Export control essentialsCompanies must know the rules <strong>of</strong> foreign exports orface the consequencesThomas Lavery, senior associateManufacturers who export physical items, computer s<strong>of</strong>twareor technical information to foreign countries need to exercisedue diligence to ensure that these items aren’t ultimately used inmilitary or terrorist applications, even if they weren’t created forthat purpose.“Companies that are involved in these types <strong>of</strong> transactionsshould have an export control plan,” said Michael Ginsberg, partnerwith Pattison, Sampson, Ginsberg & Griffin, P.C. “There’s strictliability for those who violate export control laws. It doesn’t matter whetheryou intended for exported goods or information to be used in a violative manner; if it’sused by a foreign entity or resold in violation <strong>of</strong> export control laws, the violator is stillresponsible. You never really absolve yourself <strong>of</strong> that liability.”Export control laws include: Export Administration Regulations (EAR), whichare administered by the U.S. Department <strong>of</strong> <strong>Commerce</strong> and enforced by that entity,the Federal Bureau <strong>of</strong> Investigation (FBI) and the Department <strong>of</strong> Homeland Security;and International Traffic in Arms Regulations (ITAR), which are administered by theDepartment <strong>of</strong> State and enforced by the FBI and the Department <strong>of</strong> Homeland Security.Michael Ginsberg, partnerAlthough these laws have been inplace since the 1950s, it wasn’t untilafter the 9/11 terrorist attacks that thefederal government began cracking down,Ginsberg noted. “Manufacturers need tobe concerned about dual use items,” hesaid. “If a manufactured item, even notmanufactured for the purpose <strong>of</strong> use in18 | acchamber.org | techvalley.org
a military or terrorist application, couldotherwise be used as such, it’s regulated byexport control regulations and laws.”Items subject to EAR include all items<strong>of</strong> U.S. origin, wherever they’re located; allitems in the U.S., including a U.S. ForeignTrade Zone or items in transit through theU.S. from one foreign country to another;and foreign-made items that incorporatecontrolled items <strong>of</strong> U.S.-origin, foreignmadeitems “bundled” with controlleditems <strong>of</strong> U.S.-origin s<strong>of</strong>tware, foreignmades<strong>of</strong>tware that is commingled withcontrolled U.S.-origin s<strong>of</strong>tware, andforeign-made technology commingledwith controlled U.S.-origin technology.ITAR, meanwhile, applies to DefenseArticles and Services, which are munitionsand items with military application,including technical data. A defenseThe key is for companies to have itemsclassified in order to get a license to engagein exporting activities.”The penalties and fines for failing tocomply with export control laws can besevere; a company can effectively be putout <strong>of</strong> business or face fines <strong>of</strong> thousandsor even millions <strong>of</strong> dollars, while prisonsentences for individuals can last up to 10years. Despite the potential severity <strong>of</strong>penalties for violating export control laws,few manufacturers fully understand theirimplications and ramifications.“We find that companies have veryminimal and rudimentary familiarity, andmany manufacturers don’t even knowwhat to call ‘export control.’ It’s so difficultand detailed to work through the licensingprocess, a layperson almost can’t do it ontheir own; they should seek the guidanceExports and academiaIn his role as assistant vice president forresearch administration at RensselaerPolytechnic Institute (RPI), FrankDiSanto is responsible for the review,negotiation and signing <strong>of</strong> researchawards that are <strong>of</strong>fered to RPI. Alongwith a representative from its Office <strong>of</strong>Technology Licensing and Office <strong>of</strong>the General Counsel, he reviews eachaward <strong>of</strong>fered to RPI to determine itsacceptability prior to signing the contract.A number <strong>of</strong> issues are closelyexamined, especially ones that helpto establish the fundamental researchexemption, which allows universitiesto bypass the requirements <strong>of</strong> exportcontrols.“Essentially, information that iscreated as a result <strong>of</strong> fundamental research“One <strong>of</strong> the easiest items to identify is a liquid pump, which could be used in a terrorist application.”article is any item appearing on the U.S.Munitions List; a defense service is thefurnishing <strong>of</strong> technical assistance, trainingor technical data related to defense items.“One <strong>of</strong> the easiest items to identifyis a liquid pump, which could be used ina terrorist application,” Ginsberg said.“Robotic arms, global positioning systemsand lasers could also be used in thismanner. And we’re not only talking abouttangible items, but thoughts, as well.”Numbers gameThomas Lavery, senior associate withPattison, Sampson, Ginsberg & Griffin,P.C., emphasized the importance <strong>of</strong>knowing an exported product’s exportcontrol classification number (ECCN).This alpha-numeric code is used toidentify items listed on the <strong>Commerce</strong>Control List (CCL), which is a list <strong>of</strong> itemsunder the export control jurisdiction <strong>of</strong>the Bureau <strong>of</strong> Industry and Security (BIS)<strong>of</strong> the U.S. <strong>Commerce</strong> Department.“Once a manufacturer knows theECCN, that will indicate why an exportis being controlled, whether it’s antiterrorismor for some other reason,”Lavery said. “Then, you can determinewhether or not there are certain licensingrequirements with respect to the product.<strong>of</strong> legal counsel,” Ginsberg said.Manufacturers also need to be aware<strong>of</strong> deemed exports, which are the release<strong>of</strong> information, technology or source codeto a foreign national on U.S. soil.“The Department <strong>of</strong> Treasury hasa list <strong>of</strong> Foreign Assets Control calledthe Specially Designated National (SBN)list, which includes individuals believedto be involved in terrorist activities,”Lavery said. “If a company receives oris purchasing certain items and employsforeign nationals, they should havesome type <strong>of</strong> procedure where they cankeep foreign nationals away from thattechnology to avoid a ‘deemed export’situation.”Lavery recommends that companiesimplement an export control plan in orderto conduct foreign trade efficiently andwithin the parameters <strong>of</strong> the law.“It’s very important for companiesto be aware <strong>of</strong> export control and be ableto put together some kind <strong>of</strong> complianceprogram, so that they don’t run afoul <strong>of</strong>these laws,” he said.is exempt; however, in order to qualify,we must ensure certain contract clausesin sponsored research awards do notfail the test for fundamental research,”DiSanto said. “These include the ability<strong>of</strong> researchers to publish research resultswithout obtaining prior approval fromthe sponsor and the ability to hire foreignnationals on a project. When we aresuccessful in this regard, we do not haveto be concerned about the deemed exportaspect <strong>of</strong> export controls.”The Tech Valley Global BusinessNetwork (TVGBN) assists Capital Regionorganizations or individuals interested inlearning more about export control orother issues pertaining to global business.TVGBN is a collaboration among the<strong>Albany</strong>-<strong>Colonie</strong> <strong>Regional</strong> <strong>Chamber</strong>,the Center for Economic Growth, theRensselaer County <strong>Regional</strong> <strong>Chamber</strong>,The <strong>Chamber</strong> <strong>of</strong> Schenectady Countyand the <strong>Chamber</strong> <strong>of</strong> Southern SaratogaCounty. For more information on thecouncil and on conducting internationalbusiness, go to TVGBN.org. •September 2010 | VISIONS | 19
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