ABOVE: TFC Manufacturing

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California-based machining facility, TFC Manufacturing, recently agreed to pay $31,500 in fines to settle “deemed export” allegations made by the Bureau of Industry and Security. According to BIS’s charging letter, TFC disclosed “technology for the production of aircraft parts” to an Iranian national in the United States. According to BIS, the technology was classified under ECCN 9E991.

Those familiar with the logic of the Commerce Control List, will immediately note that the ECCN involved is one of the xx99x ECCNs. These are typically broad catch-all categories of items that are called, in BIS-speak, “n.e.s.,” or “not elsewhere specified.” (What additional costs would be incurred by BIS to eliminate “n.e.s.” as an acronym in the Commerce Control List and simply print out “not elsewhere specified”? Certainly not enough to justify this ridiculous acronym.) And these xx99x n.e.s items are generally controlled only for anti-terrorism (”AT”) reasons, meaning that licenses are only required to the AT countries such as Iran. In this case ECCN 9E991 refers to technology relating to ECCN 9A991 which simply covers aircraft parts “n.e.s.”

The President of TFC that signed the Settlement Agreement had an Iranian surname and it is likely, if not certain, that the employee involved was an Iranian refugee and not someone likely to transfer aircraft part technology to the government of Iran. Nevertheless, an “deemed export” of controlled technology to the Iranian refugee is equivalent, under BIS rules, to an export directly to Iran. The company was subject to the new $250,000 maximum penalty in this case, and so it is reasonable to assume that the $31,000 fine imposed on TFC was an implicit recognition that the violation was a technical violation that did not greatly impinge on the security interests of the United States.

Daniel Max Sherman, a former employee of Knoxville-based Atmospheric Glow Technologies, entered a guilty plea today in federal court to a conspiracy with a former University of Tennessee professor to provide controlled technical data to a Chinese student research assistant in violation of the Arms Export Control Act. AGT had given a subcontract relating to its research on a military drone aircraft to UT’s Plasma Sciences Laboratory, and the professor and the Chinese research assistant were working on the project.

Sherman’s plea hearing went a little off track when Sherman declined to admit to one of the essential elements of the crime which led to a little prompting — and a misstatement of the law — by the prosecutors:

Sherman indicated to [Judge] Varlan that although he was admitting guilt he maintains he was unaware of the provisions of the Arms Export Control Act that would have restricted the work to U.S. citizens only barring a special permitting process. However, [prosecuting attorney]Theodore noted that the law states a person violating the action either must know or should have known about the act’s requirements and Sherman’s claim of ignorance would not pass muster.

Sherman then conceded that point and formally entered his guilty plea.

The AECA’s requirement of willfulness as an element of a criminal charge is a requirement that the defendant knew that the export was illegal. It is not whether the defendant knew or should have known that the export was illegal. Increasingly, it seems, U.S. attorneys are finding the scienter requirement to be too pesky to bother with and are looking for novel ways to disregard it.

[Thanks to Mike Deal for alerting me to this story.]

Norman Augustine
Chair, Deemed Export
Advisory Committee

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The Deemed Export Advisory Committee released today its report to BIS on BIS’s deemed export rules. The deemed export rules, among other things, require licenses prior to release of technology on a dual-use item to a national of a country if an a license would be required for the export of the particular dual-use item to the country in question.

The report is lengthy and I haven’t had time to review it fully, but an idea of the report’s contents can be gleaned from its epigraph:

If you guard your toothbrushes and diamonds with equal zeal, you’ll probably lose fewer toothbrushes and more diamonds.

— McGeorge Bundy

The diamonds apparently represent dual-use items and the toothbrushes represent the technical data regarding those items. So, not surprisingly, the report recommends loosening the deemed export rules in certain respects. Principally, the report recommends the creation of a “Trusted Entity” category. Trusted Entities would be companies and universities that meet certain criteria and that would therefore not be required to obtain individual export licenses to transfer dual use technologies to foreign nationals. Such foreign nationals would be required, however, to sign non-disclosure agreements.

But in another respect, the report recommends tightening deemed export rules when it wades into the tricky territory of permanent residents, dual nationals and individuals who have resided in multiple countries. Under current rules, the BIS looks at an individual’s current citizenship and/or legal permanent residence. The report recommends expanding the inquiry:

[We recommend] expanding the determination of the national affiliation of potential licensees to include consideration of country of birth, prior countries of residence, and current citizenship, as well as the character of a person’s prior and present activities, to provide a more comprehensive assessment of probable loyalties.

