Methods

• Tours of laboratories

• Research, development, & manufacturing activities

• Foreign students or scholars conducting research

• Hosting a foreign scientist

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Deemed Export Rule Does Not Apply To:

• United States Citizens;• Permanent Resident Aliens (i.e., “Green Card” holders); and• Protected individuals under 8 U.S.C.

1324b(a)(3). Protected individuals include political refugees and political asylum holders.

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Country of Origin(Permanent Residency)

Release of technology to a foreign national of one country, say India, who has obtained permanent residency in another, say the U.K., is treated as if the technology transfer were being made to the U.K. and licensing requirements would be the same as for a British national in the U.K.

If the Indian national becomes a British citizen, transfers of technology would be viewed as transfers to the U.K.

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If an Indian foreign national becomes a citizen of the U.K. but retains Indian citizenship, the most recent citizenship is with the U.K. and releases of technology would be viewed as releases to the U.K.

As a general principle, a foreign national’s most recently obtained citizenship governs the licensing requirement.

Country of Origin(Dual Citizenship)

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Deemed ExportsLicense Requirements

• Is the technology (or source code) subject the EAR?

• Is a license required?

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Technology Not Subject to the EAR

• Publicly available (EAR § 734.7)• Generally accessible to the interested

public• Periodicals, books, print, electronic

other media forms• Libraries (university, public etc)• Released at open conferences

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Technology Not Subject to the EAR

• Product of fundamental research (EAR § 734.8)• Basic and applied research where resulting information is ordinarily published and broadly shared within scientific community

June 2011 97

Technology Not Subject to the EAR

• Educational information (EAR § 734.9)• Released by instruction in catalog courses• Associated teaching laboratories of academic

institutions

• Patent information (EAR § 734.10)• Public information available on patent

application

June 2011 98

Technology Not Subject to the EAR (Cont.)

• Technology subject to the exclusive export licensing jurisdiction of another agency• Directorate of Defense Trade

Controls• Nuclear Regulatory Commission• Department of Energy

June 2011 99

License Exceptions Specifically for Deemed Exports

CIV: Civil End Use (EAR § 740.5)

ECCN 3E002 technology.

Requires Foreign National Review

TSR: Technology and Software Under Restriction (EAR § 740.6)

Applies to technology and software under national security only for country group “B” nationals.

Letter of assurance required

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Deemed Export License Requirements

• Usually Commerce Control List Based• Other license requirements based on

• End use• Embargoed destinations• Entity List

June 2011 101

Deemed Export License Requirements

• Classify the commodity • Second character of ECCN will be A, B or

C• Look for a related software (D) or

technology (E) ECCN usually in the same category

• Most software and technology ECCNs apply to software or technology for “development,” “production,” or “use.”

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BIS - Application Review• Verify classification of technology• Review licensing requirements & license

exceptions based on home country• Assess appropriateness of job description,

responsibility, title • Assess appropriateness of education level

and field to technology & end-use • Determine reasons for control for correct

referrals

June 2011 103

Foreign National Review (FNR)Sections 740.5

• Applicant must submit FNR request before disclosing technology under license exception CIV.

• Request must provide same information on the foreign national as a license application.

• Faster review than license applications

June 2011 104

Deemed Export Contacts

Deemed Exports and Electronics Division

Brian Baker Kurt FranzDirector Senior Export Policy

Analyst202-482-5534 202-482-2278bbaker@bis.doc.gov kfranz@bis.doc.gov

Bob JusteSenior Electrical Engineer202-482-2845rjuste@bis.doc.gov