NOAA Workshop on U.S. Export Controls June 10 th & 11 th, 2009 – HCHB July 21 st & 22 nd, Seattle

June U.S. Department of Commerce Bureau of Industry and Security Deemed Export Compliance Bernard Kritzer Director Office of Exporter Services

June 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

June BIS is here to help! Outreach Activities Exporter Counseling Advisory Opinions Commodity Classifications Compliance Strategies

June Need Assistance? Bureau of Industry and SecurityPh. (202) Outreach & Educational Services Fax (202) th St. & Pennsylvania Ave. NW Washington, DC Western Regional Offices 3300 Irvine Avenue, Suite 345Ph. (949) Newport Beach, CA Fax (949) North 3rd Street, Suite 250 Ph. (408) San Jose, CA 95112Fax (408)

June 20096

7 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.

8 June 2009 The Threat Dangers of illegal technology transfers are very real: ■ Dangers of illegal technology transfers are very real: ‑ WMD Proliferation ‑ WMD Proliferation ‑ Weapon Design/Manufacture ‑ Weapon Design/Manufacture ‑ Industrial Espionage ‑ Industrial Espionage ■ U.S. economy damaged by illegal technology transfers.

9 June 2009 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.

10 June 2009 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

11 June 2009 What is being targeted? Nationally  Biotechnology  Pharmaceuticals  Nanotechnology  Quantum Computing  Advanced Materials  Communications and Encryption Technology  Weapons Systems yet unclassified

12 June 2009 Methods Used to Target Technology Unsolicited s Unsolicited s Front companies Front companies Liaisons with universities that have ties to defense contractors Liaisons with universities that have ties to defense contractors Recruitment by foreign intelligence services Recruitment by foreign intelligence services National laboratories National laboratories Compromise of laptop while traveling overseas Compromise of laptop while traveling overseas Attending/Hosting conferences Attending/Hosting conferences Relocating R&D facilities overseas Relocating R&D facilities overseas Circumventing export control laws Circumventing export control laws Visiting scientific and research delegations Visiting scientific and research delegations Hacking Hacking Downloading information from your network Downloading information from your network

13 June 2009 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).

14 June 2009 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.

15 June 2009 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.

16 June 2009 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.

17 June 2009 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)

June 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.

June How Do We Control Exports? Statutory Authority Export Administration Act (EAA) of 1979, as amended International Emergency Economic Powers Act, as amended

June Broad jurisdiction BUT… narrow license requirements Export Administration Regulations (EAR) Implement the Export Administration Act Apply to most commercial items

June Where can you find the EAR Code of Federal Regulations –15 CFR – Available on-line: – Order from Government Printing Office – (toll-free) –

June Why Do We Control Exports? National Security Foreign Policy –Anti-terrorism –Crime control –Regional Stability Non Proliferation –Nuclear weapons –Chemical/biological weapons –Missiles

June Who Else is Involved in Export Controls? Other Regulatory Agencies Part 730, Supplement 3 US Dept. of State - Directorate of Defense Trade Controls 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 )

June Important EAR Terms Dual-Use Item Export Reexport Deemed export/reexport Commerce Control List (CCL) Export Control Classification Number (ECCN)

June 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.

June What is an item? Part 772

June What is an export? An export is a shipment or transmission of items out of the United States.

June What is a deemed export? The release of technology or source code to foreign national in the US is deemed to be an export.

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

June 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, , Fax

June Other Important Concepts Commerce Control List (“CCL”) Export Control Classification Number (“ECCN”)

June 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

June What is “Subject to the EAR?” §§ Items in the United States Some items located outside of the United States Activities of U.S. and Foreign Persons

June 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)

June 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

June Who is “Subject to the EAR”? U.S. Persons and Foreign Persons §734.5 Certain activities of U.S. persons (§744.6) –Related to proliferation Activities of U.S. or foreign persons prohibited by any order issued under the EAR.

June 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 Spires Engineer Office of Nonproliferation and Technology Transfer Controls

June Topics of Discussion Determining the Export Control Classification Number (“ECCN”) – The Commerce Control List (“CCL”) Self-Classification Official Commodity Classification Request –SNAP-R

June Why are classifications so important? Proper classifications prevent: –Delays in exporting – Potential violations of the EAR

June 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

June 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?

June The Structure of the ECCN 0 A Category AProduct Group 018Type of Control

June Categories of the Commerce Control List 0 A 018

June Product Groups of the Commerce Control List 0 A 018

June Type of Controls Associated with Entry 0National Security Reasons 1Missile Technology Reasons 2Nuclear Nonproliferation Reasons 3Chemical & Biological Weapons Reasons 9 Anti-terrorism Crime Control Regional Stability Short Supply UN Sanctions Surreptitious Listening 0 A 018

June Most of the time related items are grouped in series Equipment, assemblies and components Test, inspection and production equipment Software Technology Materials

June 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

June How to Read an ECCN Heading: ECCN & Description

June How to Read an ECCN License Requirements: Reasons for Control

June How to Read an ECCN License Exceptions: List-Based

June How to Read an ECCN List of Items Controlled: Units Related Controls Related Definitions Items

June

June 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)

June 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 A101 5D101 5E101 Technology and Software ECCNs Telemetry Equipment Telemetry Software Telemetry Technology Product Groups D and E

June Technology and Software Terms Development Production Use Required

June "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 "Production" Means all production stages, such as: product engineering, manufacture, integration, assembly (mounting), inspection, testing, quality assurance.