The report’s explication of this recommendation contains this example:

It would seem that inadequate distinction is made between an individual who, say, was born and raised in Iran but only recently became a citizen of the UK and an individual who was born in Iran but moved to the UK and became a citizen of the latter nation shortly after birth. Additionally, it would seem to be important to consider where that individual resided during his or her entire lifetime - not just where he or she was born or where his or her current citizenship has been granted. It is noteworthy that the current BIS interpretation is that the Deemed Export rule does not apply to persons lawfully admitted for permanent residence (i.e., green card holders), wherever their prior residences may have been.

(emphasis in original)

This analysis is sensible, but it also carefully finesses a significant problem. It is not clear whether the report is recommending that a foreign national admitted to lawful permanent residence in the U.S. should continue to be treated as a U.S. citizen for purposes of deemed exports or whether the rules should be revised to treat a U.S. permanent resident like any other foreign national and potentially subject to disqualification from deemed exports based on country of birth or country of former residence.

An alert reader pointed out this interesting article in Aviation Week which raises the issue, which we last talked about in relation to the Chi Mak prosecution, of deemed exports at scientific conferences. The conference in question was an American Institute of Aeronautics and Astronautics conference in July on propulsion technologies, including scramjet and related technologies.

The Cincinnati meeting differed from a traditional U.S. industry gathering, because nearly a dozen engineers from Iran also submitted papers on Iranian solid and liquid rocket technologies. The Iranian engineers are based at the Sharif University of Technology and the KNT Technical University, both in Tehran. They apparently did not deliver the papers in person. However, as participants, the Iranians have access to all of the highly detailed U.S. aircraft and rocket propulsion presentations made at the conference.

Of course, the non-attendance of the Iranians isn’t surprising, since the probably didn’t apply for visas and even if they had those visas would likely have been denied. And the sanctions against Iran would not forbid access to presentations from the conference under the informational exception.

But, of course, if the information at the conference went beyond public domain information or fundamental research under section 120.11 of the ITAR, then companies and individuals at the conference may have committed export violations, not only because of any access to that information by Iranians nationals but also because of access to that information by any other foreign nationals. And it would appear that all the papers presented at the conference can be purchased from the AIAA website.

So, was any such information available? Consider this:

[O]ne [of] the more interesting historical papers presented at the forum was a detailed description of how the U.S. Air Force and Lockheed combined top-secret ramjet propulsion technologies with segmented solid rocket boosters for the Mach 3 D-21B reconnaissance drones that were launched by modified SR-71s and B-52Hs in the late 1960s. … This was the first time details on the segmented rocket booster portion of the D-21B program have been presented publicly, says Robert Geisler of Geisler Industries, who led the analysis with retired Pratt & Whitney and ATK Tactical Propulsion engineers.

Yikes. If I were the one who presented that paper, I might be a little nervous right now.

Next time you are in the airport, don’t be surprised if some ICE agents, dressed as Viking pillagers, come running after you in the jet-way screaming “What’s in your laptop?” At least that’s a possibility hinted at by BIS Assistant Secretary Darryl Jackson’s remarks to the ACI Conference on International Technology Transfer last Saturday.

In noting the means which are used by foreign governments to obtain controlled technology, Assistant Secretary Jackson cited “theft or other exploitation of laptops, PDAs and other data storage devices carried abroad by U.S. business persons, scientists and engineers.” Accordingly, he suggested that compliance programs should now determine whether “employees traveling overseas have controlled technology on their laptops or PDAs.”

Of course, the EAR, properly read, may currently prohibit employees from traveling outside the United States with laptops containing technical data relating to EAR-controlled dual use technology, depending on the technology and the country. License Exception TMP which allows temporary exports of “tools of the trade” such as laptops permits the temporary export of controlled software but not technical data. Proposals have been suggested to include technical data in License Exception TMP, but they so far have not been adopted by BIS. (Temporary export of laptops by U.S. citizens with technical data controlled by ITAR is permitted under most circumstances by ITAR § 125.4(b)(9) as long as the data is solely for the use of the departing U.S. citizen).

I am probably not stepping out on a limb by saying that dual-use technical data is probably routinely exported by U.S. employees traveling overseas with such data on their laptops, either because they are unaware of the problem or because of a mistaken belief that License Exception TMP applies. Nor has this been a particular enforcement priority by BIS in the past. But if BIS intends to start requiring licenses for temporary exports of laptops for personal use by traveling U.S. employees, this seems to be misguided, particularly where it seems premised mostly on the remote possibility that these laptops will be stolen or compromised. This concern is more properly addressed by enforcing the provision of License Exception TMP that requires the laptop to remain under the “effective control” of the exporter or the exporter’s employee.