Overview of U.S. Export Controls and Sanctions Issues Relating to ...

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• Available at open conferences, seminars or other gatherings, where (a) all technically qualified members of the public may attend and take notes; and (b) entrance fees are reasonably related to the cost and reflect an intention that all qualified persons may attend. Information also is publicly available and not subject to the EAR if it arises during or results from fundamental research. Id. at § 734.8. In such cases the information is limited to basic and applied research in science and engineering, the results of which are ordinarily published and shared broadly within the scientific community; not proprietary; and not restricted by U.S. government access controls. Note that a project is not considered fundamental research when researchers accept restrictions on the publication of results and where research is funded by the U.S. government and access and dissemination controls are applicable. Id. at § 734.11. The locus of the fundamental research is not the limiting factor, but rather the intent and freedom to publish. Under the EAR, fundamental research may be performed in industry, federal laboratories and other institutions. See EAR Part 734, Supp. 1(d)(8). A prepublication review does not affect fundamental research status under the EAR if the purpose is to ensure that no proprietary information has been inadvertently disclosed and that no patent rights have been compromised. Corporate research is considered to be fundamental research under the EAR to the extent that researchers are free to make scientific and technical information resulting from the research publicly available without the restriction or delay based on proprietary concerns or specific national security concerns. Likewise, a prepublication review of such corporate research does not affect fundamental research status under the EAR if the purpose is to ensure that no proprietary information has been inadvertently disclosed and that no patent rights have been compromised. Finally, it should be noted that the “publicly available” designation is only applicable to software and technology exports. Hardware cannot be made publicly available under the EAR. 2. Export Controls of Military Items and Technology Under the ITAR The State Department, through the Directorate of Defense Trade Controls (the “DDTC”), administers controls relating to products, software, and technical data specially designed, developed or modified for military or intelligence end use, through the ITAR, 22 CFR Part 120-130. Penalties for violations of the ITAR can be both civil and/or criminal. Civil fines can be as high as $500,000 per violation, while criminal penalties may include fines of up to $1,000,000 per violation and ten years imprisonment. Moreover, the DDTC has traditionally imposed additional draconian measures on certain companies, including debarment, imposition of a policy of denial for export authorizations, and required implementation of various compliance measures, including but not limited to, a Special Compliance Officer to oversee the company’s compliance and the establishment of a computer-based export compliance system. Although EVs normally should be controlled under the EAR, in the event a company were to develop or modify any electric vehicle products or technologies specifically for a military use (either U.S. military or foreign military), the products and related technology could end up being controlled under the ITAR. The PRC is considered to be a “proscribed destination” under the 10
ITAR meaning that, as a practical matter, it would not be possible to obtain U.S. government authorization for any ITAR controlled projects involving the PRC. See 22 C.F.R. (hereinafter “ITAR”) at § 126.1. As a result, PRC nationals and PRC companies could not be used to support the development or production of any electric vehicle products or technologies that are ITAR controlled. Additionally, no ITAR controlled EV products could be sold for end use in the PRC. As a result, U.S. companies should carefully consider the implications of entering into any contracts with U.S. or foreign military entities, to ensure that products or technologies do not become “tainted” as ITAR controlled. The ITAR does not impose export licensing requirements on information that is in the “Public Domain” (a defined term in the regulations). Id. at § 120.11. However, the ITAR “Public Domain” definition is narrower than the “publicly available” designation under the EAR. Therefore, as a practical matter, its application tends to be limited to situations where the U.S. government has officially approved the public release of certain information or situations where institutions of higher learning are engaged in fundamental research. 3. Restrictions on Transactions Under the OFAC Sanctions OFAC is charged with the administration and enforcement of economic sanctions against embargoed countries (restricted countries) and against certain identified groups of individuals with respect to certain “regulated activities” (e.g., diamond trading, narcotics, terrorism and proliferation). The most comprehensive sanctions are imposed against Cuba, Iran, Sudan (with exceptions granted for areas in Southern Sudan), and most recently Libya and Syria. Other countries, such as Burma (Myanmar) and North Korea are also subject to certain restrictions. OFAC maintains a list of SDNs (Specially Designated Nationals) which contains the names of individuals and organizations known to be involved in regulated activities, or to support restricted countries. As a general matter, the sanctions apply to U.S. persons (U.S. citizens or lawful permanent residents) and, in some cases, other persons subject to U.S. jurisdiction which include foreign persons located in the U.S. Several of the sanctions programs explicitly restrict the activities of non-U.S. persons. For example, under the Cuban sanctions, foreign companies owned or controlled by U.S. companies are treated as “U.S. persons” for the purpose of the sanctions. Under the Iran sanctions, non-U.S. persons are prohibited from re-exporting any U.S. origin goods that they know or have reason to know will be provided to Iran or to an Iranian national and have an export classification under the EAR other than EAR99. The OFAC sanctions restrict a variety of business activities (in addition to exports and imports), although the extent of such restrictions vary depending on the scope of the sanctions program. Restrictions may include the blocking of assets, restrictions on dealing in a property interest (which may include entering into contracts or other financial transactions), and travel prohibitions. Although voluntary self-disclosure is taken into consideration by OFAC as a mitigating factor for non-compliance, violations of the OFAC sanctions can result in criminal penalties (including fines ranging from $50,000 - $1,000,000 and imprisonment from 10 – 30 years) and civil penalties (which range from $11,000 - $1,000,000 per offence, depending on the regulatory scheme under which a particular sanctions program is promulgated). OFAC has an extremely aggressive enforcement scheme and has imposed stiff penalties on both U.S. and foreign companies in the last several years. See, e.g., OFFICE OF FOREIGN ASSETS CONTROL, “CIVIL 11
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