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March 26, 2008
An alert for higher education on impact of proposed "deemed export" rules from the Philly law firm of Saul Ewing
| March 2008 | Higher Education Law | ||||||||||||||||
Advisory Committee Calls for Changes in "Deemed Export" Rules; Recommendations Could Have Widespread Impact on Nation's Universities and Research Centers By: James M. Becker, James A. Keller and Jeffrey S. Levin The U.S. Department of Commerce's Bureau of Industry and Security (BIS) publicly endorsed a report submitted by the Deemed Export Advisory Committee (DEAC) to that agency in the closing days of 2007. Composed primarily of representatives from many of the nation's leading universities and chaired by the former CEO of Lockheed Corporation, the DEAC was established to provide independent advice to the U.S. Secretary of Commerce. Its report presented a series of recommended changes to the nation's "deemed export" control regime. These recommendations could have a pronounced impact on the regulatory framework within which institutions of higher education, as well as other U.S.-based research centers, must operate. What Is "Deemed Export"? "Deemed export" is a term of art employed by U.S. export control regulations to describe the "release" of sensitive dual-use technology (typically software or technical data) to a "foreign national" studying or working in the United States. ("Fundamental research," defined as comprising basic and applied research in science and engineering, the results of which "ordinarily are published and shared broadly within the scientific community," are not controlled under the U.S. export control regime.) Such technology is "released" for export when: i) it is made available for visual inspection (such as reading technical specifications, plans, blueprints, and the like); ii) it is exchanged orally, or iii) it is made available by practice or application under the guidance of persons with knowledge of the application. For these purposes, a "foreign national" is anyone not a U.S. citizen or permanent resident (i.e., a "green card" holder). Therefore, "foreign nationals" include students and business persons in the United States under a relevant visa for these categories (including, for example, holders of F-1, H-1B, and J-1 visas). When such technologies are released to a foreign national, it is "deemed" to be exported – even if the action occurs within the physical confines of the United States (for example, in a university lab). If the object of the transfer is subject to U.S. export controls, an export license may be required. The logic behind "deemed exports" is that the foreign national can easily transfer the technology to persons abroad should he/she so desire. As noted in the DEAC report, "{m}any academic and industrial organizations appear to be unaware of the Deemed Export rules..." This failing could potentially expose entities to substantial criminal and civil penalties. Indeed, under the International Emergency Economic Powers Enhancement Act signed into law in October 2007, BIS is authorized to impose civil penalties ranging up to $250,000 per violation and criminal penalties up to $1 million per violation. Violations include a range of activities that contravene the export control regulations, including the performance of an export without a properly issued license when a license is required, and the export of materials, software, technical data and the like to an unauthorized party or prohibited destination. The DEAC's Findings and Recommendations The DEAC observed that the United States is the only nation that controls "deemed exports," as other countries typically rely upon visa processes, intelligence information and intellectual property laws to control the flow of sensitive dual-use technology. While these controls arguably remain critical for national security needs, especially as issues regarding such things as the development and proliferation of weapons of mass destruction remain of paramount concern, the structure and operation of the "deemed export" regime may be handicapping the United States' ability to foster technological development, and expose inadvertent violators to extraordinary penalties. This could well have a pronounced "chilling effect" on research within our borders, and is perhaps one of the major reasons why the U.S. no longer holds the dominant position in science and technology which it so recently enjoyed. The DEAC report presented a series of recommendations to simplify the deemed export licensing process, finding that current regulations are "increasingly irrelevant to the prevailing global situation," and noting that the current list of controlled items – known as the Commodity Control List or CCL – is "too all-encompassing." Specifically, the DEAC called for annual reviews of the CCL to eliminate export controls on items that have minimal security consequences. It further recommended that a category of "trusted entities" be established that would enjoy "special, stream-lined treatment" in the export licensing process. Such a designation, as envisioned by the DEAC, would remove licensing requirements for technologies that do not have "a truly significant military consequence." What Happens Now, and What Should Research Centers Be Doing? Last month, Undersecretary of Commerce for Export Administration, Mario Mancuso, publicly endorsed the DEAC report, but noted that formal actions by the Commerce Department in response must await a comprehensive reaction from other Federal agencies. However, two actions in response to the report are already underway. First, the BIS announced that it will improve its outreach and engagement efforts to the academic and technological communities in order to educate these constituencies about the progress and scope of deemed export policy efforts. Second, Undersecretary Mancuso announced that BIS will create a new Emerging Technologies Advisory Committee, composed of representatives from leading research universities, government research labs and industry to make recommendations to the agency regarding emerging technologies on a regular basis. While official responses play out, there are several steps that U.S. research centers should be taking internally. First, to the extent that it has not already done so, research centers, including universities, should ensure system-wide compliance with deemed export requirements as they currently exist. As noted above, many of these centers around the nation are not familiar with these requirements, which could be a costly failing. Second, every research center should adopt and implement a comprehensive export control compliance program, not only to ensure their adherence to the web of export control requirements, but also to establish the basis for mitigation should they run into trouble. An effective export compliance program should include such elements as the designation of a responsible official within the center that is charged with ensuring that all export related requirements are met, a procedure to ensure that licensing requirements have been fully addressed for each deemed export, and a procedure for reporting problems that come to light up through the center's internal chain of command so that it expeditiously receives the attention of a responsible official within the center. An effective export compliance program, in writing and understood throughout a company, can mitigate a proposed civil penalty by up to 25 percent. And third, research centers, including universities and related associations, should proactively position a representative for appointment to the soon-to-be-formed Emerging Technologies Advisory Committee.This Bulletin was written by James M. Becker, a Partner in the Litigation Department; James A. Keller, a Partner in the Litigation Department and Chair of the Higher Education Practice Group; and Jeffrey S. Levin, Special Counsel in the International Trade and Business Practice Group. If you have questions about this Bulletin or wish to discuss this topic, Jim Becker can be reached at 215.972.1959 or jbecker@saul.com; Jim Keller can be reached at 215.972.1964 or jkeller@saul.com and Jeff can be reached at 202.342.3424 or jlevin@saul.com. This Bulletin has been prepared by the Higher Education Practice Group for information purposes only. The provision and receipt of the information in this publication (a) should not be considered legal advice, (b) does not create a lawyer-client relationship, and (c) should not be acted on without seeking professional counsel. Under the rules of certain jurisdictions, this communication may constitute "Attorney Advertising." ©2008 Saul Ewing LLP, a Delaware
Limited Liability Partnership. |
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