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VOL. 130 | NO. 108 | Thursday, June 4, 2015

Why Businesses Should Be Aware of Deemed Exports

JACK SHELTON | Special to The Daily News

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Jack Shelton

Around the time of the American Revolution, England was a textile powerhouse. Jealous to guard its industry, England made it a crime for any citizen to communicate textile technology outside of the country.

In 1789, Samuel Slater, an English citizen, broke this law. He memorized the design of textile factories and brought the technology to New England. American textile industry flourished, causing Andrew Jackson to label Slater “Father of the American Industrial Revolution.” The Brits had a different name for him: “Slater the Traitor.”

Now that Americans have their own industries to be proud of, the federal government jealously guards those industries, especially when national security could be at risk. There are two sets of regulations – the International Traffic in Arms Regulations and the Export Administration Regulations – which both govern the export of goods, technology and software.

Many businesses that do not actively sell goods abroad assume, incorrectly, that they do not have to worry about ITAR or EAR. What they fail to realize is that even showing certain technologies to a non-U.S. person within the U.S. might be considered a “deemed export.”

In a recent case that gained national attention, a professor at the University of Tennessee was sentenced to prison for allowing an Iranian student and a Chinese student to work on a research project involving drone technology. Research universities throughout the country have implemented export control policies in order to avoid similar prosecutions.

Another misconception about deemed exports is that a technology must be overtly militaristic in order to be regulated by ITAR or EAR. On the contrary, the EAR covers a wide array of seemingly innocuous items, which could potentially have a military use.

For example, life jackets – yes, the kind that you wear on your fishing boat – are listed in the Commerce Control List (which is governed by the EAR), and so is the technology to fabricate life jackets. Though it’s unlikely that the federal government would prosecute you for teaching a non-U.S. person how to make a life jacket, the government has pursued penalties for deemed exports of other technology that seems rather harmless.

For example, between 2003 and 2007, the Bureau of Industry and Security determined that Ingersoll Machine Tools violated EAR when it allowed its employee, an Italian national, to come into contact with designs for producing milling machines. As a result, Ingersoll agreed to pay a $126,000 civil penalty.

The moral of the story is this: businesses have a strong incentive to know whether items in their possession are controlled by ITAR or EAR. If so, these businesses might need to develop an export compliance program in order to prevent a deemed export.

Jack Shelton, an associate attorney at Harris Shelton Hanover Walsh, can be reached at jshelton@harrisshelton.com.

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