June "Use" Operation, installation (including on ‑ site installation), maintenance (checking), repair, overhaul and refurbishing.

June "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.

June General Software Note Supplement No. 2 to Part 774 Sold from stock at retail selling points without restriction, by means of: 1.Over the counter transactions; 2.Mail order transactions; 3.Electronic transactions; or 4.Telephone call transactions; and Designed for installation by the user.

June 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 not elsewhere specified in this CCL Category or in any other category in the CCL are designated by the number EAR99.”

June 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

June An Approach to Self-Classifying Items Do an index comparison (good starting point) You need to understand the functions & characteristics of the item!

June Helpful Hints for Self-Classification Get started early classifying your items Understand organization of CCL and approaches to classifying items Understand the technical parameters of your item

June 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

June Classification- Summary Determining an ECCN 1.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

June Commerce Country Chart Part 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

June Structure Commerce Country Chart When the Destination and the Reason for Control Meet, Ask Yourself… Is there an “X” in the box?

June 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 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 Toni Jackson Export Administration Specialist Office of Exporter Services

June There is an “X” in the Box… What do I do?

June Topics of Discussion What is a License Exception? Restrictions List Based License Exceptions

June 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.

June 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

June 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

June Commerce Control List-Based License Exceptions Availability Based on ECCN –Shipments to B Countries (GBS) –Civil End Users (CIV) –Limited Value Shipments (LVS) –Technology and Software Restricted (TSR) –Computers (APP)

June GBS Group B Shipments §740.4 Shipments to Country Group B Commodities requiring a license to the ultimate destination for national security reasons only

June 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

June LVS Limited Value Shipment §740.3 Country Group B Commodities Net value cannot exceed LVS value limit Annual value restriction –12 x LVS value of same ECCN to same consignee Single shipment NO splitting orders!

June 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

June TSR Written Assurance Letter, other written communication, licensing agreement, fax No written assurance -- No TSR

June Summary- License Exceptions Make sure your deemed 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 of all of the criteria.

William Arvin Senior Export Policy Analyst Office of Exporter Services Deemed Exports

June 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

June Technology or Source Code Possible Release Methods Tours of laboratories Research, development, & manufacturing activities Foreign students or scholars conducting research Hosting a foreign scientist

June 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.

June 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.

June 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)

June Deemed Exports License Requirements Is the technology (or source code) subject the EAR? Is a license required?

June 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

June 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 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 § ) Public information available on patent application

June 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 Deemed Export License Requirements Usually Commerce Control List Based Other license requirements based on End use Embargoed destinations Entity List

June 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.”

June Deemed Export License Requirements “Development” – all stages prior to serial production “Production” – all production stages including inspecting and testing “Use” – Operation, installation, maintenance, repair, overhaul and refurbishing E.g., Providing operating instruction for a machine by itself is not a transfer of use technology for that machine

June Deemed Export License Requirements Determine the classification of the technology or software Identify reasons for control Determine foreign national’s home country Check country chart to see if a license is required to that country.

June The Deemed Export Application Detailed letter of explanation Comprehensive resume Complete job description Foreign national’s particular qualifications Safeguards to restrict access to that approved (Technology Control Plan)

June Letter of Explanation Identities of all parties to the transaction Exact project location (where the technology or software will be used) Type of technology and scope Availability abroad of comparable foreign technology or software Form in which the technology will be released and the uses for which the technology will be employed. Applicant’s internal technology control plan

June Foreign National’s Resume Include all educational institutions attended beyond high school Street addresses Degrees or certificates received. All positions held Employers’ names and street addresses Brief description of work done.

June Foreign National’s Resume (Cont.) Account for all time since from high school graduation Present in month and year format No gaps greater than 30 consecutive days. Include brief abstracts of all scientific and technical papers published, and presentations at scientific and technical conferences.

June Technology Control Plan The requirement for a technology control plans are a standard condition found in deemed export and technology exports licenses.

June Technology Control Plan (Cont) Essential elements: Physical security plan Information security plan Personnel screening procedures Training and awareness program Self evaluation program Corporate commitment to export compliance

June Helpful Information Does the foreign national: Have strong ties to the U.S. (e.g., family here, home ownership, etc.) and / or Intend to become a U.S. citizen? What ties does the foreign national have to his / her country of origin? What special benefits or expertise the foreign national brings to the applicant?

June 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 License Exceptions for Deemed Exports CIV: Civil End Use (EAR § 740.5) ECCN 3E002 technology. APP: Adjusted Peak Performance (EAR § 740.7) ECCNs 4D001 and 4E001 software and technology Both require foreign national review

June Foreign National Review (FNR) Sections & Applicant must submit FNR request before disclosing technology under license exceptions CIV and APP. Request must provide same information on the foreign national as a license application. Faster review than license applications

June License Exceptions for Deemed Exports 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

June Deemed Export Application Statistics FY Results Total applications processed 1252 Approvals1147 (91%) RWA’s 101 (8%) Denials 4 (>1%)

June Deemed Export Application Statistics FY2008– Nationalities 57% People’s Republic of China 10% India 7% Russia 6% Iran 5% United Kingdom 1% Germany 2% Others

June Deemed Export Contacts Deemed Exports and Electronics Division Brian BakerKurt Franz Director Senior Export Policy Analyst Bob Juste Senior Electrical Engineer