Immigration: The Deemed Export Rule And Its Enforcement
Remember when you helped one of your foreign national employees obtain that nonimmigrant worker visa so she could work for your company? Did you also determine whether she needed an export license before starting work?
Remember when your company arranged a guided tour or sent technical information to some prospective customers from another country? Did you think about whether you might be violating U.S. export control regulations?
In recent years, the U.S. government has responded to continued threats on national security by implementing increasingly drastic security measures. These security initiatives have resulted in a significant rise in the number of government audits and criminal investigations launched against U.S. employers. Since 9/11, the focus quite often has been immigration compliance and export controls. Recent enforcement actions demonstrate this point.
Take for example the case of Suntek Microwave, Inc. In April 2004, Suntek’s president was imprisoned for 12 months and a day and assessed a $339,000 criminal fine because, among other things, Chinese-national employees were trained in the manufacture of controlled technology without "deemed export" licenses. In another case, Lattice Semiconductor Corporation incurred $560,000 in administrative fines for unlicensed exports and deemed export violations.
Particularly alarming for employers is the frequency with which the government investigates companies and uses high-tech systems to enforce compliance. The government’s determination to prosecute employers makes it imperative for employers to become knowledgeable about immigration and export controls and to take affirmative steps to ensure they are in compliance.
The Deemed Export Rule
Employers must understand that release of even the simplest technology or information by a company to a foreign national employee can trigger the deemed export rule. Such a release can result in export control violations and expose a company to civil and criminal penalties if the employer does not hold the requisite export control license. Companies are well advised to apply in advance for these licenses.
The deemed export rule is based on the notion that uncontrolled release of technology to a foreign national might result in diffusion of critical technologies and information to unfriendly foreign governments, terrorist organizations and others engaging in activities potentially adverse to U.S. national security interests. Once technology is released to a foreign national, the U.S. government assumes it will be exported or re-exported to the individual’s home country.
Two sets of laws and regulations govern exports to foreign nationals. The first is administered by the Department of Commerce’s Bureau of Industry and Security (BIS) and includes controls over the release of "dual use" items to foreign nationals under the Export Administration Regulations (EAR). Dual use items include traded items, technologies and software with commercial and potential military or nuclear application or are otherwise considered to be of strategic importance.
The Office of Defense Trade Controls (ODTC), which regulates goods and services designed for military purposes, administers the second set of laws and regulations. This set includes export controls over release of technologies concerning weapons, satellites and munitions under the International Traffic in Arms Regulations (ITAR).
Both BIS and ODTC take a broad view in defining what it means to release technology. BIS defines it as "(1) the visual inspection by foreign nationals of U.S. origin equipment and facilities, (2) oral exchange of information in the U.S. or abroad, or (3) the application to situations abroad of personal knowledge or technical experience acquired in the U.S."  ODTC defines it as the written, oral or visual disclosure of data controlled by ITAR to a foreign national in the U.S. 
The government’s broad application of the deemed export rule is of particular concern to U.S. employers. Under both the EAR and ITAR definitions, a simple guided tour or conversation about technology can mean a transfer of technology and lead to export control violations. Even mere exposure to controlled technology through such common and seemingly innocuous work activities as staff meetings, conference calls and emails is considered a release of technology that may require an export license. 
Whether the deemed export and other export control rules come into play also depends on several other factors. Under the deemed export rule, the home country of the foreign national is considered the country of potential export. For national security and trade embargo reasons, the U.S. government controls the releases of information and shipped commodities more forcefully for some countries than others. It also forbids contact with certain companies and individuals on a list of Special Designated Nationals and Blocked Persons (SDN) kept by the Office of Foreign Assets Controls (OFAC).  The technology or product involved, and the degree of the foreign national’s involvement in its development or production, is also of importance.
To Whom Does the Deemed Export Rule Apply?
