Most U.S. companies that violate U.S. export controls do so unintentionally due to lack of knowledge about applicable U.S. laws and regulations or due to insufficient internal controls.  The “Deemed Export Rule” is one of the often overlooked and misunderstood parts of U.S. export controls and can have a significant impact on entities that employ foreign nationals.  With violations subject to criminal and civil penalties and an increased focus by the U.S. Government on Deemed Exports, companies must be proactive in their compliance efforts.

Everyone understands that an export occurs when a tangible item is sent outside the United States.  It is often overlooked by companies, however, that exports can occur within the United States.  The fact is, the release or availability of technical data to a foreign national, even if located in the United States, is deemed an export under U.S. export controls.  The release of technical data can occur in many different ways, including emails, faxes and even conversations in person or by telephone. 

Under the provisions of the Deemed Export Rule codified in the Export Administration Regulations (“EAR"), U.S. origin technology, software, or technical data "released" to foreign nationals[1] in the United States will be considered an export to that individual's home country – subject to the license requirements of the Department of Commerce for "dual use" items exported to that country, or of the Department of State where a "defense article" or "defense service" is involved. 

While not exhaustive, examples of deemed exports are (i) a foreign national having access to controlled technology while employed in the United States; (ii) exchange with foreign nationals of technical data during a meeting in the United States; (iii) visual inspection of technical specifications or blueprints by a foreign national while in the United States; and (iv) providing technical assistance to a foreign national via telephone or email.  Additionally, content placed on the World Wide Web without limiting the access of foreign nationals also is deemed an export.

Companies must apply for an export license under the Deemed Export Rule when (i) they intend to release or transfer controlled technologies (restrictively classified on the Commerce Control List or Munitions Control List) to a foreign national; and (ii) export of the same technology to the foreign national's home country would require a license or other government authorization.

Companies that do international business or employ foreign nationals should design and implement comprehensive export compliance programs. This includes training of export/import, sales and customer support personnel, and the creation of a chart that accurately sets forth the export control classifications and restrictions applicable to all products and technology.

Employees that are foreign nationals must be effectively segregated and denied access to controlled technology until the appropriate export license has been obtained. Hire letters issued to foreign nationals frequently make continued employment of such persons conditional upon the company's ability to obtain necessary export licenses and visas.

Violation of U.S. export controls can result in civil penalties of up to $500,000 per violation and the denial of export privileges.  Willful violations can result in 10 years imprisonment and fines up to the greater of five times the value of the export/reexport or $1,000,000.  It is important to note, knowledge of a violation will be imputed to an exporter where the exporter had reason to know of the violation.  Therefore, due diligence is an important aspect of complying with export regulations.