The deemed export rule applies only to foreign nationals. For purposes of administering the rule, foreign nationals are defined as individuals who are not legal permanent U.S. residents and who are not otherwise "protected" as defined under the Immigration Reform and Control Act of 1986 (IRCA).  In its most common application, the deemed export rule targets employees holding nonimmigrant status and those in the process of applying for permanent residency.  Thus employers, particularly in the industries mentioned above, who rely heavily on workers in specialty occupations or with specialized knowledge holding nonimmigrant visas such as the H-1B or L-1B, may be subject to a higher level of scrutiny and therefore particularly susceptible to audits and investigations. To avoid prosecution for violation of the deemed export rule, employers should develop integrated immigration and export control laws and regulations compliance systems.
Taking Affirmative Steps to Ensure Compliance
The U.S. government’s broad application of the deemed export rule, but more narrow application of immigration requirements, makes it essential that companies take affirmative steps to ensure compliance. Employers should begin by carefully screening potential employees. While companies are not required to perform extensive background checks on potential hires, implementing a standard candidate review process can help them avoid liability. A screening process should include an inquiry into the candidate’s background including a complete education and employment history as well as all personal and professional affiliations. And companies should not focus solely on incoming employees. Implementation of an internal integrated compliance program can help mitigate liability should a company become the subject of an audit or enforcement action.
Once an employer obtains the necessary background information on the foreign national, it must determine whether an export control license is required for the particular position the employer plans to fill. If a foreign national will have access to controlled technology in that position under either EAR or ITAR, an export control license may be required. It should be noted, however, that although a technology may set off the deemed export rule, it could be eligible for an EAR exception or an ITAR exemption. In such cases export licenses are not required.
Employers in the technology, aerospace, energy, communications, and semiconductor industries, to mention just a few, are especially likely to encounter situations in which a license is required because their products have dual use potential. Both BIS and ODTC are authorized to require firms to seek licenses for technologies that pose national security or foreign policy concerns. U.S. employers in these industries should request direction from ODTC to determine whether it or BIS requires a license of them. They also should be aware that under the BIS regime the mere release of technology, whether accidental or planned, to a foreign national makes it an export (or a re-export).
Because licensing requirements for the deemed export rule extend far beyond the employer-employee relationship, businesses also must examine whether licensing is needed for contract workers performing work that may require the release of controlled software or code, or for distributors of products that involve dual use technologies. BIS considers distributors to be agents of a company, and under criminal laws it may impute an agent’s liability to its principal.  The essential criterion in any deemed export analysis is whether the "know-how" that is "exported" would require a license if it were to be exported physically. New companies that are not yet exporting and those engaged in research or development must also analyze these factors despite the fact that none of their products will physically leave the United States. In general, a foreign national may be given access to anything that does not itself require a license, provided the technology is not also required for the production, development or use of a license-requiring item.
How to Obtain an Export Control License
Should a company determine it needs an export control license, it must submit an application to the appropriate government agency. That is, if the deemed export rule is triggered under EAR, the company must apply to the Department of Commerce. If the rule is triggered under ITAR, the employer must apply to the Department of State.
Many documents are part of the application process. In addition to submitting the specific agency’s required forms, a company must also submit a good deal of supplemental information. The following is an example of information required to obtain a deemed export license from the Department of Commerce, more specifically, from BIS:
Once this information is submitted, the approval process generally could take from 30 to 90 days but can take up to a year if the foreign national is from a country subject to U.S. embargoes (Cuba, Iran, Libya  and Sudan) or antiterrorist controls (North Korea).  Accordingly, a company should submit its export license application as early as practicable during the hiring and visa-issuance process to avoid lengthy delays.
Expediting the process is of particular concern if the foreign national is entering on an H-1B visa. Because a foreign national cannot commence employment until the visa is issued, delays in licensing can subject the employer to a benching violation. Deemed export licenses are generally valid for two years if approved.
Conclusion: Importance of Compliance
Failure to properly comply with the various export control regulations can result in substantial and severe government penalties, civil and criminal, for employers and foreign nationals, and the loss of exporting privileges. Under EAR for example, an employer can be fined up to $1 million or five times the value of the exports for each willful violation, whichever is greater.  And an individual can be imprisoned for up to 10 years, fined up to $250,000 or both for each violation. Under ITAR the penalty is a fine of $100,000, up to two years imprisonment or both. 
Under the Immigration and Naturalization Act a foreign national can be rendered inadmissible or deportable  if he or she is found to have circumvented regulations or is in breach of export control laws. Potential export control violations often come to the government’s attention during the course of issuing a foreign national’s visa, ultimately leading to a wider investigation of the company's export compliance.
Until recently, knowledge and preventive corporate compliance measures were the best protection against fines and penalties. Today, as the nature of national security threats has mutated, these are insufficient to guard against corporate liability. The U.S. government’s use of high-tech systems to enforce compliance and its willingness to prosecute have forced employers who wish to be shielded from liability to engage in proactive self-policing and well-structured internal integrated compliance programs that establish safeguards for exports and document foreign nationals’ exposure to technology.
4 See A. DeBusk and D. Fisher-Owens, "Legal Action Center Practice Advisory: Export Licensing Requirements for Foreign Nationals" (July 17, 2003), American Immigration Law Foundation, at www.ailf.org.
5 Additional lists which may be relevant to a company’s export or re-export transactions are: the Denied Persons List, Unverified List, Entity List; Specially Designated Nationals List; Debarred List, and Nonproliferation Sanctions List.
6 The IRCA category of "protected individuals" includes, inter alia, refugees, asylees, and aliens admitted for permanent residence who, once admitted and were eligible to do so, made timely and successful applications for citizenship.
7 Typical scenarios involve H-1B professionals, L-1A intracompany managers or executives, L-1B specialized knowledge employees, F-1 students working under practical training, J-1 researchers or trainees, E treaty traders and investors, and O-1 extraordinary ability employees.
10 The Bush Administration announced on May 23, 2006 that it would remove Libya from its list of state sponsors of terrorism and resume full diplomatic relations with Libya. Despite the lifting of most economic sanctions against Libya in 2004, Libya has maintained its designation under Section 6(j) of the Export Administration Act (EAA) as a country that supports international terrorism. Consequently, products and technology subject to antiterrorism controls and other items described in EAR Section 742.20 have continued to require validated licenses for export or re-export to Libya.
11 If a company contemplates hiring a foreign national from a country subject to U.S. embargoes or antiterrorist controls, its immigration counsel should consult with compliance professionals. Statutory provisions may either disfavor the granting of a license or entirely prohibit it for a specific technology.
12 See www.bis.doc.gov/Enforcement/eeprogrm.htm. For knowing violations a corporation can be fined up to the greater of $50,000 or five times the value of the exports for each violation. An individual can be fined up to the greater of $50,000 or five times the value of the exports or imprisonment for up to five years, or both, for each violation. Id.
For each violation of the EAR any or all of the following Administrative penalties may also be imposed:
A company could also be subjected to a Temporary Denial Orders ("TDO"). A TDO is issued by the Assistant Secretary for Export Enforcement, denying any or (typically) all of the export privileges of a company or individual to prevent an imminent export control violation. These orders cut off not only the right to export firm the United States, but also the right to receive or participate in exports from the U.S. Id.
Any alien who a consular officer or the Attorney General knows, or has reasonable ground to believe, seeks to enter the United States to engage solely, principally, or incidentally in – (i) any activity (I) to violate any law of the United States relating to espionage or sabotage or (II) to violate or evade any law prohibiting the export from the United States of goods, technology, or sensitive information…is inadmissible.
15 INA §237(a)(4)(A)(i) provides in relevant part: "[A]ny activity to violate any law of the United States relating to espionage or sabotage or to violate or evade any law prohibiting the export from the United States of goods, technology, or sensitive information…"
© Hector A. Chichoni
Hector A. Chichoni practices law with Squire Sanders & Dempsey LLP and co-chairs the immigration practice in Florida. He focuses on all aspects of US immigration law and global human resources strategic planning. Mr. Chichoni has a vast legal background and experience which covers 10 years of practice in US immigration and complex export control matters. He is an author, a legal presenter, and a lecturer in both fields.
Tania Cruz practices law with Squire Sanders & Dempsey LLP. She is a member of the Miami litigation team and has been active in immigration related matters for 9 years. She has published articles and lectured on issues relating to national security.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.